Casino Hotels Feel the Pinch from the Economic Slowdown
- Oct 06, 2008
Lower airline capacity, tighter credit markets and the general economic downturn now gripping the U.S. have taken a deep toll on casino hotels. A sector that was enjoying positive times as recently as 2007 is now experiencing some daunting problems in two gaming capitals, Las Vegas and Atlantic City.Atlantic City is grappling with a “triple whammy” of bad news, said Mark Capasso, managing director at Cushman & Wakefield Inc. In addition to the economic slowdown, competitors are snapping at Atlantic City’s heels, Capasso notes, in the form of increased competition from slot machines at Philadelphia Park racetrack; the Empire City Casino in Yonkers, N.Y.; and expansion at both the Mohegan Sun and Foxwoods Casinos in Connecticut. In addition, business at casinos may be curtailed by a smoking ban that is scheduled to go into effect at the city’s casinos this fall.Las Vegas faces its own set of challenges, from economic problems on both a local and national scale. The market will be harmed by rising airfares and capacity cutbacks at the major airlines, Capasso said. In addition, steeply falling home prices and rising foreclosures in the Las Vegas metro area have had the effect of curbing discretionary spending by Vegas residents, including their gambling spend, said Carlton Geer, executive vice president of the Global Gaming Group at CB Richard Ellis Inc.According to the Nevada Gaming Commission, wins by casinos on the Las Vegas Strip are down nearly 15 percent so far this fiscal year, as of July 31, compared to the same period in 2007. They are down just over 16 percent at Downtown casinos.But Geer said he is encouraged that, despite the challenges, “ADR (average daily rate) and occupancy has held up pretty well,” at Las Vegas hotels, he said. He noted that, according to Global Gaming figures, room occupancy was healthy at two of Vegas’ signature hotels, with occupancy at the Venetian just over 90 percent in this year’s second quarter, with the Bellagio even higher, at 97 percent, in the same period.While visitors may not gamble as much when they visit, Las Vegas’ vast array of shows, restaurants and hotel rooms make it a prime destination, Geer said. “People want to escape, and the city is still attracting conventions,” he said. But the credit crunch is putting the brakes on some major casino hotel new build and expansion projects, as projects needing new injections of capital have ground to a halt in Las Vegas, Capasso said. He named Boyd Gaming’s gigantic $4.8 billion Echelon mixed-use development as Exhibit A. El Ad’s 3,000 room Plaza Hotel project is also on hold, with the developer now saying construction will begin in 2010, according to a report in The New York Times. But, Geer notes that Las Vegas is no different than many other cities that have had projects halted due to the credit crisis. Casino hotel expansion projects in other areas of the U.S. are facing challenges as well, Capasso said. In late September, the Mohegan Tribal Council, which operates the Mohegan Sun Casino in Uncasville, Conn., announced it was delaying the final parts of its $925 million expansion. The construction of a hotel, a House of Blues music venue, a spa, and retail space, due for completion in 2010, have been put on hold, with owners saying plans were altered due to the faltering economy.