Echelon: A Dream Deferred

by Nick Christenson
November 1, 2009

The "shelving" of Boyd Gaming's Echelon project is well over a year old now. The Las Vegas Review-Journal was one of many sources to report on construction halting. When Boyd mothballed their endeavor, they indicated that they'd revisit the project in a year. Well, apparently, they've done so, and they've now indicated that construction won't be resuming any time soon.

Some local commentators on the industry expressed what sounds like a mild dismay at the news. Certainly, there can't be any surprise in this announcement. Given the state of the economy and the industry, restarting their construction process right now would be silly. Of course, Boyd still has a line of credit available to them that was originally slated for use on Echelon, but there are better uses for that money now.

The first possible use is as the Sword of Damocles they're hanging over Station Casinos. After Station started renegotiating their debt after the financial crisis hit, Boyd "graciously" offered to help them out by purchasing some of their key assets. Station was less than receptive, but the offer is a win/win for Boyd. Either they get Station assets at fire sale prices, or the bond holders have leverage to hold out for a better deal, leaving Station in a tougher financial spot when they emerge from restructuring. This is hardball business at its finest.

Assuming Boyd doesn't end up with the Station properties, the next most likely use for that money would be to buy up MGM's interest in the Borgata, the very successful Atlantic City joint venture between the two companies. Even though MGM dodged a bullet by securing the financing necessary to complete City Center, they could use the cash. While opening City Center means they aren't spending money on construction, given that they have to start to service the debt they've accumulated building this behemoth, and given that folks are more than a little reluctant to shell out for vacations at the rate they did just a couple of years ago, any reasonable offer to liquidate a non-core asset will be seriously considered.

So, when will Boyd restart Echelon construction? Even though some sources have thrown around a three year time horizon, the truth is that nobody knows, not even Boyd. However, we can make some predictions about preconditions before they'd consider.

First, Boyd probably needs new partners. I find it doubtful that General Growth Partners will be able to participate in such a venture for quite some time, as they are going through a bankruptcy of their own. Boyd's other Echelon partner, Morgans Hotel Group, may become interested again, but there's no guarantee that they'll want the same deal, or will have the same time horizons as Boyd. Certainly, they appear to be in better financial shape than GGP, but the economic downturn has to have hit them hard as well.

In any case, it takes quite some time to ramp up a construction project that has been shut down for so long, especially now that the cranes are being taken down. Echelon is no longer just on hiatus. Project managers have been released, and it's likely that market influences and the ever-changing vibe in Las Vegas will make alterations necessary to the original designs before the cranes go back up. Revisiting the plans will take considerable time itself.

Finally, not only do the financial conditions need to improve enough so that building in Las Vegas makes sense again, but even after the economy improves enough for tourists to return, there has to be enough extra traffic to absorb the additional capacity that City Center, Fontainebleau (one way or another it will open before Echelon gets under way again), the mothballed Octavius Tower at Caesars Palace, and likely even the Cosmopolitan, will provide.

So, how does this time line go? Well, the economy recovers, people start to spend, people come to Las Vegas in numbers exceeding those in early 2007 so that the new rooms are full too, then Boyd can dust off their plans, make deals, and begin construction. Even the most pie-eyed optimist can't imagine that happening in less than three years, with another two years before something opens. It would seem to me that five years until construction begins probably reflects a rosier view of the future than is warranted. It's not unreasonably pessimistic to admit the possibility that we'll be staring at girders from the corner of Las Vegas Boulevard and Convention Center for a decade.

So, while the skeleton on the site that used to hold the Stardust may be an eyesore, we may as well get used to it. It will be there for a while, and, as it turns out, Boyd Gaming halting construction when they did was undoubtedly a prudent move. Sure, nobody wants such a visible reminder of Las Vegas' failings featured so prominently on one of this country's most recognizable byways. Nonetheless, it's hard to imagine an inexpensive solution that will satisfy's Echelon's neighbors.

In the mean time, perhaps the best thing to do is to gaze upon the steel framework as a reminder that there is always the temptation to cross the line between luxurious excess and outright depravity, between ambition and rapacity. As a community and an industry we had crossed that line. The party is over now. It's time to clean up what parts of the mess we can, and live with what we must.