Witkoff Group Buys Fontainebleau Resort from Carl Icahn

Fontainebleau Las Vegas Steve Witkoff

Steve Witkoff was part of a Las Vegas development group in 2007-2008, but Fontainebleau is his new project.

The New York City real estate firm, the Witkoff Group, recently bought the Fontainebleau Resort Las Vegas for an estimated $600 million. The 63-story Las Vegas Strip development was listed for sale in November 2015 for $650 million.

The Fontainebleau Resort Las Vegas was supported to be a multi-billion dollar resort on the Vegas Strip when it began construction ten years ago. Several developers sought to complete the project, including James Packer of Australia’s Crown Resorts in 2011.

When the Global Recession hit in 2008, construction on the resort was halted. All else until the recent activity was simply investment for a later date.

Since the recession, the property has been the subject of lawsuits and bankruptcies. Experts say the project is 70% complete, though they also believe it might take another $1.5 billion to finish building the Fontainebleau Resort.

Steve Witkoff on Fontainebleau Resort

Steve Witkoff, chairman and CEO of the Witkoff Group, said he plans to “unlock” the resort’s growth potential. He did not elaborate much on his plan to do so. Completing the development and opening for business is a good enough plan, because Fontainebleau was largely a victim of circumstance.

What is known is that Steve Witkoff partnered with the Miami-based investment firm, New Valley, to buy the property.┬áIt’s also known this is not Steve Witkoff’s first foray into the Las Vegas real estate market. About a decade ago, Witkoff was part of a group which sought to build the W Las Vegas, a $1.7 billion hotel and condominium project on Harmon Avenue and Koval Lane.

He was not the original developer. Starwood Hotels & Resorts Worldwide and Edge Resort began the project in 2005. A week later, actor George Clooney, nightclub owner Rande Gerber, and two development firms announced they would build Las Ramblas, a $3 billion project, across the street. A year later, Starwood bought Las Ramblas for $202 million.

Africa Isreal Investments Project: 2007-2008

In 2007, Starwood pulled out its Las Vegas developments, as the real estate market began to collapse. Africa Israel Investments, owned by diamond mogul Lev Leviev, partnered with Steve Witkoff to buy all of Starwood’s various developments. Africa-Israel wrote off the project in 2008 amidst the “world crisis”. Creditors bought up the real estate in 2015. Matthew Chudoba, a spokesman for Witkoff, answered a question about W Las Vegas and Las Ramblas via email. Chudoba said, “That’s not something the company cares to comment on, as they are forward-looking minded and are focused on the future.”

Thus, the Fontainebleau Resort is the topic of the day. When asked by the National Post about his recent purchase, Mr. Witkoff said, “[The Fontainebleau Resort Las Vegas] is one of the best physical assets in the country, which is one of the reasons we were attracted to it.”

Fontainebleau Resort Las Vegas is located between Circus Circus Las Vegas and the SLS Las Vegas Hotel and Casino properties on the Las Vegas Strip. The complex was designed to be an integrated resort-casino. That means it has a huge hotel (3,900 rooms), retail space for non-gaming visitors, and a convention center.

Carl Icahn’s Casino Investments

New York City activist investor Carl Icahn bought the property in a bankruptcy auction for $150 million. Icahn has invested in many different US industries over his 50 years of trading on Wall Street, but he knows the casino business from his forays into the Atlantic City casino industry.

Carl Icahn owns the Tropicana Casino in Atlantic City, which he bought out of bankruptcy in 2010. By 2015, the property was making a profit and is considered a success. Carl Icahn owned the Trump Taj Mahal until a few months ago, when he sold the property to Hard Rock International, which is owned by the Seminole Tribe of Florida. That investment was considered a disaster, and Icahn once claimed he lost $300 million on the property.

If so, then he made back that loss and more in selling the Fontainebleau Resort Las Vegas. After holding the property for 7 years, Carl Icahn made a $450 million profit on the development. Put another way, he made a 300% profit on the investment.

Fitch Ratings Analyzes Fontainebleau Deal

Alex Bumazhny of Fitch Ratings Incorporated said the Witkoff Group would need to maintain patience, if they wish to make a profit off their casino. He said Witkoff could expect to sustain losses, perhaps for “years”, before the business begins to make a profit.

The Fitch Ratings gambling analyst said, “Properties that are closer to MGM [Resorts International] properties and Caesars [Entertainment Corporation] properties tend to do better on average daily rates. Fontainebleau [Resort Las Vegas] is a little bit outside of critical mass. SLS [Las Vegas Hotel and Casino] struggled to ramp up to profitability arguably because of its location.”

Fontainebleau Resort’s Business Strategy

Bumazhny also said that Fontainebleau needed to avoid a “hiccup” in the economy, if it wanted to be successful in building a customer base in its first few years. Economic forecasters wonder if the country is not due for a recession (whoever big or slight), because recessions tend to occur every 5 to 7 years. Currently, the United States has undergone 7 years of growth and looks on its way to an eighth year.

The analyst said, “They probably want to open sooner rather than later to catch the current wave of the good economy.”