Carl Icahn several times has bought casinos in bankruptcy, then sold 5 years later when a market upturn had happened.
Activist investor Carl Icahn is putting the Fontainebleau Las Vegas up for sale. The billionaire told The Wall Street Journal this week that he wants to put the unfinished Las Vegas Strip resort-casino up for sale, thus selling his current Vegas investment–the last of several such investments in the past few years. When Icahn sold the Stratosphere, he is thought to have made a profit of $1 billion. He sold a group of smaller boutique casinos in the area for $1.3 billion.
Carl Icahn purchased the Fontainebleau project out of bankruptcy court in 2010 for $150 million. He has hired CBRE Group Inc. to market the resort to potential buyers. Besides a gaming floor, the resort complex contains a 3,889-room hotel. In his interview with the WSJ, he said he would like to sell the property for $650 million, thus making a half-billion profit off a 5-year investment.
Cost $3 Billion to Build
When the Fontainebleau project entered bankruptcy in 2009, it had already cost the developers $3 billion in investments. When the financiers refused to pay another $800 million to see the project completed, it entered bankruptcy. Carl Icahn purchased the casino at a time when few others had the capital to buy bankrupt gaming venues, so he collected the property at 5% of the cost to build it.
The sell of the Fontainebleau follows a familiar pattern for Icahn, who in the 1980s became one of the most famous of a class of investors called corporate raiders. He has a significant history of investing in gaming properties, both in Las Vegas and Atlantic City. In 2000, he bought the Atlantic City Sands in bankruptcy court. In 2006, he sold the same property for $275 million.
Carl Icahn tends to buy valuable properties during economic downturns, hold on to them for a half-decade or so, and sell them for a major profit. Gamblers might compare Icahn’s career to holding the big chip stack in a poker tournament–he has more options at his disposal.
Icahn Believes in Vegas Strip Growth
Icahn said in his recent interview that Las Vegas still has “a fair amount of room to run“, indicating to potential investors his decision to sell the property is not a sign he thinks Las Vegas is no longer a good investment.
Instead, Icahn said he would rather find a buyer to finish development of the property, because does not have “the time and energy to build it out”. On the east coast, the billionaire still owns the Tropicana and the Trump Taj Mahal casinos in Atlantic City. He effected a turnaround for the Tropicana, which he also purchased in 2010. Many, including friends Donald Trump and Ivanka Trump, have said publicly they expect Icahn to turn-around the Trump Taj Mahal. Given the sorry state of the gaming economy in Atlantic City, that is going to take energy.
Fontainebleau’s Development History
The Fontainebleau is seen as an eyesore by many in the Las Vegas area. Earlier this month, the Clark County commissioner ordered the ownership to make an “exterior aesthetic upgrade”. The 68-story building has exposed parts facing Las Vegas Boulevard. Since most of the areas being worked on right now are on the bottom levels, it was determined Icahn would need to cover the bottom 100-feet of construction with a combination of paint and fabric.
The Fontainebleau was the brainchild of Miami developer Jeffrey Soffer, who owns a similarly-named resort in the Miami area. Soffer had spent $2 billion on the project when the 2008-2009 global financial crisis struck the United States. Under the circumstances, Soffer was unable to get the financing to complete the project.
Eventual Sale Press of the Fontainebleau
Whether the current owner can get $650 million for the property is a matter of conjecture. Given that any developer would need to spend several hundred million dollars to finish the project, that would put the ultimate price tag for any new ownership team at $1 billion or more. Since Carl Icahn is smart enough not to telegraph his real price to potential buyers, one has to imagine the $650 million price he quoted in the Wall Street Journal article is his asking price, and perhaps not what he expects to get from the deal.
