HONG KONG - Eighteen months ago, Macau's Cotai reclamation area had the stench
of failure. This landfill between Macau's outer islands envisioned as Asia's
Las Vegas Strip looked instead like a corporate graveyard. Las Vegas Sands
Corporation (LVS) chairman and chief executive Sheldon Adelson had bet his
company on Cotai, and, as LVS teetered on the brink of bankruptcy, had
apparently lost.
Now, Cotai is the hub of gambling growth in Macau, if not all of Asia.
Construction projects that were mothballed due to lack of capital or grim
business prospects are speeding toward completion. Even concessionaires that
have shunned Cotai now want their piece of the action.
LVS conceived Cotai and pioneered it with the US$2.2 billion
Venetian Macao casino resort, the first step in a US$12 billion corporate
investment in the dusty expanse, every bit as desolate as the Nevada desert
patch that became the Las Vegas Strip. Opened in August 2007, the Venetian
Macao soon delivered the biggest share of LVS profits, reordered the Macau
gambling market, and helped boost gaming revenue to record levels. But the
mega-resort didn't transform Macau into an international travel destination or
major convention center.
Other developers left their government-granted Cotai lots fallow, but LVS
roared ahead. It opened the Four Seasons on the adjacent plot to the Venetian a
year later, but it merely highlighted the sense of isolation in Cotai; a cannon
shot through its ultra posh mall wouldn't have hit a single customer on most
days. Across the street, LVS was building three more hotels and a casino on
Cotai Lots 5 and 6.
Party pooper
Meanwhile, after years of ceaseless, often spectacular growth, Macau's gaming
revenue fell in September 2008 compared with the previous year. Beijing had
tightened travel visa rules for mainland Chinese, who represent the majority of
visitors to Macau. The revenue decline continued for the rest of that year and
through the first two quarters of 2009.
By late 2008, LVS was getting hammered on all sides. Las Vegas, its home turf,
began slumping ahead of Macau. Meanwhile, the company had committed more than
US$6 billion to projects beyond Cotai, and cash flow had slowed to a trickle.
With lenders leaning hard in November 2008, heavily leveraged LVS stopped work
on Lots 5 and 6. Cotai appeared dead before it really began.
Cotai's turnaround dates to the opening of City of Dreams on June 1 last year.
"There is no doubt that City of Dreams has and is proving to be a catalyst to
the ongoing development of Cotai," City of Dreams president Greg Hawkins said.
The US$2.2 billion integrated resort provided a neighbor for Venetian Macao.
City of Dreams added three more hotels, a Hard Rock branded casino with 500
tables, another handful of luxury label outlets, and The Bubble, a free
10-minute media show projected onto the venue's domed ceiling. City of Dreams
will add the House of Dancing Water show created by Cirque du Soleil pioneer
Franco Dragone this year and, eventually, an apartment-hotel with 800 rooms.
Rebalancing act
In its first month, City of Dreams attracted 1.2 million visitors. But the most
important thing City of Dreams brought Cotai was a vote of confidence. "We were
the only casino operator to open in 2009, in what was still a difficult overall
economic situation globally," Hawkins said. "We were confident that Cotai was
going to revive quickly and that our strategy of an integrated resort
destination would prove successful - and so it has."
Factors that hit Macau and Cotai were bigger than any one property could fix,
though. The global recession that began in late 2008 cut travel and lending,
both essentials across the gaming industry. "The closure of financial credit
markets is really what hobbled many high quality casino gaming firms in the
first place," independent travel and leisure sector strategist Jonathan Galaviz
said.
China also took steps to ease credit to keep its economic growth steaming
ahead, which brought double happiness to Macau. A strong economy, along with
eased visa regulations, helped keep visitors coming to Macau. The flow of
credit in China also paved the way for LVS to float shares in its Macau
properties on the Hong Kong stock exchange as Sands China last November.
Confidence game
"Investor confidence in Macau has greatly increased" compared with a year ago,
Galaviz said. "Renewed interest in Cotai is really a function of that."
Proceeds from the HK$19.4 billion (US$2.5 billion) stock offering gave LVS an
infusion of capital to restart work on Lots 5 and 6, just south of City of
Dreams, this year.
Resumed construction at LVS, along with Macau's uptrend in gaming revenue since
mid-2009, restored Cotai's aura of success - or at least hope for success.
Galaxy Entertainment, owner of the StarWorld casino resort in downtown Macau,
accelerated construction of its on-again, off-again Galaxy Macau, located just
west of the Venetian - City of Dreams is to the east - to open early next year.
"Galaxy's decision to speed up completion was based on clear evidence of an
improving global economy and a vibrant Chinese economy, not on what competitors
are doing," Galaxy investor relations director Peter Caveny said.
Galaxy Macau, a US$1.8 billion "Asian-centric" resort featuring three hotels
with an eventual 2,200 rooms and a "genuine beach experience" featuring 350
tons of white sand, will compliment StarWorld, Caveny explained. "The resort on
Macau peninsula is designed to cater to visitors with a short visitation
horizon while fully integrated resorts such as Galaxy Macau are specifically
designed to offer a broader range of resort and entertainment facilities."
Mass movement
"Cotai is gaining the much needed critical mass: Lots 5 and 6 plus Galaxy Macau
will really take Cotai to a whole new level," AG Leisure Partners managing
director Sean Monaghan said. "Everyone needs to be there, as it is such a pure
cluster of new high-end facilities."
At the debut of his Wynn Encore in Macau last month, Wynn Resorts chairman and
CEO Steven Wynn said he would begin construction on his long-idle Cotai plot.
The multi-billion dollar luxury resort is projected to open in 2013, Wynn said.
Even though Wynn, like Galaxy, has a strong presence in downtown Macau, it
feels compelled to plant a flag in Cotai and help US arch rival Adelson's LVS
fulfill its Cotai vision. It's not just about hotels and real estate and
rivalries. "Casino gaming companies are de facto real estate development
companies, therefore, being both in Cotai and downtown are natural real estate
positions to have in Macau," Galaviz said.
Even market leader Sociedade de Jogos de Macau, focused firmly on the Macau
peninsula, has a Cotai plan. "We have two sites and a project design for one,
but no firm timetable for commencing construction," SJM CEO Ambrose So said.
"Our strategy is to be driven by demand, and when we do decide that the time is
right to start breaking ground, the construction time for our first project -
The Pearl - will be an estimated 24 months."
As Cotai booms ahead with billions of dollars pouring in and billions more
planned, it's easy to forget how grim it was in 2008, and how easily it could
happen again. Confidence, and visa regulations, are delicate things.
Macau Business magazine special correspondent and former broadcast news producer Muhammad
Cohen told America’s story to the world as a US diplomat and is author
of
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