I have to say, it’s hard to believe that this day actually came – almost a year later than it was originally supposed to open under the original developer Bruce Eichner, and 5 years after the project had its groundbreaking. In fact, a lot of people thought it would never open at all. It’s interesting to note that the Cosmopolitans neighbor – MGM’s CityCenter – took less time and is much, much much bigger.

I wanted to share some sidenotes about the Cosmopolitan and it’s development that seem to have been lost in the shuffle of it’s grand opening today..

-Unlike the original plans, condos will only be in the West Tower (the West Tower is the one not on the Las Vegas Strip), originally the condos were to be split between the two towers and intermixed with hotel rooms.

-There are about 2,000 condos available for sale still, only 214 are under contract – possibly to close on Jan 1st. (via LV Review Journal)

-Bruce Eichner, the original developer of the Cosmopolitan, is already off onto another project – just like he said he would be in the WSJ article I posted to in my first Cosmopolitan Las Vegas post. He is looking to finish the troubled One Madison Park highrise right on NYC’s Madison Square Park, an absolutely beautiful building which is going through the same troubles that the Cosmopolitan once went through – at least this time he’s trying to be the savior instead of looking for one.

-The interiors of the Cosmopolitan were designed by David Rockwell and the Rockwell Group – he’s the same person who created Starwood’s aLoft interiors, and a favorite restaurant of mine which is a little closer to home – Bobbys Burger Palace. Apparently Bruce’s original interior elements contained 20-ft high dancing robots, which to me would be just ridiculous.

-The Cosmopolitan project is still owned by Deutsche Bank, and Deutsche intends to make the project a long term investment and play an active role in its management. Out of all the other major Vegas/Atlantic City casino projects, Deutsche is the only one who actually stuck to it’s guns and finished the project in this economy. They get kudos in my book for that. Recently, Morgan Stanley let it be known via an SEC filing that they would let their Revel Atlantic City project essentially sit vacant and unfinished for years until the economy bounces back since they have been unable to find a buyer. That’s even after Morgan Stanley was willing to take no money for the project until the investor made a 20% return on their investment of at least $1.2 billion to finish and open the development.  The Fountainebleu in Vegas, which is over 70% finished – a lot of rooms were completely furnished – was purchased for only $150 million by Carl Icahn, leaving the lenders with almost a $1 billion loss.. Wow.. I think that in 5 to 10 years Deutsche Bank is going to look great by finishing this project and not selling it for a song. This economy is tough though, and if you don’t have the capital, well – you’re hands are tied. Deutsche Bank is a large, worldwide company, but they are still almost have the size of JP Morgan Chase & Bank of America by assets.

-Ok, I have to make one mention of the interior of the hotel which has been bugging me until today.. You know those 8 pillars in the lobby (if you’ve seen pictures or video of the lobby, you’ll know what I mean) are full video walls on all four sides, floor to ceiling, no projection screens, no 3D images, no LED walls, they are full motion video screens. Wow.

Best of luck to the Cosmopolitan! Only 40 more minutes until the first bet is placed.

andrew@alconic-inc.com

Another day, another casino in the sights of the Starwood Capital Group.

What’s going on here?

It’s interesting to watch how Starwood Capital has shown so much interest in Las Vegas casinos over the past month or so – the past few years even if you consider their initial bid for the Riveria on the strip.

Although its all rumors at this point, Bloomberg Business Week has a story about Starwood Capital’s (and Colony Capital’s) interest in purchasing the Rio casino from Harrahs. Harrahs has been looking to divest the property since they purchased the Planet Hollywood and is looking for interested bidders. Harrahs purcahsed the Rio in 1998 for $888 million, and according to the Business Week article – the property is only worth $500 million now.  

So why are all these private equity firms looking to get into the casino business? Its interesting to watch Carl Icahn place a bid on almost every project in Atlantic City & Las Vegas that is having financial difficulty, Starwood Capital’s interest in the Riveria and now apparently the Rio, along with Colony Capital’s current ownership of the Hilton Las Vegas and Atlantic City. Why?

I’d think that it would be too much trouble to go through the gambling licensing procedures for a private equity firm to even consider dabbling in this, but if you look at the history of these three firms – they have gambling in their blood.

Colony Capital has owned the Hilton in Las Vegas since 2004, the Atlantic City Hilton since 2005 and Resorts International since 2000.

Carl Icahn purchased the Sands casino in Atlantic City in the early 2000′s but quickly sold it to Pinnacle Gaming, but now he owns the unfinished Fontainebleau and the Tropicana in Atlantic City

Barry Sternlicht, from the Starwood Capital Group was probably the first out of these three to get into the casino business with his purchase of ITT-Sheraton which included Caesars World in I believe 1998.

Its interesting to see what everyones intention will be – its known that casinos are great for their free cash flow – something a Private Equity firm loves, but its obvious that some people look at the purchase of a casino as just a passing investment – similar to how Carl Icahn has looked at his investment in the Sands in Atlantic City and possibly how he will look at the Fontainebleau once the economy picks up.

andrew@alconic-inc.com

I touched on this in my last article about the Tropicana, but I thought it was worth mentioning again because unless you read closely, every newspaper article makes it sound like Icahn automatically gets the property once it reaches auction in bankruptcy court – that’s not the case.

Carl Icahn does have a contract with the overseer of the property to purchase the property, but its pending the auction and if he is the highest bidder which will determine its next owner. Currently Icahn is the highest bidder – but remember.. The auction hasn’t even started yet.

Icahn’s bid doesn’t seem to include any actual cash – its simply a reallocation of the existing bonds he owns, being put toward the purchase price. If someone does come in with a higher bid – Icahn also has the potential to put up cash, or use more of the Tropicana’s bonds which he supposedly owns over $1 billion worth.

The only other bidder who still has publicly voiced his interest in the Tropicana property is the Cordish Companies. David Cordish originally was willing to bid $750 million through a combination of cash and financing for the property, or $525 million all in cash – but apparently a combination of cold feet and the continual declining of the real estate market put that bid on hold. It’s very possible that he may come to the table during the auction.

While I’m no expert in bankruptcy auctions – and especially complex auctions such as this one, it does seem as though Columbia Sussex (the former owner of the Tropicana) will lose their entire investment in the property. When the property was first put on the market in late 2007 it wasn’t intended to go into bankruptcy court, but due to the recession and the bidders placing low bids or dropping out – bankruptcy’s hand was forced.

Its still unclear what Icahn will do with the property if he ends up being the winning bidder; in the past he has simply flipped the property for a higher price down the road (eg: the Sands in AC to Pinnacle Entertainment). Although Icahn’s continual interest in MGM Mirage, where he’s essentially doing the same thing with MGM as he is with the Tropicana – but on a larger scale – may signal other plans.

andrew@alconic-inc.com