Why didn't more investors pounce on the Fontainebleau Las Vegas?
When it went into foreclosure, it was bought by Icahn for cents on the dollar (150 million). Over 2 billion dollars was spent on improvements. Obviously, you're buying the property at a huge discount to replacement cost which is a great strategy that everyone speaks about doing.
I know the risks that come along with buying something in a special situation like this. Besides being liquid and trouble coming up with the financing, why wouldn't more contrarian companies/investors take the chance to buy the FB and wait for the market to recover?
A couple things: - Icahn paid a $150 million in November 2009, a time when the economy of the global market was uncertain. The whole market was down and Las Vegas taking a beating. At the time, nobody was buying or sure what was going to happen. So Carl had some brass balls to throw down $150 million at that time. - In addition, there was a significant amount of dollar that needed to be put in to complete the construction. I'm not sure the amount but I think it was a billion plus. - Other issue is the location is not as great as you think, yes its on the strip, but if you been to Vegas, anything past Wynn is pretty dead. Just ask the SLS guys how their place is doing, even in a good economy. One block down and your talking the difference from record revenue to filing chapter 11.
Possibly the scariest market in the country...Vegas. One block here or there things change so rapidly. CRE and MF investing there scares me to death.
It's been a long time but I remember hearing from someone that Icahn was cash flow positive very early on from the parking structure alone, providing excess parking for the convention center. It was essentially a parking structure play with an unfinished hotel thrown in as a bonus.
TeddyTheBear is so right. Location, Location, Location. I'd argue the "longest mile" in Vegas is from Encore to SLS. It is a barren wasteland of nothingness....for now. Before the sexual harassment stuff, Wynn announced that he planned to build on the lot across from the Encore, known as "Wynn West". It would hypothetically be connected to the Encore via an "air conditioned umbilical hallway". That's probably the worst name possible for a "Skybridge", but Steve Wynn knows all! This project is now likely delayed after his departure. There are cranes at the Resorts World site and some movement according to Vegas news stations. Then there is Circus Circus which is a little further north (maybe the worst casino/hotel on the Strip). Fontainebleau (aka The Drew now) looks like it will also be moving forward with construction. Side note, did you know The Drew was named after Steve Witkoff's deceased son that OD'd on oxy at 22? I can understand trying to remember/memorialize your son, but as the name for a Vegas casino resurrection project? Finally, you have reached the SLS at the intersection of West Sahara Ave and SLV Boulevard. The all-asian Lucky Dragon casino just shut down their casino and The Stratosphere struggles. The longest mile in Las Vegas needs a face-lift and it it could potentially get it with these new resorts plus the new owner at SLS. Honestly, when I go to Vegas, I usually stop at Encore and only sometimes make it downtown to Freemont Street. I don't even consider those other casinos. The new properties will be forced to offer competitive room rates, favorable gambling conditions (3-2 Blackjack, 10x crap odds, full pay-out video poker, looser slot machines?), and solid restaurants/bars/clubs to fill their rooms. Hopefully, the Northern Strip will turn it around and it can become more of a destination for tourists.
I have nothing to add to this other than the guy I used to work for was heavily involved in this deal, and that he was a total badass.
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