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By Steve Norton
CEO, Norton Management

Developer Gets OK to Build Luxury Majestic Las Vegas Near Strip

My comment:

A non-casino, deluxe hotel next to the new Las Vegas Convention Center expansion is good news for the convention and trade show events coming to the Strip in Las Vegas. But, I can't see any way that a 720

room resort hotel can be financially viable at an investment cost of $850 million. Even assuming that the Majestic exceeded the room occupancies of the larger Strip resorts (93.1% in 2017) and doubled the average room rate ($171.60), I still can't see a possible scenario, where the resort can provide the necessary operating earnings to carry the debt service, on such a costly project.

I can see some conventions, because of the nearness to the LV Convention Center, choosing the Majestic as their headquarter property, but without a casino or major entertainment, I can't see how the property attracts high occupancy when major trade shows or conventions aren't filling most of the accommodations on the Strip.

Even though the Majestic has 350,000 sq. ft. of meeting and convention space, they have to consider that most event attendees prefer to be accommodated in a casino resort, which is one major reason why Las Vegas has become the top convention destination in North America.

According to Las Vegas estimates, the city attracts over 40 million visitors annually, with something like 6.5 million attending a convention or trade show – just over 15 percent of total visitors, although I expect the average stay of the typical meeting attendee, exceeds that of the vacation or casino visitor.

Even at a very optimistic room occupancy of 95 percent and an also optimistic average rate of $350, would produce annual room revenue of $87.5 million, an unrealistically high number. Wynn Las Vegas had occupancy of less than 90 percent at an average rate of $305 in 2017. But the 24 largest Strip casinos only average $172 per occupied room, at a 93 percent occupancy. These properties are the ones that a non-casino hotel will have to compete with on weekends, or when large citywide conventions are not in town.

The food and beverage and convention departments will produce additional revenue, but much lower thus lower profit percentages. And then there are the costs of sales and marketing, utilities and maintenance, administrative and general, not to mention the taxes and debt service on $850 million.

Something seems missing from this proposal.