The 2,995 room Cosmopolitan of Las Vegas, which opens on Dec 15, 2010, represents yet another colossal gamble in Las Vegas where the developer had no choice but to throw in good money after bad.

Cosmopolitan of Las Vegas

Cosmo began as a $1.8 billion project in Oct 2005, being developed by Ian Eichner’s 3700 Associates LLC. When he defaulted on a $760 million loan, Deutsche Bank foreclosed and tookover the project in Aug 2008. Since selling it off in the middle of a recession was not an option, the bank decided to complete it themselves.

As of date, the project has ballooned into a massive $3.9 billion mega-project, and is the costliest project ever in Las Vegas for a single lender. In their latest regulatory filing, Cosmo says they plan to spend another $890 million this year for the opening. This includes $625 million for construction and $265 million for furnishings and fixtures.

There’s also the costs of the lawsuits – one over its name (which has been resolved), and another one filed by condo owners who allege they were misled about the delays and changes. The Cosmopolitan has 1,353 condo units and the holding company (Nevada Property 1 LLC) created by Deutsche Bank has offered to return the condo owners 74% of their deposit to give up their condos.

To add to the cost, they’re only going to be able to open 2000 hotel rooms this year on Dec 15, and the remaining 1000 will be delayed until July next year.

The 50 story twin tower Cosmopolitan, sandwiched on the Strip between City Center and Bellagio, is sure to further depress Sin City’s room rates which are still in the process of absorbing City Center’s 6,291 rooms. In fact, Cosmopolitan’s arc pretty much mirrors that of CityCenter.

Started off during the pre-recession boom years, got mired in lawsuits and financial problems during the recession, and ended up delayed and grossly over budget. When it finally does open, the ‘new’ factor will get it through the first six months, but there’s no real way to recoup the costs after that. Both projects have faced massive writedowns ($749 million for Cosmo) and their values are now far less than the project costs, even though neither is as yet fully open.

For Vegas, it means a prolonged recovery period from the recession as rates will remain low throughout 2011. To make things worse, there’s one more project waiting in the wings whose arc mirrors that of CityCenter and Cosmopolitan –  the 3,889-room Fontainebleau Las Vegas, whose cost now stands at $2.9 billion.

Fontainebleau is about 70% complete, but the project went into bankruptcy and has now been purchased by billionaire Carl Icahn. He will have to spend around $1.5 billion to complete it. Deutsche Bank, owners of the Cosmopolitan, is also one of the lenders to the Fontainebleau project.

Photo – Kris1123

It’s not easy being Las Vegas. Every destination has problems in a global economy – recession, fuel prices, climate change, bomb threats, etc. But Vegas somehow always manages to find its own special hot tin roof to jump on.

Las Vegas Plaza

Natural Gas:- The price of fuel and the vagaries of the commodity markets affect everyone. But what does one specific offshore exploration site near Haifa, Israel have to do with Las Vegas?

A huge natural gas find was made in the waters off Haifa by Delek Group Ltd, a company which belongs to Israeli billionaire Isaac Tshuva. Tshuva also happens to own the El-Ad Group Ltd, whose assets include the Plaza Hotel in New York.

Before the recession came along, Tshuva had plans to build an $8 billion Plaza Hotel in Las Vegas with 3500 rooms. They paid $1.25 billion for the New Frontier Hotel and razed it to make way for the Las Vegas Plaza. Then the real estate market tanked and the project was put on hold. 

But the Haifa gas find has helped Tshuva’s companies regain their clout, and Las Vegas now finds itself having to deal with another ‘too big to fail’ mega-project – in addition to the $8.9 billion CityCenter, the $3.9 billion Cosmopolitan opening in Dec 2010, and the $3 billion Fontainebleau Las Vegas likely to be finished next year. 

Nevada nuclear test site

Nuclear Threat:- Yucca Mountain is a real threat, but Las Vegas also has to deal with tourism fallout from fake threats cooked up by federal agencies.

FEMA had plans to simulate a nuclear explosion in Las Vegas in May 2010 to test emergency preparedness. 10,000 local, state, and federal agents were expected to take part in the drill.

The Las Vegas Convention and Visitors Authority pleaded with FEMA to cancel the drill, but the fake mushroom cloud hanging over Vegas tourism lifted only after Sen. Harry Reid (D-NV) stepped in and sent a letter to DHS Secretary Janet Napolitano.

In the letter, he argued that “economic recovery efforts would be stymied, or reversed entirely, by artificially creating anxiety surrounding tourism and investment in Las Vegas.” FEMA cancelled the drill.

In June 2006, the Nevada test site 65 miles northwest of Las Vegas was selected for testing a real nuclear-bunker busting bomb. The test – called Divine Strake, was also cancelled after protests. Safe to say that Sin City should expect more such fake and/or ‘friendly’ mushroom clouds in the near future.

Lake Mead

Climate Change:- Everyone’s worried about climate change, but no one’s put us on a clock ticking down to the end of the world. Not true for Vegas.

A study by the Scripps Institution of Oceanography has revealed that Lake Mead, which supplies 90% of Sin City’s drinking water, has a 50% chance of going dry by 2021.

So Vegas – with the neon and bright lights, has been leading the world’s big cities in turning off the lights for Earth Hour and installing occupancy sensors in hotel rooms which turn off the lights when no one’s there. 

The city with the Bellagio Fountains and the Venetian canal is now ripping up lawns and replacing them with astro-turfs, and most new hotel/casino projects are now LEED compliant – including the Palazzo and City Center.

President Obama & Vegas

Obama Effect:- The recession hit pretty much everyone, but Vegas has had a bulls-eye painted on its forehead by President Obama.

We’ve covered this extensively – the AIG effect, the Vegas blacklist by federal agencies, and the President urging CEOs not to use corporate jets to fly down to Las Vegas.

Earlier this year the economy was on the mend, but the President was faced with growing concern over federal deficits, so he let loose one more zinger asking people not to spend their money on Vegas.

Las Vegas Mayor Oscar B. Goodman complained that the President had a “psychological hang-up” with Las Vegas. Meaning that everytime he faces a prickly financial situation, Obama blames it on Vegas. Based on this record and future forecasts, Vegas should fully expect to get trashed again.

In this month alone, at least four states – Florida, Hawaii, Michigan and Pennsylvania – have made fresh overtures towards the casino sector for allowing entry or expansion. With tourism numbers down and the economy still sluggish, no doubt there will soon be more states lining up to roll the dice.

For destinations looking to gamble all your chips and sell your soul to a casino mogul, there’s a few things you should know first – about how Sin City has refined casino marketing into a fine art. Here’s a few examples:-

Encore Carpet

Sleep Deprivation:- What’s Sin City’s secret sauce that stops bleary eyed gamblers from calling it a night?

From the flashing neon outside and the garish lighting inside to the free flow of alcohol and the magic carpets, everything is meant to be a wake-up call for a gambler about to quit.

These magic carpets don’t fly, but the extravagant color patterns and designs assault the senses and keep casino customers wide awake all night long.

No exit

No Exit:- Once you’re inside, they want you to forget the world outside. So there’s no windows or clocks to remind you of the time of day (or night).

CityCenter’s ARIA casino is an exception, designed to utilize natural light to reduce energy consumption.

They make it easy for you to enter, but not so easy to exit. Casinos in Vegas have many entrances and escalators leading in from all sides, but only a select few leading out.

Airport slot machines

In-flight Entertainment:- If you’re in Vegas or on your way, you can run from the slots, but you can’t hide. McCarran Airport has over 1, 234 slot machines all over the terminals.

Las Vegas Sands Corp. even bought two L-1011 planes which it intends to modify and outfit with baccarat tables, to be used by gamblers being ferried by Sands from Asia to its Las Vegas casinos.

Not to be left behind, even the waters in Las Vegas aren’t immune. The Hard Rock Resort’s swimming pool offers a floating craps table.

Comp City

Comp Clubs:- To reel in a big whale, casinos will offer the world in comps, from free group transport (see above) to hotel suites with butler service, shopping trips, exclusive event tickets and club access, and even loss rebates – where the casino gives you back a percentage of your loss. 

Comp Clubs are a more down-to-earth rewards program which reward casino play for regulars – Sin City’s version of loyalty club memberships. Basically everything else you can get for free, provided you spend enough on casino play.

There’s Harrah’s Total Rewards, MGM Mirage has the Players Club, etc. The Las Vegas Advisor rewards book is a good place to find out what’s on offer.

Everything you see in Vegas – from the monumental exteriors to the fantasy worlds inside, from cheap hotel rooms to comps, all of it is focused on maximizing opportunities for gambling, ensuring that visitors stay and play longer, and keep coming back for more.

Photo credits:- No exit – intergalactic hussy; Encore carpet – David G. Schwartz; Airport slots – Jérôme; Comp City – Max Rubin

Just when Sin City was beginning to forget what AIG Effect means, President Obama has restarted the whole debate by saying that people trying to save shouldn’t be spending money in Vegas.

President Obama & Fabulous Las Vegas Sign

On Feb 2, 2010, President Obama delivered a speech at a townhall in Nashua, New Hampshire. In the speech, he says that “When times are tough, you tighten your belts. You don’t go buying a boat when you can barely pay your mortgage. You don’t blow a bunch of cash in Vegas when you’re trying to save for college. You prioritize. You make tough choices.”

Here’s the full transcript of the speech. This is the second time that President Obama has piled on Vegas. Exactly one year ago, on Feb 9, 2009, at a townhall meeting in Elkhart, Indiana, President Obama said “You can’t get corporate jets, you can’t go take a trip to Las Vegas or go down to the Super Bowl on the taxpayer’s dime.”

That statement last year was made due to concern over public anger at federal bail outs for companies who were spending hundreds of thousands of dollars on meetings and events. It was widely seen as a move to deflect public anger over the bailouts from the government and focus it on the corporates.

This time around, President Obama is trying to tamp down worries about federal deficits. He made the statement about ‘blowing a bunch of cash in Vegas’ in the context of wasteful government spending, which he says needs to be prioritized. This could be translated by federal agencies as a sign that they shouldn’t be considering Vegas for meetings and conferences.

There has already been a big kerfuffle over a federal blacklist for Vegas and other resort cities, and Senate Majority Leader Harry Reid (D-NV) has even introduced the Protecting Resort Cities from Discrimination Act (S. 1530 & H.R. 3732) to make it go away.

The President’s new remarks open up the entire debate all over again.

Reaction from Vegas officials and Nevada lawmakers:-

Senator Harry Reid (D-NV) – Issued statement titled “Reid to Obama – Lay off Las Vegas.” Also called White House and told them that “the president needs to lay off Las Vegas and stop making it the poster child for where people shouldn’t be spending their money.”

Las Vegas Mayor Oscar Goodman – Called Press Conference and said “I’ll do everything I can to give him the boot.”

Congresswoman Shelley Berkley (D-NV) – Issued statement saying “Enough is enough! President Obama needs to stop picking on Las Vegas and he needs to let Americans decide for themselves how and where to spend their hard-earned vacation dollars.”

In response to the criticism, President Obama sent a conciliatory note to Sen. Harry Reid. In the letter, he says that “I hope you know that during my Town Hall today, I wasn’t saying anything negative about Las Vegas. I was making the simple point that families use vacation dollars, not college tuition money, to have fun.  There is no place better to have fun than Vegas, one of our country’s great destinations.  I have always enjoyed my visits, look forward to visiting in a few weeks, and hope folks will visit in record numbers this year.”