Hvs Casino Hotel Marketing Report

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JANUARY 2011

LAS VEGAS CASINO AND HOTEL MARKET OUTLOOK 2011
Shannon Okada Vice President, HVS Consulting and Valuation, Associate Director Gaming Services

www.hvs.com

HVS Gaming Services 8170 W Sahara Ave, Suite 201, Las Vegas, NV 89117, USA

After a time of rapid economic expansion mid-decade, Las Vegas entered into a period of decline as the local economy experienced challenges felt across the nation. Although the Las Vegas market has historically weathered periods of economic decline and downturns in visitation and is beginning to show signs of improvement, the rate and extent of a future recovery are uncertain at this time. The development cycle that began with the Mirage in November 1989 effectively ended with the opening of the Cosmopolitan of Las Vegas in December 2010. Development of “must-see” properties, attractions, and amenities, including the Luxor, the Treasure Island, and the MGM Grand Hotel in 1993, and the Bellagio, the Mandalay Bay, the Paris Las Vegas, the Venetian, and the Planet Hollywood (previously known as the Aladdin) in the late 1990s, contributed to significant increases in visitation and gaming demand. The market’s overall revenue mixture evolved from primarily gaming to a more balanced distribution between gaming, hotel, dining, retail, and entertainment with the development of these properties, making it more susceptible to periods of economic decline. Since 2004, several quality properties have opened in Clark County, including the Wynn Las Vegas and South Point (previously known as South Coast) in 2005, the Red Rock Station in April 2006, the Palazzo in December 2007, and the Encore in December 2008. CityCenter, which opened in late 2009, and the Cosmopolitan are the last casino-resorts expected to be completed for the next several years.

Major Developments
In 2010, the dynamics of the Las Vegas market area were impacted by the openings of CityCenter and the Cosmopolitan, which increased the supply of gaming inventory, transient lodging, and function space available, and contributed to the evolution of Las Vegas. Several projects that have been postponed/cancelled as a result of tightening credit requirements, softening interest in residential properties, and declining gaming and hotel demand—most notably Echelon and Fontainebleau Las Vegas—remain dormant. CityCenter The $8.5 billion CityCenter complex consists of hotels, casinos, retail malls, meeting rooms, auditoriums, and spas spread across 76 acres with 16 million square feet of floor space including the 4,000-room Aria; the 400-room Mandarin Oriental Las Vegas; Vdara, a 1,495room luxury condominium-hotel; roughly 150,000 square feet of gaming space; and Crystals, a roughly 425,000-square-foot retail district. In addition, CityCenter features residential units in the Residences at Mandarin Oriental (approximately 225 units) and Veer (approximately 670 units). The Aria, Vdara, Mandarin Oriental, and Crystals all opened in December 2009 and the residential units within CityCenter began the closing process in early 2010. The opening of Harmon Hotel & Spa, a 400-room non-gaming boutique hotel at CityCenter, has been delayed until such time as MGM-Mirage and Infinity World mutually agree to proceed with its completion.

LAS VEGAS CASINO AND HOTEL MARKET OUTLOOK 2011 | PAGE 2

Additionally, top-end hotel supply from CityCenter and Cosmopolitan resulted in more competition between higher-end properties, resulting in reduced average daily room rates and/or very attractive promotions—e.g., free play, discounted show tickets, etc.—in order to maintain occupancy. This causes second-tier properties to lower rates, all the way down the food chain. It is difficult for non-gaming transient lodging properties, especially at the lower end, to compete because they are unable to generate profit from sources other than rooms and cannot offer the same promotions at cost that casino-hotels are able to. Cosmopolitan of Las Vegas The $3.9...
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