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Casinos Play a Winning Hand in Hotel Construction Rebound

Casinos Play a Winning Hand in Hotel Construction Rebound

As the hotel construction industry continues to rebound since the recession, casinos are playing a winning hand. Out of the 10 largest upcoming U.S. hotel construction projects, seven involve casinos. Resorts World Las Vegas ranks No. 1 on Reed Construction Data’s top 10 list, which showcases what areas of the country are spending the most on hotel construction and what new projects are in the works. “It’s not surprising, but most of these are resort destinations,” said Bernie Markstein, chief economist for Reed Construction Data, a provider of business information to the construction industry.

The Nevada Gaming Commission recently approved Genting Group’s proposal for Resorts World Las Vegas, which is located on an 87-acre parcel that was once home to the Stardust Resort and Casino. The $4 billion Malaysian-themed casino resort will bring 3,000 hotel rooms to the Strip.

After the recession crippled the Las Vegas construction industry, activity finally began to pick up in 2013 with new projects breaking ground and stalled developments restarting. SBE broke ground on the 1,600-room SLS Las Vegas, a redevelopment of the old Sahara casino that will debut on Labor Day weekend, and Caesars Entertainment Corporation embarked on a $185 million renovation of the former Bill’s Gamblin’ Hall, which reopened as The Cromwell on May 21. That growth continues to build in 2014, especially with construction set to begin this summer on Resorts World Las Vegas. “Las Vegas has come back and continues to come back after the boom and bust,” Markstein said.

However, hotel construction activity isn’t only on the rise in Las Vegas. Resorts World is planning a mixed-use casino development in Miami, which ranks No. 2 on Reed Construction’s list, and MGM is close to breaking ground on a large luxury casino resort just outside Washington, D.C., at National Harbor (No. 6).

Mixed-use projects have become especially popular with developers who want to make the most out of available land and current lending practices. By combining convention space, hotel suites, residences, offices, restaurants, and retail, developers can create a sense of place and a true destination. “You see that in the multi-family market as well,” Markstein said. “That’s how you get these big projects.” The casino industry is embracing the self-contained resort model, thus yielding larger-scale projects that will generate more money.

When it comes to number of projects, California, Florida, New York, and Pennsylvania are in the lead. According to Markstein, a combination of resort destination and business travel is driving the uptick in these locations. In Los Angeles, the Hyatt Regency Century Plaza Hotel (No. 3) will undergo an extensive renovation as part of a $2 billion mixed-use redevelopment project. The developer plans to erect two 46-story residential towers behind the hotel, a 100,000-square-foot retail plaza, and more than 2 acres of public open space with fountains and courtyards.

In Philadelphia’s Fishtown neighborhood, casino mogul Steve Wynn plans to build a destination casino and hotel complex on a 57-acre site along the Delaware River. The Wynn Philadelphia Hotel and Casino project ranks as the seventh largest U.S. hotel construction project.

As consumer confidence improves and unemployment rates continue to drop, people’s desire to travel and demand for hotel rooms increases. “It was business travel that first began to lift the lodging industry when it began to recover in 2012 and that continues to be a force, but what continues to boost it is tourism,” Markstein said. “As things have gotten better for most people, they want to travel.”

While these factors continue to propel the hotel construction industry, developers can’t take an “if you build it they will come” mentality. “You don’t build something to be empty,” Markstein said, “so the demand must be there.”

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