VEGAS: A HOT SUMMER (FOR CUSTOMERS)

Judging by the new room promotion at The Venetian, demand for Las Vegas has cooled considerably. The Venetian is offering a room rate based on the forecasted temperature. I guess a Las Vegas hotel makes more money with that promo than say one in Thunder Bay, Ontario. However, a $100 room at one of the nicest hotels in Las Vegas is a hot deal for customers but chilling for investors. For patrons looking for a step up in quality, the Four Seasons is offering a free room with a 2 night stay. Hopefully, the Four Seasons Hotel Macao, Cotai Strip will do a little better when it opens on October 1st.

I've written extensively on the coming margin compression from room rate pressure so I won't rehash much here. See Mean Margin Reversion... posted on 6/22/08 and More Margin Context... also posted on 6/22. Suffice it to say that most of the big expansion in property level margins over the past 15 years was driven by room rate increases. The Las Vegas model aims to hold occupancies to drive casino visits. Not good for room rates and margins in this environment.