The biggest bets in Las Vegas

Real estate developers such as MGM-Dubai, Las Vegas Sands, Boyd Gaming, and Wynn are engaged in some of the biggest bets in Las Vegas.

Today the Las Vegas skyline looks like Shanghai 2005 as dozens of new hotels, corporate centers, and luxury condos are currently under construction - a shocking site as the US slides into the most severe recession it has seen in decades.

Leading this construction is the MGM-Dubai $11 billion "City center" project.

CITY CENTER LAS VEGAS UNDER CONSTRUCTION

This massive 72 acre, 18,670,000 sqft project is the largest construction project in the United States. Scheduled for completion in 2009, the city center will contain over 7000 suites and condos.

Another monster project under construction is the Cosmopolitan Resort Casino, a $3 billion 6,900,000sqft project containing rooms and studio condos. These studio condos are "projected" to sell for $559k to $1.2 million.

The larger project is the Echelon hotel project being developed by Boyd gaming. This $5 billion project is a 1,890,000sqft project, featuring 5300 rooms and a convention center.

Fontainebleau Las Vegas is being built north of the Riviera hotel, with 3889 rooms, 850,000sqft, and at a cost of $3 billion.

Additions

Not to be outdone, the existing hotels are all adding to their properties.

Donald Trump well known for his beautiful hair, is doubling down and adding a duplicate 1282 hotel tower to match his existing 1,500,000 sqft $600 million hotel. However in the planning process he somehow forgot to add a casino in his property.

Not to be outdone, Wynn well known for his belligerence is adding a new "Encore" wing at the Wynn. This project with 2032 rooms, 1,500,00 sqft, will cost $2.1 billion and be built on the existing golf course of the Wynn.

And of course Caesars has decided to add a $1 billion dollar, 263,000 sqft, 665 room addition to their property.

This doesn't even include the massive amount of office building, off-strip luxury condos, shopping centers, and other projects being built in Las Vegas.

SO WTF?

WTF is a very fair reaction to this construction. In 2007 Vegas contained about 132,947 rooms. The existing construction (including 2008 completed projects such as the Palazzo) will add a whopping 42,000 rooms to this number, increasing a 32% increase!

During the roaring 2005's this might have been workable, with US consumers HELOCing hundreds of thousands of play dollars out of their houses and mortgage brokers pocketing $50,000 kickbacks. However one has to seriously question whether Las Vegas will simply implode under the weight of this additional occupancy. MGM, Las Vegas Sands, and other operators are already in trouble. Vacancy is up, occupancy revenue is down, casino revenue is down (not that it matter's for Trump how doesn't have a casino), and all other entertainment revenues are down. Las Vegas Sands already posted a Q3 loss of $32 million, and MGM and the rest of the operators are all teetering on the edge.

With over $40 billion of existing projects, many projects not yet completed, the US economy in recession, the ability for these debt-laden operators to service their existing debt seriously comes into question.

The best bet on the strip right now might be to take a short position on these operators (except they are so beaten down already).

-GH