LAS VEGAS -- Amid the jangle of the slot machines on one of America's most famous strips, pirates battle it out aboard ships at Treasure Island, volcanoes erupt outside The Mirage and Roman statues stand guard at Caesars Palace. In the middle of it all, straight out of suburbia, sits the mall.

Though it's surrounded by neon-bright casinos and hotels, the Rouse Co.'s Fashion Show Mall on Las Vegas Boulevard has no blackjack or blinking lights. It holds an allure of a different sort -- Macy's, Saks and Neiman Marcus, all satisfying the itch to spend. Sales are double those of the average mall.

Such potential has long had Columbia-based Rouse eyeing the desert gambling mecca as a new frontier for buying and developing shopping centers. Two years ago this month, the company got its first chance with then-15-year-old Fashion Show, a sprawling, five-anchor center that made up a small part of Rouse's $520 million acquisition of the Howard Hughes Corp.

But the Hughes deal gave Rouse an even greater stake in the nation's fastest-growing city. The development company took on a vast collection of Las Vegas office parks, a planned community and undeveloped desert land amassed by billionaire Howard Hughes.

By all accounts, the acquisition has been a plus for the developer of Columbia, Harborplace and dozens of malls in the Eastern United States. By folding Hughes into its empire, Rouse diversified geographically, built up its commercial portfolio and began relying less on retail.

"It was a crucial move," said Robert Levy, an analyst with investment banker BancAmerica Robertson Stephens in San Francisco. "It has already been a huge positive and will continue to be. There's a tremendous amount of growth built into that portfolio."

The success of the Las Vegas holdings has surpassed Rouse's initial expectations. Besides the mall, the properties include three major office and industrial parks and Summerlin, a 22,500-acre, Columbia-like planned community 12 miles west of downtown.

Rouse Co. officials estimate those developments, which account for 10 percent to 15 percent of total assets, have boosted earnings about 24 percent. Last year, Hughes properties generated $228.9 million in revenue for the company. Land sales in Summerlin this year should account for about 60 percent of earnings from total land sales, while Hughes properties should generate half the company's earnings from office and mixed-use leases, Rouse projects.

The developer, which converted to a real estate investment trust early this year, says it is poised to capture a bigger share of the hot market. Analysts say they don't doubt those plans -- as long as strength in the economy holds out.

But the economy shows no signs of slowing. As a vacation and convention destination, Las Vegas draws some 30 million visitors a year, twice as many as a decade ago. Hotel construction is booming. Hotels under construction or planned -- including one with a re-created Eiffel Tower and another with Venetian gondolas sailing through a canal -- should add 21,049 rooms to the city's existing 105,000 by 2000.

Rouse, which built its name mostly on community-oriented projects, from traditional malls to the planning of Columbia, is less interested in Southern Nevada's gambling-bound tourists than in its residents.

No wonder. A population boom of 60,000 to 70,000 people a year is fueling unprecedented demand for places to live, work and shop. Luring the hordes of newcomers to the city of 1.1 million are lower costs of living, the absence of state corporate or personal income tax, a warm, dry climate and growing numbers of jobs.

Since buying the Hughes assets, Rouse has been aggressively positioning the properties to go after the fast-growing market.

The Fashion Show, for one, hasn't taken full advantage of its prime location, despite pulling in average sales of $500 per square foot, proving that even at 840,000 square feet, a mall can be overshadowed by the 24-hour ambience and glitz of Las Vegas Boulevard, Rouse officials said. (As part of an April agreement, Rouse will acquire full ownership of the center it initially had a 75 percent share in with partner TrizecHahn Corp. of Toronto.)

Later this year, construction will start to expand the mall to about 1.4 million square feet, enlarging the department stores and adding sixth anchor Lord & Taylor, more small store space, new restaurants and parking for 6,000. Rouse also hopes to enhance the center's presence by extending its facade to the boulevard's crowd-choked sidewalks. Expansion should be complete by spring of 2000.

"This center was doing very well," said Anthony W. Deering, president and chief executive officer of Rouse. "But it was not very visible. You could walk right by it and not notice it."

Besides the mall expansion, Rouse plans a regional mall and additional shopping centers in Summerlin, more office towers and the continued development of a community that will house 160,000 people within two decades.

The Hughes era

It's a far cry from the Las Vegas of Howard Hughes' era. Hughes began carving out Las Vegas real estate in 1954, buying 25,000 acres on the western rim of the valley, where he hoped to move his aircraft manufacturing laboratories from California. It never happened. In 1966, a private train brought him back into the desert, stopping north of town, where aides ushered him into a van that headed for Desert Inn on the strip. For four years he made himself a virtual prisoner of a darkened 9th floor penthouse while buying up hotels, casinos and vacant land by telephone. He became the third largest landowner in Nevada. The airline and movie tycoon apparently had no interest in real estate development, yet his large valley parcel is now Summerlin, his hotels were sold and other parcels have become business parks.

One such park, The Hughes Center, didn't get its first suburban-style office tower -- the first of its kind for Las Vegas -- until 1987, more than a decade after Hughes' death. By then, the latest development boom was beginning to percolate.

Now, more and more companies are opening new office operations in the Las Vegas area, said Somer Hollingsworth, president and chief executive officer of the Nevada Development Authority, a private, nonprofit group that helps nongaming businesses relocate to Southern Nevada. Businesses are attracted by the tax structure, a computer-literate work force and locations that can easily service the western United States. That and the number one industry, service and gaming, is helping bring in 5,000 new residents a month and fuel construction of 20,000 new homes a year.

"We don't see anything to change it," Hollingsworth said. "They've been saying Las Vegas is overbuilt for 20 years. If you've been here a long time, it's not like it used to be, and you remember the good old days. These are the good old days. What a great problem to have not to be worried about how to bring business to town. It's here."

For Rouse, which owns 53 retail centers, Las Vegas seemed a logical place to look to develop more retail. When the Hughes property came on the market, Rouse had already passed up chances to bid on other portfolios that lumped weak centers in with the strong, said David L. Tripp, vice president of investor relations and corporate communications.

Though the Hughes portfolio offered just one mall, the corporation seemed a near perfect fit, mirroring Rouse's own experience in commercial and retail development, Deering said.

The acquisition offered some key advantages. It allowed Rouse to diversify both geographically and in its lines of business. Before the Hughes deal, Rouse's retail centers accounted for nearly three quarters of its business, with leases of office and mixed use properties making up 22 percent and land sales accounting for the rest. Last year, by contrast, retail made up just over half the portfolio, with the rest nearly evenly split between office properties and land sales.

The Hughes deal turned Rouse into Las Vegas' dominant commercial developer, allowing it to control most of the area's high quality, Class A office space.

Two blocks off The Strip, the 115-acre Hughes Center, the flagship office and restaurant park, houses the area's leading brokerage firms, law firms and insurance companies in 1 million square feet of space. Eight office towers and five restaurants line the streets of the palm tree-studded park. Since the acquisition, two office buildings and three restaurants have gone up. By the end of the year, a Residence Inn By Marriott will open, as well as several more restaurants.

Other commercial parks include the 390-acre Hughes Airport Center next to McCarran International Airport, where 2.4 million square feet of light industrial space is expected to grow to 4.5 million square feet. (About 400,000 square feet has been built since the merger). At the 209-acre Hughes Cheyenne Center in North Las Vegas, land for warehouse, shipping or distribution facilities is for sale.

In the last year and a half alone, Hughes, now a division of Rouse, has built 900,000 square feet of new office and industrial space. It plans to break ground on four more office buildings by the end of the year, including one in Summerlin and three in the Airport Center.

High occupancy

As of last year, tenants such as Williams-Sonoma, Household Credit Services, Bank of America, El Portal Luggage, Hilton Hotels Corp. and Lockheed Martin filled about 97 percent of space in Hughes' office projects, with the occupancy rate slightly lower in newer buildings in Summerlin. Most of the new buildings in the last year have opened 80 percent leased.

"This used to be a hotel-only town. It's not the case anymore," said Dale A. Erguiaga, a Hughes spokesman.

New business has fueled demand for homes, making Summerlin the best-selling planned community in the country.

On a sunny, cloudless afternoon, Hughes officials emphasized that distinction while leading a group of analysts and investors through the streets of the community, where 30,000 people live in 15,000 homes in nine villages. Half those homes have been built in a Sun City retirement community.

"Summerlin Parkway was once the road to nowhere," W. Stewart Gibbons, vice president for marketing and builder relations, told the group.

Now, clusters of red-tiled rooftops stretch out for miles, interspersed by barren construction sites reaching to the edge of the Spring Mountains. The layout compares with Columbia. Villages centered around parks or community centers comprise neighborhoods with homes for the first-time buyer on up to the millionaire. Summerlin also has five golf courses, swimming pools and the beginnings of a 160-mile bike trail.

The community just got its first neighborhood shopping center, The Trails Village Center, with a grocery store, drugstore, restaurant and small stores.

A 900-acre town center will include a Rouse Co. mall -- slated to open in 2001 -- anchored by Dillard's, Robinsons-May and Lord & Taylor, a hotel, a strip shopping center with a grocery store, a center with category-killer superstores and another office park, now under construction. A new beltway circling Las Vegas is slated to intersect with the community in six places, and is expected to help ease some of the gridlock facing commuting motorists.

The orderly development of housing, shopping, recreation and offices appeals to growing numbers of families and retirees.

Its land sales, first in Columbia and now in Summerlin, set Rouse apart in the world of real estate investment trusts, which traditionally have not invested in land as a source of income, said David Fick, senior financial analyst with Legg Mason Wood Walker Inc. in Baltimore. The deal might have been harder for Rouse to replicate today as a REIT more concerned with generating immediate earnings, he said.

But Rouse made the acquisition before it converted, when "it was seen as an investment in the future," Fick said. "It's been a good investment. People are looking at the economy and the growth rate, and saying it's one of the few places in the country with a significant net increase in population. From a pure real estate development perspective, it's a home run."

Rouse Co.'s Las Vegas properties

Summerlin

A master-planned community under development since 1992 on 22,500 acres on the northwest rim of the Las Vegas Valley. The project blends residential neighborhoods, recreational amenities, office parks, shopping centers, civic centers, churches, schools and parks and trails.

Future plans: At its 25-year build-out, Summerlin will house some 160,000 residents in 30 villages.

Fashion Show Mall

Regional shopping center on the Las Vegas Strip, with Neiman Marcus, Saks Fifth Avenue, Dillard's , Macy's and Robinsons-May.

Future plans: Expansion of existing anchors and addition of Lord & Taylor, 200,000 square feet of new specialty stores and 150,000 square feet for entertainment uses.

Hughes Airport Center

A 390-acre business and industrial park adjacent to Las Vegas McCarran International Airport, under development for research and development, light manufacturing, warehouse/distribution, low-rise office and build-to-suit users.

Future plans: Center will comprise 4.5 million square feet of buildings.

Crossing Business Center

A 115-acre mixed-use business center in Summerlin, with tenants such as Household Credit Services Inc., Bank of America, Williams-Sonoma Inc. and Humana Health Insurance of Nevada Inc.

Future plans: Will include 1.2 million square feet of business facilities.

Canyons Center at Summerlin

Class A office development in Summerlin, with 100,000 feet of multitenant office space and an additional 103,750 square feet under construction.

Future plans: Center will include four multitenant buildings and restaurants.

Hughes Cheyenne Center

A 209-acre master-planned industrial park in North Las Vegas with land for sale or build to suit, purchase or lease facilities.

Future plans: At build-out, the center will have 4.3 million square feet of space.

Hughes Center

A 115-acre mixed-use business center in central Las Vegas, with more than 800,000 square feet of office space and five restaurants.

Future plans: The center will include 2 million square feet of Class A office space, a hotel, restaurants and condominiums.

Pub date: 6/14/98