Venetian ponders sale of Grand Canal Shoppes

Tue, Jan 13, 2004 (10:53 a.m.)

The Venetian hotel-casino has hired a financial adviser to explore selling its Grand Canal Shoppes retail mall in a bid to raise capital to finance its proposed new resort on the Las Vegas Strip.

The company announced Monday that it had retained Goldman, Sachs & Co., New York, to "explore strategic alternatives available" relating to the 500,000-square-foot mall attached to the hotel-casino.

Venetian officials said no decision has been made as to whether there would be a sale.

However, a retail analyst with Deutsche Bank, New York, said there are several capable buyers in the market.

Louis Taylor listed Simon Property Group Inc., Indianapolis, The Rouse Co., Columbia, Md., and General Growth Properties, Chicago, as companies with potential interest in acquiring the mall, which opened in 1999.

"Simon (owner of the Forum Shops at Caesars) may or may not want to expand its Las Vegas presence," Taylor said. "Rouse may be unlikely, given they just completed their expansion of the Fashion Show and are working on another large project in Summerlin.

"GGP has been making some moves to higher-end tenant properties and could be interested," he said.

A spokesman for GGP said today the company could not comment specifically on the Grand Canal Shoppes, but that executives are always looking for ways to enhance shareholder value.

The company owns the Boulevard and Meadows malls in Las Vegas.

Forest City Enterprises, Cleveland, and The Taubman Co., Bloomfield Hills, Mich., also were mentioned by analysts as possible buyers. Forest City manages the Grand Canal Shoppes and also has minority ownership interests in the Galleria at Sunset mall in Henderson and the Showcase mall on the Strip.

Other potential buyers are private interests, such as the partnership of RFR Holding LLC and Sutton East Corp., which last month agreed to acquire the Desert Passage mall at the Aladdin hotel-casino for $241.5 million.

Experts say a sale of the Grand Canal Shoppes could raise between $300 million and $400 million because its sales per square foot are nearly three times higher than the national average. The International Council of Shopping Centers said the Grand Canal Shoppes yielded about $1,000 per square foot in sales in 2002.

The retail offerings at Grand Canal Shoppes have been described as a notch above the Desert Passage, but a notch below the Forum Shops at Caesars.

"They don't have all the high-end retailers, like Armani," said George Connor, senior vice president of Colliers International, Las Vegas, an expert on Strip retail properties.

But like Desert Passage and the Forum Shops, the 80-store Grand Canal Shoppes is characterized by it being attached to a casino -- a feature that has pros and cons.

Some experts are critical that malls attached to casinos don't have department store anchor tenants. Yet the malls' proximities to the casinos ensures that they receive above-average traffic.

Deutsche Bank's Taylor said the fact that the mall is attached to a casino may reduce the number of potential bidders for the property.

"This is definitely not a vanilla deal," Taylor said. "And there are some nuances here. For example, will the new Venetian expansion have a retail component? Do the Canal Shoppes have exclusivity? What about upkeep and other reciprocal agreements with the casino? There are some parts of this that may eliminate some interest in the property."

But a gaming analyst from the same company said it makes sense for Venetian to use the value of the Grand Canal Shoppes to build its new property.

"It's prudent of them (Venetian) to look at different options they have, including accessing the equity they've built in the Canal Shoppes," said gaming analyst Andrew Zarnett.

Zarnett said The Venetian is well on its way toward developing a new resort adjacent to The Venetian, already spending money on "soft costs" such as clearing the land.

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