Thursday, Jan. 10, 2002 | 10:47 a.m.
Capital One LLC, which acquired the money-losing Vacation Village hotel-casino in Las Vegas out of bankruptcy for $17.8 million, said it's now talking with two "significant" Las Vegas gaming operators about a possible joint venture to redevelop the 315-room property.
Shawn Scott, owner of Capital One, cited "stronger-than-anticipated interest by several parties" to expand the 24.9-acre Vacation Village as one of the key reasons behind his decision to take possession of the property on Tuesday and not operate the casino under a license held by the Heers family, the property's former owner.
Vacation Village, on the south end of the Las Vegas Strip, closed at 2 a.m. Wednesday after Capital One received court approval to take possession of the property during a conference call Tuesday afternoon with U.S. Bankruptcy Judge Robert Jones, representatives of Vacation Village and several parties that bought the property's gaming equipment at the auction in November.
About 350 Vacation Village employees were laid off and some 60 hotel guests were relocated to other hotels.
Toni Cowan, deputy attorney general for the State Gaming Control Board, who participated in Tuesday's conference call, said there was a dispute between Scott and the Heers family over when Scott could take possession of the property.
"The judge ruled in favor of Scott and allowed the gaming vendors to take possession of their equipment," Cowan said.
The sale, approved by the bankruptcy court Dec. 20, included a portion of Vacation Village's gaming equipment that included 700 slot machines and 10 table games.
Several secured creditors, International Game Technology, Community Bank of Nevada, Atronic Americas LLC and PDS Gaming Corp., are entitled to take back more than 400 slot machines and other gaming equipment that had been sold to Vacation Village because bids for the equipment didn't exceed their individual "credit bids" for what was owed.
"We're now in talks with two Las Vegas gaming companies, which are very interested to develop the property with me as a joint venture," Scott said. "Our plan is to keep Vacation Village as a hotel-gaming property and to more than double the size of the existing casino. We've no plans on whether to retain the name yet. One of the gaming operators is a very recognizable name. If we end up working with it, the property may assume the operator's name."
"There's also a possibility they could buy out my interest in Vacation Village," he said. "We're hoping to come up with a plan in about two to four weeks."
Scott said plans for the property, currently approved for expansion for up to 1,000 rooms, include raising that number to about 1,500 rooms and adding more than 1,500 slot machines.
"We also want to expand the number of restaurants to about five. This includes two fast-food restaurants, a buffet, a food court and a fine dining steakhouse. The property used to have one Denny's restaurant, a small buffet and a taco shop. We also want to add entertainment amenities like a bowling alley and a movie theater," he said.
Scott, formerly licensed to operate casinos in North Las Vegas and Henderson, said he no longer has a license. "If I remain involved in the redevelopment joint venture, then I may need a license. But if I sell the property to the gaming operators, then I wouldn't apply."
Meanwhile, Jim Norcott, a member of the board of directors of Vacation Village, claims Scott verbally agreed to let the Heers family lease the property on a month-to-month basis, but his attorney later told them Scott "didn't want to be involved."
"We were also given the impression by Eric Nelson Auctioneering (the court-appointed auctioneer) that the property will remain open at least until Jan. 28 and that no one was allowed to remove any gaming equipment from the property until Feb. 1," he said.
But Scott denied Norcott's claims, saying he never made any agreement, verbal or otherwise, with the Heers family.
"One of the reasons we took possession was because there was never any agreement reached between us and Vacation Village over their proposals," he said. "Because of Vacation Village's recent problems, we felt it was better for the property to have a stable operator so that the property can move on to the next level and be more competitive. We want to see the property developed to its fullest potential."
"And since we've had a much higher level of interest than we expected to redevelop the property, we felt that would be much more feasible than leasing the property to Vacation Village," he said.
Norcott said high interest payments on loans the Heers family took to build the property and maintain operations took a toll on Vacation Village's earnings.
"In 1991, the Heers family took a loan of about $10 million at 15 percent interest per year from Robert Hilt, an Iowa man who owns a casino in Colorado. We got only about $8.5 million of the loan because the remainder was held as interest payment for the first year," he said. "Then we took a $19.4 million loan from Foothill (Capital Corp.) to pay off the Hilt loan. And we've since been saddled with interest payments on the Foothill loan."
Vacation Village filed for Chapter 11 bankruptcy protection in November 2000 after it was sued by Wells Fargo Bank subsidiary Foothill, the hotel-casino's largest creditor, for failing to repay a loan debt. Foothill sought $24 million plus interest in the suit.
The hotel defaulted on a one-year $19.4 million loan with a 14 percent interest rate that had come due on Sept. 14, 2000.
"In the last few years before the bankruptcy filing, we were making net losses. We had to make about $3 million interest payments a year on Foothill's $20 million loan but were earning only about $2 million EBITDA (cash flow or earnings before interest, tax, depreciation and amortization.) We had to file bankruptcy when the Foothill loan came due," he said.
Complications arising over license issues and a strong interest by a majority of the gaming equipment's new owners to take possession were other reasons cited by auctioneer Eric Nelson for the closure.
"We were negotiating with Scott to keep Vacation Village running, but these negotiations were subject to him having a suitability license. That's a license that would allow him to hold a property that has gaming. Scott has that license in other states where he has gaming properties but not here in Nevada," he said.
"We had hoped the gaming vendors would hold off on retrieving their equipment until Jan. 28. But a majority of the equipment was sold to third parties that were demanding to have the equipment returned. So we had no control over that," he said. "But then again, if there were no gaming machines at the property, getting the license would be a moot point."