True, Steve Wynn's planned $2.4 billion 42-story, 2,500-room hotel-casino called Le Reve is not in Europe, even if the tree-lined 8-story man-made mountains bear a faint resemblance to the foothills of the Pyrenees and the man-made lake looks like a fjord to a gambler after a sleepless night at the slot machines.

Still, given the British business presence in Las Vegas and the paradigm that US hotel-casinos could offer in Europe, going forward, it should come as no surprise to include the epitome of large-scale Las Vegas extravagance in any discussion of the financing of hotels in Europe. For the record, the Wynn Resorts, Ltd. S-1 IPO filing shows that Le Reve estimates that a large chunk of its table game revenue will derive from ?a limited number of international customers.? Further, as the UK government moves toward deregulation of the gaming sector, some bankers predict the sector will open up the way it did in France starting in the early 1980s, with the prospects of casinos on the Thames.

In fact, the current hotel-casino scene in Vegas and that in Europe have little in common. While high stakes, spectacle and flash dazzle may characterize the image and construction of huge US hospitality and gaming industry projects, the norm in Europe is more a case of local, less and low-profile. In fact, the closest that most of the hotel deals and activity in Europe these days come to construction or project lending is a sort of ?post-project financing? that covers a range of sale-leasebacks, corporate and project financed refinancings and acquisitions. An established coterie of lenders who cherish the routine and predictable, along with world-class hotel chain operators with deep pockets of their own, appear to be in firm command of the lion's share of the deals. But that stands to change in the medium term.

While Wynn's track record suggests a repeat of past extravagant Las Vegas performances ? the Bellagio, Treasure Island and The Mirage ? some investors may be a little jumpy in the wake of the plight of the Aladdin Casino Resort. The Aladdin venture opened up in 2000 on the Strip but has been unsuccessful in spite of its backers efforts to make it soar with a dose of European panache. The 35,000-foot London Club at Aladdin, the first venture in North America by London Clubs International, London's largest casino operator, is billed as ?a throwback to the gambling parlours and clubs of the south of France? and the one place in Vegas ?where James Bond, complete with tuxedo and martini, would drop by to play baccarat.? But so far, the rumour mill reportedly points to several Elvis sightings, but no sign of Mr. Bond.

?You didn't have a group of owners that had significant experience developing on the Las Vegas strip,? and the appropriateness of the product was questionable, says Craig Parmalee of Standard & Poor's. Problems ranged from neglecting to install a grand Las Vegas entryway, instead having customers drive around the side and underneath to get into the hotel, to long walks from the car park to the casino. These flaws meant the property had significant cost overruns and opened late and ?they didn't generate efficient business to remain profitable,? Parmalee adds.

The conservative approach to hotel financing in Europe is typified by Wiesbaden, Germany-based Aareal Bank (the name and double ?a? signify the ancient German word for eagle), a major real estate and hotel lender that shuns lending to construction projects. Depending on location, market and the market's direction, the typical structure includes lending terms of 3-7 years with loan-to-value of 65% plus or minus 5%, Aareal's head of international financing Henrik Bartl says. Long-term lending to existing cash flow properties is the bank's MO and the bank sticks to the middle and upper end of the market or portfolios, says Bartl.

?We're not lending to a single Day's Inn at the intersection of two highways,? Bartl jokes. His group is looking for high barriers to entry and diversified deals so ?if a couple go bankrupt it really doesn't hurt you.?

With the gaming industry still small and under-developed in comparison with the United States, lenders are currently far more focused on hotels. Most active players on the continental acquisition front are hoteliers like gigantic Accor, NH of Spain, and the global US operators like Marriott and Hilton. All are looking to make purchases that make sense, Bartl says. Specifically, Six Continents is particularly flush with cash and hungry for new takeover targets, he adds. In addition, in the UK, Travel Lodge/Little Chef's operations are currently on the market as a potential takeover target, according to Bartl.

Similarly to Aareal, the concentration at Credit Lyonnais is ?conventional lending? in Europe in financing single-asset and portfolio asset acquisitions and refinancing of existing assets. ?We're not very active in development financing,? says Jan Hazelton, vice president in the bank's European Hotel Group. Credit Lyonnais generally sticks to a loan-to-value range of 60-65%, looking at single-asset, stand-alone as well as pooled asset deals where banks can cross-collateralize and sometimes go as high as 70%, Hazelton says.

In terms of financing structures, the sale-and-leaseback structure done recently by Roche-Farnsworth joint venture with Hilton to buy 11 Hilton hotels in the UK reflects an ongoing financing development in the industry, Hazelton says. The deal's structure was done with leverage on the high side, along with a guarantee from Hilton providing a minimum income stream, she adds.

Reflecting the increasing use of sale-leasebacks, a recent seminar-debate in London staged by PKS on the lease structure considered, among other things, potential disadvantages and pitfalls that are not obvious to a player who is caught up in the frenzy of a particular deal, Hazelton says. As a result of a possible falling-out between an owner and manager, participants found that the two parties ?don't necessarily have the commitment from the capital side to keep up the hotels? in the way they desired, she adds. Still, she acknowledges that the structure is widely favored these days.

Indeed, the trend toward use of sale-leaseback and sale-and-management-contract structures has become striking just in recent months, says Philip Ward, a senior managing director in investment banking at Bear Stearns International. He cites a slew of deals ? last year's Hilton deal with Royal Bank of Scotland (RBS), followed by the £1.25 billion sale-leaseback in Ireland and the UK of 12 hotels by Meridian (also with RBS), followed by an atypical sale-and-management-contract deal involving Thistle Property of Edinburgh. Then in July Hilton went out to raise £350 million through the sale-and-leaseback of 10 of its properties in a deal with property company Rotch and hotel investor/adviser Farnsworth.

Each sale and leaseback differed significantly from the one that came before it, says Ward.

?You're beginning to see a pattern emerging of what people can achieve,? says Ward. Traditionally continental European leases were fixed with an index linking mechanism, whereas the recent leases done by Hilton and Meridian are revenue leases. On the other hand, the lease structure used recently by Europe's largest hotel operator, Accor, in France, is totally different from those done in the UK, says Ward.

In Latin America, not surprisingly given current macroeconomic conditions, a fair crop of refinancings are being done, some of them along classic non- or limited-recourse project finance lines against future revenue streams. WestLB recently finished refinancing existing debt and providing added leverage for the Copacabana Palace Hotel in Rio de Janeiro, Brazil, says Andy Stein, managing director responsible for North, South, Central America and the Caribbean. WestLB underwrote and funded the entire amount on the Orient Express-owned property, although Stein declined to provide details.

Otherwise, there are slim pickings in Latin America. Stein says that other than refinancings in Chile and Peru, along with some activity by Hyatt and Hilton in Sao Paolo with a few boutique developers, few deals are looming on the horizon. Grupo Posadas, the Mexican owner of the Caesar Park and Fiesta American brands is also active in the region, Stein says. WestLB plans to finance two hotels in Mexico and is currently vetting a project with Busch and Discovery in Florida.

While the fraternity of lenders to the estate-hotel industry may be extra fussy about what hotel gets financed and which one does not, the perception of adequate risk management remains a function of how far out to look. Credit Lyonnais's Hazelton likens the present situation to the movie Perfect Storm ? a confluence of uncertainty about an economic rebound and a sector turnaround, declining performance at upper-scale international-branded hotels on recessionary conditions, and the fallout from air carriers as a result of 9-11. Any one event could have a negative effect on the hotel industry, but many worry that the aggregate could topple some players, Hazelton adds.

On the other hand, Hazelton thinks the industry is better positioned to ride out the storm since new supply is more controlled than during the recession of a decade ago when very low interest rates prevailed. In addition, industry leverage is lower historically now than in the past.

Aside from macro and political woes, when it comes to risk concepts, Paul Slattery, a veteran real estate/hotels banker and director at Dresdner Kleinwort Wasserstein points out that historically 95% of capital invested in hotel industry in the UK and United States has wound up going to operations affiliated with big hotel chains that have deep pockets, compared with quite a bit less than 50% in continental Europe. Because of this disparity, banks on the continent see hotels as ?a high-risk lend,? he says. But this perception is a result of banks' lending to ?mom-and-pop? style businesses. They mainly built the ?wrong hotels in the wrong places, with the wrong facilities managed by amateurs,? Slattery says. This is merely a ?self-fulfilling prophesy? because banks who lend to these hotels have a higher risk weighting attached to that lending.

Still, Slattery reckons banks are starting to realize that they have to change their lending habits and that lending to hotels and chains in particular carries much greater security and a lot lower risk. Despite the economic and financial traumas of the last couple of years in the UK and US, together with the airline industry's woes, the hotel industry has avoided the bankruptcies, liquidations, and levels of default that have hit other industries.

Moreover, industry statistics also indicate positive future industry trends for hotel expansion and lending, Slattery believes. The US has undergone significant growth in hotel supply and consolidation among major operators, with over 70% of rooms now affiliated with chains. That ratio is only 25% in Europe and 50% in the UK, he says. The upshot, looking forward: growth of room supply and parallel consolidation by chains in Europe in line with the transition to service economies by countries in continental Europe. Thus, as occurred in the United States and Canada, the move to services will increase demand for business and leisure travelers ? and, of course, places for them to stay, Slattery adds.

?We see that going forward, in long-term, Europe is a significantly more attractive market than the US.? says Slattery.

So then, what do hotel lenders' projections for the European hotel market mean for project finance bankers? The prospects for revamped perceptions among hotel lenders envisioned by Slattery, together with the image of Las Vegas transplanted to London as envisaged by Ward of Bear Stearns and Hazelton's sanguine view of sector resilience all suggest an active industry sector. But whether these views portend a return to the days when real estate bankers worked 14 hours, 7 days a week, is unclear.