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Edgewood investment seen as Tahoe key

Rob Sabo
Northern Nevada Business Weekly

Edgewood Companies’ plan to erect a spacious lodge costing upwards of $100 million represents the most significant private investment at South Lake Tahoe in several decades – and the investment can’t come too soon, say private and government executives who work at South Lake Tahoe.

Skimpy capital investment on both sides of the state line means many hotel properties and retail centers have fallen behind other gaming and destination markets, say concerned executives.

Newer tribal gaming properties throughout northern California have siphoned off the majority of drive-in gamblers, and luxurious lodging properties at world-renowned ski destinations such as Vail, Aspen or Beaver Creek provide those resorts a trump card not enjoyed by ski operators on the south shore of Lake Tahoe.

The Edgewood Companies’ plan may help the tourism industry regain its footing – but observers caution it’s just one step of several that need to be taken.

After several years of planning, Edgewood Companies is moving forward with plans to build a 194-room lodge at Edgewood Tahoe Golf Course.

Patrick Rhamey, vice president of real estate with Edgewood Companies, says the company – founded in the 1890s as Park Cattle Company – is eyeing the project as part of its long-term investment strategy in South Lake Tahoe.

Construction of a new lodging property will lure more vacationers and weekend travelers to South Lake Tahoe, Rhamey says, and he says that’s a crucial segment of the tourism market upon which lodging and hotel operators need to focus their marketing efforts.

“First and foremost, there is a transition for Lake Tahoe that needs to occur,” Rhamey says. “Other than Edgewood, there has been a lack of investment in the tourism infrastructure. There hasn’t been much over the past 30 years.

“It is a destination that is transitioning away from the gaming market. It needs to transition to a destination resort where people come to spend the week and not get their gaming fix. That has a lot to do with what we are planning with the Lodge at Edgewood Tahoe; we are providing for that next generation of resort property.”

Edgewood Companies owns 500 acres of land in South Lake Tahoe, including the land underneath Horizon Casino and the Edgewood Tahoe Golf Course. The hotel’s 154 rooms will include 40 multi-bedroom units. Also planned are 6,000 square feet of conference and meeting space and a bistro-style restaurant.

Upgraded lodging and other amenities will provide an important first step in helping South Lake Tahoe better compete with other upscale resort towns, says Tony O’Rourke, city manager of South Lake Tahoe. In many ways, the new lodge proposed by Edgewood Companies will serve as a bellwether for future private investment.

“The tourism market is not a captive audience – it is very mobile and sensitive to price and quality,” O’Rourke says. “Many of these lodges have not been upgraded for decades, and the public is a very discerning consumer. They want quality and value, and we haven’t been doing that. The same product has been in a dated state for years, and it is not competitive.”

Pete Sonntag, vice president and general manager of Heavenly Mountain Resort, says that Heavenly is solidly behind the proposed lodge at Edgewood, but the project barely begins to address the shortage of five-star lodging at South Lake Tahoe. Although a variety of languages are spoken in the lift lines at regional ski resorts, operators of those resorts have lost some of their power to draw international travelers primarily due to South Lake Tahoe’s lack of luxury amenities.

“We feel great about the product we offer when people get on our mountain,” Sonntag says. “But one specific thing that draws people is where they are going to stay, and we have very few high-quality beds. We are significantly behind our competition.

“The demographic of people who ski and snowboard is a higher-income earning, more discerning customer,” Sonntag adds. “They have high expectations about every aspect of their vacation. We don’t have as much to offer in that upper end.”

There are two main reasons why investors have passed on Lake Tahoe properties, says Mike Bradford, chief executive officer of the Lakeside Inn and Casino. Bradford has worked at the Stateline property since 1986. First, after the 1960 Winter Olympics at Squaw Valley thrust the region into the international spotlight, gaming in the region enjoyed rapid growth.

Hordes of drive-up gamblers from growing markets in northern California led to the development of many of the now-aging hotel and motel properties at South Lake Tahoe. However, the widespread introduction of gaming throughout the United States has greatly reduced demand for Lake Tahoe’s once-unique offerings.

Secondly, Lake Tahoe’s stringent regulatory environment for new construction stifled much potential growth. Even in boom times, investors and corporations shied away from the added time, expense and uncertainty surrounding capital investment at Lake Tahoe, Bradford says.

“Tahoe got behind the capital curve. Corporations that owned gaming properties – Harrahs, Caesars – those corporations saw the opportunity to expand into new jurisdictions and capital flowed into other areas.”

Bradford says Lake Tahoe’s gradual decline has been “a terrible thing to watch.”

The Lakeside Inn, bolstered by stable growth and low turnover, grew to more than 320 employees by 2008. However, the business has since laid off 21 percent of its staff.

“Gaming revenue began to flatten out beginning in about 1995, and when the economy tanked in 2008 it really knocked the wind out of the community and the business,” Bradford says. “We gave up some excellent people who deserved to work but whom we could no longer support.”

Moving forward, one of the main challenges for Lake Tahoe community and business leaders is to find new and creative ways to reposition the region as a premier outdoors destination that has the infrastructure to match the scenic beauty of the lake. Projects such as the Edgewood Lodge raise the bar, O’Rourke says, and help re-introduce a higher-end clientele to the market – as well as serve as the impetus for similar private investment.

Rebranding the area as something other than a gaming destination is another key, Lakeside’s Bradford says.

“We can never be a drive-up gaming destination again – that is never coming back no matter how nice we make the casinos. We have to create the kinds of amenities that take advantage of the natural environment, and gaming will become a secondary aspect.”