LAS VEGAS – Looks like the genie is getting stuffed back in the lamp.
With a bankruptcy court ready to decide the fate of the ill-fated Aladdin Resort & Casino next week, major hotel chains are looking to jump back into the casino industry in a big way.
Both Marriott International and Starwood Hotels and Resorts Worldwide are angling to put their imprint on the embattled Aladdin property, a 2,567-room Las Vegas Strip hotel.
Neither entity is looking to own a stake in the perpetually floundering $1.4 billion casino complex. Instead, these hotel companies are looking to land lucrative management contracts that will get them prime real estate in the busiest tourist city in the world without the expense of building a billion dollar showplace.
Though it looked like Starwood had sewn up a Purchase and Sale Agreement on April 25 – subject to bankruptcy court approval-- as part of a joint venture with Planet Hollywood founder and CEO Robert Earl and Bay Harbour Management LC, another group headed by Financial Capital Investment with ties to Marriott is now making an offer.
Both deals will see an investment by the lodging companies and the possible addition of a timeshare component.
During the last decade leading hotel companies, including Hilton Hotels Corporation and Starwood, divested in the in the casino gaming business. Its unpredictable nature was seen as a drag on stock prices and earnings reports.
Further, conventional wisdom dictated hotels and its restaurants act as loss leaders needed to get players to the tables. But the mega-resort revolution turned the hotel room into a profit center that rakes in about half the take of the typical property.
“The primary difference between today and yesterday are casinos have a greater ability to make money than they used to because rooms now get market rates,” says Mike Cahill, President of Hospitality Real Estate Counselors (HREC), a firm that tracks casino development. “This is a great opportunity for hotel companies to get a lot of value and have a Las Vegas casino.
Financial Capital is offering to assume $476 million in debt and commit $100 million to revamp and upgrade the three-year-old facility. Marriott would convert the hotel to a Renaissance as part of a 20-year deal that requires the company to pony up $25 million.
Richard Alter, Managing Director of Financial Capital Investment Co. told the Associated Press Sunday the casino would be re-christened ASIA.
As for the joint venture between Planet Hollywood, Bay Harbour and Starwood, the group would assume $510 million of restructured debt and also invest $90 million into a re-themeing as the Planet Hollywood Hotel & Casino. Starwood would kick in $20 million and manage the hotel as a Sheraton. In return the company would receive 4% of revenue and expenses.
The story of the Aladdin is a sad one. Flush with expectations, the original Aladdin was imploded in 1998 to make way for a gleaming reinvention of the iconic property. At the time the project was conceived, billions were invested into an array of projects that opened to huge profits while redefining the Las Vegas experience. Unfortunately for management, the property never managed to capitalize on its historic roots and has perpetually struggled to find its place in a city crowded with major resort complexes.
Aladdin debuted in August of 2000 and slipped into bankruptcy by September 28, 2001. Since then it’s been struggling to keep afloat, struggling to pay off debt as gamblers eschew the property for nearby mega-resorts like Bellagio, Venetian and Mandalay Bay.
Reasons for the hotel’s traffic flow issues abound. Speculation -- culled from a variety of Las Vegas casino and tourism industry sources -- centers on issues such as an uninviting facade with entrances above street level, a parking garage too far from the casino, a disinterest in the property’s 1,001 Arabian Nights themeing and a sense that the resort brought nothing new or original to the local gaming-entertainment mix.
Both teams are looking to build a timeshare component on the 35 acre complex.
Since Starwood exited the casino business with the sales of Caesars Palace in 1999 and the Desert Inn in 2000, the company has not had representation in the prime areas of Las Vegas. In March the company announced the conversion of the old Maxim hotel into a Westin, owned and operated by Columbia Sussex, that will feature a small 20,000 square foot casino and 825 guest rooms.
Marriott is currently unrepresented on the Strip, but has several properties near the convention center.
The property features a 7,000 seat arena, the European style London Club casino, Elemis Spa, 75,000 square feet of meeting space, 11-story parking garage and 100,000 square feet of casino space. The separately owned Desert Passage mall featuring 130 shops and restaurants is not included in any potential deal.
