Rouse's desert frontier Jackpot: By bringing hotels, offices rTC and homes to a fast-growing Las Vegas, Rouse has capitalized on a boom.

June 14, 1998|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

LAS VEGAS -- Amid the jangle of the slot machines on one of America's most famous strips, pirates battle it out aboard ships at Treasure Island, volcanoes erupt outside The Mirage and Roman statues stand guard at Caesars Palace. In the middle of it all, straight out of suburbia, sits the mall.

Though it's surrounded by neon-bright casinos and hotels, the Rouse Co.'s Fashion Show Mall on Las Vegas Boulevard has no blackjack or blinking lights. It holds an allure of a different sort -- Macy's, Saks and Neiman Marcus, all satisfying the itch to spend. Sales are double those of the average mall.

Such potential has long had Columbia-based Rouse eyeing the desert gambling mecca as a new frontier for buying and developing shopping centers. Two years ago this month, the company got its first chance with then-15-year-old Fashion Show, a sprawling, five-anchor center that made up a small part of Rouse's $520 million acquisition of the Howard Hughes Corp.

But the Hughes deal gave Rouse an even greater stake in the nation's fastest-growing city. The development company took on a vast collection of Las Vegas office parks, a planned community and undeveloped desert land amassed by billionaire Howard Hughes.

By all accounts, the acquisition has been a plus for the developer of Columbia, Harborplace and dozens of malls in the Eastern United States. By folding Hughes into its empire, Rouse diversified geographically, built up its commercial portfolio and began relying less on retail.

"It was a crucial move," said Robert Levy, an analyst with investment banker BancAmerica Robertson Stephens in San Francisco. "It has already been a huge positive and will continue to be. There's a tremendous amount of growth built into that portfolio."

The success of the Las Vegas holdings has surpassed Rouse's initial expectations. Besides the mall, the properties include three major office and industrial parks and Summerlin, a 22,500-acre, Columbia-like planned community 12 miles west of downtown.

Rouse Co. officials estimate those developments, which account for 10 percent to 15 percent of total assets, have boosted earnings about 24 percent. Last year, Hughes properties generated $228.9 million in revenue for the company. Land sales in Summerlin this year should account for about 60 percent of earnings from total land sales, while Hughes properties should generate half the company's earnings from office and mixed-use leases, Rouse projects.

The developer, which converted to a real estate investment trust early this year, says it is poised to capture a bigger share of the hot market. Analysts say they don't doubt those plans -- as long as strength in the economy holds out.

But the economy shows no signs of slowing. As a vacation and convention destination, Las Vegas draws some 30 million visitors a year, twice as many as a decade ago. Hotel construction is booming. Hotels under construction or planned -- including one with a re-created Eiffel Tower and another with Venetian gondolas sailing through a canal -- should add 21,049 rooms to the city's existing 105,000 by 2000.

Rouse, which built its name mostly on community-oriented projects, from traditional malls to the planning of Columbia, is less interested in Southern Nevada's gambling-bound tourists than in its residents.

No wonder. A population boom of 60,000 to 70,000 people a year is fueling unprecedented demand for places to live, work and shop. Luring the hordes of newcomers to the city of 1.1 million are lower costs of living, the absence of state corporate or personal income tax, a warm, dry climate and growing numbers of jobs.

Since buying the Hughes assets, Rouse has been aggressively positioning the properties to go after the fast-growing market.

The Fashion Show, for one, hasn't taken full advantage of its prime location, despite pulling in average sales of $500 per square foot, proving that even at 840,000 square feet, a mall can be overshadowed by the 24-hour ambience and glitz of Las Vegas Boulevard, Rouse officials said. (As part of an April agreement, Rouse will acquire full ownership of the center it initially had a 75 percent share in with partner TrizecHahn Corp. of Toronto.)

Later this year, construction will start to expand the mall to about 1.4 million square feet, enlarging the department stores and adding sixth anchor Lord & Taylor, more small store space, new restaurants and parking for 6,000. Rouse also hopes to enhance the center's presence by extending its facade to the boulevard's crowd-choked sidewalks. Expansion should be complete by spring of 2000.

"This center was doing very well," said Anthony W. Deering, president and chief executive officer of Rouse. "But it was not very visible. You could walk right by it and not notice it."

Besides the mall expansion, Rouse plans a regional mall and additional shopping centers in Summerlin, more office towers and the continued development of a community that will house 160,000 people within two decades.

The Hughes era

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