Aladdin's Lamp Has Dimmed

Aladdin Resort & Casino, the Las Vegas hotel opened just 13 months ago by Aladdin Gaming, has filed for Chapter 11 bankruptcy protection. However, TrizecHahn Development Corp., developer and manager of the adjoining Desert Passage retail venue, has said the facility will continue to remain open for business as usual.

TrizecHahn insists that Desert Passage ranks as one of the most popular malls in the country, with nearly 50,000 visitors a day to its 130 shops and restaurants. “With 18 million visitors in our first year, we're seeing traffic as good as or better than any mall on the Strip,” said TrizecHahn executive vp and coo Andrew Blair. “Desert Passage has met or exceeded all of our first-year sales and traffic targets.” TrizecHahn reports that the facility is 90 percent leased and has an average sales-per-square-foot ratio of more than $600, 70 percent higher than the national average. The facility is located next to Paris on the Las Vegas Strip, across from Bellagio and surrounding the troubled Aladdin.

As with most hospitality and tourism venues, the Aladdin has seen business suffer since the September 11 terrorist attacks on New York and Washington. But analysts say the $1.4 billion development has been plagued by cost overruns and internal strife among its owners ever since it opened. One observer categorizes the casino's performance as “miserable.”

One report insists the 2567-room hotel-casino has been on the edge of bankruptcy for months, and that the operators knew shortly after its opening that it faced severe financial troubles as a standalone operation on a strip of multi-property competitors. The management team hoped that a relatively healthy national economy and steady visitor flow to Las Vegas could keep the privately owned business afloat until it caught on with tourists and locals. That glimmer of hope, of course, was dashed in the aftermath of the attacks, which led to a two-day shutdown of U.S. airports and a lingering reluctance of vacationers and business travelers to fly to domestic tourist destinations. The Aladdin's hotel volume fell into the 40 percent range, casino play dried up and people stayed away from the property's restaurants, according to an anonymous source inside the operation.

Aladdin Gaming evidently missed an estimated $8 million payment due August 28 that was needed to keep its books in line. That payment was postponed on several occasions, beginning in May, as Aladdin's owners negotiated with their financiers. The company also defaulted on a $4.3 million payment for financing to lease furniture, fixtures and equipment and had until Friday to resolve the default with General Electric Capital Corp., according to the SEC filing.

The Chapter 11 filing will let Aladdin executives keep the property's doors open while they renegotiate payments owed bankers, bondholders and vendors — negotiations that must be approved by a federal bankruptcy court judge before the Aladdin can emerge from bankruptcy. Aladdin is said to owe some $510 million to its bankers, lessors of gaming and other equipment, furniture and fixtures, the county treasurer, Nevada Power Co. and others. However, several of Aladdin's bankers — led by the Bank of Nova Scotia — have agreed to immediately provide $9 million in operating capital for the property to remain open at least 45 days.

Critics have long argued that the Aladdin is plagued by a poor design that limits foot traffic throughout the property, has a hidden auto entrance from Harmon Avenue and a limited customer database. They also charge that London Clubs International, operator of the Aladdin's high-end casino area, has little grasp of the Las Vegas market.

“A fresh start for the Aladdin Resort & Casino with a strengthened financial structure can only add even greater value to the project as a whole,” said TrizecHahn's Blair. “With its dominant location, Theatre for the Performing Arts, European-style London Club and, of course, its proximity to the shops and restaurants of Desert Passage, the Aladdin offers a unique combination of attractions and advantages for shoppers, hotel guests, casino patrons and retailers alike. TrizecHahn and the Desert Passage staff look forward to working with the Aladdin team as they move through the reorganization process.”