LAS VEGAS-The Las Vegas hotel industry continues to perform worse than 2008 despite the bar being set very low last year, according to just-released May performance data from the Las Vegas Convention and Visitors Authority. While the year-over-year declines generally have been on the decline, it is not due to improved fundamentals in 2009 but rather to declines accelerating throughout 2008. As a result, Las Vegas could post the same performance as the prior month while, due to the drop off in 2008, the performance spread would decrease.

Citywide hotel occupancy at the end of May stood at 84.4%, down 360 basis points from April 2009 and down 530 basis points from May 2008. The average daily room rate stood at $96.96, up 3% ($2.88) from April 2009 but down 28.3% ($38.21) from $135.17 in May 2008. Part of the explanation is room count, which grew by approximately 4,000 rooms between May 2008 and May 2009.

Visitor volume improved nominally from April 2009 to 3.19 million but was down 5.8% from May 2008. The decline was pulled down by an 11.5% drop in air passenger traffic and pulled up by a 4.4% rise in car-based visitation. Year-to-date (through May), visitor volume was running 6.9% behind 2008.

Convention attendance in May (341,846 people) was 17.5% lower than April 2009 (414,764) and 32.9% lower than May 2008 (509,482). Year-to-date (through May), attendance (15.19 million) was running 28.6% behind the comparable 2008 period.

There are $1.7 billion of distressed hotel assets in Las Vegas, according to Real Capital Analytics’ July Troubled Asset Report. The dollar value translates to 15 properties with a combined 9,036 units. One of the better known distressed hotel properties is the 727-room Hooters Casino Hotel.

Located one-half block from the intersection of Tropicana Avenue and Las Vegas Boulevard, Hooters Hotel-Casino was previously the Hotel San Remo. 155 East Tropicana LLC agreed to acquire the property in 2004 for approximately $72.5 million. It then spent approximately $63 million on the repositioning, including $53 million for renovations and operating equipment and an additional $10 million in pre-opening expenditures in 2005 and 2006.

In April 2009, ownership maxed out its line of credit and missed a $5.7-million payment on its $145 million of indebtedness and received a notice of default from Wells Fargo Foothill Inc., the servicing agent for the lender group. The company said it had sufficient cash from operations to operate the property but not to make payments on its debt, and had retained a third party to help mull over its strategic alternatives.

The default caused the interest rate on the debt to rise from LIBOR to the Wells Fargo prime rate, and in May, to rise to the default rate, which is 200 basis points higher than the otherwise applicable rate. The company received additional notes of default in June. “The lender group continues to evaluate its response to the events of default,” 155 East Tropicana LLC states in its most recent SEC filing.

A couple of other distressed assets are the 93-unit, limited-service Travelodge Sahara Westwood Inn on Westwood Drive, which has defaulted on its $4.4-million first mortgage, and the 150-unit Clarion Inn Emerald Springs on East Flamingo Road, which was transferred to Nexbank SsB at a value of $45.5 million following a foreclosure.

Earlier this month the state Gaming Control Board said casinos took $480.8 million from gamblers in May, more than they have in any previous month this year. The year-over-year decline was 6.4%, which while negative is much improved from the double-digit YoY declines from previous months.

The less impressive data are that YoY gaming revenue on the Strip has been negative for 17 consecutive months, and that the last time the Strip gaming revenue was stuck below $500 million for the first five months of the year was five years ago, in 2004, when there was much less room for people to gamble.

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