tiffany brown / las vegas sun file
Monday, June 8, 2009 | 2 a.m.
- Fontainebleau: Bank wanted to minimize Cosmopolitan competition (5-12-2009)
- Fontainebleau glazing contractor no stranger to overcoming adversity (5-6-2009)
- Fontainebleau workers laid off amid funding concerns (4-30-2009)
- Union: Banks putting jobs in jeopardy over Fontainebleau (4-29-2009)
- Sued by Fontainebleau, banks could cite ‘act of God’ as defense for refusing funds (4-29-2009)
- In Fontainebleau's PR battle, banks have yet to talk (4-27-2009)
- Berkley wants talks with Obama administration on Fontainebleau (4-27-2009)
- Fontainebleau files $3 billion suit over funding (4-23-2009)
When the ambitious Fontainebleau was announced in 2005, the 4,000-room resort project, which might have been an icon unto itself in another city, joined a crowded field of megaresorts in planning or under way on the Strip.
With tourism booming, few questioned the resort’s prospects. Even plans for condo-hotel units — a seeming win-win for developers and a public keen to own a piece of the Strip — looked like a golden opportunity.
The resort’s location at the north end of the Strip, among some of the oldest and tackiest hotels of Las Vegas’ past, was no longer seen as a hindrance given the opening of Wynn Las Vegas at the site of the former Desert Inn and what would soon become the Encore and Palazzo nearby.
The partnership between former Mandalay Resort Group executives and luxury condo giant Turnberry Associates also seemed a good match.
All that said, Fontainebleau Las Vegas probably won’t achieve its October opening date and has become yet another cautionary tale in this recession.
Much is unclear surrounding Fontainebleau’s lawsuit against banks refusing to lend $800 million they previously committed to finish the resort. But it is clear the banks want nothing to do with this project and believe they have found an “out” in the contract.
In another sign of the resort’s crumbling fortunes, the man primarily responsible for securing more than $1 billion in loans for the project — Fontainebleau Resorts CEO Glenn Schaeffer — left the company without comment last month.
Schaeffer’s track record as chief financial officer of Mandalay Resort Group, which generated record profits before it was sold to MGM Mirage in 2005, opened doors to banks that didn’t seem perturbed by the inherent risk involved in building a resort with a little-known brand that would be competing with entrenched casino giants for customers.
Schaeffer, a flamboyant speaker and philanthropist with a love of the high arts, grew Mandalay’s business by catering to Baby Boomers with money to burn. Schaeffer had hoped to lure those same Boomers to Fontainebleau’s rooftop pool, but now as they try to save for retirement, they’ve got mortgage problems and their investments have tanked.
Schaeffer, the glue holding much of the executive team together, may have walked away from millions of dollars of his own equity in Fontainebleau — a resort that may not net a profit when it opens and therefore may have little equity value for owners.
Even if Schaeffer is exiting to make way for new leadership, his departure while the project is in limbo is a bad sign given that he was also the designated casino operator with industry experience and a previous Gaming Control Board license.
As long as profits are weak in Las Vegas, Fontainebleau may find few takers willing to grab control of the multibillion-dollar project, especially with an $800 million hole left to fill. And then there’s the cost.
Consultants familiar with Fontainebleau’s financing estimate the project is over its most recently revised budget by an estimated $375 million — a prospect that no doubt irritated the resort’s bankers and may have led to the banks’ decision to pull the bulk of the financing.
While Fontainebleau’s owners haven’t published a recent budget, the resort is expected to cost at least $3.5 billion — more than double its initial budget — according to financial analysts who have followed the resort’s progress.
With thousands of construction and resort jobs at stake, more than 40 liens piling up at the Clark County recorder’s office and developers short $800 million, the company needs help. And because the economy won’t quickly improve, rescuers will have to be gutsy speculators.