Las Vegas Sun

March 28, 2024

Station Casinos mulls options with purchase of Castaways

Station Casinos Inc. has snapped up the defunct Castaways hotel and casino on Fremont Street for $33.7 million from mortgage holder Vestin Group months after the locals casino giant said it wouldn't make a deal for the property.

Station paid about $12 million to an investment group to assume its position in a purchase agreement with Vestin in June. Station paid an additional $21.6 million to buy the property from Vestin.

The historic 447-room property, formerly known as the Showboat, was closed Jan. 28 following a U.S. Bankruptcy Court judge's order allowing creditors to foreclose. The closure threw 600 employees out of work and at the time it closed, there was widespread speculation that the property would never reopen.

Vestin bought the bankrupt property for $20.7 million in February at a foreclosure sale after its former owners were unable to satisfy terms of a $22 million-plus mortgage note.

In a statement Friday, Vestin said the purchase repays in full the amount that the company's Vestin I and Vestin II funds had invested in the Castaways loan. Vestin was owed up to $8 million directly and managed the remainder of the loan for another mortgage company.

An investment group comprised of casino owners Randy Miller, Rich Iannone and Rich Gonzales had hoped to buy the Castaways and reopen the property with a Hispanic theme. The trio own the Bighorn casino in North Las Vegas and the Longhorn casino on Boulder Highway.

Representatives of that group could not be reached for comment.

Casino operators and real estate experts questioned the property's viability as a casino, saying it was in a less-than-desirable neighborhood and faces competition from Station Casinos' successful Boulder Station as well as the downtown casino district.

The Castaways, which opened as the Showboat in 1954, had an 80,000-square-foot casino with 1,400 slot machines and a 1,200-seat bingo parlor. It also had a 106-lane bowling center touted as one of the largest in the nation. In its half-century run, the property became a stop on the Professional Bowlers Association tour and the hotel also played host to numerous boxing matches.

Casino giant Harrah's Entertainment Inc. was one of the property's owners and when Harrah's sold it to VSS Enterprises in 2000, it held onto the valuable Showboat brand name, leaving VSS to rename it the Castaways.

VSS filed for Chapter 11 bankruptcy protection June 26, 2003, listing more than $50 million in debts and more than 200 creditors at the time.

"It's clear that the existing facility is not competitive in its current state, so we are currently evaluating the property," said Glenn Christensen, executive vice president and chief financial officer, in a statement that was part of a Securities and Exchange Commission filing. "Until we finish our evaluation, it is premature to discuss our plans for the site."

In an interview this morning, Christensen said it hasn't been determined how long it would take to evaluate what Station would do with the property.

"It's not something that you can make a decision on overnight," he said.

Among the options available are to sell the property to a nongaming interest, to refurbish and reopen the property or to tear down the existing structure and replace it with a new property.

Christensen said Station has been interested in the Castaways property ever since it came on the market, but the company was never able to make a deal.

"We did try to buy it from Vestin on several occasions," he said. "Once they made a deal with Randy Miller, Rich Iannone and Rich Gonzales, there wasn't much Vestin could do. But we kept working on it through the summer and we finally put this three-way deal together."

Christensen said if a decision is reached to reopen or redevelop the Castaways site, he doesn't expect the company would have much trouble finding employees.

"We don't have much problem getting people to come to work for Station Casinos," he said. "We've been one of the largest creators of jobs in the valley. We started out small and now have over 10,000 employees and we'll add another 2,000 with the opening of Red Rock Station, plus our masterplanned expansions at Green Valley Ranch, Santa Fe and Sunset Station."

Christensen said Station officials aren't convinced that location is the primary issue confronting the profitable operation of a casino at the property's site near the intersection of Boulder Highway, Fremont Street and Charleston Boulevard.

"The configuration is very challenging," he said, noting that the building is more than 50 years old. "In this era of providing state-of-the-art entertainment, the building itself presents some challenges. We would want to put a property there that is right-sized for that location."

Deutsche Bank Securities analyst Marc Falcone said the move by Station appears to be consistent with the company's strategy of protecting its dominant position in the Las Vegas locals market.

Given its proximity to the company's Boulder Station casino, Station may sell the land with a restriction that it not be developed for casinos, a strategy similar to land sales made earlier this year, Falcone wrote in a research note to investors today.

The company sold 27 acres to retail giant Wal-Mart Stores Inc. in April and 68 acres to residential developer D.R. Horton in July. Both properties were along the Boulder Highway and their sale to nongaming companies effectively took the land out of play to potential Station competitors.

At the time of the D.R. Horton sale, Station officials said they were setting their sights on the west side of the Las Vegas Valley for future growth.

Station owns 11 Southern Nevada casino properties and is a half owner of two others. Construction is under way on the company's newest project, the Red Rock Station, off the Beltway in Summerlin.

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