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Who Will Buy Fontainebleau?

By Chuckmonster on Thursday, 27th August 2009 3:09pm
  » filed under Las Vegas  comments: 9


Numerous gaming analysts have been reporting that at least two casino companies have submitted bids on Fontainebleau, which is currently in court ordered bankruptcy mediation. Union Gaming Group analyst Bill Lerner had this to say:

It is our understanding that Penn National Gaming (PENN) and Apollo have submitted separate plans to the bankruptcy court [to take over Fontainebleu]

For those who might not know, Penn National Gaming is an operator of race tracks, racinos, riverboat and other casinos spread about the United States. Most recently, Penn National was named as one of the prime suitors in a heavily discussed sale of Mirage and/or Bellagio earlier this year, both of which proved false.

Apollo, aka Apollo Texas Pacific Group is the investment company behind the $28B privatization of Harrah's Entertainment. Should Apollo TPG make an offer on Fontainebleau, it would probably be a safe bet that the distressed property would be completed and operated by the Harrah's Entertainment org chart, including CEO Gary Loveman.

One notable omission from the list of potential suitors is Wynn Resorts, who toured the property. Las Vegas Sun reporter Liz Benston explains why:

[Wynn] took one look at the layout of the Fontainebleauís already-built rooms and walked away.

I've got to agree with Wynn's assessment here. We toured the Fontainebleau sales pavilion (located across the Strip from the FB monolith) which includes walk-thru model of their proposed iMac filled hotel rooms and came away less than impressed. The rooms are really really small.

Whomever ends up with the Fontainebleau gets not only a half built property, they get someone else's dreams... which by many accounts are mostly nightmares.



Comments & Discussion:

Small like Mirage, or small like Golden Gate / NYC apartment?

Small like Mirage. That's a good analogy.

CM - I thought you were really impressed by the FBleau casino / public space renderings. Surprised to hear you describe the design at the place as 'mostly nightmares'.

Yes, i like the renderings of the public areas... but those rooms are puny in dimension. By nightmare, I'm primarily thinking of the current financing mess and how much it will cost to complete the previous vision. Fontainebleau is doomed.

Hotels in Europe make even the smallest hotel room here look huge, beds shoved against a wall with a bathroom that's only big enough to turn around in, they have flat screens on the wall because there's no room for a tube TV. That has nothing to do with anything but I thought I would throw that out there.

And speaking of doomed, why haven't we heard much about the Cosmo lately? Has it ever been decided who is taking over that place and how it will be run? Wasn't it originally scheduled to open before City Center?

FB has so many issues I'm not sure anyone can make it work. First, they need to clear the existing debt and the bondholders (mostly big banks) aren't going to agree quietly. Second, any buyer needs to complete a massive construction project and there are only a handful who have such experience (not Penn or Apollo). Third, it will take years to sell the condos so new debt will need to be carried for years. Fourth, prevailing room rates are going to make it nearly impossible to break even in the next few years. Any buyer will need to come up with almost $2B and be able to carry that debt for several years while suffering additional losses. I'm not sure investors in a distressed real estate fund (ala Capital or Apollo) are going to have the patience. I do think that long term this could be a great property, its just getting to the finish line that is problematic.

500 gross sq feet is small? Compared to Venetian/Palazzo perhaps but that is the same as Bellagio, Mandalay, and many others on the strip!

i just ate a whole tub of ben and jerry's "mission to marzipan" and i am feeling much too good/bad to comment about this.

I would be willing to bet that someone who wants in on the Vegas scene will pick the place up, open it and see that it may never make money and regret the move but it will be fun to watch the show. As far as the size of the rooms is concerned considering where the hotel is on the Strip that may not be as much as an issue at all. The place will probably appeal to an older crowd who is already staying at Circus Circus or the Sahara and the appeal of running water will pack them in.

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