Fed on Tilt, Vegas Roars Back
Spring has sprung, the temperature is forecasted for 100 degrees this weekend and The Washington Post headline shouts “Las Vegas is seeing a surge of visitors again: ‘It’s like somebody turned on a light switch.’”
“We’ve even put chip cleaning in the tables,” Joe Yalda, vice president of guest experience at Red Rock Casino, Resort & Spa, a luxury property off Strip in the Vegas suburbs near Red Rock Canyon told the Post’s Natalie B. Compton. “Gamblers can now skip cash handling at the table and purchase chips directly with a credit or debit card,” she writes. Que the Church Lady, “How convenient.”
“Now that the virus has been reduced and there’s vaccine solutions in place and everyone has availability to it by May, that means that you’re starting to see the floodgates open up,” says Lori Nelson-Kraft, a spokeswoman for the Las Vegas Convention and Visitors Authority. “That pent-up demand, you can just really feel it.”
Real estate investors can feel it too. Last week The Las Vegas Review-Journal reported that developers reached a deal to buy 2 acres in CityCenter on the Strip for $80 million. LVRJ report Eli Segal described the price as “a sky-high valuation that exceeds land deals on Las Vegas Boulevard even during the frenzied mid-2000s real estate bubble.”
What’s the plan for dirt costing $918.27 per square foot? The plan is to develop a multilevel complex with “specialty retail and casual and fine dining.” Of course.
Like many Strip parcels this one has a story. The site was once the Harmon hotel tower, which never opened due to structural issues, sparking massive litigation and was ultimately demolished.
Segal writes, “The stalled project led to a massive court battle involving contractors and the developers. A lawyer in the case, which settled in 2014, noted that just a list of exhibits — not the exhibits themselves — filled 100 banker’s boxes, The Associated Press previously reported.”
This week’s highly publicized sale and purchase involves a 1.8 acre parcel next to the new Allegiant Stadium. The parcel, already ground leased to In-N-Out Burger, was purchased just last December for $10.8 million, only to be flipped in March for $12.5 million.
The 20-year ground lease calls for $400,000 in annual payments with 10 percent increases every five years. There are six five year lease extension options.
That amounts to a 3.2 percent cap rate (lease amount/purchase price) in the first five years. No doubt, the buyers, a family from San Francisco, blended the 20 years worth of lease amounts together to justify the purchase: a 3.7 percent cap. Some of us might believe that is below the going forward rate of inflation.
But, with the Federal Reserve on tilt, no matter the price, everything’s a bargain.
“We’re very excited about the summer and fall,” MGM CEO Bill Hornbuckle told the LVRJ. “We think the regionals return to ‘19 levels by end of year, and … come the first half (of 2022) of versus the second half, save international, we think we’re going to be back to ‘19 levels here in Las Vegas.”
So, was 2019 a great year? Not bad, with Strip gaming revenue at nearly $6.6 billion. The boom years of 2006 and 2007 still have not been beat at $6.7 billion and $6.8 billion, respectively.
Nobody cares about gaming revenue anymore. It’s all about shopping and eating. Right?
Gaming Bounces
