Fontainebleau Will Remain Idle
August 6th, 2010 | Published in Casino News
Investor Carl Icahn recently made the decision to continue to hold construction of mega-casino, Fontainebleau until the economy vastly improves. He pulled Fontainebleau out of bankruptcy and despite talks of selling the property; he’s decided to hold on to the asset. So far, he’s acquired a $52 million profit on the property.
Icahn has not commented as to whether construction on the property will resume soon. The location of Fontainebleau is at the northern edge of the Las Vegas Strip, between the Riviera and the Sahara.
Construction of the hotel-casino stopped last summer due to bankruptcy from the first developer, Turnberry Associates. The banks halted funding for a $2.9 billion, 3,815-room resort and casino. Due to a poor economy, declining revenue forecasts, a lack of condominium sales and high costs, the company filed Chapter 11. To finish this project, the cost is estimated at $1.5 billion.
Icahn Entertainment’s official response was to hold on to the property until the global economic climate greatly improves. This was stated today during a regulatory filing hearing.
Icahn Entertainment also stated that they’ve completed a fair-value study to ascertain the property’s market-worth. The study used an as-is cost model to compare to other market properties and their sales approaches. The total value of the unfinished property in this market climate is valued at $200 million. $91 million of the total was due to its prime location on the Strip.
Currently, Icahn Entertainment controls Tropicana Entertainment Inc. They have hotels and casinos around the country. The most popular areas are Las Vegas, Atlantic City and Laughlin, Nevada. Recently, the Tropicana in Las Vegas dodged a bankruptcy thus causing it to be partially owned by a separate set of private investors that are not part of Tropicana Entertainment.
The forecast for Las Vegas gaming venues has plateau’d. Although casinos are showing little growth, they are not losing any customers either. This is a clear indication that they have hit rock bottom and can only improve from this point. Holding on to Fontainebleau will prove to be a wise and profitable decision once the economy stabilizes.
Although holding a property with no growth for a significant amount of time can be costly, the long-term benefits greatly outweigh the short-term costs. As the economy improves, more visitors will travel to Las Vegas looking for excitement and entertainment. This property could become a major factor in fulfilling that need.