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Recession Brings 'las Vegas Dream' To An End

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http://www.guardian.co.uk/business/2009/ju...enter-recession

Bursting skywards in the middle of America's gambling capital, seven glittering towers are nearing completion. The lavish $11bn (£6.7bn) CityCenter complex will boast a casino, four hotels, luxury apartments, a fire station and even an on-site power station. But its timing could hardly be worse.

A joint venture between the casino operator MGM Mirage and Dubai World, the vast CityCenter development in Las Vegas is the biggest privately funded construction project in the US. It is billed as "a city within a city" and it will sit between the Bellagio's dancing fountains and the fake Manhattan skyline of New York New York.

The doors of the first tower will open in October. But critics wonder who will fill CityCenter's 7,000 hotel rooms and apartments. Las Vegas is mired in a recession of epic proportions and ­CityCenter's parent company, MGM, is toiling under $14bn of debt.

Donald "D" Taylor, head of Las Vegas's Culinary Union, which represents 60,000 hotel workers, says: "We, basically, have had a boom here for 20 plus years. Nobody has ever experienced a downturn before. We've been hit hard."

Taylor, an influential Vegas power-broker, adds: "It's enormously challenging. There's a lot of steel sticking out of the ground in this valley that's just sitting there."

After a quarter of a century of phenomenal growth, Las Vegas has come to a shuddering halt. The seemingly endless supply of gamblers has dried up. So has the conference trade, hardly helped by a warning from President Barack Obama that bailed-out Wall Street banks should avoid "taking junkets to Las Vegas" on the taxpayers' dime.

Always good value, Vegas hotels have had to slash their room rates by 30% to fill beds. Downtown casinos are offering rates of barely $20 a night, while the four-star Las Vegas Hilton, where Barry Manilow is a resident performer, is offering rooms for as little as $39.

Unemployment in Vegas has reached 11.1%, compared with a national average of 9.4%. And a spectacular collapse in the local housing market has left seven out of 10 homeowners nursing negative equity.

On the city's world-famous Strip, two huge building sites are eerily quiet. Fontainebleau, a half-finished $3.9bn casino which intended to offer perks such as an Apple iMac computer in every room, went bust this month. Echelon, a $4.8bn resort bankrolled by Boyd Gaming, ceased construction last year.

The much-vaunted CityCenter complex is far bigger. But MGM almost had to pull the plug in March when its partner in the United Arab Emirates declined to stump up towards a $200m equity payment. The project was within hours of bankruptcy when MGM's bankers agreed to a stay of execution.

Gordon Absher, MGM's vice-president of public affairs, says shutting down was not an option: "For us to stop CityCenter would have been devastating for the company and for the community."

He points out that 8,000 construction workers would have been laid off and the promise of 11,000 permanent jobs would have been lost. He admits: "We're experiencing something that is quite foreign to us. I've been in Las Vegas for 20 years and it's always been a boom town."

Just as Detroit depends on the health of the motor industry, Las Vegas relies on gaming for its lifeblood. Some 37 million tourists annually are lured by a heady mixture of gambling, sunshine, star-studded shows and nightlife. The city's permanent population has soared from 700,000 in the mid-1980s to 1.9m as people arrive from all corners of the US in search of steady jobs and cheap housing. But economic migrants are now trickling away from Vegas.

For years, the city offered a so-called "Las Vegas dream" where housekeepers or kitchen workers could buy their own homes, afford annual holidays and send their children to college. But expansion spun out of control.

The city was at the centre of the sub-prime mortgage crisis as lenders handed out unsustainable home loans. Some 35,000 houses and flats now stand empty. Keith Schwer, an economist at the University of Nevada in Las Vegas, says: "The housing industry basically got into the casino business."

Schwer says a myth abounded that people would escape to a gambling resort in good times or bad: "We had some people out there arguing that the Las Vegas economy was immune from an economic downturn and a few others saying we were, at least, resistant to recession. It's very clear now that we are not."

Eager to move away from its historical association with adult entertainment and organised crime, Las Vegas was heading upscale when the economy plunged. The 1990s era of themed kitsch, which gave birth to the pyramid-shaped Luxor resort and Excalibur's King Arthur-style castle, morphed into a 21st-century fad for luxury.

Newer casinos, such as Steve Wynn's Wynn Las Vegas, boast restaurants inspired by top-name celebrity chefs, designer boutiques, spa treatments and extravagant suites with floor-to-ceiling windows. But top-class accommodation is a cyclical game.

Brian McGill, a gaming analyst at stockbroker Janney Montgomery Scott, says: "What they missed, the city and the operators, is that yes, it's gambling that Vegas was built on originally but it became so much more than gambling. It wasn't any more about cheap rooms, cheap drinks, cheap shows. It became an ultra-expensive weekend for anyone going there."

That, he says, is fine in the good times. But when the economy turns downwards, even ardent poker players are reluctant to splash out on wild lime botanical spa treatments or $70 Kobe steaks.

McGill believes the city's expansion bodes ill. As many as 15,172 new rooms will shortly open on the Las Vegas strip, requiring an extra $3.2bn of annual tourist spending to make any money.

"There's too much supply, particularly at the high end," says McGill, who struggles to see a quick return to profit for casinos. "They believed the good times were going to continue to roll for ever in Las Vegas. They believed there would be no significant downturn and even in a downturn, they didn't believe a recession would affect the higher end."

Las Vegas looks like it's on the brink of collapse. More insane debt fuelled expansion.

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Las Vegas looks like it's on the brink of collapse. More insane debt fuelled expansion.

Although I'll probably be ceremonially stripped of my sandals and goatee for saying this, I always quite liked the place, at least to visit. Mad city in a great geological setting..

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Guest Parry
Although I'll probably be ceremonially stripped of my sandals and goatee for saying this, I always quite liked the place, at least to visit. Mad city in a great geological setting..

+1

Yep, went there in 1986. Grand Canyon awesome. Stayed with family who had a place which looked straight across to Cathedral Rock.

Great part of the World.

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Always good value, Vegas hotels have had to slash their room rates by 30% to fill beds. Downtown casinos are offering rates of barely $20 a night, while the four-star Las Vegas Hilton, where Barry Manilow is a resident performer, is offering rooms for as little as $39.

Surely these prices are the wrong way around...

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I love the fact that Dubai are investing in Las Vegas.

"Now then excellency, we shouldn't invest all our money in a short-term speculative property boom in a desert city with a transient economy and no access to fresh water. I think we should hedge our bets."

"Good idea my faithful Abdul. Why don't we put the rest of our money in Las Vegas?"

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