Instead of demolishing the Sahara Hotel and rebuilding, Sbe Entertainment created the SLS Las Vegas as an adaptive reuse project.
Sbe Entertainment took a different approach in the development of its first hotel in Las Vegas, the nearly 1,600-room SLS Hotel & Casino, which opened in early September on the north end of Las Vegas Strip. Part of the process and final outcome of the project were affected by the recession.
“When we started on this journey we had a much larger vision of what we wanted to do,” said Arash Azarbarzin, president of Sbe Hotel Group, during a presentation at the Boutique Lifestyle Leadership Symposium, sponsored by the Boutique & Lifestyle Lodging Association.
“We had a budget of between $1.2 (billion) and $1.3 billion, and we envisioned adding a 1,000-room luxury tower to the hotel. But the recession came along, and we were forced to go through four or five iterations of the plan until we ended up with what we have,” Azarbarzin said.
Sbe and partner Stockbridge Real Estate Group bought the former Sahara Hotel and Casino in 2007 with the idea of operating it as the Sahara for a year and then closing and reimaging it as the SLS. But due to the economic downturn, they kept the Sahara operating for four years before closing for a nearly three-year-long renovation.
Unlike other new hotels built on the Las Vegas Strip in recent decades, the SLS is an adaptive reuse project, an approach which company officials said reduced construction costs by between one-third and 40% and cut the project timeline by five to six months.
“It’s remarkable what we were able to accomplish with a $400-million-plus renovation budget,” Azarbarzin said. “It’s a 2.4-million-square-foot building in which we created nine restaurants, three nightclubs, two pools, 60,000 square feet of casino space, 1,600 guestrooms and a 2,500-space garage. And we did it on budget and on time. Actually we were able to open two weeks early.”
One key, Azarbarzin said, is that Sbe is a fully integrated hospitality company with most disciplines in house, including its own development arm.
“We run all aspects of the operation—the restaurants, the nightlife, the gaming, the rooms—without any partners,” he said. “This enables us to deliver a fully integrated experience to our guests.”
Finding the money
Soon after taking control of the Sahara in 2007, the economy began to sour and the owners had to scramble to find financing to complete the transformation of the hotel into an SLS.
During 2010 and 2011, the company was able to source financing through high-yield bonds. Instead, it turned to the EB-5 financing program that enables foreign nationals to invest in job-producing projects in the United States in return for visas. Azarbarzin said through EB-5 the company was able to raise $420 million with a blended interest rate of between 4.5% and 5%.
“That’s pretty good financing for a non-stabilized asset,” he said. “It’s five-year paper with no covenants, so there’s no big gun to our head, which enables us to experiment a bit.”
Azarbarzin said a key to the financial success of the project was the company’s decision to do the adaptive reuse project instead of a replacement of an existing hotel.
“We think we may have started a trend,” he said. “In the past, all new hotels in (Las Vegas) were created by demolishing, imploding and destroying existing buildings and then starting from scratch. We could be the start of a domino effect that you’ll see elsewhere on the Strip and in the city.”
Old and new
Azarbarzin said the Sahara was built over 60 years and underwent 54 renovation projects. The hotel’s three guestroom towers were built in different decades.
“In planning the project we didn’t want all 1,600 rooms to have the same look and feel and price point, so each tower encompasses a different concept,” he said. The largest, the 1,100-room World Tower, was built in the 1990s and generally is used for group and convention guests.
Built in the 1960s, the upscale Lux Tower has 287 guest units, down from the previous room count of 480 units. The 200-room Story Tower was designed with millennial travelers in mind. It also has four suites designed by musician and interior designer Lenny Kravitz.
“Back in 2006 when we were looking at buying the hotel, there were five or six other parties chasing the deal, but I believe we won the bid in part because we promised to pay homage to the Sahara and embrace its past,” Azarbarzin said. “That’s done in very subtle ways, such that I call the hotel a 2.0 version of the Sahara.”
Some of the images from the former hotel and its celebrity clientele are hanging in the SLS public areas. The Congo Room, the Sahara’s iconic showroom, was retained as a ballroom, and a variety of memorabilia is discretely sprinkled throughout the property.
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