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twitterDAILY MEMO: GAMING :
Outlook for Fontainebleau slides from bad to worse
Company needs cash — and a leader — at a most difficult time
tiffany brown / las vegas sun file
Fontainebleau, the 4,000-room resort project at the north end of the Strip, might miss its October opening date because of shaky financing and a leadership hole. The company’s CEO has left, and banks are reneging on $800 million in loans.
Monday, June 8, 2009 | 2 a.m.
Sun Archives
- Fontainebleau: Bank wanted to minimize Cosmopolitan competition (5-12-2009)
- Fontainebleau glazing contractor no stranger to overcoming adversity (5-6-2009)
- Fontainebleau workers laid off amid funding concerns (4-30-2009)
- Union: Banks putting jobs in jeopardy over Fontainebleau (4-29-2009)
- Sued by Fontainebleau, banks could cite ‘act of God’ as defense for refusing funds (4-29-2009)
- In Fontainebleau's PR battle, banks have yet to talk (4-27-2009)
- Berkley wants talks with Obama administration on Fontainebleau (4-27-2009)
- Fontainebleau files $3 billion suit over funding (4-23-2009)
Sun Coverage
When the ambitious Fontainebleau was announced in 2005, the 4,000-room resort project, which might have been an icon unto itself in another city, joined a crowded field of megaresorts in planning or under way on the Strip.
With tourism booming, few questioned the resort’s prospects. Even plans for condo-hotel units — a seeming win-win for developers and a public keen to own a piece of the Strip — looked like a golden opportunity.
The resort’s location at the north end of the Strip, among some of the oldest and tackiest hotels of Las Vegas’ past, was no longer seen as a hindrance given the opening of Wynn Las Vegas at the site of the former Desert Inn and what would soon become the Encore and Palazzo nearby.
The partnership between former Mandalay Resort Group executives and luxury condo giant Turnberry Associates also seemed a good match.
All that said, Fontainebleau Las Vegas probably won’t achieve its October opening date and has become yet another cautionary tale in this recession.
Much is unclear surrounding Fontainebleau’s lawsuit against banks refusing to lend $800 million they previously committed to finish the resort. But it is clear the banks want nothing to do with this project and believe they have found an “out” in the contract.
In another sign of the resort’s crumbling fortunes, the man primarily responsible for securing more than $1 billion in loans for the project — Fontainebleau Resorts CEO Glenn Schaeffer — left the company without comment last month.
Schaeffer’s track record as chief financial officer of Mandalay Resort Group, which generated record profits before it was sold to MGM Mirage in 2005, opened doors to banks that didn’t seem perturbed by the inherent risk involved in building a resort with a little-known brand that would be competing with entrenched casino giants for customers.
Schaeffer, a flamboyant speaker and philanthropist with a love of the high arts, grew Mandalay’s business by catering to Baby Boomers with money to burn. Schaeffer had hoped to lure those same Boomers to Fontainebleau’s rooftop pool, but now as they try to save for retirement, they’ve got mortgage problems and their investments have tanked.
Schaeffer, the glue holding much of the executive team together, may have walked away from millions of dollars of his own equity in Fontainebleau — a resort that may not net a profit when it opens and therefore may have little equity value for owners.
Even if Schaeffer is exiting to make way for new leadership, his departure while the project is in limbo is a bad sign given that he was also the designated casino operator with industry experience and a previous Gaming Control Board license.
As long as profits are weak in Las Vegas, Fontainebleau may find few takers willing to grab control of the multibillion-dollar project, especially with an $800 million hole left to fill. And then there’s the cost.
Consultants familiar with Fontainebleau’s financing estimate the project is over its most recently revised budget by an estimated $375 million — a prospect that no doubt irritated the resort’s bankers and may have led to the banks’ decision to pull the bulk of the financing.
While Fontainebleau’s owners haven’t published a recent budget, the resort is expected to cost at least $3.5 billion — more than double its initial budget — according to financial analysts who have followed the resort’s progress.
With thousands of construction and resort jobs at stake, more than 40 liens piling up at the Clark County recorder’s office and developers short $800 million, the company needs help. And because the economy won’t quickly improve, rescuers will have to be gutsy speculators.
Discussion: 40 comments so far…
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Nice. I will book that wonderful penthouse suite for NYE at 80 bucks per night then..here,let me call them. And I do pretend seafood buffet included,of course !!!
I feel sorry for all this. The only thing that makes me happy is seeing all those high rise condo projects gone. Too bad it did not happened before,so that City Center would have been wiped out.
cheers,
Italy
Condo tower here, another one there, there's condos everywhere , but who is to buy them all? I personally believe that condos do not belong to the Strip. The Strip is a place for casinos, restaurants and hotels, and perhaps souvenir shops and some motels. That's the way it used to be, and worked out fine. Now, some "smart investors" believe that they can sell thousands of condos on the Strip to people that come to Vegas for a few weekends a year and meanwhile these condos stay empty? Was that the plan?
Well, it will backfire. The future owners of these bankrupt construction cemeteries will prbably make their profit, but the gamblers who built this stuff will find themselves on the streets.
From Switzerland
condo tower was and is a fad it came and it gone
Wow! Such hatred for Las Vegas. Must not be a local who can enjoy the lack of personal income tax that was made possible by taxes the gaming industry pays. Or, did you just come to town with the "Sure Fire Winners System" that did not fire on all cylinders. The really great part of Vegas is if you don't want to be part of the action on the Strip you don't have to go. If you don't like high rise condos, you don't have to live in one of them. Chill out, life is way to short to be so angry about a few buildings.
It's not that I personally have it agains condos,is just that bottom line they would not bring any money to the community besides the usual speculation bubble. And I really wonder how come they have been so stupid to think that somebody would really want to live on the Strip,sharing your bed with a kitchenette space.."own the Strip"...."own this view".....gimme a break !!
The Strip is a place for hotel rooms and slot machines,that's it,less profitable in first place maybe,but a lot more stable and profitable in the long run. Facts are proving it. So long Mr.Turnberry....
cheers,
Italy
like most things in business, the first 3 or 4 companies into a market make it, the others just fight for the crumbs.
turnberry, panorama, and sky got in under the wire and they made it.
We have too many Condos and Casinos! We need better schools and other industries( movies, services)
did they??...those existing penthouse buyers (inherent wealth and around only 4mths/yr) need to look at selling and centralizing to citycenter. i just centered myself behind f'nblu, sad to see it stall, but hope to make my rent for the 1st, not sure if i can afford the grocery store tho
Hanging out on the strip is all about fun and games! Until the middle class is made financially healthy again, the fun and games are over.
I love how people from thousands of miles across planet think they know "the Strip is a place for hotel rooms and slot machines,that's it."
Gee, why thank you! How has Las Vegas survived all these years without you and your intimate knowledge of what 40 million visitors and 2 million residents "want" from Las Vegas?
Life is dynamic, and Las Vegas is the most dynamic city on the planet. Our city thrives on change and risk taking. Sometimes you win, sometimes you lose, and sometimes -- like right now -- the jury is still out. Check back in a few years and see how Las Vegas looks; the only guarantee is that it will be different.
"It's not that I personally have it agains condos,is just that bottom line they would not bring any money to the community "
That's not true at all. The amount of property taxes these properties will bring in will be pretty good, especially considering the typical owners of these properties will be using fewer public services than the typical Las Vegas resident. Police, fire, medical, and school come to mind - these people are older folks without children, don't cause trouble, and can pay their own way. Las Vegas needs more proprety taxes from people like this rather than small taxes from the average ghetto dweller that stiffs the city on $500 in taxes and then takes $5000 in services,
well said Reza - We are down but not out yet, and out only means different.
Yes, if Las Vegas goes to the dogs what will Reza write about? Or will he continue to spend the better part of the day here trolling the comments section?
Reza like your "rah rah Vegas" comments but don't get carried away. Aside from the hotels and slots there is not much more to Vegas. I have no problem with that. But referring to Vegas as 'the most dynamic city on the planet"? I take it you have not traveled far out of the valley.
Reza are you sure you live in Las Vegas ?? As felix28 said,there's nothing to do in Vegas besides gambling,no matter how you try to dress it up with the "own this view" thing. Who wants to live in a desert anyway ?? Look around,it has all stalled.Real estate bubbles....Las Vegas,Dubai,all victims of the real estate bubble. The difference is the while Dubai keeps building beacause WE are paying it all with our petromoney,Vegas is drying up for the reasons we all know about. Miami was another bubble that came in the early '80ies and enjoyed a full 20+ year of speculation...perfect timing,that's it.
Now is the time to go back to the essence of Vegas,and many operators already got it(Marnell). Good food,cheap,good booze,cheap and good gambling (B.Binion). It's amazing how history repeats itself sometimes.
Don't worry. Harry Reid is excellent in forcing banks to make loans. With the government now in charge of lending, I am sure some bank will be forced to fund this project. The thought of all those construction workers unemployed next month is too much for poor harry to handle.
Hope and change. It will put gas in my tank, pay my mortgage, and get me a job (one with little work, I really just want a paycheck).
It was obvious that the project was way over budget. Combine incompetent management and engineering with Union loafers, and you have a Change Order request disaster. I'm surprised the project made it this far. Those mechanics liens are a joke, of course, since all the subs will throw everything, including the kitchen sink, into them. And get back pennies on the dollar, if anything. So now we have the abandoned Echelon and Fontainebleu to look at. Who knew?? Hah!
Public spending created many jobs in the Great Depression. With hundreds of billions now pouring in to everything, this economy will be turning around within months IMO -- found a cool site; Balkingpoints ; incredible satellite view of earth
They should declare bankruptcy, wipe out some of the debt and sell it to Jack Binion. I bet he could make this mess a success!
The taxpaying sap that was forced into bank ownership through a federal crime spree entiled operation "bailout" merely wants to know what his ROI (return on investment) will be if Fontainebleau is completed prior to investing.
Fontainebleau's answer, "nothing if you don't invest and nothing if you do but we'll sue you out of your money anyway?"
.
..
...Pat Mulroy could save the day by diverting the Gulf of Mexico Northward and changing the condos to Ocean front properties with a water view...
..
.
The fact is these companies are so upside down, they owe such large sums to their investors that they are forced to suck every ounce of money they can out of their players. Fewer payouts, tighter rules, fewer low limit games. I don't care how big or strong you once were you can not lose billions month after month and survive. (see GM)
Its a catch 22, they need cash but players are tired of their tight policies and are playing less. Revenues shrink even further, service suffers and properties fall into disrepair.
Within 365 days MGM/Mirage, Harrahs and the Sands Corporation will be forced into receivership and the city of Las Vegas will become a ghost town of empty out of business casinos.
The expansion of gaming in other states that are looking for additional revenue streams (particularly Florida and South Carolina) will steal the Vegas Tourism dollars and be a crushing blow. With the tourism industry struggling, there will be more job losses, locals will be forced to move away and the locals market will dry up for these casinos as well. Tax dollars from Casino revenue will be reduced to nothing, police forces will be reduced and anarchy will be the word of the day.
Sad but true Vegas is withering on the vine and will never see the heyday of the 80s and 90s again. It will actually be a cesspool of crime, poverty and misery.
reg373:
The only thing all that spending did in the 1930s was build up infrastructure it had little effect other than to TEMPORARILY employ out of work citizens.
An influx of money from Great Britain and other countries embroiled in the second world war who were buying weapons and supplies from us and the rebuilding of Europe after the war is what got the econmomy going and lead us out of the depression.
50% of this years fiscal budget it being borrowed from the Chinese, how will that benefit this country in the long term?
It's too bad that the people that were in charge of the Fontainebleau ran their project in the ground. I worked on the Fontainebleau in Miami for a year. Unfortunately these two projects are combined for their 1.5 billion dollar loan. Allot of us have not been paid (or in full). Our liens have been in place for quite some time now. I last worked for Turnberry as a contractor on October 2008. Turnberry put allot of us honest people out of business and now it appears as though "What comes around goes around". Shame on Turnberry and you get what you deserve! Under Florida law a lien is a lien! Until this property goes into foreclosure and a new owner takes over, only then do the liens have to be satisfied. I do not make a practice of wishing bad on people but this time I'll make an exception!
The thread on condo's belonging on the strip leads nowhere. The strip has reinvented itself many times and I'm surprised on that line of doubt. Glen Schaeffer's departure is certainly the worst possible news for what must have been a battle from the beginning. What is not clear is why the costs were so miscalculated. Mandalay always built efficiently and Schaeffer held a sharp pencil. I would be interested to know the financial timeline of the construction related to this recession.
I love Vegas! Will visit as many times I can. Love the city, the vibrancy, the energy nowhere else to be found in the world. But then this eyesore came along. I cant believe someone in their right mind approved this utmost ugly, tasteless chunk of glass-over-concrete. They should have consulted Wynn, doing a much better job with this technology. I hope its gone the next time iam in Vegas. Really, what were they thinking?
I totally agree, and I said it before. This building is absolutely out of character for the location.
It's so true, what were they thinking?
This should be in mid-town manhattan.
I hope this eyesore gets imploded.
hey, nieman, you're no good for The USA, please go back into hiding.
FYI-most of the banks are getting the okay from the government to pay them back...but true, the banks actually making their mortgage payments is another story.
back to the story, i'm up for helping jack binion out & i'm sure the construction workers are too
For those of you that think Vegas is nothing more than a desert, well, what brought you here and what keeps you here? Last time I checked, people could come and go as they please. No one is making you stay. Go find fulfillment in another state. Vegas WILL turn around again, but are you brave enough to watch and wait?
"Vegas WILL turn around again, but are you brave enough to watch and wait?"
no...
Got Ammo?
Bummer....what caliber do you need?
Many of the units in joints like this one and City Center were purchased with the intention of renting them out as hotel rooms when the owners were not around. You can go on Expedia and book a room at Trumps place for as low as $89 a night. A rate like that shows desperation. Las Vegas is a beautiful vibrant place, on the strip and off, but I think the sun is starting to set. Just got back two days ago from 5 days in town. We always rent a car and travel around Las Vegas and anywhere within 150 miles. Unfortunately Las Vegas is looking more like Chicago every day. Too many people stepping on each other and treating you like garbage, driving like morons, and traffic worse than I have ever seen it. I can't imagine what it would be like if the economy was still going full bore. Put up tollbooths and your highways will be parking lots just like Chicago. At least Chicago is drowning in water. With the traffic and population problems I don't know if I'll be back which will make you happy but me sad. Las Vegas and much of the area within a days drive is some of the most beautiful in the country and I'll miss it.
Overbuilt for the next 5 to 10 years both residential and commercial as well as hospitality sector,
maybe they can get the Saudi Arabians to chip in, like the Abu Doobies did with city center...
Looks like the situation in Vegas just got worse. Calif. is supposed to run out of money by July 4. L.A. Unified School District cancelled summer school. I hate to say this but those mafia guys who built Vegas would never have screwed things up with a City Center or Fountainbleau, if for no other reason than the fact that there's a limit as to how much money you can borrow from the Teamster's pension fund to build a casino. (rent the DVD for "Casino" (1995) or read the book)
vegas needs to legalize prostitution. i know the bible thumpers hate it and the womens libbers hate it, but let's get real...it would bring people into this city.
Bailout!!!
Its all about greed. There was no way the model would last. Mega-resorts and casino growing wildly, each new building permit cheered. Yet these places don't offer careers, at best they offer a job. A job which can be deleted at whim, hours cut, pay cut, at whim. The same people which work in the industry caught up in their own greed buying houses they just could not afford on 14.00/hr. Even as Rome burns the political system seems focused on "blaming Obama" for dismal visitor number and exhibiting showmanship instead of leadership.
In Michigan there is now 22 full service casinos. Most have gone up in the last 15 years. Lots of gambling can be done here, I have one about 3 miles away. Took all the fun out of vegas twice a year. People can only gamble so much and when you have one near...........
as of today they file for bankruptcy
Am I sure I live in Las Vegas?
Yes, since 1966. And I'm a student of its history. I do not spend my day "trolling the comments" section; like any educated person, I spend some time each day reading the news. Comments come from me occasionally, in a perhaps misguided attempt to offer some balance to the negative, anonymous and agenda-pushing items that are par for this course.
Las Vegas is the most dynamic city on the planet. It's the only major city founded in the 20th century, therefore it is not bound by tradition or sentimentality. Change isn't challenged here, it is expected.
Therefore, the failure or success of any resort -- this one included -- is relevant only to the moment. Either someone will eventually finish it, or, perhaps, it will be torn down and something else put in its place. So what? It is isn't the Taj Majal.
Nobody said you have to like the nature of Las Vegas; certainly many people do not. It's rapidly changing nature makes many uncomfortable. So? Look the other way. Visit elsewhere. Move elsewhere. Whatever.