The announcement that The Ritz-Carlton, Lake Las Vegas will close its doors on May 2 could come as a surprise, but when you take a closer look, it’s an unfortunately accurate representation of the current lodging industry.
Scott Helfman, spokesman for Deutsche Bank, parent company of the hotel’s owner, Village Hospitality, said the decision to close the hotel was a mutual agreement between all parties after Deutsche Bank said it could no longer fund its operations.
“It’s been a very successful hotel,” said Ritz-Carlton spokeswoman Vivian Deuschl. “The closing had nothing to do with quality of the hotel.”
First, it’s no secret that luxury properties were hit hardest by the recent downturn. You’ve heard the numbers before, but they’re so alarming that I’ll give you a reminder: From September 2008 to September 2009, occupancy at U.S. luxury properties fell 11.7 percent (to 61.9); average daily rate fell 17.1 percent (to $241); and revenue per available room fell an astonishing 26.8 percent (to $149), according to Smith Travel Research.
Although a recent H&MM article predicted an emergence of the luxury segment in 2010 led by demand (down only 4 percent in September 2009 YTD), the big question surrounding a luxury bounceback is rate. The luxury segment has been forced to compete with lower chain scales and target normally select-service travelers looking to trade up at a discount. Group travel at the luxury level is nearly nonexistent. In the remaining months Ritz-Carlton, Lake Las Vegas is open, guestrooms range from $269 to $419 per night.
Deutsche Bank, of which Village Hospitality is a subsidiary, attributed the closure to an “unprecedented economic downturn [that] has had a significant impact on the hotel's operations,” Helfman said.
The closing adds to the pile of Las Vegas mess Deutsche Bank has gotten itself into.
The lender last week wrote down the value of Cosmopolitan Resort & Casino by another $103 million, the second write-off in less than a year on the 3,000-room property Deutsche Bank foreclosed on last year. Cosmopolitan now is two years behind schedule and $2 billion over budget; the project is expected to cost between $3 billion and $3.9 billion when all is said and done.
Deutsche Bank also is a lender to bankrupt Station Casinos Inc. and was a lender on the unfinished Fontainebleau, which was recently won at auction by Carl Icahn, who promised $156 million for the property; $2 billion already has been spent developing Fontainebleau.
Deuschl said the closing “saddens” Ritz-Carlton and Marrriott teams, and their biggest concern is placing the 400 employees in new jobs with other Las Vegas hotels. It is the only Ritz-Carlton in the state of Nevada, and “one of the most acclaimed Ritz-Carltons for amenities and service,” she said.
The hotel will continue to operate as-is until May 2.
The Ritz opened in 2003, and developer Transcontinental Corp. lost the property in foreclosure after defaulting on $540 million in loans. The property hit more financial trouble in 2008, and in February 2009, Village Hospitality bought it in an already distressed state.
Neither Helfman or Deuschl would comment on the future of the property. As far as looking to sell the property, Helfman said Village Hospitality will continue to monitor the current hotel real estate market.
As the number of full-service hotel closings climbs, Jim Butler, partner at Jeffer Mangels Butler & Marmaro, discussed recently the effect closing a property has on its value.
“The day you close a hotel, it’s worth half of what it was the day before,” he said. “And the bigger the hotel, the more likely that is because you lose the brand, you lose the staff, you’re going to have new opening expenses, all of those things.”
