New Hotel Offers Buyers a Royal Proposition

Las Vegas High Rises

 

As the north Strip heats up with the scheduled April opening of Wynn Resort, Royal Resort hotel is constructing a 49-story tower to prove that if the timing is right, a company can share in the general wealth.

A 234-room hotel located right off the Strip, Royal Resort is planning to break ground on its $250 million project within the next 90-120 days to add up to 796 rooms to its inventory, which the company will offer to consumers as timeshares, hotel-condominiums or straight lodgings.

By creating a mixture of units, Royal Resort hopes to maximize its earnings potential by making the widest spectrum of accommodations available to the hot Las Vegas market. The company says the lucrative timeshare market is currently underserved, so the strategy allows it to bring labor and marketing intensive timeshare stock to market incrementally while maintaining revenues through hotel bookings until the units are completely sold.

Compared to other destinations, Las Vegas has not exploited the timeshare phenomenon because of various characteristics unique to the city, making the plan riskier than elsewhere. Royal Resort is betting, however, that its location, combined with factors that will likely limit future supply, will position the company to capitalize on the present frenzy for all things Vegas.

"As land values become more cost prohibitive, we're not going to see timeshare facilities on the Strip, unless it's on the south end of the Strip," says Allen Abolafia, CEO of Royal Resort. "So we have an advantage at this moment."

Partnering with financial and development firm, USA Capital, Abolafia purchased the more than 40-year-old property sitting on two acres just east of the Strip on Convention Center Drive in March 2001. While not revealing the total price, the group paid $6 million per acre.

Because of its age, the condition of the Royal Resort was less than appealing and the new owners immediately began renovating the entire property. Sinking $4.5 million into that effort, every room was revamped as well as the lobby area, business center, restaurant and other amenities.

The makeover has had a direct impact on the bottom line. With occupancy rates in the 30-40 percent range prior to the overhaul, the Royal Resort is near 100 percent occupancy on the weekends according to Abolafia, and about 60 percent during the week "and climbing."

Despite the hotel's success, the company's aim from the start was to bring the timeshare and hotel-condo business here, relying on Abolafia's 25 years in the business, particularly in Florida, to guide the company through the competitive business.

The thrust of that effort is the planned tower. Including a nine-story garage that will be topped by a pool overlooking the Strip, the new construction will occupy 3.5 acres to the south of the property, including 0.75 acres acquired from the adjacent Roman Catholic Guardian Angel Cathedral for undisclosed terms.

Of the 796 units to be built, at least 300 will be hotel rooms and the rest tentatively slated as hotel-condos and timeshares. The timeshares will occupy the first nine floors of the structure and all rooms will face either the north or south Strip.

The exact mix will be determined by the demand. With demonstration models already built, Royal Resort will begin pre-sales in 90 days. Abolafia expects a clearer picture to emerge in three-to-six months, but the company hopes to sellout the inventory by then.

"[We're] still working on the formula," the CEO says. "It depends on how sales go. If the sales go well, we'll commit more to condos and timeshares."

To drive sales, the studio, one-bedroom and two-bedroom units will be attractively priced, averaging $700-$750 per square foot compared to the Strip and off-Strip mean of $900-$1,200-per-square foot. With the ability to combine units, the price should be attractive to the middle income group the company is targeting.

Other features will add to the property's draw. The Royal Resort has a gaming license grandfathered into the property and Abolafia says the eventual highlight will make the property the only timeshare in the country to provide gambling.

While a casino will force design changes, including the transfer of the lobby area to the new building once completed about 18 months after groundbreaking, the new owners have yet to apply for the license for operational reasons.

"Why not?" asks Abolafia. "It is very costly number one, and number two, we're not going to do something we're not knowledgeable about [until we're prepared]."

In addition to the gaming, Royal Resort is in talks with a national hotel chain already involved in timeshares. While Royal Resort would not disclose the potential partner, major candidates abound with the likes of Marriott, Hilton and Inter-Continental.

Such a relationship would give Royal Resort access to the partner's reservation system, which would automatically drive overflow customers to the property and increase occupancy, while the brand of any national company would give any potential buyers of the timeshares and condo units greater comfort.

"We want to put a major flag on the building so it has credibility," Abolafia says. "People feel comfortable when dealing with people they know."

Royal Resort is confident it can compete with the recent spate of high-rise projects because of its location right next to the Strip in a section that is becoming a key focus of development with projects like Wynn, the Venetian and Fashion Show Mall expansions, and the expected renovation of the Stardust.

With the similar development in hotel-condos, Abolafia believes his company can prosper because of them, not despite them. "Why put a Burger King next to McDonald's?" he says. "Because people are coming for hamburgers. It makes it easier. People come [to Las Vegas] every year, while they won't go somewhere else every year ... I think this area will be the center of town. I predicted this five years ago."

Royal Resort's formula should prove beneficial as it develops its timeshare segment. While having 50 different people buy into a unit is extremely profitable, it is also costly because a company is marketing the same unit 50 times over. By creating a revenue stream from hotel occupancy, Royal Resort can stay afloat while wading through time-consuming sales operations.

"[In timeshares], you can't build too many units before they're sold," Abolafia says. "You can build 50 to 100 units at most. If 1,000 units have 50 weeks, the spread alone would kill me. To build a high-rise [of timeshares alone] is not cost effective."

Yet the timeshares market in Las Vegas is ripe for the picking, according to John Restrepo, principal at Restrepo Consulting Group LLC. Comparing Las Vegas to Orlando, which has similar visitor volumes, hotel rooms and convention business, he said that Orlando has 20,000 timeshare units to Las Vegas' 6,479 planned or existing units as of June 2003.

"[Las Vegas] has 20-25 percent of the timeshares that Orlando has with the same amount of hotel rooms and the same number of tourists," Restrepo adds. "If Orlando is the template, then there is room to grow in timeshares. The timeshare market is underserved and Las Vegas is catching up and more players will come. But there is so much competition for land, it is difficult to find a site that is free and clear. If you can find a [prime] property in terms of location and price, the demand is out there."

With property in hand, Royal Resort believes those facts will drive customers to its door as the continuing demand for Las Vegas pushes all prices through the roof and changes the dynamics of the market to favor the company's product.

"Las Vegas is a tougher market because people who come here to spend two or three days have a tough time understanding the value [of timeshares]," Abolafia says. "It's become a little bit easier since room rates have gone up. A few years ago, you could get a room for $39 or $49 [a night]. Now it's easier to get them to spend $10,000. They're buying into the lifestyle. That's what you have to sell."

 

This article appeared in the Las Vegas Business Press and was written by Steven Mihailovich