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Las Vegas Strip Does Not Need Any More Rooms

Posted on February 23, 2010 by Jordan There have been 0 comments

Ever since it became clear a month ago that financier Carl Icahn would be the new owner of the bankrupt Fontainebleau Las Vegas on the Strip, everyone has been wondering when will it open? With an oversaturated supply of rooms, one of the last things Las Vegas needs during this Great Recession is Fontainebleau’s 3,812 hotel rooms. Tourism and consumer spending still struggling, Las Vegas is under pressure to absorb the hotel rooms that have been added in past year, which turned out to be a 6 percent increase. So much so that Strip hotels have had to lower their rates to try to maintain occupancy levels.

Although Carl Icahn has kept silent about his plans for Fontainebleau, gaming analysts predict it won’t open until 2015 at the earliest. It’s hard to estimate how much the shutdown, remediation and completion of the 68-floor project would cost, but it could be $1.5 billion in today’s dollars to bid out the interior and finish the exterior.

Another contributor to the problem is the Cosmopolitan, adjacent to CityCenter. The 3,000-room Cosmopolitan was foreclosed on by Deutsche Bank, but it is expected the property might open in the fourth quarter. The future of another stalled Strip project, Boyd Gaming’s Echelon, is even more complicated. Construction on the 87-acre multiuse development on the site of the former Stardust shut down in August 2008 for what was then described as a three- or four-quarter delay. As the economy worsened, Echelon was put on hold for three to five years.

When business was brisk in Las Vegas, developers and speculators fought over Strip parcels. Casino executives were quoted declaring the land beneath their casinos was worth $20 million per acre. Those estimates inched upward during the boom years, topping out at more than $30 million per acre. For a price of $25 million for the acquisition of 2.15 acres at Harmon Avenue and Las Vegas Boulevard by developer Brett Torino and two undisclosed partners.  One of the last pieces of land on the Strip is adjacent to Planet Hollywood and across the street from CityCenter. With too much supply at the present time, and more rooms opening soon, it’s unlikely that Las Vegas will ever again enjoy an average occupancy rate in excess of 90 percent and average room rates of $132 a night.

This post was posted in Vegas News