What casino renovations say about the Vegas hospitality sector’s future

Capital improvement projects are one way to tell the health of the country’s economy. One component of the gross domestic product, business investment growth, grew 3.9 percent in the second quarter, according to an estimate from the U.S. Bureau of Economic Analysis released Thursday.

That investment can certainly be seen all across Vegas’ hospitality industry. While there hasn’t been a major resort-casino acquisition or new project started in a few years, renovations and expansions are well underway or recently completed at dozens of properties around the Las Vegas valley.

To name a few: a $20 million casino expansion at El Cortez, room additions at Circa, a roughly $340 million total renovation at Rio, Caesars Entertainment’s renovation of the Horseshoe and Paris that included a new pedestrian bridge between the properties, and a property-wide enhancement plan at Boyd Gaming’s Suncoast resort-casino near Summerlin that kicked off with a new sportsbook.

It’s a trend some contractors in Las Vegas have noticed. PENTA Building Group CEO John Cannito said his commercial building company – with many core clients in the gaming and hospitality space – has picked up more renovation-related projects in the last year or so, compared to ground-up development.

“We’re actually busier than we’ve ever been over the last couple of years, but it’s more spread around and not quite as high profile,” Cannito said.

Increased reinvestment

Some level of reinvestment in the resort industry is to be expected, said Zach Demuth, global head of hotels research at JLL. Pre-COVID, the average U.S. hotel would keep about 5 percent of revenue in reserves for property maintenance and reinvestment. That’s because competition motivates hotel owners to keep their products fresh.

“If hotels aren’t meeting the consumer standards from a product perspective, they’re just inherently going to lose market share,” Demuth said. “This is especially important in either cities or resort destinations, where, again, there are a lot of options. It’s very easy for the consumers to make direct comparisons.”

But the immediate aftermath of COVID resulted in a large drop in property reinvestment as those reserves were depleted to make payroll. Five quarters between 2021 and 2022 saw declines in business investments in structure, according to detailed GDP data. But that trend reversed in early 2023. In the last 12 months, the average hotel in the country has refilled the reserves and set their sights on comprehensive future planning, Demuth said.

“Not only are you investing as you normally would, you’re investing to offset all the lack of investment over the last three years,” Demuth said.

Additionally, the flurry of mergers and acquisitions in late 2021 and 2022 are behind some of the recent and planned renovations. Dreamscape Cos. purchased Rio from Caesars Entertainment, taking over operations in fall 2023. Now the New York-based company is completing an estimated $340 million reinvestment to make the property its own.

Similarly, MGM Resorts International acquired the Cosmopolitan in May 2022. Now the Strip’s largest operator is planning an expanded retail, dining and entertainment area at neighboring Bellagio, along with improved connectivity between the two properties with a pedestrian bridge, according to plans submitted to Clark County this summer.

At The Venetian, new owners Apollo Global Management – which completed its purchase of the resort, along with the Palazzo and Venetian Expo, in February 2022 – plan to reinvest $1.5 billion into the property, including a $188 million renovation to its convention center. The rolling remodel is expected to be complete by 2026.

‘We aren’t the first ones’

There are few markets where property reinvestment is as important as in Las Vegas. It’s hyper competitive, meaning some projects have to be done just to keep up with the demand and expectations set by other new projects. Additionally, a Strip property has more foot traffic, causing more wear and tear than hotels in other regions.

Operators say that major developments with citywide impact spurred their own capital improvement plans. Adam Wiesberg, general manager at El Cortez, said the $20 million expansion could be seen as phase three of property reinvestment plans, following a hotel tower renovation that began in 2019 and renovations of the original 47 rooms in the historic hotel-casino in 2022.

The expansion – turning 10,000 square feet of the old fiesta room and a decommissioned kitchen into a noodle restaurant, high-limit slot room, additional casino space and two bars – is worth the investment given the changes in visitation the management has seen in the last five years, he said.

“When you look at all the people coming to town, new properties at Resorts World, Fontainebleau and Circa, it really wasn’t that hard of a decision, perhaps because of all the growth around us,” Wiesberg said. “We aren’t the first ones to pull the trigger on these giant renovations or investments in Las Vegas. We’re sort of all doing it at the same time.”

Cannito said these renovation projects that PENTA takes on come while operators work on programming that takes longer to develop. Room refreshes and restaurant changes keep the property up-to-date while management plans their newest ground-up build – though Cannito declined to specify any possible future projects from PENTA clients.

Looking ahead

The flurry of construction activity of all scales could be further affected by a recent change in U.S. monetary policy. The Federal Reserve last week cut interest rates by 50 basis points in a step toward acknowledging slowing inflation and cooling labor market.

Andrew Woods, director of the Center for Business and Economic Research at UNLV, said projects in the works now have likely already been financed, but future development could be boosted by the changing policy. But the cut interest rates could affect consumer spending, which in turn affects a company’s bottom line.

“From what I’m hearing, construction is going to continue to be strong in the valley and with reduced interest rates, it’s a peace of mind,” Woods said. “If anyone’s got a crane up right now, they already have financing so the 50 basis points cut isn’t going to make you go out and refinance all your lending. Instead it’s about the direction of travel and looking ahead.”

Woods said the research center predicts a normalization in the economy, with looser access to money and a labor market that gives employers more of a focus on hiring qualified workers instead of ones they may have to train.

Builders like PENTA are looking ahead as well. Cannito said his firm is carefully watching the overall economy because construction can be volatile.

“We struggle with it on a regular basis, trying to figure out what’s really going to happen next, because our industry is so up and down,” Cannito said. “What we’ve generally landed on is that Las Vegas – not the whole economy, but let’s just be very specific, Las Vegas – really is growing, and that it is actually still steadily moving forward.

“In fact, it’s almost in that way that feels healthier than it did back in the 2000s when it was just such a rush to get so much work done. So it almost feels like very regular, sustainable growth going on right now from the last couple years.”