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Starwood to Try Its Luck in Las Vegas

February 23, 2005|Jerry Hirsch | Times Staff Writer

Starwood Hotels & Resorts Worldwide Inc. is going on a Vegas shopping spree.

The owner of the Sheraton, W Hotels, Westin and St. Regis lodging chains is working with several financial partners on about $250 million of real estate purchases in Las Vegas, according to people familiar with the company's plans.

Sources said Starwood planned to open an upscale W hotel with a casino on Harmon Avenue blocks from the Las Vegas Strip.

In addition, investors are negotiating to purchase a 60-acre parcel at Russell Road and Polaris Avenue -- one of the largest undeveloped plots near the Strip -- where the hotelier would build a luxury St. Regis property, a Starwood timeshare project and possibly a second Westin, the sources said.

All that would pave the way for a massive expansion of Starwood brands in Las Vegas.

Starwood acknowledged an interest in Sin City but declined to offer any specifics.

"We have been actively looking at opportunities," said K.C. Kavanagh, Starwood's spokeswoman, "though I should note that there are no definitive plans that we can announce at this time."

Not long ago, White Plains, N.Y.-based Starwood was leaving Las Vegas.

In 1999, the company sold Caesars Palace to what is now Caesars Entertainment Inc. for $3 billion. It subsequently unloaded the Desert Inn; casino mogul Steve Wynn bought the property for $270 million and plans to open a $2.7-billion resort on the site in April.

Five years ago, Kavanagh said, "hotels in Las Vegas were more or less just an amenity for gaming.... As a hotel operator, it was not a terrific market."

But since then, she said, the city has been transformed into an "exceptional" opportunity.

Said William Marks, an industry analyst with JMP Securities in San Francisco: "The market is just booming whether or not a casino is part of the project."

A record 37.4 million people visited Las Vegas last year, a 5% gain from 2003, according to the Las Vegas Convention and Visitors Authority.

On average, hotels collected just under $90 a night for rooms in 2004, an 8.9% gain from the previous year. Occupancy climbed to 88.6% from 85% in 2003.

"It can be an incredibly profitable market for the hotel business," said John Arabia, a hotel industry analyst with Green Street Investors in Newport Beach.

Starwood has apparently been seduced. In late 2003 it entered a franchise agreement with Columbia Sussex Corp., which converted its 825-room Maxim hotel to the Westin Casuarina Hotel & Spa.

Last June, Starwood took a bigger step by joining an investment group that acquired the 2,500-room Aladdin Resort & Casino out of Chapter 11 bankruptcy protection for $635 million.

The partners, which include Planet Hollywood International Inc., are investing $90 million in the project and, following an 18-month renovation, plan to re-badge the property as the Planet Hollywood Resort & Casino, a Sheraton Hotel. Starwood has a 15% stake in the property.

According to the sources, Starwood and several financial partners are deep into talks to acquire a long-vacant 60-acre parcel west of Interstate 15, near the Mandalay Bay Resort and Casino. The sources said a deal could be reached by the end of March.

The site is considered a prime property because of its proximity to both the Strip and McCarran International Airport. It's owned by Los Angeles-based EJM Development Co. and has been for sale for several years.

People familiar with the discussions said EJM had been asking $150 million but had recently been trying to bump up the price because of escalating land values in Las Vegas.

Eugene Monkarsh, who with his brother Jerry owns EJM, declined to talk about the parcel, saying only: "There are no deals with anybody at this time."

As for the planned W hotel and casino, it would be partly on property now occupied by the Ice nightclub. According to Clark County property records, the 2-acre parcel was sold for $16 million in December to Harmon Koval Partners of Dallas.

Sources said that purchase would be followed by the acquisition of an adjacent 19 acres owned by Fort Worth home builder D.R. Horton Inc. that is reported to be on the block for about $100 million. D.R. Horton executives didn't return phone calls seeking comment.

Nationally, a resurgent tourism market and improved business travel are giving Starwood the cash to expand. The company earned $395 million in 2004, a 28% gain over the previous year. Revenue rose 17% to $5.4 billion.

Tuesday the company announced plans to add 70 hotels to its system this year and next, but didn't mention Las Vegas.

Starwood shares fell $1.86 to $56.64 in a down day on the New York Stock Exchange. They have risen almost 49% over the last 12 months.

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