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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.
Published Monday, Nov. 23, 2009 | 10:32 a.m.
Updated Monday, Nov. 23, 2009 | 3:43 p.m.
Investor Carl Icahn will be the stalking horse bidder for the mothballed Fontainebleau Las Vegas casino resort, offering $156 million in cash and financing Monday and outbidding Penn National Gaming.
During a hearing in Miami's bankruptcy court, Penn National Gaming initially competed with Icahn but then dropped out of the bidding after going as high as $145 million.
Penn National last week offered $101.5 million -- $50 million in cash and a loan of $51.5 million to be the stalking horse bidder. Penn National has been looking for an opportunity to enter the Las Vegas gaming market.
As the stalking horse, Penn's bid would have been the price to beat by other bidders in an auction likely to occur early next year. With loan and other fees it negotiated, Penn also stood to recover some of its investment in expenses and its executives' time working on the deal.
But Icahn, a longtime player in the gaming industry, emerged as a competing stalking horse bidder last week and negotiated his own terms with Fontainebleau.
An attorney for Fontainebleau, Scott Baena, told Bankruptcy Judge A. Jay Cristol that Icahn initially offered a bid last week exceeding Penn's bid by $25 million. He said Penn National then matched that higher bid.
Icahn then offered another $10 million Monday, bringing his bid to $136 million, Baena said.
Fontainebleau and Penn National continued the bidding during Monday's hearing, with an attorney for Icahn eventually settling at $156 million.
"We will cede to Mr. Icahn's desire to be the stalking horse bidder," an attorney for Penn National told Cristol.
The judge quipped that he hoped Penn National would return during the planned auction with a bid of a couple of hundred million dollars more.
Icahn's bid includes a $51 million debtor in possession loan, which until Fontainebleau is auctioned will provide funding to stabilize the building project on Las Vegas Boulevard, cover employees' salaries, cover previous bankruptcy costs and eliminate the need for Fontainebleau to ask the bankruptcy court each week to borrow and spend money. Penn's loan would have done the same thing.
With Fontainebleau's debts potentially topping $2 billion, the judge wasn't impressed by the extra $35 million initially on the table, saying: "This case is a total disaster."
With the competing bids offered through Monday afternoon, though, he remarked: "We seem to be having an auction."
Some $1.675 billion has been borrowed against the project and contractors have asserted liens of $424 million against it. On top of that, it's projected to cost another $1 billion to $1.5 billion to complete the resort -- all against the backdrop of declines in gaming revenue and hotel occupancy caused by the recession.
Fontainebleau, launched during the economic boom, also saw its balance sheet weaken due to a lack of condominium sales at the resort after the recession set in.
Icahn is no stranger to the Las Vegas gaming market.
Last year one of his companies booked a $700 million profit by selling American Casino and Entertainment Properties LLC to a Goldman Sachs real estate fund for $1.2 billion.
American Casino owns four hotel-casinos in Southern Nevada: The Stratosphere and two Arizona Charlie's in Las Vegas; and the Aquarius in Laughlin
Icahn also controls Tropicana Entertainment and the Atlantic City Tropicana, having acquired them out of bankruptcy.
Tropicana Entertainment includes eight casinos in Nevada, Mississippi, Louisiana and Indiana. In Nevada, it has the Tropicana and River Palms in Laughlin and MontBleu at Lake Tahoe.
The Las Vegas Tropicana was spun out of bankruptcy to a different sent of investors.
Icahn and officials at Tropicana Entertainment could not immediately be reached for comment on Icahn's bid Monday.
Greg Garman of the Las Vegas office of Gordon Silver, which represents many of the Fontainebleau contractors, asked Cristol on Monday to establish procedures to confirm the extent of the contractor liens so they could make their own credit bid for the project -- a bid that could exceed Icahn's bid.
At a point when Icahn and Penn National each had about $90 million in cash in their offers, Garman said: "We don't think that's a fair price."
But attorneys for lenders said it was premature for such an order by the judge and one argued there's a mortgage against the property for $150 million that may have priority over even the contractors' claims.
"I think it's going to be difficult to determine who's on first," Cristol said of the various claims against the casino resort, where construction was halted this summer after lenders led by Bank of America halted funding due to problems including cost overruns.
Nevertheless, Jeff Truitt, the bankruptcy case's examiner, testified that Icahn's offer compared to Penn National's offer better accommodates the desires of the contractors that the extent of their liens be quantified so they can make a credit bid.
Wow. Imagine that....a Tropicana at the North and South end of the strip??? He owns Tropicana Entertainment. Or how about re-naming it MontBleu after the casino he owns in Lake Tahoe and indicative of all the blue glass? Just having a little fun here. This is certainly interesting.
I think it more appropriate to name it The New Algiers in honor of that classic overflow hotel for the old Thunderbird which stood on this site originally..
It better be fabulous inside, with a staff that creates an off the chart experience for guests, if for nothing else than that is one ugly looking building.
The government should but this, it will be a great investment at these bargain prices
I honestly dont see how anyone is ever going to turn a profit at this property. It cost so much just to finish it.
He doesn't own Tropicana Entertainment, at least not all the properties, only the one in A.C. Thats his only property right now. I would love for Icahn to get back into the business here. The city needs him. He knows to make money you need to put money into these properties. He did wonders at the Strat. I was sad when he sold. He had Richard Brown, who is excellent. Had Howard Toy. Another Ecellent person. Put these people back, with me of course, and you got an excellent property, with somebody who is capable, and willing, to pay the 1.5 billion needed to finish and effectively operate this property.
Icahn owns Tropicana Entertainment, which includes the Trop in AC, a couple of Nevada casinos (including Montbleu) and several midwest and southern riverboats but DOES NOT own the Tropicana in Las Vegas. Two completely different companies. But if anyone has Wall Street connections and the ability to fund the finish of the Font, it's Icahn....
Please GOV'T..STAY FAR FAR AWAY from this deal. IT needs a Billion to finish and return on that $$ to finish do not justify the risk. Especially at the $89 room rates they will get. Aria is going to open in one of worst economic times of our history and will only pilfer from our meager visitor count. This was a "bargain" in 2006 when people were drinking the cool-aid.
Carl is your classic deal maker: Buy low and sell high.
Cudo's to you!!!!
I think this should be the new City Hall Oscar wants so much!
I hope who ever buys this property can do great things with it. And when this property do open, I hope they will bring new and exciting entertainment to its show room and not the same old entertainment we get year after year.
Icahn offers a wiener for a ham.
Red: you want the government to own everything, don't you?
Icaahn ist waving a carrot and the donkeys keep running at him....unbelievable, this guy get's everything he wants for super low bargain rates. He made millions on the CIT bankruptcy and now he's raking in the Fountain Bleau. That's extreme action info.
I still cannot understand how this whole project was approved? Questionable design,questionable location. I too don't see how anyone will be able to turn a profit once it is done.
Icaahn might buy the building, skip continuation of casino construction and sell it as a bank building or whatever. FBI tower, CIT, KGB, whatever. He knows why he's waving the carrot for....
I bid $156 million. I will just take out a third mortgage to cover the $155.99 million I need to finance.
So where do I pick up the keys to my big shiny blue box?
I think at the moments the decisions were made for the big blue box green light were when it appeared like the North Strip was going to flourish non stop.
Vis a vis, the Sahara Hotel being purchased, MGM's land assemblage from Circus Circus to Sahara Avenue, the Wynn was flourishing, Echelon was green lit, etc.
So, I think it was like..."We can do anything there and it will be a winner"
Talk about..."We can do anything" http://www.lvrj.com/news/7096416.html
The old economy mind set, plain and simple.
I dont see any upside in buying this boondoggle. Icahn is obviously a smart man and probably knows something I dont, but it all seems crazy to me.
Lucky Day for Las Vegas!!!! Another Awsome White Elaphent on the strip is gonna get saved.
I wonder who, in a few years, is going to come along and top City Center and Tho Fountainblu.
Never mind, if they make any money or not, its the huge risk factor that Los Vegas seems to thrive on.
All the talk about the blu I am sure is the same talk that was about the Strat when Icahn bought it in 2000. It was a mess. In a horrible location. How can anyone make money with it, bla bla bla. The same stuff being said about Fountainbleau is the same stuff that was said about Strat. Carl buys when everyone else sells. He makes money off of wall streets emotions. Everyone has written Fountainblue off, this is carls chance to acquire another property when everyone thinks the sky is falling. He made a mint off the strat, and will do so with Tropicana A.C. and now fountainblue.
The Fontainebleau is a risky project for Carl Ichan. The published number to finish FB is $1.4B; it is probably closer to $600M, but nevertheless, it is a white elephant at the far north end and will not experience any foot traffic. Echelon is put on hold for 5 to 8 years and El Ad's Plaza is put on indefinite hold; this will hurt the overall activity for the north end for 10 years+. All of the income for FB will need to be generated from the rooms/guests much like Stratosphere, as no one will make the walk from Wynn or Venetitan that far north. FB is a bad deal all the way around, even if the property was purchased for $0 because even if it takes only $600M to complete, the property would need to generate $1M a day to make $60M NOI (a 10 CAP rate return on the $600M)...I wouldn't be surprised to see Ichan "bail" on this deal, as $155M is too much to pay.
Carl Icahn made buckets of money on the Stratosphere & Arizona Charlies deal. The real estate arm of Goldman Sachs had to offload their debt to the main company and let the bailout money pay for it. Carl seems to always make money in the long haul, but it took years. --------------
I can't imagine the guy who made the presentation to Goldman Sachs 2 years ago where he said "This idiot Carl Icahn is letting the Strat and 3 other properties go for a mere $1.2 billion. We should jump on it because it is sure to make us money!"
What a moron.
I'm curious how Icahn owns all of Tropicana Entertainment.
The Trop LV is not in the equation because it spun off and is owned by Onex Corp and run by Alex Y.
Icahn bought Trop AC under a conservatorship...but not MontBleu, River Palms, Tropicana Laughlin, Belle of Baton Rouge, Horizon Vicksburg (and more), plus Casino Aztar which is still under a separate conservator.
Icahn got all that for $200 million? I don't think so. What a bargain, though!!!
One thing is for sure, the Tropicana brand is a giant disaster :-)
If I was Mr. Icahn I would buy it, scrap it out and blow it up. Then I would wait for the economy to improve and build something that would attract the middle class people like me. At least something that is a bit more appealing to the eye and cheaper on the wallet where I can spend $14.99 on a buffet and walk away happy. Then I would go sit at a slot machine and play for a while on a $50.00 bill, get free drinks and look at the cocktail waitresses in their skimpy outfits, just like it should be in Vegas.
The land by itself makes this a good deal. $155 million / 24.5 acres = $6.3 million per acre.
Phil Ruffin paid $165 million for 41 acres on the Las Vegas Strip in 1998 (165 million / 41 acres = $4.0 million per acre).
In 2007, deals have landed anywhere from $10 million per acre to Ruffin's $36 million per acre.
Simple math proves this is an excellent investment.
Icahn is the lead investor who bought Trop Entertainment (which did not include The LV or AC Trops) out of bankruptcy. He then bought the AC Trop and is now attempting to fold it back into the Trop Entertainment umbrella. Pretty clever...right? He purchased mostly all of Columbia Sussex's gaming properties for pennies on the dollar!
Good point neutral, the land alone is worth close to that today, more when things come back. Will he do the deal, hold it for some time w/o starting construction back up, and flip it for a profit? Will the new owner be obigated to re-start the project? I may not understand all potential obligations beyond coming up with the cash to close the sale.
HE DOESN'T OWN TROP ENTERTAINMENT. HE ONLY OWNS THE TROP IN AC!!!! THE REST IS STILL OWNED BY COLUMBIA SUSSEX CREDITORS!!!!!
http://www.lasvegassun.com/news/2009/jun...
Stratboy: Yes, but the article you cite is only part of the larger story--Icahn also purchased a large chunk of debt related to the Tropicana Entertainment collection of properties in states like MS, LA, IN, and NV. So there are, essentially, three Tropicana entities--the Trop AC, the Trop LV, and the Tropicana Entertainment collection of small properties in several states. Icahn will effectively control two of these three entities, the exception being the Trop LV.
In order to resell the land, you have to demolish the beast. What would that cost as a minimum? Tens of millions, minimum, and probably more.
What about all the $ owed to contractors. Is that on top of the $156 Mill? Can you iamgine if they did demolish it?! What a waste!! Somebody lost their a$$ bigtime on this project.
The terms of the BK purchase is that the buyer of the new entity would need to complete the project in a specified period of time. That is why the purchase price is equally to the cash payment for the BK entity ($155M)+ the costs to complete the project ($600M-$1.4B)... The best strategy is to land bank the project and not do anything for 10 years, however that will not happen because the Judge will require either a completion bond or guarantee from the buyer to complete the project. If the project can be completed for $600M-$800M, the total cost will be $1B +, so this is not a good deal considering TI sold for $750M a year ago w/existing annual NOI of $100M+.
Greg Garman is a scumbag lawyer who would sell his own mother for a dollar if it would win him a case.
dgump could not possibly be more wrong in stating that the deal calls for Icahn (or anyone) to finish the project . Absolutely not, it can sit there under certain conditions imposed by the Fire and Building Depts, but still incomplete. The auction process continues through late January and there may still be other bids for it. If Icahn does get it, expect a cost efficient completion and opening with a Strat like operation at very competetive pricing.
His total investment will be about $1billion total to open the doors, so he needs to cash flow around 100 million similar to Mirage's bottom line currently.
Carl Ichan will finish it, make it more affordable, make it a destination resort, have jesus walk across the pool, bring elvis back from space, & prevent that 2012 disaster from happening