Panel: Gaming property sales need change

Friday, May 17, 2002 | 10:53 a.m.

A group of gaming property specialists at the CB Richard Ellis commercial real estate brokerage wants to broaden the pool of potential buyers by making the acquisition process less intimidating.

But a panel at a CB event Thursday said there was little chance of streamlining what may be the most difficult part of the acquisition process -- the scrutiny of Nevada regulators.

Panelist A.J. "Bud" Hicks, a gaming attorney for the McDonald Carano law firm and a former state Gaming Control Board agent, said there's not much a buyer can do to shorten a suitability investigation, which he likened to "an 18-month Army physical."

"There's always something unexpected that turns up in these investigations," Hicks said. "Nothing is simple in this process."

Carlton Geer, director of the Ellis Global Gaming Group, said strict licensing requirements in Nevada and other states are just one of several barriers that thin the field of potential gaming property buyers and investors. Limited financing sources and the mystique of the gaming industry to investors unfamiliar with the business are other roadblocks, he said.

Geer said there aren't many opportunities to acquire casino properties. In Clark and Washoe counties, he said there were only 11 transactions involving gaming property, including three bankruptcy sales and one government buyout, in 2000 and 2001.

In the past three months, his office has received inquiries from only five qualified buyers of gaming properties. But Geer is convinced the field could be expanded to a global audience if the real estate and lending industries and regulators could make the process less onerous.

Panelist Jay Kornmayer, the Wells Fargo Bank executive vice president currently responsible for all gaming loans for the bank nationwide, said because a small number of banks offer financing for gaming ventures, potential buyers look to alternative sources of capital, a process that can add to the expense and the length of time to close a deal.

Geer said Wells Fargo and Bank of America, the two largest casino industry lenders, are selective about to whom they loan money. As a result, most buyers choose other sources of financing.

Because of the extended length of escrow periods in a gaming property transaction, there's a greater chance for a deal to collapse. Sellers have to be concerned about whether a buyer is going to win licensing approval, how a seller's ongoing business operations would affect customers, employees and the community and the long-term impact a failed deal would have on a company's bottom line.

Buyers, meanwhile, have to be concerned that during an extended escrow period a seller won't bleed the property of its assets, including top employees and customers.

Panelists concurred these issues may have contributed to Los Angeles developer Ed Roski Jr.'s failed $345 million bid to acquire the Las Vegas Hilton from Park Place Entertainment Corp. in July 2000.

Roski and Park Place have filed state and federal breach-of-contract lawsuits against each other over the aborted sale.

Geer said the solution to the problem of broadening the buyer pool is to promote the marketplace for gaming property transactions, speed up the licensing process with adoption of a pre-approval process for individuals interested in the acquisition of a gaming property and to increase the availability of lower cost financing for deals.

He concurred it won't be easy to make those changes.

"But what's interesting about change," Geer said, "is that you first have to start with the people who are dedicated to protecting the status quo. It's a lengthy process."