Hard Rock hotel expands as Vegas rates stay down

28.07.2009, LAS VEGAS -- As a 490-room tower opens at the Hard Rock Hotel and Casino just east of the Las Vegas Strip this week, hotel operators citywide are struggling to fill existing rooms and staggering at the prospect of 10,000 more coming online this year and next.

It's (the) wrong place, wrong time," said Randy Fine, a former Harrah's Entertainment Inc. ( HET - news - people ) vice president and the founder of Fine Point Group, a casino marketing and consulting firm based here. "They want to turn a boutique property into a mega-resort. This is probably not the time to be doing that.

More than 6,000 rooms are planned at the six-tower, $8.5 billion partnership between MGM Mirage ( MGM - news - people ) and Dubai World known as CityCenter, which is to open in phases starting later this year. And the Cosmopolitan next door expects to add just under 3,000 rooms in 2010.

Industry analyst Bill Lerner said it could take at least five years for the local economy to absorb the rooms now financed or under construction here. Meanwhile, room rates could keep falling in Las Vegas even more than they have nationwide.

"Our view is one more room in Las Vegas right now is too much," said Lerner, the founder of research and advisory firm Union Gaming Group. "I understand someone carving out a niche but it's seemingly impossible to overcome the downward pressure simply from just more supply."

The average room rate in Las Vegas for the first five months of 2009 was $97.23, already 27 percent below the same period last year, according to the Las Vegas Convention and Visitors Authority. Nationwide, the average room rate slid much more gently - from $108.10 the first half of last year to $98.66 this year, a drop of 8.7 percent - according to Smith Travel Research.

A $55 weeknight August rate available online at the Hard Rock wasn't what officials had in mind when they started building the 17-story Paradise tower, which includes eight pool suites along the resort's 3-acre pool complex and a penthouse with three bedrooms, a full bar and hot tubs.

But president and CEO Randy Kwasniewski of the Hard Rock, owned by Morgans Hotel Group and an equity partner, believes CityCenter and the Hard Rock's expansion will help the overall market grow.

The $750 million expansion includes a new concert venue that has already opened, as well as the Paradise tower and another tower with casino space and 374 rooms to open in December, which will be branded differently from the rest of the Hard Rock and have a separate check-in desk, though its casino will flow into the existing slots and table games area.

Kwasniewski said the additions will attract more guests and cater to existing customers who stay elsewhere because they prefer quieter sleeping quarters.

"I lived here for five months, and it can be a little intimidating at 4 o'clock in the morning when it sounds like the middle of the afternoon in your hallway," Kwasniewski said. "It simply goes back to a manner of being creative, and providing a product to the consumer that they've never seen before and never experienced before."

Fine said the Hard Rock likely had no choice but to go forward with its expansion after funding it because it needs money to pay off its lenders.

The 10,000 hotel rooms coming soon to Las Vegas don't include thousands more from projects that have been halted or canceled.

The 4,000-room Fontainebleau on the north end of the Strip is fighting with lenders in federal bankruptcy court in Miami to get the last of its funding to open this year. Harrah's Entertainment has halted its 660-room Octavius tower at Caesars Palace until further notice.

Forbes.com

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