JC Hospitality Partners CEO Richard Bosworth, whose company is redeveloping the Hard Rock Hotel in Las Vegas into a Virgin Hotel, talks about financing challenges in the market as well as details of the property’s operational plans and timeline.
NEW YORK—Amenities expectations from guests, bank-lending attitudes and the city’s conference calendar make the Las Vegas market different from any other and more challenging than most, according to JC Hospitality Partners CEO Richard Bosworth.
Bosworth knows this first-hand as his company is redeveloping the Hard Rock Hotel Las Vegas into the city’s first Virgin Hotel-branded property. The rebranding was first announced in December 2018.
Virgin debuted its hotel brand in Chicago in 2015 and in March 2019 its second property opened in San Francisco. Locations expected to come include Nashville; New York; Dallas; Palm Springs and Silicon Valley, California; New Orleans, Washington, D.C. and Edinburgh, United Kingdom.
Speaking at the Stay Boutique Live Investment Conference at The Times Center in New York in June, Bosworth also outlined the re-opening timeline and some of the operational structure for the 1,504-room property, which first opened in 1995 about a mile and a half east of the Las Vegas Strip.
Bosworth said building hotels in Las Vegas, which is the largest U.S. hotel market, can cost between $1 million and $1.5 million per room because of the cost of real estate, larger scale and on-site entertainment amenities required by guests, while generating private-equity interest is more difficult than in other cities because the typical payback period is longer.
“In any other city, we’d be one of the largest hotels. There, we’re one of the smallest,” Bosworth said. “Akin to the entertainment industry in Los Angeles is the hospitality industry in Las Vegas. Everybody’s watching what everyone’s doing.”
Additionally, bankers typically charge higher interest rates for properties with on-site gaming, while Las Vegas hotels are generally required to operate entertainment venues that typically don’t make money because of the high cost of in-demand talent. The Hard Rock includes a 4,000-seat showroom called The Joint.
“It’s a no-profit zone for entertainment, but your food-and-beverage revenue will drop if you don’t have that type of entertainment,” he said.
JC Hospitality is looking to mitigate some of the operation’s risk via outsourcing. While Virgin will manage the hotel, the gaming site will be outsourced to a third-party that agreed to a triple-net lease for the gaming floor.
With more than 166,000 rooms—Orlando is the next-largest U.S. hotel market, with almost 128,000 rooms, according to STR—Las Vegas through April maintained an occupancy rate of 89% while nightly room rates averaged almost $139, according to the Las Vegas Convention and Visitors Authority. By comparison, U.S. first-quarter 2019 hotel occupancy and nightly room rates averaged 62% and $129, according to STR, the parent company of HNN.
Despite such performance, supply remains constrained in Las Vegas, largely because of financing hurdles, Bosworth said.
“You go to New York, Austin, Nashville, Dallas, Houston, San Francisco. Every strong hotel market has had significant supply growth since 2008. Not Las Vegas,” he said. “Las Vegas is one of the hottest real estate markets in the country, but it’s also one of the most misunderstood.”
Bosworth said that because of strong January conference demand, the hotel will close for renovation February 2020, and will reopen eight to nine months.
“Whatever you think you’ll do in revenue (by staying open during a renovation), discount 25%, and you’re going to be rebating another 50% of that. You’re not going to be making friends,” Bosworth said. “We need to retain the business we have in January, because if you lose them, you lose them for three to five years. You lose a group, that’s a $30 million piece of business. So we’ve got to be open in the Januaries.”