Busted Flush: Las Vegas On a Losing Streak

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Sitting in the poolside restaurant at the Trump International hotel in Las Vegas, my eye was taken by a saying by the inimitable ‘Donald’ etched into a floor-to-ceiling mirror: ‘As long as you’re going to be thinking anyway, think big.’

Opened in 2008, the Trump International stands back from Las Vegas Boulevard, the main thoroughfare known as the Strip. With its 1,250 rooms and 50 penthouse suites on 64 storeys, the Trump is far from being the largest of the steroid-pumped hotel resorts along the Strip – it does not even boast a casino – and yet, standing in its perfect isolation, its windows clad in 24ct gold, it resembles nothing so much as a huge shimmering tombstone, a metaphor for the near-death experience that Las Vegas, where ‘thinking big’ is what they do, has gone through in recent years.

Beside the Trump Tower is a vacant lot that was once the site of the New Frontier hotel. Opened in 1942 – the second hotel to open on the Strip, and in Las Vegas terms a building of outstanding historical importance – the New Frontier was the scene of Elvis Presley’s first Las Vegas appearance in 1956, and was briefly owned by Howard Hughes. In 2007 it was imploded – in the traditional Las Vegas style – to make way for a new $8 billion luxury hotel, provisionally named the Las Vegas Plaza, which was originally scheduled to open in December 2011. But the developers, hamstrung by the financial paralysis that has engulfed the town, have yet to break ground.

Beside the deserted site stand the skeletal steel foundations of another mega-resort, the Echelon. This was once the site of another historic Vegas casino, the Stardust, which was blown up in 2007. Plans for the Echelon include five hotels, a convention centre and a shopping centre, but construction was halted in 2008 when the American economy went into chronic relapse. The project’s owners, Boyd Gaming, say it will take several years and a further $4.8 billion to complete. Work will not be resuming any day soon.

Across the street stands the uncompleted shining blue tower of the Fontainebleau, a $2.9 billion, 3,889-room, 68-storey hotel, condominium and casino development. Building halted in 2009 when the Fontainebleau became the largest commercial construction to go bankrupt in the US. The property eventually passed into the hands of the corporate raider Carl Icahn for a song; the local rumour is that he is waiting for the price of steel to rise, when the hotel will be imploded and sold for scrap.

From here, a short distance down the Strip one could see the distinctive signage of the Sahara Hotel, with its Arabic minaret flanked by two camels. Opened in 1952, the Sahara was the last remaining ‘Rat Pack’ hotel – Frank Sinatra, Dean Martin, Judy Garland and Marlene Dietrich all appeared in the showroom at one time or another, and the 1960 version of Ocean’s Eleven was filmed there. But last May its owners closed the door on the Sahara, saying it was no longer ‘economically viable’, and the sign that once advertised Sinatra was now flashing ‘Total liquidation. Everything Must Go’.

It was a Sunday afternoon, and the temperature was 110F, but inside the casino was stygian gloom, illuminated only by the flickering neon sign above the Thirsty Camel bar. The last remnants of the sale were spread around like disembowelled entrails: ironing boards, bedside tables and mattresses stacked against the walls or being carted out by people who looked more used to clipping supermarket coupons than throwing gambling chips. The last remaining roulette table stood in the centre of the room, $2,200 – ‘no wheel’.

A faded blonde in her mid-forties with a gaming-room pallor said it was all so sad. When she heard the Sahara was closing, she said, she had come and had a farewell drink in every bar. Two labourers were prising an ornate wooden pillar 12ft high from the wall. ‘It wouldn’t fit into my apartment,’ the blonde said. She gave a deep sigh. ‘Las Vegas,’ she added, ‘is so over.’

To the tourists who flock up and down the Strip, the impact of the recession on Las Vegas might not be immediately apparent. The casinos still thrum with cries of jubilation and, more often, the groans of disappointment. Queues still form at the hotel-theatres where The Lion King and Viva ELVIS are playing.

Few people have any reason to venture into the suburbs, where, if you look carefully, a different vision of Las Vegas presents itself: the rows of foreclosed properties; the mile upon mile of unfinished housing developments; the ‘going out of business’ signs on shops.

For a period in the 1990s and 2000s, Las Vegas was the fastest-growing city in America. Drawn by the flourishing fortunes of the casino industry (and too by Nevada’s benign tax laws: the State has no individual or corporate income tax, most of its revenue coming from gambling and sales taxes), workers flocked to the city. In the four years leading up to 2007, the population increased by 104 per cent – the largest population growth of any city in the entire United States. (It now stands at 2.03 million.)

But Las Vegas’s days as a boom town are long gone. At 14 per cent, unemployment is the highest in America (the national average is 9.1 per cent). House prices have fallen 58.1 per cent since their 2006 high – the biggest losses of anywhere in America, while according to the website RealtyTrac, which specialises in foreclosed properties, Las Vegas is the nation’s foreclosure capital. Some 70 per cent of homes in Las Vegas are thought to be ‘under water’, or in negative equity, meaning their value is worth less than the amount owed on the mortgage, while foreclosure notices have been served on one in 16 properties. A survey last year by the local Las Vegas Review-Journal and Channel 8 News Now found that 34 per cent of locals would leave Las Vegas if they could find a job elsewhere, or if they weren’t underwater on their home loan.

A report last year by the Brookings Institute and the London School of Economics ranked Las Vegas’s economic performance in 2010 as one of the five worst out of 150 metropolitan areas around the world, due in large part to the collapse of the real estate market. Many of the problems are down to Las Vegas having relied too much on one industry for its growth: 20 per cent of the town’s workforce is employed in gaming and tourism.

In the peak years of 2006 and 2007, roughly 39 million people per annum flocked to Vegas. In the worst of times – 2008 and 2009 – that number fell by only three million, but the effect on the complex arithmetic of the Vegas economy was critical. Room rates dropped, and crucially so did gambling revenues. Between 2007 and 2010 gaming revenues on the Strip fell by 15.4 per cent – $1.05 billion – driving three major casinos into bankruptcy.

Nor can Las Vegas any longer claim to be the gambling capital of the world. Last year gaming revenues in Macau were four times those generated on the Strip, and this year it is estimated that Singapore will also overtake Las Vegas. Local operators such as Las Vegas Sands and Wynn Resorts, the company run by Steve Wynn, who is credited with much of the Strip’s burgeoning economic growth over the past 20 years, now get the lion’s share of their revenue from Asia, and Wynn is said to be contemplating relocating his centre of operations to Macau.

Gambling has been the mainstay of the Las Vegas economy ever since the 1940s, when – incentivised by Nevada becoming the first state in America to legalise gaming in 1931 – entrepreneurs began to open the first casino-hotels along the main highway to Los Angeles.

In 1946 the gangster Benjamin ‘Bugsy’ Siegel opened his Flamingo hotel, ushering in the era of syndicates running casinos by proxy for the Mob. Vegas became a synonym for anything-goes self-gratification, its commitment to excess embodied in the increasingly berserk architectural fantasies of its casino-resorts. The father of the theme resort was Jay Sarno, who in 1966, with backing from the Teamsters Union pension fund, opened a casino inspired by the excesses of ancient Rome, which he called Caesar’s Palace.

‘Jay had three weaknesses,’ one casino executive told me. ‘He gambled, he drank and he chased girls. You can get away with two out of three of those in Vegas, but put them all together and it’s a recipe for disaster.’

Losing control of Caesar’s Palace, Sarno purchased another piece of land on the Strip and opened Circus Circus – the casino as Big Top, complete with trapeze artists and clowns. Sarno’s two properties are still on the Strip (his legacy commemorated with an annual ‘Sarno Award’ for outstanding contribution to casino design), but have long been eclipsed by bigger, more fantastical and more opulent properties: the fake pyramid of Luxor, the faux-Tuscan luxury of Bellagio, and the Venetian, with its gondolas bobbing along beside the sidewalk and St Mark’s Square reimagined as a three-storey shopping mall.

The surreal fakery of these places is part of their appeal. ‘The Venetian is nothing like Venice,’ one casino executive conceded. ‘For one thing, it’s much bigger.’ Almost. The Venetian has the largest number of rooms – 7,117 – of any hotel in the world. Nineteen of the world’s 25 largest hotels by room count are on the Strip.

With their shopping centres, nightlubs, theatres, restaurants and casinos, these mega-resorts seem less like hotels than nation states, devoted to the pursuit of limitless pleasure to the point of satiation or penury, whichever comes first.

Throughout the Nineties and Noughties, the king of the Strip was Steve Wynn, whose properties attained hitherto unscaled heights of what might be called ‘casino bling’ – white tigers basking behind plate glass in the reception lobby of the Mirage, and a fake volcano exploding hourly on the pavement outside.

But the biggest operator in Las Vegas now is MGM Resorts. It runs more than a dozen resort/casinos in the city (with five other sites around the US, and one in Macau). Two years ago it opened a new flagship property, City Centre – at 18 million square feet, the biggest commercial real estate development in the US and the largest privately funded construction project in US history. The chairman and CEO of MGM Resorts is James Murren.

A serious-minded man in a sober blue suit, Murren seems, on the face of it, an unlikely candidate for the biggest player in Las Vegas. Unlike Wynn, whose father ran bingo games and who worked his way up from being a casino slots manager, Murren has no background in gambling. He grew up in a Catholic family in Connecticut, and studied art history and urban planning at a liberal arts college. A regular churchgoer, who wears a rubber wristband reading ‘Improve the World’, he told me he is too busy with his family, hiking and voluntary work – he and his wife, Heather, were co-founders of the Nevada Cancer Institute – to have time to gamble.

Murren, who is 49, worked for 14 years on Wall Street as an equity analyst for Deutsche Bank before moving to Las Vegas in 1998 to become chief financial officer of MGM Grand, at a time when the company was in the midst of a rapid expansion. In 2000 it took over the Mirage, Bellagio and Treasure Island from Steve Wynn, and in 2005 acquired the Mandalay Resort Group, which included Mandalay Bay, Excalibur, Luxor and Circus Circus, to become the biggest casino owner in Las Vegas.

In the same year, work began on City Centre. By Vegas standards, Murren’s vision for the scheme was outlandishly novel. It’s theme would be ‘no theme’. Eschewing the fantastical and the garish, Murren envisioned a pedestrianised ‘urban centre’ comprised of three luxury hotels, condominium towers and a shopping plaza, much like his beloved Manhattan, on a 66-acre site slap-bang in the middle of the Strip.

He hired a raft of internationally renowned architects, including Cesari Pelli, Sir Norman Foster and Daniel Libeskind, the master-plan architect for the reconstruction of the World Trade Center site in New York, none of whom, he said, had ever worked in Las Vegas before ‘and many of whom would have turned their nose up at Las Vegas only years before.’

A connoisseur of contemporary art himself – he commissioned James Turrell to install one of his signature ‘skyspaces’ in his Las Vegas home – Murren sank $60 million into the acquisition of art works by the likes of Henry Moore, Frank Stella and Maya Lin for the atria and public spaces of City Centre.

‘We wanted to create spaces where people could congregate and enjoy, contemplate and reflect,’ Murren told me – which, one thinks, would be a first in Las Vegas.

City Centre is a stunning architectural symphony of sleek, soaring steel towers and sweeping glass canopies. At the Aria hotel, a 30ft-high sheet of water tumbles down the wall, while a monorail glides silently above a forecourt the size of a football pitch.

There is some irony, perhaps, that a development inspired by the spirit of modernity and sophistication of Manhattan should stand within hailing distance of the wholly artificial Manhattan of the New York, New York resort, where a roller-coaster ride threads between the Empire State building, the Chrysler Building and the Statue of Liberty, all grouped together in a mind-scrambling composite of the Big Apple. (To confuse matters even further, the Eiffel Tower stands across the street outside a resort called Paris.) When I asked Murren to deconstruct the multiple meanings of this, he simply shrugged and laughed: ‘That’s Las Vegas.’

Building City Centre brought MGM almost to the brink of bankruptcy. MGM had originally entered into a partnership with the investment company Dubai World. In February 2009, with the project already ‘way over budget’, a payment of $200 million to the general contractors came due. Embroiled in a legal wrangle, Dubai World refused to pay its share.

Legal and financial advisers counselled Murren, as he puts it, to ‘cut off the arm to save the patient’. Instead, he set about persuading MGM’s sundry banks to save the project. ‘A lot of the banks said no,’ Murren recalled. ‘In the end the vote came in at 50.43 per cent saying yes. Had any one of those banks said no, we would have filed for bankruptcy.’

As it was the project opened, on schedule, in December 2009. But that was not the end of the problems. While the hotels have enjoyed good occupancy rates, the condominiums have suffered the fate of the rest of the housing market in Las Vegas – a glut of properties and plummeting prices. MGM had hoped to make $2.5 billion from the sale of condominiums. Last year they effectively wrote off the money and acknowledged that any profit would be a windfall. But the most disastrous element of the scheme has been the Harmon Hotel, designed by Sir Norman Foster. Originally planned to be 49 storeys high, construction was halted in 2008 after alleged structural flaws were found in the building. It was topped off at 27 storeys, and is now the subject of a legal dispute between MGM, who wish to demolish the building on the grounds of safety, and the contractors, Perini Building Co. MGM has written off the $279 million invested in the building so far. Draped on the side of the empty building is a poster for Viva ELVIS. Sir Norman’s ‘unfinished symphony’, as it is commonly referred to in Vegas, is now the most elegant, and costly, billboard on the Strip.

For Murren, City Centre remains a vision of Las Vegas’s future, and a further confirmation of its position as a tourist, as opposed to a gambling destination. In keeping with a general trend in Las Vegas, nowadays more than half of MGM’s revenue comes from non-gaming – the shows, the restaurants, the nightclubs.

‘Las Vegas was a place where gamblers would go on vacation,’ Murren said. ‘Now it’s a place where vacationers may gamble. And if we are going to continue to evolve as a tourist community we have to reach out and be attractive to a broader demographic, globally. When I moved out here my mom was thinking, “How can it be that my little Irish Catholic son is moving out to the desert?” Now she can’t get enough of Las Vegas. She doesn’t put a nickel into a slot machine, but she’ll happily spend money eating in our restaurants, going to our shows. She’s a very good customer to us.’ He smiled. ‘And a profitable customer too.’

There is perhaps some irony in the fact that the casino capital of the world should have suffered so disastrously from the reckless gambling of sub-prime mortgages, which precipitated the economic collapse of 2008. In the boom years, between 1990 and 2007, more than 470,000 housing units were built in the greater Las Vegas area, and property prices nearly doubled. Construction represented as much as 12.5 per cent of the workforce in southern Nevada. But since 2008, two out of three construction workers have lost their jobs, and house prices have fallen by more than half.

Driving out into the suburbs of south Las Vegas – a news report on the radio announcing that ‘consumer confidence plunged 15 points this month’ – one passes endless housing developments, or sub-divisions as they are called, some fully built, others in a state of arrested development, skeletons of homes awaiting a skin, ground that has been cleared and levelled and then simply left. Signs were posted beside a huge swath of land tapering into the desert. ‘Retail: 650,000 sq ft lifestyle shops’ and ’2,500 luxury condos, town homes and lofts’. The site was completely deserted.

Looking down across the valley, the towers of the Strip were visible on the horizon, as remote and chimerical as the Emerald City. Beside the road, a solitary tractor was moving earth. I stopped the car and spoke to the foreman, John Blackwell. When, I asked, will these developments be completed? He laughed. ‘Not anytime soon.’ His team weren’t putting up buildings, he said, they were ‘laying kerb’.

Blackwell had come to Las Vegas from Utah in 1992, and worked parking cars for a casino before getting a job in construction. He talked about the boom years, when property prices were soaring so fast you’d have people waiting in line to buy houses and then immediately ‘flipping’ them – selling them on – without even moving in themselves. ‘You had a pay-stub and a heartbeat and they’d fall over themselves to give you a loan. You had people coming down here buying four or five houses as an investment, everybody ramping up the loans so they could buy all the toys – the RVs, the boat, and then… kapow!’

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