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Has Desert Passage run out of luck?

The two-year old Desert Passage is struggling to recover from the fallout after the owners of Aladdin Resort and Casino filed for Chapter 11 bankruptcy protection in late September. The 490,000-sq.-ft. center sits inside the financially troubled Aladdin, which was saddled with cost overruns and rising debt when it opened in 2000. The post-September 11 drop in tourism was the final straw.

But Desert Passage appears to be bouncing back from Aladdin's woes, and some of its own, from the fall off in foot traffic caused by the bankruptcy in addition to the economic downturn, observers say. Sales are averaging $550 per sq. ft., according to the company. Since March, comparable store sales are up 5%, Sorensen reports.

Sales appear to be strengthening, more restaurants and retailers are opening, and customer traffic is almost back to normal at Desert Passage, whose theme is an exotic Moroccan bazaar.

“There are pockets doing extremely well,” says George Connor, a retail senior vice president of resort properties with Colliers International in Las Vegas. “Certain things had to be fine tuned.”

The property's owner, TrizecHahn Properties' THBazaar Centers Inc., now controls 100% of the center. Formerly, it was jointly held by TrizecHahn and the Sommer family trust, a joint-owner of Aladdin Gaming LLC, owners of the hotel and casino.

Bob Sorensen, president of THBazaar Centers, says a major challenge for the center has been its inability to attract retailers, given the uncertainty of the Aladdin hotel, which is seeking a buyer.

“It has hurt our ability,” Sorensen says. “We look at the bankruptcy and the hotel's likely change of ownership as a positive. But to those unfamiliar with the hotel's bankruptcy, it creates a cloud of uncertainty.”

Desert Passage is also looking for a new owner, while TrizecHahn is reorganizing from its own set of troubles. Now Fashion Show Mall, a Rouse property just down the Strip, is expanding. Fashion Show will add a Nordstrom, more restaurants and more specialty retailers.

While it's too soon to tell how Fashion Show's expansion will affect Desert Passage, Sorensen remains upbeat. “To my knowledge, they're not trying to woo our tenants,” he says. “I'm not aware that our retailers are seeking another location at Fashion Show.”

Desert Passage, which opened in August 2000, is across from the popular Bellagio and Paris hotel casinos. Those hotels offer mostly high-end specialty retail, which Desert Passage now is shying away from. Its mainstream stores include Gap, Sephora, French Connection, Eddie Bauer, Cutter & Buck and Tommy Bahama.

Then Sept. 11's aftermath magnified problems for both Aladdin and the retailers inside at Desert Passage. Some stores at Desert Passage closed. “There has been some retailer turnover,” says Connor, the Colliers broker. “It doesn't help to have the anchor tenant — the hotel and casino — in bankruptcy since the majority of traffic is generated from [it].”

Poor leasing strategies at Desert Passage meant too many stores operated in the same category initially, such as jewelry and art. But other shops closed because of the recession — Rockfish Catalog, Mayor's and Toys International were among the retailers to go dark.

Access into the Aladdin hotel remains an obstacle. Traffic is guided to the back of the property. Catching a cab outside the mall is also a complicated task and directional signs inside the mall were at first not clear.

Desert Passage also has marketing problems, though management is now attempting to address the center's ability to attract restaurants and nightclubs. “They went through an identity crisis,” Connor says. “Nobody understood what Desert Passage was — a mall or shops.”

However, several new restaurants, nightclubs and retailers have signed on. Prana, a restaurant and nightclub, will open Dec. 1. La Salsa opened in May, along with Todai, an all-you-can-eat Japanese buffet. Cheeseburger at the Oasis opened this past February.

And customers are back, Sorensen says. Before Sept. 11, Desert Passage saw about 16 million visitors a year. Sorensen says excluding the downturn in September and October, visitor traffic is 15 million now. “The project continues to move forward,” he says. “There is positive momentum.”

New directional signs were installed to help shoppers get around the center and to cabs. But getting around still remains a challenge. After shopping, when consumers want to hail a cab, it's still unclear how to find one. Shoppers instinctively head toward the Strip, only to find cabs can't stop in front of Desert Passage, so they go next door to the Paris hotel.

“It's unique to the strip,” Sorensen says. “All cabs are beneath the project. But we're looking to enhance signage on Las Vegas Boulevard by the end of the year.”

As Desert Passage clears hurdles, its owners are looking to sell the property. And even if Fashion Show lures some of the retailers away, Desert Passage still has something unmatched by its rival. As Connor put it, “It's on the 50 yard line in Vegas. The dynamics are there.”

Renée DeGross covers retail business and development for The Atlanta Journal-Constitution.

TAGS: Development
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