Four months ago, Las Vegas' Frontier Hotel was demolished in a televised celebration that marked the start of a new mega-project rising in its stead.
IDB Development Corporation, Property and Building Corporation (PBC) and Yitzhak Tshuva's privately held company Elad Group mean to invest as much as $8 billion in the Plaza Hotel Las Vegas, on the city's Strip. But can they still pull off a project that ambitious in these leaner times?
PBC's stock has lost 60% of its value since last summer, because of the global markets meltdown. In PBC's specific case, some cite fears that the credit crunch will sabotage the Vegas project, which includes a 3,500-room hotel, casino, commercial center and luxury housing. Sagi Eitan, CEO of PBC, is not dismissing the concerns but feels that the Las Vegas project is nothing to be afraid of. When she visited Vegas mere weeks ago, she says, there hardly any hotel rooms were available. Demand is there, Eitan insists.
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"The city continues to host some of the biggest conferences and festivals in the United States. Although we are feeling a local slowdown, this is not something that will disrupt our plans for the project," she says.
The Las Vegas Plaza is still in the planning and approval stages. Construction could this year or in early 2009. That's the plan, at least, and there have already been changes to adapt to the new reality. "I am not ignoring reality," Eitan explains. "I see the jitters in the markets and the slump in the Vegas' luxury housing sector. That's why we're going to focus first on the yielding properties - the casino, hotel and commercial space - and we'll build the apartments later."
The market is afraid you will have difficulty refinancing your loans. "We bought the land for $1.24 billion, with more than $625 million in bank financing at excellent terms that should suffice until August 2009. By then I hope the storm will be over and we will be able to keep moving forward with this project, which will take about four years to build. Of course times are hard right now, but this crisis is expected to create excellent investment opportunities for strong groups like IDB, Yitzhak Tshuva's companies and others. I am still optimistic."
Naturally, the company has eggs in more than one basket. PBC is also building homes with IDB Development and is making inroads in Ukraine and India too, where it works with Gershon Salkind's Electra Real Estate.
"In the second quarter of this year we will start marketing the first stage of the Hyderabad residential project, which has 700 apartments," Eitan says.
Have you had any cancelled deals due to bureaucratic difficulties, like those reported last week by Azorim Investments Development?
"Of course there are regulatory obstacles, but nothing has delayed our plans. We are progressing on schedule and view India as one of PBC's future growth engines."
PBC also has projects in Western Europe, particularly in Germany and Britain, where the company recently spent 200 million euros on properties. Eitan admits that the strict financing terms there have almost completely halted new deals; anyone trying to get money from the banks is questioned on his ability to repay loans.
"We have managed to obtain hundreds of millions of dollars in financing, and demand for hotel bookings in Britain remains high," she says.
PBC published its 2007 results Sunday, reporting NIS 44 million in net fourth quarter profits, down 35% compared to the last quarter of 2006. However, net annual profits were up 11% compared to 2006, totaling NIS 170 million. Annual revenues were up 22%, to about NIS 1 billion. PBC also reported disbursing NIS 216 million in dividends.
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