Gambling company looks to win big in downtown Las Vegas - Saturday 12th of March 2005
Former New Hampshire resident Stephen Crystal sees profits where others only see prostitutes. He spies opportunity where others see slums and bums.
The president of Barrick Gaming Corp. has ambitious plans to revive the fortunes of downtown Las Vegas, a gritty area that has long foundered in the shadow of the more prosperous Strip.
While powerful gambling companies shun investing in downtown once written off as dead Barrick is investing heavily.
The company has staked its fortune there, snapping up large swaths of land valued at more than $200 million.
So far, Barrick has bought six casinos and several smaller properties on about 30 acres. The assets give Barrick a 40 percent stake in the downtown gambling market and about a third of the area's property, company officials said.
Some think it's risky to dive into the downtown market, where gambling revenues have been flat for the past several years. But Crystal and his partner, D.W. Barrick, are betting that a number of high-profile projects will allow its investments to flourish.
``They're ambitious,'' said Andrew Zarnett, a casino industry bond analyst for Deutsche Banc in New York. ``There's no doubt about it.''
If the pieces come together, not only will Barrick profit handsomely, the downtown area could experience something of a renaissance, harkening back to Glitter Gulch's glory days before the Strip took center stage in Las Vegas.
Barrick executives are clear about their company's strategy: They're making a real estate play, not one solely based on topsy-turvy gambling revenues that are primarily generated by tourists. The acquisitions have made Barrick one of the largest landholders in downtown Las Vegas along with Body Gaming, whose hotel-casinos include the California, Main Street Station and Fremont.
The reasons for heading downtown were obvious, Crystal said. An acre of real estate along the Strip, one of the most famous boulevards in the world, has been estimated by gambling analysts to cost from $15 million to $25 million.
For a young company, buying downtown at a fraction of that cost seemed like a prudent alternative.
``For a pittance for what this would cost on the Strip, you can be a market leader,'' said Crystal, 39, a lawyer, Dartmouth College graduate and former New Hampshire legislator. ``That is the story,''
Of course that's only a sliver of it. The rest depends on whether Barrick's wager pays off. Much of the company's success depends on Las Vegas Mayor Oscar Goodman, the city's biggest cheerleader and a pivotal player in the area's revitalization efforts.
The gregarious Goodman doesn't have any doubts about the future of downtown, where property is becoming scarce and the price per square foot is rising.
``It's the best bet in town,'' boasts the mayor, whose jurisdiction doesn't extend to the Strip in county territory.
A prime example is the Golden Nugget Las Vegas.
The Poster Financial Group bought the Golden Nugget properties in downtown Las Vegas and Laughlin in June 2003 for $215 million from MGM Mirage Inc. They nearly doubled their investment when they sold the Laughlin property to Barrick for $31 million in November and the Golden Nugget Las Vegas for $295 million last month to Landry's Restaurants Inc.
Landry's chairman and president, Tilman Fertitta, known for his real estate acumen, said he intends to expand the famous property and be a part of the coming revitalization.
``The Las Vegas Strip is moving that way,'' he said.
Ground zero downtown is next to Barrick's Plaza hotel-casino, an empty 61-acre lot that once was a railroad switching yard.
Goodman calls the dusty spot the ``jewel of the desert,'' one that could bring jobs, visitors and perhaps young professionals willing to live downtown.
Goodman foresees a sprawling development, including a performing arts center and a mixed-use, high-rise project. Boyd Gaming's outgoing President Don Snyder has donated $1 million to the arts center, which will receive funding from a rental car tax.
Las Vegas officials have hired renowned architect Frank Gehry to design a medical research facility on the parcel, and the mayor thinks the vacant property would be a suitable site for a major league baseball stadium or basketball arena. Officials also plan to build a transportation depot next to it that could serve light rail and buses.
In all, the site would be a portal for downtown, drawing residents, workers, tourists and their gambling dollars and helping the casinos bustle as in years past.
Rob Stillwell, vice president of corporate communications for Boyd Gaming, which first started its company in downtown Las Vegas, says things are coming full circle.
``Our perspective is that all the new ownership bodes well for downtown,'' Stillwell said. ``Any time a city goes through a significant amount of growth, ultimately you begin running out of land, and ultimately the growth goes back to the core.''
Crystal also is counting on the World Market Center, a massive furniture expo just west of the 61-acre parcel. The center is being built in seven phases and eventually will have 7.5 million square feet of space for furniture companies to display their wares to retailers. The 2.5 million-square-foot first phase opens in July.
The center could draw tens of thousands of people a year.
``That has the ability to change the face of this urban center and change its future,'' Crystal said. ``The pieces are in place. We're right in the path.''
To get to downtown from the furniture center and the 61-acre site, people must pass by the Plaza, which Crystal plans to renovate within the next year and eventually add a new hotel tower and high-rise condominiums.
After the Plaza, Barrick will upgrade its other properties, including the Vegas Club and Gold Spike hotel-casinos. He wants to turn the rundown Western hotel-casino into a Latino-themed property to cater to the city's growing Hispanic population.
Two other properties, the Nevada and Queen of Hearts hotel-casinos could be razed and replaced with high-rise condos. And Barrick has an option to buy the El Cortez hotel-casino.
In all, Barrick intends to invest $1 billion over the next 10 years in downtown projects and the company could go public.
``I think the overall escalation of the land values in Las Vegas gives great hope for a major turnaround in downtown Las Vegas,'' Zarnett said.
There's also a bit of security when it comes to doing business at the other end of Las Vegas Boulevard.
``In the bad times, it stays relatively stable,'' Crystal said.
For all the talk about real estate, Barrick won't ignore the gambling side of its business. Despite tepid gambling revenues, signs of an upswing are on the horizon.
``The demand for downtown has been stronger lately,'' Zarnett said. ``We'll see if that continues.''
In 2004, downtown casinos generated $663.2 million in gambling revenue, a 0.8 percent increase from the year ago. In comparison, the Strip generated $5.3 billion in gambling revenue, a 12 percent increase from 2003.
However, downtown's results were skewed by the temporary closure of Binion's Gambling Hall and Hotel and the shuttering of the Castaways hotel-casino. Binion's reopened under new ownership in April.
Frank Streshley, a research analyst with the state Gaming Control Board, said in the first six months of 2004, downtown gambling revenue was down 1. 2 percent. In the second half of the year, it was up 3 percent.
``We are seeing slight increases in gaming win. That is positive,'' he said.
But for downtown Las Vegas to emerge from the Strip's giant shadow, Streshley said a number of things must happen.
``You won't see any huge spikes in the growth rate without the addition of new rooms or properties,'' he added.
When will that happen?
``Only time will tell,'' Streshley said.
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