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US – Ichan to sell Fontainebleau for $650m

By - 13 November 2015

The towering blue façade of Fontainebleau Las Vegas, a constant reminder of the harsh economic climate that gripped Las Vegas by the throat, is on the market for US$650m.

Billionaire investor Carl Icahn has instructed Los Angeles real estate company CBRE Group to offload the once $3bn hotel and casino resort, which has been described as an eyesore by many, on the northern part of the Las Vegas Strip.

The ambitious 68-storey project had the life strangled out of it when Bank of America and JP Morgan Chase annulled $770m in loans in April 2009. The casino’s original investor Miami-based real estate developer Jeffrey Soffer had spent $2bn on the project before being forced to file for Chapter 11 bankruptcy protection in 2009.

Mr. Icahn bought the property for $150m in 2010, spending up to $7m a year on maintenance costs. The purchase price will just be the tip of the iceberg for any would be investor though.

CBRE Executive Vice President John Knott relayed that whoever take on the unfinished project, which spans a 22-acre parcel of land, will have to spend at least $1bn to open the two-thirds completed project. Its original plans were for 2,882 hotel rooms, over 900 condos, large retail space.
Mr Knott described the Las Vegas recession as more of a ‘depression’ but pointed to the fact that casino companies were one again ‘investing in and renovating properties.’ He believes that with quarterly revenue results stacking up again there was a ‘vibrancy’ highlighting that the recession was over.

With tourism and room rates back at record levels, Michael Parks, Vice President with CBRE Las Vegas, believes that having held onto the project for six years now is the time for Mr Ichan to sell.
“The time is ideal to realise the potential of this incredibly valuable piece of Las Vegas real estate,” Mr. Parks said.

It would also help cement the rejuvenation of the North End of the Strip. Having opened in August 2014, the SLS Las Vegas has been eagerly awaiting some new neighbours. Another mothballed project; Boyd gaming’s Echelon has been bought up by Genting who will be opening the $4bn Chinese-themed Resorts World Las Vegas. Australian operator Crown Resorts, led by owner James Packer and partners, including former Wynn Resorts executive Andrew Pascal and investment firm Oaktree Capital Management, will be developing on the land of the former New Frontier Casino to build a casino called Alon. Las Vegas Economic Impact Regional Center, a company that has former Las Vegas Sands President William Weidner as its President, meanwhile is building Lucky Dragon casino. Away from casino development, MGM last year saw MGM open its MGM Resorts Festival Grounds whilst the Las Vegas Convention and Visitors Authority’s Convention Center District is developing new business centre at the site of the former Riviera, which is expected to attract an additional 480,000 new attendees and 20 new trade shows and conventions.

Chris Jones, an Analyst at Union Gaming Group, believes the time is right to sell: “This is as good as it’s going to get. Room rates have strengthened. The Strip can support more hotel rooms.”
He believes that any investor in Fontainebleau should use the existing infrastructure.

Mr. Knott suggested it would cost around $1.2bn to open Fontainebleau, meaning that with a purchase price of $650m, entry price to the Strip via Fontainebleau would be $2bn equating to $500,000 per room, compared to $1m or more per room to build new.

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