Tuesday, Jan. 4, 2000 | 11:11 a.m.
Real estate magnate Phil Ruffin said Monday he plans to implode his New Frontier hotel-casino on the Las Vegas Strip and replace it with a $700 million San Francisco-themed resort.
Two years after spending $165 million to acquire the aging, 1,000-room hotel-casino, Ruffin has decided to raze the structure and replace it with a sparkling new property called "City by the Bay."
But the threat of litigation from a casino designer who says Ruffin appropriated his design concept for the project could delay the scheduled September start of construction on the resort. Ruffin said he expects lawsuits to be filed, but insisted the design isn't proprietary.
The new resort, scheduled to open in fall 2002, will include replicas of such noted San Francisco landmarks as Lombard Street, Coit Tower, Alcatraz Island, Fisherman's Wharf and several restaurants. Visitors will enter the property over a Golden Gate Bridge replica from the Strip, while a San Francisco-Oakland Bay Bridge model will lead into the Fashion Show Mall just south of the property.
The resort's 2,512 rooms will include 400 suites and the 120,000-square-foot casino will offer 100 table games and 2,500 slot machines. A water-filled "San Francisco Bay" fronting the Strip will feature sea lions, boats and a wave-making machine.
Ruffin said the New Frontier is one of the few hotel-casinos on the Strip that has water rights to build such a property.
"We have to do this to compete," Ruffin said. "The Strip won't be the same 10 years from now as it is today. Half of it will have to change to continue to draw new visitors."
Ruffin said he expects the new resort and other projects under consideration just north of Spring Mountain Road will increase the energy and entertainment levels needed to lure more visitors to that portion of the Strip.
South African billionaire Sol Kerzner's Sun International Hotels has yet to announce plans for redeveloping the Desert Inn site across the Strip from the New Frontier once Sun acquires it later this year. And Boyd Gaming Corp. is considering options for a major make-over of the Stardust hotel-casino just north of Ruffin's property.
Ruffin will use about 25.5 of the 41 acres he controls at the New Frontier site to build the new resort, leaving the remaining acreage for further development.
He said he'd rejected an offer from a European firm that wanted to buy the property. "We'd have made a very nice profit," he said, "but that would have taken us out of Las Vegas. I decided for my family that this would be a nice long-term project."
Ruffin said he plans to implode the existing structure in June or July and lay off most of the property's 900 employees. But they'll have first shot to be among the 3,000 workers needed to staff the new resort, he said.
His purchase of the Frontier hotel-casino in January 1998 ended a bitter six-year strike against former owner Margaret Elardi by the Culinary union.
Ruffin said the new resort will cost between $650 million and $700 million and is expected to generate annual cash flow of $125 million to $150 million, more than enough to cover anticipated debt service of $70 million a year.
Financing will include an equity contribution from Ruffin, plus bank and publicly traded debt. Ruffin said he expects to have "firm commitments" for the funding in 30 to 45 days.
At least one gaming analyst believes the cash-flow projection is optimistic and that financing the deal won't be as easy as Ruffin thinks.
"I think the projections have to be considered in context with comparable products, such as Treasure Island, which will do $100 million of cash flow this year; such as Mandalay Bay, which might have comparable walk-in traffic problems and will do $110 million this year with 1,000 more hotel rooms, and such as the Venetian, which won't exceed $100 million," said Harry Curtis of BancBoston Robertson Stephens.
"The only comparable project that will do more than those numbers is Paris Las Vegas, which benefits from a gifted location and a great design."
Curtis also said that unless Ruffin puts up a large percentage of the total as equity, "financing will be problematic, given the troubles with the Venetian and Aladdin." Both those resorts were financed with large amounts of junk bond debt, and some analysts believe Ruffin will face similar double-digit interest rates.
Ruffin aide Craig Dudley dismissed those concerns, saying, "We have no indications from discussions with our bankers there will be any problem raising the money. Phil Ruffin is a very wealthy man and will put in substantial equity in this project."
Ruffin is sole owner of a diverse real estate, lodging, manufacturing, energy and retail empire based in Wichita. He owns 13 hotels with 5,000 rooms, including the Crystal Palace resort in Nassau.
In another potential stumbling block, Ruffin said he anticipates a legal challenge to his plan from Mark Advent, who created the concept for the New York-New York hotel-casino and first announced plans for a San Francisco-themed resort in June 1997.
"I do expect there'll be litigation with Advent and possibly with someone else, a Florida man who has applied for the rights to use the trade name San Francisco in a theme park," Ruffin said.
Advent said he warned Ruffin on Friday and Monday that announcement of a San Francisco-themed resort could lead to a lawsuit.
"We've been working with Phil Ruffin and Craig Dudley for two years or more with the intent of joint venturing a San Francisco resort," Advent said.
"We've shared a tremendous amount of confidential information with them based on their assurances that any San Francisco-themed resort would be done with us, or they'd go in a different direction with a different theme."
Advent said after buying the Frontier, Ruffin initially offered him $1 million for rights to the concept, which Advent rejected. Later, when Ruffin and Advent's company, Advent Communications & Entertainment Inc., couldn't reach a joint-venture agreement, Ruffin raised the buyout offer to $5 million to $10 million, Advent said.
"At the very end of the negotiations, when we went from doing a joint venture to maybe participating in the project in a smaller way, we began to get the feeling there was something wrong," said Bill Underhill, Advent's partner in ACE.
"But we got detailed messages back when we raised the issue that, 'We don't do business that way' and 'You can take us at our word.'
"They met with our New York financial partner this summer and took along design overlays we'd prepared," Underhill said. "After that meeting, we gave them a book with our drawings when Craig Dudley said they'd never go forward with a San Francisco resort without us.
"I'm a former trial lawyer and I'm appalled that someone would try this. We send a starving kid away for 20 years for holding up a liquor store, but a rich guy thinks he can steal part of a man's life work and get away with it.
"When we talked to him about this Friday, he said, 'We'll let a judge decide,' " Underhill said. "The bottom line is, we aren't going to allow someone to take a major part of our portfolio and business plan and make representations that they're going to work with us and then take it and do it by themselves."
Ruffin insisted that Joel Bergman -- the architect working on City by the Bay who also designed Paris Las Vegas among other major casino projects -- has never seen any of Advent's renderings.
"This is our own design," Ruffin said. "Joel hasn't seen any of Mark Advent's drawings. Joel has been working on this concept for years.
"I'm sure we'll have several lawsuits over this. But city themes are in the public domain."
Ruffin isn't the only gamer to contemplate a San Francisco theme.
San Francisco real estate developer Luke Brugnara said last October he might build a San Francisco-themed hotel-casino on 8 acres across the Strip from the Stardust.
Brugnara said he hoped to replace the Silver City casino and an adjoining shopping center he bought for more than $30 million with a resort themed after his hometown within five years.