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Icahn lands Las Veg bargain; what next?
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The Fontainebleau sits about 70 percent completed behind the Riviera. Observers don't expect new owner Carl Icahn to resume construction. » Buy this photo
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Carl Icahn
Billionaire investor officially takes control of Fountainebleau
LAS VEGAS REVIEW-JOURNAL
Updated: Apr. 10, 2012 | 10:46 a.m.
Billionaire investor Carl Icahn's path to owning one of his best Las Vegas bargains to date was cleared Wednesday when he was named the winner of the auction for the bankrupt Fontainebleau Las Vegas.
But how long the stalled 3,889-room hotel-casino will sit unfinished on the corner of Las Vegas and Riviera boulevards is now the big question.
"There's no reason to build anything on the Strip for a long time," Bill Robinson, an economics professor at the University of Nevada, Las Vegas, said. "There's extra capacity there already."
Nearly 7,800 new rooms opened in Las Vegas during the fourth quarter between CityCenter, Planet Hollywood Resort, Hard Rock Hotel and the Golden Nugget. Additionally, Caesars Palace has the 660-room Octavius Tower that sits unfinished.
The U.S. Bankruptcy Court in Miami accepted Icahn's $150 million bid after the examiner disqualified two competing bids that didn't meet criteria.
Icahn's bid includes $105 million in cash.
The price is small compared to the nearly $2 billion already put in by the former developer, Miami-based Fontainebleau Resorts.
The $150 million price tag makes the value of the 24-acre site without the unfinished building $6.25 million an acre.
The sale is expected to close on Feb. 9. No creditors objected to the sale, although some contractors and lenders are pursuing lawsuits against the original developer.
Robinson said Icahn's purchase of the Fontainebleau is typical of the billionaire's method.
"This is what he's always done," Robinson said. "Bought things he thought were undervalued, mismanaged or in some other way is going to be a bargain that he can hang onto a while and make some coin off of."
He sold American Casino & Entertainment Properties, which owned the Stratosphere and both Arizona Charlie's, in February 2008 for $1.3 billion. Icahn had acquired those properties in bankruptcy or at depressed values.
Icahn told the Review-Journal last week that he would wait for the Las Vegas gaming market to settle before deciding how to proceed with the Fontainebleau.
A representative of 17 labor unions that saw 3,000 of its members laid off in late April when the project was shut down described Icahn's takeover of the project as promising.
"From a building trades perspective, this is the step in the right direction instead of sitting there in bankruptcy," Southern Nevada Building and Construction Trades Secretary-Treasurer Steve Ross said Wednesday morning. "We're being optimistic and positive about it because now somebody actually's got it. Somebody with a proven track and he's been successful with properties before. Hopefully, by the second quarter this year maybe we'll have some activity going on."
The Fontainebleau filed for Chapter 11 bankruptcy June 9 after lenders stopped $800 million in funding.
The project was about 70 percent complete when construction was halted, according to Fontainebleau Resorts.
The Fontainebleau once had a construction budget of almost $3 billion. Analysts project it will take at least a $1 billion to finish the project, which was designed as a hotel-condo-casino with a large retail center, restaurants, spa and other amenities.
Although the unions have not had any direct discussions with contractors or Icahn about restarting the project, Ross said Icahn could choose to complete some components of the project, such as the casino and some hotel rooms, but delay finishing others such as the 300,000-square-foot retail center.
"Because of the size of the project, there's a lot of tenant spaces," Ross said. "You want to fill those tenant spaces with store owners as well, but are they financially viable to go in there? There's a lot of variables out there."
Ross estimated it would take a year to finish construction if Icahn decides to complete everything.
Robinson said there is no reason to restart the project in the near future with all the rooms recently introduced to the market.
Fontainebleau attorney Scott Baena told the court that Icahn being the only qualified bidder is a comment on the state of the economy.
"The sales process dramatically demonstrated that this project continues to engender risks and costs that made it unattractive to strategic and financial buyers," Baena said.
Robinson said Icahn's interest in the Fontainebleau after his decision to sell the Stratosphere can be seen as a sign that investors still see value in Las Vegas.
"His interest is a good independent indicator that he doesn't think the future is horrible here," Robinson said. "He has some idea what the place is like and what the market's like. The fact that he sees it as undervalued is something positive."
Fontainebleau is not the only distressed gaming asset Icahn has moved on.
Nevada gambling regulators last week approved his plan to control nine casinos, including two in Laughlin and one in Lake Tahoe, as part of the bankruptcy reorganization of Las Vegas-based Tropicana Entertainment. The Tropicana on the Strip is owned separately.
In December he revealed in federal court papers in New Jersey that he planned to pump more cash into his bid to buy Donald Trump's bankrupt casinos. Icahn already had agreed to buy a majority of the $486 million bank debt on three properties: Trump Plaza Hotel and Casino, Trump Taj Mahal Casino Resort and Trump Marina Hotel Casino.
Icahn Partners Inc. also committed an additional $125 million to his bid for the struggling Trump Entertainment Resorts Inc., according to court papers.
Contact reporter Arnold M. Knightly at aknightly @reviewjournal.com or 702-477-3893. The Associated Press contributed to this report.
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Smart guy....
He should factor in that completing the building soon will save him millions in construction cost because of the cheaper labor and material now.
He could sit on that and only partial open it.
Or he could just sit on the unfinished building for decade.
He will still have to pay maintainance cost.
I am sure his team has ran and are running through all the scenarios.
To those who say Ican is an idiot for buying this property -- did you make as money as he has making deals like this?
No? Hmmmmm.... Then shut up.
Well I guess if your one of the "thousands" of construction workers that have been waiting for this project to start back up again so you could go to work, you have your answer.
Businessmen in Vegas don't give a crap about putting or keeping people working for the sake of that city. How sad that is.....you'd think that they would feel they need to give back to a community that has supported them for years by visiting their properties and spending their money? Hell no, they don't give a rats a-- about the community or keeping people working. Their only interest is continuing to line their pockets.
So sad.....no business leaders feel any obligation to that city what so ever. It will be Vegas's undoing.
Eddie Gin:
I find it difficult to sneer at businesses that are viable such as the ones you criticized, i.e., Circus Circus, Riviera, and the Sahara. The Boyd Group may own a pile of rust on the strip, but at least they are not in bankruptcy.
There is a niche for the casinos that you condemned. Those casinos generate enough revenue to issue payroll checks to pay their employees. What do you do to further enhance Las Vegas' economy?
By the way, learn how to spell and punctuate. It will be easier to make sense of your non-sense.
LGL