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Some Thoughts About Alon

By Chuckmonster on Sunday, 18th December 2016 11:56am
  » filed under Las Vegas  comments: 16

   

Alon management released a statement and the above rendering in response to the news that Crown Limited was withdrawing from further investment in the project.

The founders and developers of Alon Las Vegas will continue to explore all of its options to advance the project and optimize the value for its stakeholders. Crown Resorts, the principal financial and strategic partner of Alon, has elected not to move forward with the Alon Las Vegas project at this time.

The Alon site is the most compelling new development opportunity on the Strip. It is positioned directly across from Wynn Las Vegas and Encore and bordered by Fashion Show mall, Trump Tower and the new Resorts World Las Vegas development. Having invested two years in the program planning, design, development, pre-construction and entitlement process, the Alon resort project has been thoroughly vetted and is considered "shovel-ready."

The Alon Team is comprised of an accomplished and diverse group of industry experts, all of whom remain committed to the project and to realizing the best possible outcome.

Translated: James Packer zipped up his courage and ran home. We've got the last, best located, green field development opportunity on the Las Vegas Strip. We've done the math, we've assembled the team, we've done the work, and we've got plans to build one of the sexiest resorts in Las Vegas. Investors, let's get butt naked and fuck.

In August, I asked Andrew Pascal directly if Crown/Packer were still on board with Alon. With absolute certainty Andrew responded that James Packer and Crown were still committed to the project as was the existing team of executives and player partners.

When pressed about rumors of financial difficulty within the project Andrew stated that design and development of Alon was mostly completed ("shovel ready") and that their primary obstacle to breaking ground was an equity gap in pre-finance funding.

When arranging financing to purchase a car or a home or to build a $2+ billion dollar resort, banks require applicants to pony up a percentage of the total amount as down payment. Crown and their partners (Andrew Pascal and Oak Tree Capital) agreed to contribute a percentage of the down payment and sought to share the risk and cover the gap by taking on additional investors. Wynn Resorts engaged in similar tactics - a financial partnership between of Steve Wynn, Elaine Wynn and Kazuo Okada - during their nascent stage. The renovation of SLS Las Vegas by the partnership of sbe entertainment and Stockbridge Real Estate had to call on the U.S. government's EB-5 "cash for visas" program to close their equity gap before the banks would release construction funds.

Simultaneously with seeking Alon equity partners, Packer and Crown boomeranged corporate restructuring ideas out into the Australian financial community. There had been talk of rolling all of Crown Limited's non-Australian holdings (including Macau's Melco Crown Entertainment and Alon) into a new company, as well as spinning off Crown's Australian holdings into an operating company and a separate real estate investment trust.

A few days ago, Packer's boomerang abruptly skidded back to Earth in a series of stream-of-consciousness investor filings. Instead of spinning their international holdings into a new company, Crown decided to sell nearly all of their partnership stake in Melco Crown and abruptly ceased further investment in Alon. Crown's board says they will use a large portion of the proceeds from these extractions to retire debt, buy back their own stock, IPO the REIT and pay dividends to shareholders.

Instead of pursuing international growth and opportunity, Crown engaged in a full-scale global retreat followed by a retrenching of their domestic business.

Any semi-conscious dice player knows that the second you think seven out, you seven out. Fear unchecked is self-fulfilling.

So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself -- nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life, a leadership of frankness and of vigor has met with that understanding and support of the people themselves which is essential to victory."
- Franklin Delano Roosevelt, Inaugural Address March 4, 1933

Crown's blanket decoupling from their international investment projects isn't about the validity of those investments, it is about fear.

Over the last few years, Macau casino operators have had their once dazzling sure bet investments kneecapped by graft, scandal and multi-faceted interventions by the Chinese government. Facing the fear of a seven, Crown dumped their shares in Melco Crown at the precise moment Macau's ebb tide slows, inhales, and hangs in the momentary pause, waiting for the flow to begin.

Shave and a haircut...

Crown has gotten hosed in Las Vegas (at least) three times. The first was a $300m investment in Fontainebleau which promptly ceased construction and spiraled into bankruptcy. The second squirt happened months after the Fontainebleau investment, where Crown signed on to the $3.4b Crown Las Vegas, a Burj Dubai style super tower to be located between Fontainebleau and SLS. Their third - and most baffling - attempt to break into Las Vegas was a $350m purchase of 25% of Cannery Resorts in 2007. Boyd Gaming purchased 100% of Cannery Resorts for $230m in April 2016.

...two bits.

For the first and probably only time, Crown had found the perfect Las Vegas partner in Andrew Pascal. Together, they snagged the perfect parcel, smack dab in the middle of Las Vegas' high rent neighborhood and put together an exquisite set of resort plans. Crown would be partnered in an exclusive, intimate, luxurious, modern, nuanced and thoughtful resort experience envisioned by a certifiable dream team of Las Vegas executives. Alon would compliment and extend Crown's existing brand and burnish their reputation as the first six-star casino resort in Las Vegas. Crown had the opportunity to enter the market where it deserved to - at the to - not the Eastside Cannery.

The table was set with the finest linens, the sharpest of knives and a stunning view of Steve Wynn's lunch.

Anyone who knows Steve Wynn could smell the fear behind his snickering 2015 earnings call boast that having a new property across the street would add tens of millions of dollars to Wynn's bottom line. The mere thought of having Packer/Pascal as neighbors caused Steve Wynn to close two restaurants, move a poker room, sell, close and demolish a car dealership, design and commence construction on a shopping mall, sell 49% of shopping mall operations, and - in a real coup de grace - summon investors to preview his own unapproved plans for a 1000 room lake-facing hotel. Wynn also used Elaine Wynn's blood relationship with Andrew Pascal (therefore, Alon) as one of the reasons why she should be removed from the board of directors of a company she is a major shareholder of part.

Wynn did all of this before one single solitary shovel of construction dirt was moved on the New Frontier site. Steve Wynn, when faced with the possibility that a portion of his lunch may actually be in jeopardy, chose action over retreat.

Packer, digs in to the batters box.

Pascal sets, kicks and delivers a Bugs Bunny floater heading right over the middle of the plate.

Packer's brows raise and pupils dilate as the seams swirl slowly in his the pools of eyes.

He shifts his weight, tightens his grip and cocks his bat.

Then, with deep inhalation and muscular twist of the torso, Packer runs off the field and straight into the showers.
Strike four! Yer out!

And with that, Crown Limited pulled out of Alon. Blame the tabloids. Blame Mimi. Blame Brexit. Blame Donald Trump and his ugly ass hotel tower. Blame James Packer and Crown Resorts' penchant for making bad decisions at the worst time. Blame fear.

Why Alon Matters

I've watched Andrew Pascal present the Alon concept, property and design in person on three separate occasions. During these and other in-person meetings and phone calls, Andrew has walked me through the genesis of the Alon project - how he put the partnership together, how the parcel was purchased, and how the team was assembled - and shared details he hasn't discussed with any other member of the media.

Between hopping hoops & garters of resort design and the lingua logos of luxury, Andrew and his team have shown me the hotel rooms, resort interiors, dining line up, the casino layout and game mix, plus a whole bunch of surprises in store for the resort - epic, intimate and jaw dropping - lastly through a hogshead of real fire! I've brought some of the smartest folks I know (John, Mike, Hunter and my wife) to two of these meetings, purposefully standing aside, taking note of their reactions, questions and responses as Andrew talked through the resort concept. Each and every one of them walked away with the same reaction that I had.

Wow.

Having this degree of access to a project as it navigates the savage sea of gestation has been an eye-opening experience. For the first (and probably only) time, I've been staring at the secret plans from inside the fortress walls. Now, when I hear the froth, fury and faux-facts echoing around the news, blogs and social media circles, I have a pretty good understanding what information is on the money and what is crap. It has been a supremely enlightening experience in many ways.

I could easily write 20,000 words about why Alon interests me. I could talk generally about the property, the architecture, the technology, the spaces, the philosophy of comfort or go deep on the gorgeous room designs, one specifically insane restaurant concept or the attractions. Maybe, someday, I will. But right now, none of that matters.

What matters most to me, and is the single solitary thing I hope you take away from this article, is that Alon has the potential to save Las Vegas from itself.

Many have deduced that Alon aims to provide boutique luxury resort experience at the top of the market. This may or may not fit with your personal player profile. Even so, this very concept is something that all Las Vegas visitors should thoroughly embrace and encourage.

I am most definitely not a member of the 1%, and barring an investment miracle and an invitation to Alon's opening week media junket, I probably won't be staying here much at all. But the mere possibility that the 1% who can stay here will vacate the penthouses, mansions, skylofts, tower suites and villas all across Vegas and instead stay, play and go cray at an independently owned property at the top of the market should give every disgruntled, disillusioned, under-appreciated, profit-growth-planned and pissed off Vegas visitor a big fat meaty boner.

A sign?


Photo by JohnH



Tagged: alon   james packer   andrew pascal   steve wynn   





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Comments & Discussion:

Packer's investment in Crown Las Vegas (Which was one of several proposed projects on the site that have never gone forward.) was before the investment in Fontainebleau. He also got hosed by Station Casinos' struggles during that time as well, paying $242 million for a 4.9% stake in 2007 that was worthless two years later. Here's an article from June 2009 that outlines Packer's bad investments in Vegas:

http://www.smh.com.au/business/packers-us-casino-gamble-in-250m-loss-20090610-c3mi.html

Alon may not be dead yet, but losing their big name partner makes things tougher for them. Who could be brought in as an additional investor to get the project going? I could see The Blackstone Group getting involved with Alon, as they have previously stated that they would be interested in acquiring additional properties in Vegas.

Packer shouldn't have lost much on Crown LV. It was another Christopher Milam pipe dream. That guy, like Michael "10,000 room Moon hotel" before him, are part of the pack that come up with endless unfeasible ideas for this town such as the PolarCoaster and Go To Mars. Milam's other ideas included a failed arena plan on the same land as Crown and he also flirted with buying the local minor league baseball team from Derek/Greg Stevens and then went cold on the deal. Basically the next generation of Bob Stupak, except he actually built his tower.

I believe Milam always held the lease for the Crown property, so Packer's investment wasn't much before making a generic declaration that the Vegas wasn't the right market at the right time (a.k.a "we don't work well with this guy").

It should be noted that Crown's basically doing the same thing on Alon, though those executives probably deserve the benefit of a doubt.

In this century, when most of The Strip has become generic and corporate thanks to MGM and Caesars, a unique, boutique high-end resort is definitely needed. I am certainly not in Alon's target market, but Las Vegas was built on dreams of glamor, luxury and of experiences not part of our daily workaday lives at home. That is reason enough to support the opening of Alon, and to some extent, Resorts World.

Just as important, the north Strip is a disaster. When I drive south on The Strip between Sahara and Wynn/Fashion Show Mall, most of it looks like a war zone. It's an embarrassment to Las Vegas. Steve Wynn (and possibly SLS) can't save that area alone. There is desperate need to bring life to that area before the only development there is more CVS and Walgreen stores. I would love to see luxury properties open even if I will never be able to stay in them.

Chuck, great take on Alon. Thanks for the analysis that makes this site essential. I want to play devil's advocate, though.

Doesn't Alon's failure to secure funding support the case that Vegas doesn't need/won't support another 'x' amount of hotels rooms, and the gambling pie to be sliced even further?

I turned 21 in the midst of the Recession - the heady days of post-Mirage Vegas are merely stories for me - but it's interesting to see how the United States' economy has recovered so fully (if differently than in the past), yet new development in Las Vegas has been nearly nonexistent. Surely, this has to do mostly with market forces. Nearly everyone - Wall Street, Dubai, Big Gaming - got burned in '08. Why would they return when relatively "okay" returns are now the norm (in Vegas, at least) in an industry obsessed the new, untapped market?

These questions don't consider the value and uniqueness that you mentioned Alon promised to bring about. But to people controlling the pursestrings, an extra hotel room is an extra hotel room, no matter how different it may be.

... I don't necessarily agree with this perspective. I want new shit on the Strip just as much as anyone else. But they were questions that came to while reading.

BD

BD - I'll preface by saying that all of my theories about why Alon couldn't close the gap are pure speculation. None of this came from the horse's mouth. I need to be completely transparent here... I'm only guessing.

Theory #1 - "Packer is a multi-bazillionaire with holdings here there and everywhere. Why would he need a partner, he can pay for it himself! - I'm out."

Theory #2 - The partnership opportunity available didn't offer enough meat on the bone to make the risk/reward balance worthwhile enough for the players who can stomach throwing cash at a project that won't bear fruit for 5 years.

Theory #3 - The premise is a departure from existing resort construction credo which say you need to build build build build as much much much much stuff stuff stuff into a property as possible and maximize every single square foot horizontally, vertically and virtually. Seeing big numbers makes the spreadsheet jockeys drool, even if the margins can't service the debt.

Theory #4 - Building a resort is difficult for existing companies, doing that and building a company around it is infinitely more difficult. Let's say you get the joint built... how are you going to fill it? Even the best plans on paper should be met with the understanding that there will be major headwinds for a fledgling company. Most investors just can't stomach throwing money into a non sure bet that they might not see extraction from for 5-7 years.

Theory #5 - Room rates are up, fees are being piled on, casinos are trying every single possible way to gouge customers... this is what they do during boom times. Re: the adding room inventory, Alon is only 1000 rooms. If it were 4x that like Resorts World or Aria, this would be a bigger problem.

Theory #6 - minority/lower tier debt holders generally get stiffed when a project goes busto.

I think I can give a reasonable insight into this. Haven't done any work on this personally but I've read a few reports from the Australian analysts that shed some light on the situation.
Crown is having legal problems related to solicitation of players in China. Its technically illegal for casino operators to induce Chinese nationals to play at their properties overseas (including Macau). The middlemen who do that are the junket operators, and they take a considerable cut of the action for their trouble. Crown was trying to operate directly for both the Macau properties and its properties in Australia. See this article for details: http://www.nytimes.com/2016/10/19/business/international/crown-resorts-casinos-australia-china.html?action=click&contentCollection=International%20Business&module=RelatedCoverage&region=EndOfArticle&pgtype=article

Because of this problem, Crown shares have been getting killed. The stock went from A$13 to A$11 in a straight line on the event and has languished every since. The appetite for taking additional financial risk diminished considerably for Crown after this. That's one reason they monetized the Melco stake - they need buffer on the balance sheet in case they lose a substantial amount of revenue as Chinese customers abandon them. So why take on the risk of building a project in Vegas now?

Moreover, did the returns on Alon ever look any good? Let's review the fate of the last few luxury resorts built/attempted on the Strip

Cosmopolitan - Cost $3.9 billion to build, sold to Blackstone for $1.73 billion
Encore - Cost $2.3 billion to build, Wynn admitted on an earnings call that returns on the project were inadequate.
Fontainebleau - Scrapped
Echelon - Scrapped

I think its fair to say we haven't seen a successful greenfield luxury property built since the Wynn opened in 2005. There's a good reason for this - there are better returns to adding rooms to existing properties than to building new places from scratch, its hard to compete against the networks of MGM and Caesars, and ultimately Vegas isn't growing that much right now. It seems likely that Crown made the right decision here.

"The founders and developers of Alon Las Vegas will continue to explore all of its options to advance the project and optimize the value for its stakeholders."

LOL. What total bullshit. They will sell this to someone in a couple of months...if they dont go completely bankrupt beforehand. Cant believe Chuck still thinks (ie; prays) this thing still has legs...have some dignity dude and stop kissing Pascal's ass so much.

Diablo,

You should cut Chuck a break. You (and othhers who are agree with you) are definitely entitled to your opinion/view/hopes as Chuck is to his. If Chuck was kissing Pascal's ass he could have written his piece and not offered people the opportunity to comment or screened out comments/responses that did not align with his views.

My personal two cents - Chuck brings up a very interesting point in that Las Vegas doesn't just need a new resort. It needs a new type of resort. In my opinion new stuff has been built since Bellagio has had a super significant impact to the industry like Bellagio did (and the Mirage wqhen it opened). In response to Bellagio's opening MGM built the Mansions at MGM. Additionally, high end players migrated from other casinos (i.e. Mirage, MGM, Caesars) to Bellagio. Did Aria end up having the "Bellagio" effect? I don't believe so. Also, Wynn, when it opened, may have snagged some high end play from Bellagio, and other resorts that cater to high end players, but not to the extent that Bellagio (and the Mirage) did when they opened. Wynn, while a very nice property, incorporates lots of it's design aesthetic from Bellagio.

In order for Las Vegas to dramatically change there needs to be a new Mirage or Bellagio to be built. If not, there is no reason for the current strip operators to do anything different.

Chuck is right on regarding design criticisms of the current resorts. They want to monetize every single square foot of space and don't think about how that overload affects the guest. Example, the "Sports Bar" they crammed in the lobby/entry way to the Mirage, the ice cream stand in the Bellagio entrance of the four corners, the disaster that is now Treasure Island, and the travesty that is Encore post Beach Club. The last time I was truly impressed/excited about a resort was before the oontz came to Encore.

Now the million dollar question (ok - more like 3-5 billion dollar question) is who will build that next Mirage/Bellagio/Encore (pre beach club) and when will it happen?

Chuck - Thanks so much for the great site.

@Hobgoblin: Yeah, but for a select few in the VT community, none of the rest of us know exactly what Alon has to offer inside. I'm intrigued by what's inside the square-shaped structures along Alon's strip frontage in the rendering shown as well as by the relatively small scale of the place, but, and I'll freely admit I'm not familiar with Crown's worldwide offerings, what's there that's not going to make this place like a Red Rock Station (admittedly a decent casino) on the Strip?

You pose the question of who/when regarding the next game-changing resort on the Strip and I've been wondering the same thing since the Bellagio/Venetian/Mandalay/Paris/Aladdin group came online in 1998-2000. I'm increasingly skeptical that the "next level" really doesn't exist. Being in the DC area, I visited the new National Harbor joint a few weekends ago several times and if this is what MGM has to bring to the table in the future, color me unimpressed. There's no ability to "take in" anything in the casino because the layout sucks and the shop/restaurant corridor along one side of the casino has the warmth of a hospital wing.

For "over the top" effect, I'd like to see the Kerzners get into Vegas. There was a rendering with a Mayan/Aztec themed place for the Strip that surfaced around a year ago that looked very Atlantis-like. But haven't heard anything since.

Otherwise? Steve Wynn is often mentioned in these parts (including in Chuck's piece) and he has utilized similar touches across his resorts, but somehow it seems to work. At this point, instead of shooting for the over-the-top goal of Vegas, if you were to place a Vegas-scaled (Wynn-built) Beau Rivage or a (Wynn-inspired) Borgata on the Strip, I think they'd do just fine.

Alon 2016 reminds me of Apple's Macintosh 1984: A brilliant idea, ahead of its time. Pascal's team did everything they could to make Alon a success. They didn't fail; the market shifted on them. When Crown made the original Alon investment, casinos in Macao and Australia were booming. Since then, Crown's stock has taken a beating with Chinese government crackdowns hitting Crown especially hard. Packer has decided that "discretion is the better part of valor". In fairness to Packer, it's the only sensible thing to do. Crown needs to ration capital to ride out the storm.

Alon's innovations will find their way into new casinos built over the next 20 years, just as Macintosh '84 was ripped off and relabeled Windows '95. Pascal's team needs to do what Steve Jobs did in the late 80's: find a way back into the game, where they have the opportunity to continue to develop the Alon approach. Eventually the market will shift again, the timing will be right and Alon will be built.

The biggest questions now: Which casino company will be savvy enough to scoop up Pascal and his team of "A players"? How badly will Wynn Resorts' stock get hurt, if Pascal's team ends up working for Sands or MGM Resorts? Will Steve Wynn make a deal with Pascal to forestall that possibility?

@jucifers What are these innovations though? Unless you're in the VT circle that has seen the plans, how do you know whether said "innovations" are going to be game-changers for you or, for that matter, the public at large?

Here's a novel idea on what can save Vegas: the operators striking a happy medium between making up the current expense of the resorts with somewhat higher table minimums, instead of the other extreme of raping your customers thru the methods that Chuck and others know about.

@hobgoblin7777

>not offered people the opportunity to comment or screened out comments/responses that did not align with his views.

Actually you get IP banned on this site if you disagree with something thats written.

We should all just face the facts that the Las Vegas we love is gone. It's been buried underneath a pile of paid parking receipts, overpriced restaurants with licensed names and corporate suits salivating over what watered down trend they can jump on next. The next time I get the hankering for a low odds table and well brand liquor I'll just go play three card monte at the subway station down the block and save myself the hassle.

"My personal two cents - Chuck brings up a very interesting point in that Las Vegas doesn't just need a new resort. It needs a new type of resort."

And one can argue that it needs something other than another Pretentious Exclusivity Flavor resort. Following Wynn/Encore, just about everything that has gone up on the Strip has been high-end, or an attempt at high end, and it hasn't been easy for any of them. No one is going to look at the recent history of development on the Strip and see this as a low risk venture, so it's not surprising that there are major barriers in getting the project started. Otherwise, the nouveau-richeification of the Strip has driven me and a lot of other people downtown until further notice. And from its name to that awful brochure, Alon was rather cloyingly trying to be the most extreme example of that.

This is great writing and has been since the inception of the story. Setting the future of Alon aside, this work by Chuck and the dogged pursuit of journalistic credibility has been a bright light compared to the shoot first and aim later approach to news that social media has fostered. Anybody can claim that this project is dead and have a 50/50 shot at being correct. Chuck reported the story, and this write up is a continuation of good reporting. I have been intrigued by this thanks in part to the approach taken by VT.

The plans for Alon have been online for a while now if you Google them. The layout and scale was a complete departure from the philosophy of building a large square warehouse and filling it with pretty furnishings and faux architecture. Think of something the scale of Encore as a freestanding resort, but more organic of a layout and in keeping with the buildings exterior architecture and shape. I think it harkens back to the day of the first strip hotel and casinos rather than anything built since the International and later the original MGM.
I was looking forward to the graceful curves of the tiered casino floor, with floor to ceiling walls at either end looking out onto the pool deck at one end, and the lake at the front of the property. The ease of access and the circular layout would have been a game changer for sure.

I hope this sees the light of day. Vegas needs this.

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