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The hulking shell of Fontainebleau sits dark on the Strip. Construction was halted on the resort in summer 2009 after lenders pulled $800 million in financing.
Published Wednesday, Jan. 27, 2010 | 6:52 a.m.
Updated Wednesday, Jan. 27, 2010 | 8:47 a.m.
Carl Icahn
Sun Archives
- Carl Icahn to take ownership of Fontainebleau Las Vegas resort (1-19-2010)
- Will a big wager on Fontainebleau pay off? (1-16-2010)
- Deadline for Fontainebleau bids set for Friday (1-11-2010)
- Fontainebleau judge details guidelines for credit bid (12-8-2009)
- Fontainebleau: Half-built bargain bid up by billionaire (12-7-2009)
- Fontainebleau lenders sue construction companies over liens (11-27-2009)
The sale of the Fontainebleau Las Vegas to billionaire Carl Icahn was approved during a bankruptcy hearing today in Miami.
After hearing testimony from the court-appointed examiner, Bankruptcy Judge A. Jay Cristol approved the sale at about 8 a.m. Las Vegas time.
Icahn emerged as the only qualified bidder to purchase the stalled Strip property last week after two potential competitors failed to enter bids by Jan. 15. Icahn’s offer of $150 million includes a cash payment of $105 million and $45 million in financing. Icahn offered $156 million in cash and financing for the property in November, including $105 million in cash and $51 million in financing, but Fontainebleau bankruptcy lawyer Scott Baena said during today's hearing that the cost of financing is expected to be less as they move toward closing.
Fontainebleau bankruptcy lawyer Scott Baena said he was surprised Icahn was the only qualified bidder but said it showed the instability of the project and the Las Vegas economy.
Regional casino operator Penn National Gaming had been scouting the property for months but dropped out of the bidding process after Icahn outbid the company by $10 million.
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.
Fontainebleau’s developers had already spent $2 billion on the project when lenders pulled financing, forcing the property to file for bankruptcy in June.
The closing date for the sale will be no later than Feb. 9.
Separate from the Fontainebleau acquisition, the Nevada Gaming Commission approved the licensing of Icahn’s Tropicana Entertainment LLC to control three Nevada properties last week, positioning the company to oversee nine casinos in four states.
With an estimated net worth of $9 billion, Icahn is ranked No. 43 on Forbes' list of the world's wealthiest people.
Just get it done!
Carl should take over the Stations Casinos too!
He couldn't buy Stations at a cheap price, but you are right - he would make a great owner to turn them around...He has a big job ahead of him for the FB..But I am willing to bet, he'll let it sit for a while..I imagine all the union boys are drooling at the moment...
Is the plan to continue construction or simply sit on it and sell it later to other companies? Any infos on that one?
Would be great to rename it "The New Stardust" and let the good old times come back.
From Switzerland
Whomever, needs to button up the top. Still a few holes up there in the enclosure.
if carl icahn makes money on any deal, it is because he does so on the backs of the people who work for him in non-executive jobs. take the acep properties--charlies on boulder and decatur, stratosphere, and aquarius in laughlin--no raises for employees for years kept the overhead down and cooked the books so it appeared that the margin was increasing. then, upon selling, all the key people (directors, vps, and pres) got 5, 6, and 7 figure bonuses from the profit. it seems to me that the little guys who make it happen every day deserved something, too, and all they got was nothing.
He is going to teach Donald "The Art of the Deal" too! Well done.
Good. I hope he finishes it and turned it into a gorgeous hotel casino resort.
The New Stardust? Let the good old times come back? Do you not remember that in the "old days" people used to tip the doorman, the bellhop, the dealer, the waiter...well, you remember the "good old days" Boris, right?
I bet he lets it sit until unemployment dips below 7-8% nationally!
He will make money on his purchase
this guy is what 'The Donald' pretents to be.
If anyone can pull it off, it is Carl Icahn. He's good at what he does. I hope he doesn't open the property for at least 2 to 3 years. We don't need any more additional capacity right now. However, if he opens sooner, it will be a death knell for some properties.
S711 Las Vegas, NV United States of America
At least he smiles, unlike some other moguls "sans" smile.
Does someone still own the Stardust name? Of course near the end people were calling it "The Dust."
What we need is a multi-level marketing gimmick, get someone else to vacation in Vegas, then when you get five people (friends, relatives, co-workers, etc)to book 3 days each, you get a free trip and you name goes in a drawing for a big grand prize.)
As a gimmick . Lets have looser slots, Restaurants that don't rip u off because it's on the Strip, better table odds ( 2-1 on Blackjack) . I would also rename the property . How about Icahn !
He'll finish it and open it, but not too quickly, as he's already on record saying that LV is overbuilt right now. The great irony in all this is that, when it does open, one of the properties it will likely kill off is the Stratosphere, which has been struggling ever since he sold it. One can probably wave "goodbye" to the Sahara and Riviera as well, and God help Circus Circus!
burnemandturnem - I agree with 99% of what you said, except Circus Circus. As long as they target the family segment, they will stick around. There are no alternatives.
S711
I hope he builds it into a super swank place, so all the other high end places (the only ones to open lately) all come crashing down and the middle class visitors to Vegas will once again be king! Throw a dollar down to get a steak with your eggs!
newman2: under the conditions that there will be seriously "good old times", meaning, 99.54 per cent jacks v-p, 3-to-2 black jack and great bonus slots and rooms at decent rates, buffets for 5.99/7.99/9.99 and good comps for players, I might indeed be inclined in tipping my share. But only under the condition that they're not angle-shooting at the tourists with silly hidden fees such as resort fees for free incoming fax services, shoe-shine or a free news-paper or free domestic phone calls and free use of the gym and such crab....
From Switzerland
Part 1
Good luck to the Icahn team. However, I wanted to update all posters on some key points of the purchase contract under which the Icahn entity will purchase the property. Remember that Penn National's lawyers actually wrote the purchase contract, and that the Icahn entity stepped into Penn National's shoes by over bidding them. These are some key deal points from that contract which I posted when Steve Green put up the actual contract as an attachment to his bankruptcy court story several months ago:
http://www.lasvegassun.com/news/2009/nov...
If you look at the contract, simply think of Icahn rather than Penn-National every time you see the terms "Buyer", "Purchaser" or "Penn".
There are some interesting provisions in that contract, which still constitute cards which have to fall in place before Icahn's entity closes escrow to purchase:
Under subparagraph (d)(ii)(B) on page 55, the closing of the sale will not occur unless Clark County issues a letter of assurance to the Buyer in the form the Buyer wants. No telling what Icahn will want that letter of assurance to say.
Section 8.1(b) requires the closing of the sale to occur no later than February 9, 2010.
Section 2.10(a)(ii) and (iii) say that if the Purchaser buys Fontainebleau, the Purchaser has no obligation to complete the development of the project, or a casino, or a hotel, or an entertainment complex on the property. This is the key point of the contract, in terms of everyone's speculation about what happens next.
Section 2.10(a) says that the Purchaser has sole and absolute discretion concerning the manner in which the project is finished, in terms of design, construction and decoration decision making. This is a key point on the issue of whether the project will be finished as a "plain" or "fancy" hotel/casino.
Part 2:
Section 2.10(c) says that on the earlier of (a) a resale of the Fontainbleau within one year after purchase by the Purchaser, or (b) three (3) years after the project is completed and open to the public, the seller (i.e. the Fontainbleau bankruptcy creditors) may get a "Contingent Payment" from the Purchaser, based upon the ultimate cost completing construction, furnishing and fixturizing the project. There's no way to tell how much that Contingent Payment will be, because it is dependent on ultimate costs to complete, fixturize and furnish the hotel/casino in the manner determined by the Purchaser, i.e. Icahn's entity.
However, the formula for calculation of the Contingent Payment is described in Paragraph (e) on page 36. The payment is 50% of the Purchaser's cost savings on completion of the project, as compared with a completion cost estimated made by the parties now. If the project is sold within that period, the Contingent Payment is 33.3% of the Purchaser's cost savings on completion of the project, as compared with that completion cost estimate made by the parties now. If the completion costs exceed that estimate, the seller's bankruptcy estate receives nothing at the three year mark or when the project is sold. Essentially, the meaning of this paragraph is that if the Purchaser decides to finish the project "on the cheap" the seller bankruptcy estate gets a piece of the cost savings.
Subsection (h) on Page 62 requires a filing of a Chapter 11 bankruptcy for the owner of the retail complex at Fontainebleau, and requires that the bankruptcy judge for that retail entity (probably Judge Cristol) has to approve this sale. [Reprise: However if Lehman Brothers' New York Bankruptcy Judge Peck won't approve the release of Lehman Brothers' mortgage on the commercial part of the project, for free, Penn National has the option to simply scrap its purchase of that commercial property but still buy the hotel and casino.]
Section 4.1(j) of the agreement recites that the buyer may want to assume certain construction subcontracts and other contracts associated with the project, implicitly at the "stale" prices under those subcontracts and contracts which were entered into so long ago. Under Bankruptcy Code Section 365, the debtor's power to do that exists, and that power is being assigned to the Purchaser.
At the bottom of page 42, there is a fascinating representation that the presently existing "groundwater treatment system for the dewatering system" for the project is operating in accordance with the requirements of the Nevada Department of Environmental Assessment. [Does this project have underground water problems like the Cosmopolitan???]
Part 3:
On page 51, paragraph 5.6(a) provides that "Prior to the revocation of the Nevada General Contractor License of Turnberry West Construction, Inc. ("TWC") the sellers will use commercially reasonable efforts to cause TWC to transfer the [building] Permits to a general contractor reasonable satisfactory to Purchaser and Sellers. [Looks like Turnberry thinks they are going to lose their license because they haven't and won't be paying their subcontractors.]
Section 5.8 says the sellers will make no press releases without approval thereof by the Purchaser.
One other interesting concept in the Fontainebleau purchase agreement is the concept of "Remediation". That term is effectively defined, on Pages 14 and 25, as the cost to fix construction defects and weather damage to the Fontainebleau tower.
Section 2.5, starting at page 25, describes in detail how an "Inspection Team" of inspectors, led by "Thalden Team" is going to inspect the buildings twice. That Inspection Team is supposed to determine the probable costs of that "Remediation".
The contract then sends one back into the definitions, to "Material Adverse Effect" on Page 11. The general concept is that the buyers can back out of the deal if there is a Material Adverse Effect on the building, prior to the sale closing, if the Material Adverse Effect has a damage amount to the extent of $75 Million after insurance. However, the agreement then gets really weird in defining Material Adverse Effect, containing two phrases which are very rare:
A "Material Adverse Effect" will be deemed to have occurred if "(y) the building and improvements on or in the Real Property or a material portion thereof collapse or (z) there exists or occurs any Defect (other than any Defect existing as of the date hereof to the extent neither structural or latent) (1) that, individually or in the aggregate, presents a material risk of collapse of the buildings or improvements on or in the Real Property or any portion thereof"
Not if they burn in a fire. Not if they are substantially damaged in a wind storm. Not if the glass facade is substantially damaged by some freak accident. But instead IF THE BUILDING COLLAPSES.
What exactly were the Purchaser's lawyers worried about? The potential for a collapse in an earthquake? The potential for collapse if the building is hit by an airplane? The potential for a collapse because of negligence on the part of Clark County's building inspectors ala the mistakes in inspecting the Harmon Tower at City Center?
That end of the strip needs help... run down turned into up & coming but we need up & coming to turn into the new and excited north strip... This along with Echelon (when ever they continue) will def help!
I think the problem is not this corner of the Strip but the Super capacities on the other end of the Strip. You can't deny that, but South of the Wynn, Mirage, Harrahs, Ballys, Paris, Bellagio, etc etc, that's where the Strip's main capacity goes on. These super casinos swallowed up most of Las Vegas' business, so even downtown has a tough stand against these casinos. And the middle Strip is also under extreme pressure. Nothing you can do about it. Perhaps indeed bringing back the good old times in this particular zone might bring back some traffic. It doesn't take new casinos for this to happen. The Riviera and the good old Circus Circus are the last true old resorts, and they have all chances to show if it's possible, or to. And the Sahara and Stratosphere, too.
From Switzerland
the north strip at the moment is a dirty, filthy dangerous area where people are afraid to walk, no wonder places like sahara and the strat are struggling, seriously what does it offer the tourist??
1. vast empty litter filled lots
2. crazy psychotic junkies
3. hourly motels
4. tattoo parlours
5. run down casinos that haven't seen a lick of paint since the 60s e.g circus circus and riviera
the north strip needs more than Fblue if its ever going to prosper again, it needs to clean up the surroundings for one, it needs to fill in the empty lots, build something there ffs (echelon, frontier site, old el rancho vegas site), renovate the likes of circus circus, riviera, sahara etc, just because something is old doesn't mean it has to look old re: caesars palace
He should turn it into a big, smoking hole in the ground. It would improve the neighborhood and there would be a view from the Strat's observation deck again.
wizardofOz: Wouldn't it be totally foolish to tear down something that has just been built?
I rather believe that this whole facility will not become a casino but rather a bank office building or FBI bureau or something similar. I don't know how far they went with the inside construction. Perhaps it's too late for that already. But it could also qualify for a new office for the Southern Nevada water authority. The color's right already :)
From Switzerland
I'm not surprised Penn National and others aren't interested. CityCenter is a very strong property imo and there's no point in FB coming to market when there's something as compelling as CC grabbing existing market share. Of course the Vegas market could get steadily better in time for an FB opening.
Icahn will probably flip it for a profit when the market is a lot better. Who knows whether he'll even finish the project ahead of that.
cribster, I agree with you on your statements. Probably it's nothing but a speculating investment to him. Once the economy gets stronger, interested companies will gladly pick up this property at a good price. Perhaps it wil go hand in hand with any projects on the former Echelon site.
From Switzerland
@Gerrlfc:
I'd far rather walk the North end of the Strip past construction fencing than walk past the aggressive 'card flippers' and the junky stores down Aria way...
In 30 years I've never felt unsafe on the North end.
Finish it, buy the Stardust name from Boyd Group. Then take over the Sahara & rebuild that too.
The "Good Old days" ar elon gone and never to return
sad but true.
Vegas has never ben the same when they started getting all family oriented.
ugh nothng worse then trying to enjoy yourself and have some fun and hearing a buch of kids screaming in their strollers as the mothers push them by..
I hope they finish it, just to show the people behind City Center how to spend billions and NOT suck.
I thought Harry would jump in and secure jobs for these construction workers.
If anyone can turn FB around it's Carl Icahn. Note I did not say Barrack Obama because Barrack would pass a bill that spends 10 times the needed amount and would get half the results.
It's the right spot for a homeless shelter.
funny how icahn stepped in last minute and outbid others. seems someone owes him something, the hell with penn gaming. i'm glad because penn shouls stick to regional casino race tracks, vegas strip is nothing but rich mans place, just take the other suckers money for over priced crap.
former vegas,
This is some of what Icahn does for a living. In addition Icahn buys when prices are low and will sell when it is high. That is exactly what he did to the Stratosphere and Arizona Charlies properties. The man wasn't always filthy rich.
Why is it a great location for a homeless shelter?
i thought all the homeless in Vegas are downtown???
No i dont think that personally but everytime i read about downtown i hear how all the homeless are wandering there--L.O.L.
I don't think Icahn will be the one to open FB. He will maybe complete it to ,say 99%,then someone else with more hotel experience will open it . I hope it will not be another very-high-end place . Vegas is has too many of these already. But,as others have said,the cost of the land combined with the cost of the building and overhead they have to be high-end. But there is only so much high end people to fill these place. Plus,the FB's location levaes something to be desired. Maybe this building will spurr a revival of this end of the 'Strip. The place is certainly distinctive.
Icahn when do you think you will start putting
construction workers back on project. Good luck with gamble i believe it will pay off for you.
Recently heard a rumor from friends in construction industry that Ichan's staff have been calling contractors looking for bids to seal up and "mothball" the project. I guess he'll wait until economy improves then develop and/or sell the joint. Too bad; the ugly blue shell could stay as it is for quite a while.