Red Rock Resorts leadership didn’t have much to say last week about the Palms Casino Resort, the off-Strip property that cost the company more than $1 billion over the past five years in acquisition costs, renovation charges, and write-offs associated with a failed nightclub.
The Palms closed 11 months ago when Nevada shut down its gaming industry for 78 days in an effort to slow the spreading COVID-19 pandemic. It’s one of four Las Vegas-area casinos Red Rock properties in Las Vegas operated by its Station Casinos subsidiary that has been padlocked since the closure.
“I think the Palms is very oriented toward the tourist market visitation to Las Vegas,” said Red Rock Resorts CEO Frank Fertitta III, citing a piece of the economy that will be one of the last to return to normal.
The closure of the KAOS Nightclub at the Palms in Las Vegas in 2019 cost Red Rock Resorts millions of dollars in write-downs.
“We’re going to continue to be very disciplined and we want to be in a position that when we reopen any additional properties that we’re going to know that it’s going to be positive and accretive to our overall cash flow,” Fertitta said.
But that doesn’t mean expansion in Las Vegas is out of the question, even with four casinos still off-line. Red Rock has eight parcels of vacant land for potential development — six in Las Vegas and two in Reno. The company would like to sell some of the combined 477 acres, especially an 88-acre site in Reno near Mount Rose Highway.
But a long-vacant 70-acre site in southwestern Las Vegas, which was pegged for development nearly 13 years ago as Durango Station, has piqued the company’s interest once again.
Other than a handful of taverns with 15 or fewer slot machines, there isn’t much in the way of gaming near the location, which is adjacent to the busy Interstate 215 beltway that connects Las Vegas, Summerlin, Henderson, and North Las Vegas.
In 2008, plans for Durango Station, a locals-geared hotel-casino with 700 rooms built in a style similar to the company’s two flagship developments, Green Valley Ranch in Henderson and Red Rock Resort in Summerlin, were announced. The grand opening was scheduled for 2011. However, Station Casinos’ 2009 bankruptcy reorganization and the recession scuttled the plans.
Last week, Red Rock Chief Financial Officer Steven Cootey said the site was back on the table.
“We own a significant number of gaming-entitled real estate development sites,” Cootey said. “I think our primary focus is going to be on Durango moving forward.”
That comment attracted attention from the analyst community.
Union Gaming Group’s John DeCree said Red Rock Resorts, which has 10 large properties and a handful of smaller casinos throughout the Las Vegas Valley, stands to benefit from “population migration,” primarily from California and other high-tax states.
DeCree said the Durango site, which is near the populated Rhodes Ranch community, is “arguably” Red Rock’s most attractive development prospect in its pipeline.
Deutsche Bank gaming analyst Carlo Santarelli had a similar reaction to the location.
“Durango offers a compelling return on investment and we expect a very disciplined build for return type project on the parcel, should Red Rock opt to move forward,” he said.
A tribal gaming opportunity in California is also calling out to Red Rock Resorts. The long-dormant project near Fresno is back on track after 17 years of legal entanglements. Cootey said the company hopes to “have a shovel in ground” by the end of June on the $350 million casino-resort with North Fork Rancheria of Mono Indians.
The project comes just as the company’s seven-year management contract for Graton Resort north of San Francisco ends, although the uncoupling with the Graton Rancheria Tribe isn’t ceasing quietly.
Cootey told analysts Red Rock believes the pandemic-related temporary closure last year of the Northern California casino should have allowed the company a few additional months of management fees.
“We have initiated the dispute resolution mechanism in the management agreement to resolve this question,” he said.
Meanwhile, back in Las Vegas, Texas Station, Fiesta Rancho, Fiesta Henderson, and the aforementioned Palms remain quiet. Fertitta said nothing will happen with those casinos until the business is back to somewhat normal levels in the Las Vegas Valley.
Of note, Virgin Hotels Las Vegas – which could be considered direct competition to the Palms – announced last week a long-awaited opening of the off-Strip resort for March 25.
On Monday, the governor increased casino-floor customer capacity statewide to 35%. It will jump to 50% on March 15. Three days later, the four closed Red Rock properties seem destined to mark an inauspicious one-year anniversary.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
