Billions of dollars of Las Vegas development hang in the balance right now, but the owner of Caesars Palace sees the city's crisis as an opportunity to imagine its next mega-project.
VICI Properties is arranging to buy 23 acres just east of the Las Vegas strip for roughly $100 million. Together with existing land holdings held by VICI, the purchase would allow the company to assemble 50 contiguous acres that could accommodate millions of square feet of mixed-use development, including housing, retail, hotel, and office space. Las Vegas has felt the impact of the Covid-19 crisis, which shuttered casinos for months and has stymied tourism and business travel and imperiled billions of dollars of new development in the city. VICI sees the land deal as a way to lay development plans for brighter economic times in the future when Las Vegas recovers from the crisis.
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The $17.3 billion merger of two casino giants could create Las Vegas's next mega-development. VICI Properties, a public company spun off to hold the real estate assets of Caesars Entertainment three years ago, is planning to acquire 23-acres of land for roughly $100 million a block from Las Vegas Boulevard. Combined with existing parcels held by VICI, the purchase will allow the company to assemble 50 contiguous acres that can potentially accommodate millions of square feet of new development. "Over the decades, other builders have tried to extend the strip," Edward Pitoniak, VICI's chief executive, told Business Insider, using the local moniker for Las Vegas Boulevard. "We're intrigued with the opportunity." Read More: Vacancy rates are soaring above 15% in Washington DC's normally recession-proof office market. Here's why some industry players are still optimistic. The $103.5 million acquisition is an offshoot of the planned $17.3 billion merger deal between Caesars Entertainment and Eldorado Resorts, which just received consent from the Federal Trade Commission. VICI is arranging to provide a $400 million mortgage with a hefty 7.7% interest rate against the recently-built 300,000 square foot Caesars Forum Convention Center and holds an option to purchase the building in 2025 and lease it back to the casino operator. Eldorado, in turn, plans to sell VICI the additional acreage once it completes the merger with Caesars Entertainment. The mortgage and the land sale are contingent on one another. The parcels are located just south of the new Caesars convention center and will nearly double VICI's land holdings east of the strip. Because the land is not located along a designated gaming corridor, it is unlikely to be a site for new casino development. Instead, it could allow for millions of square feet of other mixed-use space, such as housing, hotel, office, and retail. Las Vegas real estate development isn't for the faint of heart. The financial crisis of a decade ago toppled mega-projects such as the Cosmopolitan, a $4 billion casino and resort that fell into the hands of its lender, Deutsche Bank, which oversaw its completion and then sold it at a loss to the Blackstone Group for $1.73 billion in 2014. Wall Street tycoon Carl Icahn purchased the unfinished Fontainebleau resort on the north end of the strip for $150 million in 2010 after its developer declared bankruptcy. Icahn raked in profits by selling the 27-acre property in 2017 for $650 million. Read More: Inside a 'big short' bet against malls: Investors like Carl Icahn are claiming wins, and a research analyst who said the wagers were misguided is out. Billions of dollars of development that was undertaken during boom times in recent years now faces a dramatically different economy that is mired in a recession due to the Covid crisis, which has sharply diminished gaming revenue, tourism and business travel. "Are the conditions ideal right now for new projects that are set to open? No," said Michael Parks, an executive vice president for CBRE's global gaming group. "But if there is a vaccine early next year, we're hopeful this is an unfortunate, short-term blip that Las Vegas will overcome." Pitoniak said that development of the land site would likely be years in the future and take place during healthier economic conditions. "A lot of value can ultimately be realized by the actions you take during a time of crisis," Pitoniak said. "There will come a point when the virus is under control and Vegas will reassert itself as one of the world's greatest destinations." VICI was created in 2017 to take over the real estate assets of Caesars Entertainment after the casino company's Chapter 11 bankruptcy in 2015. The spinoff, whose market cap is now $11.5 billion, owns 32.5 million square feet of casino and retail space and 12,000 hotels rooms across the country. Its holdings include the major Las Vegas resorts Caesars Palace and Harrah's, both of which it leases to Caesars Entertainment. The merger deal between Eldorado and Caesars Entertainment will give VICI the right to purchase a third major resort along the strip, the LINQ, which is adjacent to Harrah's and is currently owned and operated by Caesars Entertainment. VICI exclusively net leases its assets to casino operators, an arrangement in which its tenants not only pay rent, but cover the costs of maintaining the properties and other expenses that landlords are normally responsible for, such as property taxes. Net leases are generally considered more secure than conventional lease arrangements and VICI has reported full rent collections in its portfolio through the pandemic so far. "We have received 100% of the cash rent due from third party tenants through April, May, and June," Pitoniak said. Analysts have predicted a stable outlook for the company despite the concentration of its holdings in a gaming market that has been upended by the virus crisis. "We believe VICI's large tenants have sufficient liquidity to make their rent payments and that the company has engaged in various transactions that have enhanced its liquidity," said Melissa Long, a credit analyst at Standard & Poor's who covers the gaming sector. "There seems to be a healthy level of pent up demand for casinos as they reopen." VICI could pursue a similar net lease structure for the development of the land it is assembling, which is located just east of the Harrah's and LINQ casinos, or opt to partner with a builder and participate more directly in envisioning what will be raised on the site. "It's way too early to tell how the structure would work," Pitoniak said. "So much will be contingent who has the best vision for the parcel." Pitoniak said that VICI expects to close on the land purchase by the end of the year. Wooing pedestrians away from the lights, activity and marquee names of the strip has been a daunting task. VICI believes its holdings on Las Vegas Boulevard could eventually allow it to draw in visitors and guide them east to the new development. "If you were going to build Vegas all over again you would deck over the roads and make it into a huge pedestrian wandering experience," Pitoniak said. "For us, it's about creating apertures in that big wall of casinos along the strip that invite people in to discover something new." Have a tip? Contact Daniel Geiger at firstname.lastname@example.org or via encrypted messaging app Signal at +1 (646) 352-2884, or Twitter DM at @dangeiger79. You can also contact Business Insider securely via SecureDrop.SEE ALSO: Vacancy rates are soaring above 15% in Washington DC's normally recession-proof office market. Here's why some industry players are still optimistic. SEE ALSO: Amazon just signed its largest-ever warehouse lease in NYC. Here's how it's been making deals left and right to grow its massive storage and distribution network. Join the conversation about this story » NOW WATCH: Why thoroughbred horse semen is the world's most expensive liquid
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Gamblers at Caesars Palace, Paris, Flamingo, The Linq, and Harrah's in Las Vegas were given $20...Gamblers at Caesars Palace, Paris, Flamingo, The Linq, and Harrah's in Las Vegas were given $20 if they were wearing a mask in the casino as part of a limited-time promotion. $7,500 was given away to 375 guests, the Reno Gazette-Journal reported. While casino employees are required to wear masks, guests are currently only being encouraged to do so. Visit Business Insider's homepage for more stories. Some gamblers wearing masks at certain Las Vegas casinos over the weekend may have been surprised to get an unexpected cash bonus. According to the Reno Gazette-Journal, a promotions team walked through Caesars Entertainment casinos — Caesars Palace, Paris, Flamingo, The Linq, and Harrah's — and gave $20 to people wearing masks while gambling or walking around the gaming floor. $7,500 was reportedly given away to 375 guests. Only Caesars Rewards members were eligible for the promotion, but anyone could sign up for the program on the spot to receive the money. A Caesars Entertainment representative did not immediately return Business Insider's request for further comment on the mask promotion. A public relations specialist told the Gazette-Journal that the limited promotion "would end if wearing masks became mandatory." Las Vegas casinos began reopening on June 4, with hand-washing stations, spaced-out seating, and plexiglass barriers becoming the norm. While employees are required to masks, guests are merely encouraged to do so, except at game tables that do not have barriers set up. Nevada state officials are being pressured by the Culinary Union to require masks for anyone in a hotel or casino public space, in order to slow the spread of the coronavirus and protect workers. Two people at Flamingo reportedly tested positive for COVID-19 last week, and a handful of restaurants on and off the Strip have had to temporarily close after identifying positive cases among employees.SEE ALSO: Shocking video shows crowded Las Vegas casino on first day of reopening Join the conversation about this story » NOW WATCH: Why thoroughbred horse semen is the world's most expensive liquid