Canadian hotel operator buying bankrupt Vegas hotel-casino

David Strow

Tuesday, Sept. 25, 2001 | 1:52 a.m.

A Canadian hotel operator is set to become the new owner of the Regent Las Vegas, after a federal bankruptcy judge Tuesday approved its $80 million offer for the property.

Larco Investments Ltd. of Vancouver ended up being the only bidder for the bankrupt Summerlin hotel-casino. A $91 million bid for the property by Omni Hotels Corp. of Irving, Texas, and Peccole Nevada Corp. of Las Vegas was rejected by Regent attorneys because the companies were offering largely debt, and the creditors were seeking cash.

The only bid that was accepted to compete against Larco was made by American Property Management of San Diego, an operator of 40 hotels. But American Property officials withdrew their $85 million bid during Tuesday's court hearing, saying they needed an additional week to secure financing from overseas sources.

Judge Robert Jones denied the extension after Larco threatened to yank its bid entirely if the sale was delayed. Jones ultimately decided the risk of losing a certain bid was too great to grant a delay.

"We've set the rules in advance (for the sale)," Jones said. "The most important thing, in my mind, is we will lose the (Larco) bid."

The sale price is far below the $276 million it cost to build the Regent Las Vegas, which opened in July 1999. And it is even further below the $300 million-plus in debt the resort carried into bankruptcy court -- meaning that not even the secured creditors, who are owed $110 million, will receive full recovery from the sale.

Frank Merola, attorney for the Regent, acknowledged it was a disappointing outcome. He blamed the lack of bidders and the low price on the chill that had been cast over the Las Vegas gaming industry since the terrorist attacks on the East Coast Sept. 11.

"I think the (sale) process worked," Merola said. "It's just a difficult climate right now, to be selling a troubled gaming company."

The 461-room luxury resort, built by Swiss Casinos of America, has been operating under bankruptcy protection for the past 10 months. It filed for Chapter 11 bankruptcy on Nov. 21, 2000, 16 months after opening. It has relied on a $20 million credit line extended by its mortgage holders to keep its doors open during the long sale process.

The resort struggled from its July 16, 1999, opening. Construction delays pushed back its opening by three months, and the property didn't completely open until late 1999.

Though it was the first casino to open in Summerlin, the property struggled financially, something analysts blamed on its original strategy of targeting both high-end tourists and western Las Vegas locals and the pressure of a debt load that exceeded $300 million. The situation worsened after the popular Suncoast hotel-casino opened next door to the Regent in September 2000, and the property was recording negative cash flow by the time it filed for bankruptcy.

After filing for bankruptcy, the two-pronged marketing strategy disappeared. Instead, the Regent began offering bargain deals in an attempt to draw locals to the property. The strategy worked to an extent, and the property began posting positive cash flow and a following among many Summerlin-area residents.

Original plans called for the Regent's sale by June. But selling the Regent proved to be as much of a challenge as operating it.

In May, a team comprised of Peccole Nevada, Heller Financial Corp. of Chicago and PDS Gaming was designated the preferred bidder for the property with a $150 million bid. This was the first step in the sale process, much like an opening bid in an auction.

But in July, a disagreement between Peccole and Heller caused the two sides to break up, delaying the sale process. Maritz Wolff, a Los Angeles real estate firm, emerged shortly afterwards as the new preferred bidder -- but the price had then fallen to $80 million.

Earlier this month, Maritz Wolff began sparring with the Regent's secured creditors over the creditors' right to submit a "credit bid" -- an offer to acquire the Regent in exchange for their debt, estimated at $110 million. Maritz Wolff refused to proceed unless the creditors waived this right.

When they didn't, Maritz Wolff withdrew as the preferred bidder. The company was immediately replaced by Larco Investments Ltd., a Canadian owner of resort properties and shopping malls.

There has been much speculation about who would emerge as potential bidders for the property. Names emerging in the buzz included Coast Resorts, Station Casinos Inc., New York financier Carl Icahn, Silverton owner Ed Roski Jr., Starwood Hotels and Resorts Worldwide and Desert Inn owner Steve Wynn. Merola said several well-known gaming entities were interested in making bids, but interest evaporated after the attacks and their economic aftermath.

Larco has until Nov. 15 to close on its purchase of the Regent.