Vegas Land a Pricey Bet

Las Vegas commercial land prices are hitting record highs as casino operators and residential developers look to win big by grabbing some of the last attractive parcels surrounding the lucrative Strip.

Sin City has been in the spotlight recently, with the bidding war for casino operator Aztar (AZR) and the recent $770 million purchase of the Hard Rock Hotel and Casino by Morgans Hotel Group (MHGC) making headlines.

Aztar's suitors were looking to gamble on the company's aging Tropicana Hotel and Casino, which sits on a 34-acre land parcel representing one of the last remaining major development opportunities on the south end of the Las Vegas Strip, home of the city's glitziest casinos and hotels.

Pinnacle Entertainment (PNK) on Friday said it decided not to increase its $51-a-share offer for Aztar, thus ending a bidding war and making closely held casino operator Columbia Sussex Corp. the effective winner of the company. Aztar, which confirmed late Friday that it signed a definitive merger agreement with Columbia, originally agreed to be bought by Pinnacle in March for $38 a share, and Ameristar Casinos (ASCA) and privately held real estate firm Colony Capital also had stepped in with bids.

Columbia's bid for Aztar totaled $1.94 billion, or $54 a share. At that price, the deal implies Aztar's Las Vegas Strip land is being valued at $22 million to $39 million an acre, says Lawrence Klatzkin, an analyst with Jefferies & Co.

If the Columbia deal goes through, that land value would represent the highest price paid per acre in Las Vegas for a parcel of that size, says Brian Gordon, principal with Applied Analysis, a Nevada-based economic consulting firm.

"Clearly, parcels within the resort corridor have reached new levels, and for this pace of escalation to continue would be unrealistic," Gordon says. "At some point, projects become infeasible from a financing standpoint if the underlying real estate is too costly."