20TH DEC 2016 | WRITTEN BY: CHRIS SIEROTY
Crown Resorts’ decision to sell its stake in Alon, a $2bn resort planned for 35 acres on the Las Vegas Strip across from Wynn Las Vegas, has garnered mixed reactions from analysts over whether those who remain invested in the project will be able to find new financing.
Crown, along with Oaktree Capital Management and Andrew Pascal, CEO of Alon Las Vegas, purchased the site in 2014 for about $260m, or around $7.42m an acre.
John Knott, executive vice president of CBRE Group’s global gaming group in Las Vegas, believes Pascal will be able to find new investors.
“Based on the quality of that site and the opportunity for someone to participate in Andrew Pascal’s development vision, I would not be surprised if a new capital partner comes to the table,” said Knott, whose firm specializes in commercial real estate.
But Alex Bumazhny, a gaming analyst with Fitch Ratings, was not as confident.
“We think finding a backer could prove difficult,” Bumazhny said. “If you look at standalone projects not linked to established gaming database or brand over the past few years, they’ve had pretty lacklustre returns.”
The last standalone resort built on the Strip was The Cosmopolitan of Las Vegas, a project that was purchased out of bankruptcy and completed in 2010 for $3.9bn by Deutsche Bank.
The Cosmopolitan never posted a profit under the ownership of Deutsche Bank.
The German bank hung out a gigantic for-sale sign on day one and finally sold the resort in May 2014 to Blackstone Group for $1.73bn, after reportedly asking $2bn for the property.
“There are larger U.S. regional gaming operators who strategically could benefit from more presence on the Strip, but may hesitate to spend over a $1bn on an ultra high-end resort to accomplish that,” Bumazhny said of the Alon property.
Bumazhny said there are other Asian gaming companies, such as Melco Crown, that may look to establish a Las Vegas footprint, but as more operators continue to target Asian play, “an argument for another baccarat-centric Strip resort is hard to make.”
The Alon project is on the former New Frontier casino site, which is also adjacent to the $4bn Resorts World Las Vegas development.
“If a decision were made to sell the property, it would garner worldwide notice given its location,” Knott said.
Resorts World is being built at the site where the Stardust resort stood until it was imploded by Boyd Gaming Group. Resorts World owner Genting bought the 87-acre site in 2013 for $350m after Boyd halted construction at the onset of the recession.
The other Asian-centric casino is The Lucky Dragon Hotel and Casino, which opened just off of the Strip on December 3. The casino has tried to position itself as an “authentic Asian cultural and gaming experience.”
“While new capacity has historically been a positive for the Strip because it helps to drive demand, the current situation is a bit different,” Bumazhny said. “Strip operators are still digesting the glut of supply that came online in 2007-2010 with hotel utilization being below the 2007 peak.”
Bumazhny added that the rate of return on newer developments has underperformed return rates for redevelopment projects such as Caesars Entertainment’s Cromwell and Linq projects.
Pascal, a former Wynn Resorts executive, and his remaining partners are developing a 3.4m-square foot, 1,100-room resort.
Alon was slated to feature a 26-story tower and a 17-story tower; a man-made lake; about 27,800 square feet of casino space; 84,800 square feet for conventions; bars, restaurants and retail.
“Alon Las Vegas will continue to explore all of its options to advance the project and optimize the value for its stakeholders,” Pascal and Alon’s other developers said in a statement.
Messages left Monday with Pascal were not returned.
Pascal and his team have spent two years in the planning, designing, development, pre-construction and entitlement process.
“The Alon resort project has been thoroughly vetted and is considered ‘shovel-ready,’” the Las Vegas-based company said. “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.”
Crown, which is led by Australian businessman James Packer, announced last week that it had suspended work on the Alon and may sell its investment in the project.
The gaming company also announced it was reducing its 27.4 percent stake in Melco Crown Entertainment and its investments in the Philippines to concentrate on the Australian market.
Crown additionally sold 13.4 percent of outstanding Melco shares to chairman Lawrence Ho’s investment company, along with monetizing another 14 percent of Melco shares.
“While [Crown] was a founding shareholder of [Melco Crown], it had become a passive shareholder, with [its] representatives having stepped backed from operational and executive roles over recent years,” said Wells Fargo analyst Cameron McKnight.
In his research report, McKnight wrote the sale “is not a call on Macau,” but did not comment on Alon.