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Though close to finished, the Fontainebleau may cost another $1.5 billion to complete, on top of $1 billion already owed to lenders.
Monday, Aug. 17, 2009 | 2 a.m.
Sun Coverage
Sun Archives
- Fontainebleau builder agrees to six-month license suspension (8-7-2009)
- Fontainebleau suit against lenders moved from bankruptcy court (8-5-2009)
- Another lawsuit alleges unpaid work at Fontainebleau (7-14-2009)
- Fontainebleau builder says it’s protected from paying severance (7-14-2009)
- Fontainebleau fires back, outlines bank dispute (7-8-2009)
- Fontainebleau developers: Design change could help costs (7-6-2009)
- Court filings shed light on Fontainebleau financing (7-2-2009)
- Practice of building before designs are done hits wall at Fontainebleau (6-28-2009)
- Flood of new hotel rooms dims Vegas outlook for '10 (6-23-2009)
- More subcontractors accuse Fontainebleau of failing to pay for work (6-23-2009)
- Fontainebleau subcontractors want bankruptcy case moved (6-22-09)
- State gaming regulators shied away from policing borrowing (6-21-2009)
- Fontainebleau subcontractors say contractor conflicted (6-19-09)
The troubled Fontainebleau resort — which may not be worth more than the debt accumulated to build the project — is likely to change hands in bankruptcy.
What’s uncertain is how the departure of Fontainebleau’s equity owners and the arrival of new owners will affect the fate of the resort, which filed for bankruptcy protection in June.
Creditors have spent the past several weeks fighting over the priority of their claims in bankruptcy court, but the bigger issue for the unfinished resort, and Las Vegas, is whether the building will continue to languish or whether new owners will finish and open it.
As casino resort bankruptcies go, Fontainebleau’s is unique.
Although bankruptcies of ill-financed or badly conceived casino projects have long been part of the Las Vegas landscape, Fontainebleau — the product of an inflated and unsustainable economy — is the largest and most expensive building to enter bankruptcy reorganization as an unfinished project, according to casino and real estate experts. The 4,000-room resort, originally budgeted at $1.5 billion, is expected to cost more than $3 billion upon completion.
Therein lies the greatest problem with the Fontainebleau.
Casino companies typically experience few changes to their operations in bankruptcy protection, aside from new owners and investors, because they continue to generate money as they did before and merely use the Chapter 11 court process as a means to reduce their debts.
The 4,000-room Fontainebleau, though mostly complete, might cost another $1.5 billion to finish on top of the more than $1 billion already owed the resort’s lenders, according to testimony in bankruptcy court.
New owners will need to decide whether it makes financial sense to finish the building or let it sit, unoccupied and unfinished, until the economy rebounds.
Assuming that bank lenders end up in control of the property, they will face a problem with no easy solution.
Banks don’t like to manage properties and instead will attempt to sell them in a foreclosure proceeding.
Selling the Fontainebleau will be a challenge, according to insiders as well as bankruptcy attorneys involved in the case.
Both Apollo Management and Penn National Gaming have privately expressed interest in the Fontainebleau, insiders say. Other casino companies and their executives, including Steve Wynn, also have looked at the property. (Many Las Vegas casino companies, struggling to shore up their own sorry balance sheets, can’t afford to assume the property’s debt, much less finish the building. And Wynn, insiders say, took one look at the layout of the Fontainebleau’s already-built rooms and walked away.)
Interestingly, Apollo’s other casino investments — most significantly, the company’s part ownership of Harrah’s Entertainment — have tanked in the recession. Penn, one of few cash-rich casino giants, has actively sought a presence on the Las Vegas Strip. These companies’ interest is speculative because a purchase would make sense only if the debt — including claims by banks with liens on the property and unsecured creditors — is significantly reduced in bankruptcy. It’s unknown whether banks would be willing to back a new owner’s purchase or walk away without investing a penny more in a money-losing proposition.
Representatives of Apollo and Penn declined to comment.
The bankruptcy judge overseeing the Fontainebleau case, concerned about allowing an empty building to lie in limbo while $4.5 million of the lenders’ money goes to maintaining the resort and paying its skeleton staff, wants to expedite the process.
In the likely absence of a workable business plan, some observers believe the resort will be liquidated, or sold, at a court-approved auction in the next few months. Some vulture capitalists might be waiting in the wings for this very opportunity in the hopes of picking it up on the cheap. That might not be good news for creditors but might be just what’s needed to finish the resort, putting thousands of underemployed contractors back to work.
Then again, one person’s eyesore is another’s unwanted competition.
FB is in the wrong place at the wrong time.
Didn't I read that the GC for this abortion will lose their Nevada license unless claims by Subs are settled in 6 months? Claims in the millions? If so, will a new owner who buys on the cheap, like say Carl Icahn, simply stiff the creditors big time? What a great country.
Knock it down and build a water park in its place.
"will a new owner who buys on the cheap, like say Carl Icahn, simply stiff the creditors big time?"
Anyone who buys it will have to pay off the mechanics liens so at least the contractors will be made whole. It is the banks and bondholders that will be taking it in the shorts, as it should be. They knew the risk and would have gotten the all the profit it were a success so now they take the loss in its failure. BK is capitalism's natural flushing mechanism. Someone, like an Icahn, will pick this place up for pennies on the dollar and be able to run it profitably with a greatly reduced cost structure. Remember, the best thing that ever happened to the Stratosphere and Aladdin was BK as they both are now doing ok even in a poor environment due to their reduced debt loads. It just needs to be resolved quickly before the place starts to rot.
Don't know if I agree that the unsecured creditors, like the subs with liens will be reimbursed for their costs in BK. Usually, the banks and bondholders have senior positions when it comes to payments. Much will depend on the terms of the BK. This project is a cluster-you know what-and the magnitude of the cost to finish the project may have it doomed for many years. Hey, wanna' buy a building in a crappy area across from Echelon, another doomed project?
If it ever opens it just means less customers for the others and more bankruptcies and layoffs in the process. This administration has made Las Vegas an unsustainable business model. Thanks a lot harry Reid.
As for how bankruptcy works, after the Obama/GM fiasco, no one knows.
I'm with Barry, implode the beast and put another water park back.
The building is so ugly and has no concept or overall design. It was the biggest mistake in Las Vegas history to build this place. Don't need it or want it on the strip.
Look out below. Parts of the building are falling including windows. Just keep counting the missing windows each week. The County needs to emplode and add the costs to the liens
Implosion.
Neiman1, Every time you lay blame for all our problems at Harry Ried & Obama's feet, you make your self look like a moron, and people just write off any thing you say as propaganda.
Make your point, don't blame anyone for it and maybe you'll get your point across.
I hope someone knows more than I do because I cannot understand how this project and City Center will survive, under this economic downturn, among other projects.
I agree just level it..too many properties..There's another Fountain Blue in Miami.
"As for how bankruptcy works, after the Obama/GM fiasco, no one knows."
neiman1, you might not seem such an idiot if you'd only start to educate yourself on subjects before passing judgement on them.
http://en.wikipedia.org/wiki/General_Mot...
Jack Binion has been shopping around for a resort too. Correct?
That building is so ugly, its facing the wrong way. Just implode it, and put something real there.
It's such a blight. The first time I saw the steel skeleton and the immensity of it, I thought this is bad.
The wrong place? FB would be the preferred gambling spot for people located in several nearby high rises, timeshares and a few hotels surrounding it. Moreover, MGM/Mirage owns all of the land across the strip from Circus Circus to Sahara Ave. This area is the future of the strip.
THE PLACE LOOKS LIKE A BANK BUILDING. SO LET THEM TAKE IT. OR MAKE IT INTO THE WORLDS LARGEST BEER JOINT.
I can't imagine a corporate raider like Wilbur Ross or Carl Icahn would get involved in this mess. So it would seem that the project will go back to the lenders, who have no use for it at all. Who's left? Maybe the Union loafers will take it over-but no-they'd have to employ people making $10-15 an hour to make it work. Without Union rules like breaks and early washup times. Nah, ain't gonna' work, either.