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.”
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