Advent wants to buy Desert Inn

Casino designer Mark Advent and a group of investors are trying to buy the Desert Inn hotel-casino and an adjacent 46-acre site for Advent's long-planned San Francisco hotel-casino.

Advent said his group has made a written offer and has met with officials from Starwood Hotels & Resorts Worldwide Inc., the Desert Inn's owner. But he declined to say who his partners are or how much they have offered for the Strip property.

"We've got an outstanding offer on the Desert Inn," said Advent. "That's really where I'm targeting San Francisco for. ... In my opinion, I think it's the best site for us."

Advent's investors are not the first group to make an offer for the Desert Inn. Starwood officials have long said the resort is for sale -- the asking price is $325 million to $375 million. Despite a recent $200 million renovation, the Desert Inn has failed to generate positive cash flow. Industry observers believe the resort needs more rooms to fill its casino -- it has just 750 rooms.

Starwood has confirmed receiving offers for the Desert Inn, most recently in October from singer Michael Jackson and Detroit businessman and Indiana riverboat owner Don Barden.

"I'm told that there are at least two other offers on the table," said Advent.

This is not the first time Advent has talked about his plan for a San Francisco-themed resort casino. What is new is that Advent's investment group is targeting a specific site for the $1 billion resort.

Advent's investors would build the 28-story resort south of the Desert Inn, near the corner of Sands Ave. and the Strip. Advent, who conceived the design for the New York-New York hotel-casino, plans a similar homage to San Francisco with a significant twist: while most New York-New York visitors spend their time indoors, most of San Francisco's distinguishing features would be on the outside. Indeed, it appears that visitors might spend most of their time at San Francisco outdoors, on the top and sides of the resort.

San Francisco would be fashioned to look literally like the city of San Francisco, with many of that city's famous neighborhoods represented in terraces rising up the side of the resort, much as they rise up the sides of hills in the actual city. Chinatown, North Beach and Pacific Heights would be among the neighborhoods represented.

"It's like looking at San Francisco if you're standing in Sausalito," said Advent.

The exterior "neighborhoods" would be complete with Victorian buildings and famous landmarks like Coit Tower. The lower levels of the buildings would include retail shops, cafes and restaurants, while the upper levels would be leased as specialty loft-style office space, Advent said. Visitors could wander the streets of the replica city literally for hours without ever entering the main resort.

The exterior of the resort would also include seven specialty casinos reflecting the themes of the various replica neighborhoods.

The Desert Inn resort would remain in place and be integrated into the San Francisco theme, though its casino would be closed, said Advent.

"Really, we'd use the Desert Inn more as a sister hotel tower," said Advent.

The Desert Inn would be physically linked to San Francisco, and its porte cochere and front entrance would be closed. In their place, Advent's group would build a replica of San Francisco Bay.

In front of the current Desert Inn parking garage, the group would build a replica of Alcatraz Island, which would become a "boutique casino" reachable only by boats plying the waters of the replica Bay. The boats would load at a replica Fisherman's Wharf attached to the main San Francisco structure, and pass under a scaled-down Golden Gate Bridge, said Advent.

The Desert Inn hotel would be mostly left alone, but its first few levels would be re-done to resemble a cliff, said Advent. The effect would be of a building standing on a hill, like many buildings in San Francisco, he said.

Inside, the resort would include 3,000 hotel rooms (including the Desert Inn's 750 rooms), and a 160,000 square-foot casino with 4,750 gaming machines and 130 table games. The exterior Victorian buildings would include 100,000 square feet of specialty office space.

A scale model of the resort is being prepared by film-maker George Lucas' Industrial Light and Magic special effects company, in Marin County, Calif., said Advent.

Construction of San Francisco would cost about $700 million, Advent said. Together with the Desert Inn acquisition costs, the total project would cost more than $1 billion, he said.

The offer for the Desert Inn is all cash, said Advent. He described the investors as "high-profile," but said they wish to remain anonymous at this time.

The $700 million construction cost would be financed through additional private equity and a $550 million private debt placement, Advent said. With the high level of private equity Advent's investors are bringing to the project -- nearly 50 percent -- they should be able to borrow that money at 9 1/2 to 10 percent interest, said Advent.

He acknowledged widely held perceptions that the Strip is overbuilt, and conceded that such perceptions could present financing challenges.

"It's hard to convince your equity partners that these values exist," said Advent. "But this market is strong enough to support good projects. ... If you're one of the five best attractions in the market, where are customers going to visit and patronize? ... The good properties are going to be OK."

It's always possible to borrow money, Advent said. The only question is what you pay for that money. With a high level of private equity in the project and a compelling plan, his investors should have no problem finding private debt financing, which carries fewer restrictions than public debt, said Advent.

"It's the overall picture (presented to lenders)," said Advent. "I know that there's financing. Absolutely, no question."

With low-interest debt, the resort could easily make its financial target of a 25 to 28 percent return on equity with an average daily room rate of $80, an occupancy rate of 80 percent, and a daily win of $115 per machine, said Advent.

The resort will make most of its money from the non-gaming side, he said.

"You have to look way beyond the casino part of the equation," said Advent.

San Francisco would generate only 42 to 45 percent of its revenues from gaming, he said. The rest would come from entertainment, retail, restaurants and rents.

Plans call for the resort to open in 2003.

But Advent's investors aren't putting all their eggs in one basket. If the Desert Inn plan falls through, they are also considering other sites for San Francisco, both on and off the Strip, said Advent.

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