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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.
Friday, Sept. 18, 2009 | 12:32 p.m.
Sun Archives
- Fontainebleau: Bank no longer ‘seeking to destroy’ project (9-17-2009)
- Potential buyer in negotiations for stalled Fontainebleau project (9-15-2009)
- Fontainebleau contractors seek lien claims in state court (9-14-2009)
- 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)
Penn National Gaming is one of the parties interested in buying the stalled Fontainebleau Las Vegas resort, Reuters and the Wall Street Journal reported today.
But analysts are skeptical a deal will happen anytime soon, given the costs to complete the project, the need to satisfy Fontainebleau lenders and creditors and the downturn in the Las Vegas gaming market.
Analyst Bill Lerner said anyone thinking about taking over the 70-percent-complete project on the Las Vegas Strip would likely have to invest $2 billion to buy out its debt and finish construction.
Lerner, of Union Gaming Group, said the resort also must compete with other new developments that include 9,300 hotel rooms opening in the next year even as the gambling market shrinks and visits to the Strip decline.
Lawyers for Fontainebleau have told the federal bankruptcy court in Miami they're talking to a potential buyer they do not specify. Penn National has declined comment on the reports, but in the past has said it's looking for opportunities to expand to Las Vegas.
The Las Vegas Sun reported last month that Penn National and Apollo Management -- one of the companies that controls Harrah's Entertainment -- had privately expressed interest in Fontainebleau.
Besides Fontainebleau, additional Las Vegas opportunities are likely to present themselves as companies default on debt. Recent defaults or imminent defaults involve loans for the owners of Station Casinos, Herbst Gaming, Black Gaming, the Riviera, Hooters and Planet Hollywood.
Analysts have estimated that any Fontainebleau buyer would need to spend at least $1.5 billion to finish the resort, with a low return on investment for at least several years as Las Vegas recovers from the recession.
"Penn would be acquiring a property that sits in a somewhat remote location and would be adding another 4,000 hotel rooms to an already saturated market," Stifel Nicolaus analyst Steven Wieczynski wrote in a research note.
"We ascribe a low likelihood to Penn's buying Fontainebleau or buying all of its equity for construction costs," JP Morgan analyst Joe Greff said in a research note.
The Associated Press and Reuters contributed to this report.
Where are the unions? The UAW and the SEIU should buy this and show us how to run a real co-op business.
Just as a practical comment, anyone who wants to buy the Fontainebleau does not have to "buy out its debt" at 100 Cents on the dollar.
Instead, the banks holding the First Mortgage on the property can ask the judge to allow them to foreclose (called relief from stay), hold their foreclosure, and then fight the lawsuit with the mechanics lien claimants who say they have a first lien. In a foreclosure, the second mortgage holder, the mezzanine lenders and the unsecured creditors would get nothing. The First Mortgage lenders could then sell the place to whoever might qualify for a gaming license, or lease it to such a company. This is the scenario Deutsche Bank followed with the Cosmopolitan.
Alternatively, the banks holding the First Mortgage can propose a Chapter 11 Plan of Reorganization which would accomplish the same things, but directly send title into the name of a real world buyer.
Many mortgage lender groups on big troubled commercial construction projects across the country are foreclosing and then mothballing any further construction "until the economy recovers". In many cases that is a very foolish thing to do, because if applicable building codes change in the interim, what has been built goes "out of code". When construction resumes, the building has to be redesigned and retrofitted to meet the new codes, all creating huge, further monetary losses for the banks. Those sorts of economic misjudgments occurred in the last several commercial real estate recessions.
Unfortunately, most of the people now making decisions for the big FDIC-insured banks were still in high school or college back then, and today these green bank officers are clueless about the economic risks delaying completion of construction present.
Could happen, but I have a hard time believing the Court will allow the prime lienholder a maximum recovery at the expense of the lien claimants and the junior unsecureds, especially in a case like this where so much money is at stake.
This project needs an objective assessment of what it would actually cost to finish it and open it to the public.
There has to be some scaled back compromise available between closing it down completely and pouring another 1.5 billion in with little or no ROI.
Hire some consultants, estimate what it would cost to finish what's been built and wall off the rest, trim some of the fat, get new management, hire a new operator, everybody swaps their debt for equity, and hope like heck the national economy recovers and people come back to Vegas.
Like I said all week... PNG!
THIS IS A FACT:
PENN is buying property, but renaming casino to: FountainRed
They will be replacing red windows beginning Jan 15th, 2010
And, There will be $1 craps, $5,000 hi limit slots and $1.99 buffet steak dinners
BAM! WE GOT ACTION!!!!!!!!
Headline: "Penn National Surfaces As Possible Fontainebleau Buyer"
In the Article: "We ascribe a low likelihood to Penn's buying Fontainebleau or buying all of its equity for construction costs," JP Morgan analyst Joe Greff said in a research note.
WTF?
Yeah! Make it like old Vegas. Get the Unions to buy it, let the Mafia use it for money laudering and skimming, & have everyone on the take to get people in.
The writer of the article needs to do the necessary research in order to understand the complexity of the construction business in Las Vegas.
The project was an owner/built - with an architect clueless on the AIA's fiduciary responsibilities with regards to design/costs and controls.
So they're all bunch mutts that ripped off some prostitutes masquerading as banks with lousy architecture and inexperienced construction managing the poor quality of Union work found in Las Vegas. All of them being thrust in front the public eye by another bunch of socialists who are too lazy and cheap to "do" their own thing. Without the LVRJ the Sun would be nothing.
It would have to be very impressive inside to stand the test of time.
Can this resort possibly complete with Wynn, Encore, Aria and Bellagio as to amenities, sophistication and location?