How Fremont Street in Las

This is an extract from a post at BloodhoundBlog:

Last week I wrote about two multi-billion dollar multi-use projects being built on Las Vegas Boulevard -- "The Strip." Kirk Kerkorian's MGM-Mirage will spend $7 billion to build Project City Center, while Bill Boyd's Boyd Gaming will drop $4 billion to put up Project Echelon. That's a lot of money even by Sin City standards. Wynn Las Vegas weighed in at only $2 billion.

So here's an interesting question: Why, if gaming corporations are willing to spend such huge sums of money on The Strip -- why is Downtown Las Vegas in such disreputable shape? An unrestricted gaming license is a precious thing. Contrary to appearances, very few spaces in Clark County, Nevada, are zoned for table games. And Boyd Gaming has a relatively strong presence Downtown -- Main Street Station, The California Club and The Fremont.

So why aren't Boyd and other Downtown owners spending millions upon billions of dollars to develop their properties?

A simple question with a simple answer: Land leases.

Some Downtown casinos own their own land -- or parts of their own land -- but much of the land in Downtown Las Vegas is owned in tiny parcels which are leased to the casinos sitting on that land. The casino once known as Binion's Horseshoe, now just Binion's, sits on seven different leased parcels. Some of these little parcels have as many as twenty owners, each one of whom can veto any change in the terms of the lease. Moreover, since the rents charged the casinos are exorbitant, and since any upgrading to the properties would temporarily cut into that rental income, the many and diverse landlords, collectively, have no interest in the cycle of demolition and rebirth that characterizes The Strip.

Downtown Las Vegas has other disadvantages, of course: Grime, crime, mendicants, winos, drug addicts and cheesy souvenir shops. But the two blocks of Glitter Gulch were closed to street traffic by the City of Las Vegas, and The Fremont Street Experience, a consortium of Downtown casino owners, has erected a giant Diamondscan canopy overhead -- a video display five football fields in length. Fremont Street offers what The Strip could and should but doesn't: A giant open-air party every night.

But because of the land leases, change is slow. And because change is slow, cash-flow trends downward year after year -- robbing Downtown casinos of both their investment capital and their appeal as investments.

Some people talk about condemning the land by Eminent Domain, but that "cure" is worse than the disease. In reality, the true problem is zoning. If investors could build casinos wherever they might be able to acquire suitable property in fee simple, then Glitter Gulch would die quickly, rather than slowly and painfully, futilely kept alive by one taxpayer subsidy after another. But if it could finally die, then it could finally live. The current land owners would have no reason not to sell, and new structures -- casinos, stores, offices, residential towers -- could rise on that land.

Zoning has ossified the land on and around Fremont Street into a slow motion ghost-town-in-the-making. The current use of the land is so valuable that the current owners won't set it free to soar to even higher and better uses. You might argue that they are short-sighted, but it is the de facto oligopoly caused by zoning that rewards them for being myopic.

-- Greg Swann, BloodhoundBlog

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