Despite the fact that the U.S. hotel industry has been seriously hurt by the most severe recession since the Great Depression, there’s light at the end of the tunnel for the hospitality trade in general and for the resort empire that is The Sands Corporation in particular. That upbeat assessment comes from Michael A. Leven, one of the hotel industry's most respected executives and the man who has been president and chief operating officer of Sands since March 2009.
Plucked from retirement two years ago by Sands Chairman Sheldon Adelson, one of America's richest men, the 72-year-old Leven was given the assignment to “fix” this far-flung lodging operation. So what’s Sands’ most recent project? The company just opened the Marina Bay Sands, a gigantic, integrated resort complex in Singapore that features 2,600 guestrooms in three towers.
The project, which also encompasses more than 1.2 million square feet of meeting space, had its “soft opening” late in April and officially opened June 23. “It is the largest complex of its kind in Asia,” says Leven. “It will bring the Sands Corporation’s total accommodations count to some 13,000 rooms and suites.”
If you’re surprised just how large The Sands is, consider its operations. The Venetian Las Vegas, which opened 11 years ago, has 4,100 suites. The attached Palazzo Resort Hotel & Casino, now 30 months old, has 3,000 suites. Adelson’s other holdings include a cluster of resorts -- The Venetian, Sands and the Four Seasons in Macao and the Sands Casino Resort in Bethlehem, Pa., which opened a year ago.
Adelson, by the way, also founded and created Comdex, which dominated the high-tech consumer-products industry for much of the 1980s and 1990s. His take of the show’s sale in 1995 to a Japanese company for around $860 million, which helped him fund his Las Vegas resort empire, starting with his purchase of the original Sands hotel in 1988.
Leven’s return to the hospitality industry last year came at the most challenging time in modern lodging history. He says that hotels experienced “enormous room rate and visitor traffic growth” from 1996 to 2008. “Then the excess supply, combined with the ‘Great Recession,’ caused a huge reduction in the average room rate and falling profits,” he says. “A lot of hotels are still in trouble. Many of them have serious financial problems, and there have been many foreclosures and fast sales to pay off debts.”
Against this backdrop, however, Leven senses an improvement in Las Vegas, one of the areas hardest hit by the lodging decline over the last two years. He says he sees the pickup in restaurants, gaming, retail operations and room demand. “But there is only moderate price improvement for the rooms in 2010,” he admits, observing that hotels generally experience growth in profitability only when room rates grow at a healthy clip.
With the 12-year bubble in room-rate growth gone, Leven predicts that hoteliers now face some real challenges. Room-rate growth will take “a longer time to come back than occupancy,” he says. “If you want to inflate [room rates] to the same rate you had just in 2007, you have to grow 6 to 7 percent over a long period of time.” At 7 percent, it will take more than 10 years to double the room rate and Leven notes that Las Vegas currently offers rooms for 35 to 50 percent below their pre-recession peaks.
Leven thinks it will take Las Vegas four or five years just to get nightly rates back to the levels they were at in 2007. “To make this recovery sustainable," Leven says, “jobs must be created throughout the [national] economy since our customer base won't grow unless it is fueled by a return to far higher employment. Eventually, things repair themselves and even out. But this cycle is going to be a longer one.”
Leven says his Las Vegas properties earn 70 percent of their revenues from hotel operations and 30 percent from gaming. The recent deterioration of the casino side of The Sands’ business has been partly driven by the proliferation of gaming in nearby California, which used to contribute a more substantial portion of that revenue. But even though the California segment of his business remains problematic, Leven says casino business at The Sands properties is “slightly better this year than last year.”
Leven anticipates that his Macao and Singapore operations will enjoy “a significant amount of growth,” and that the Las Vegas properties will gradually resume their progress. In 2006-2007, The Venetian recorded an occupancy rate of 99 percent, with about 10 percent of the guestrooms distributed on a complimentary basis. At its low point last year, the occupancy was between 87 and 90 percent -- and with significantly more comps. Right now, occupancy is in the low- to mid-90 percent range.
Of course, any discussion that deals with gaming gets around to the “whales.” That is the descriptive word for the big players who can win or lose many millions of dollars in a single sitting. By most calculations, there are probably only about 250 real whales on the planet. Many come from Asia and, for decades, most of these prized high rollers made Las Vegas their gaming home.
Leven agrees that the advent of his ambitious casino projects in places like Macao and Singapore are tempting some of these whales to roll the dice closer to home. But he insists Las Vegas will continue to attract its fair share of this rare species because they like Las Vegas. “They can entertain families and friends here in the Nevada desert with stars, Broadway-style musicals and other prime revues -- something they can't do yet at the Asian venues,” he says.
If nothing else, however, Leven is a realist and he accepts that his job at the Sands is unique. “The complexities of this business are far more intense and far more challenging than the traditional hotel operating or franchising jobs I've had,” he says. “You're dealing with executives at very high levels all over the world -- million-dollar-plus executives. The higher up you go in that situation, the more challenging management and leadership becomes. If you're going to get good people at this level, they’re going to have some egos because that’s how they’ve achieved these roles.”
Leven compares his current gig to the stratification of the sports world. “Some of the jobs I’ve had are like coaching a college basketball team,” he says. “This job is like coaching the pros. The players are a different caliber and the competition is of a different caliber. So your coaching style has to be different. A lot of people are good at college, but they can't coach the pros. A lot of people are good at coaching pros but can't coach college. It's a managerial test and you cannot teach the same way.”
Speaking of coaching and careers, Leven started in the lodging business in 1961, working in the sales department of Manhattan’s Roosevelt Hotel. The job paid $98 a week plus a free lunch. Eventually, he rose to the presidency of Americana Hotels and Days Inns of America, followed by a long stint at the top job at Holiday Inns Worldwide. In 1995, he launched his own business, U.S. Franchise Systems, which was sold several years ago to the company now called Wyndham Worldwide.
A member of Sands board since 2004, Leven says one of his primary jobs is to find his own replacement. His two-year contract will expire next March and he expects to discuss his future with Adelson within the next few months. In the meantime, he continues to focus on what he calls an “expansive and challenging commitment.”
Martin B. Deutsch is a veteran travel journalist and editor. He currently serves as marketing consultant and program director for the Home Based Travel Agent Forum, set for Miami Sept. 27-29. You can reach him at mbjdeutsch@aol.com.