The long-mothballed 3,900-room hotel-casino, the Fontainebleau, has changed hands for $600m in a sale that shows investors are still looking for opportunities on the north end of Vegas Strip.
The former site of the Fontainebleau Las Vegas, originally designed to be the centrepiece in Aventura-based real estate developer Turnberry Associates property portfolio, has just changed hands again in a $600m deal.
Billionaire Carl Icahn has sold the partially built hotel tower on the north Strip – near the Circus Circus and the Las Vegas Convention Center – to real estate investment firms Witkoff and Miami-based New Valley, the latter a subsidiary of the Vector Group.
In a news release, New York-based Witkoff, fronted by founder Steven Witkoff, called the unfinished project “significantly undervalued” and said the new ownership paid a “substantial discount” compared to the cost of building it from scratch.
Characterising the property as “one of the best physical assets in the country”, the firm added that it has “identified numerous ways to unlock the significant underlying value of the property,” but it did not provide any details.
It also stated the hotel was “formerly known” as the Fontainebleau but did not say what the new name might be, instead referring to it by its address, 2755 Las Vegas Blvd. South.
The sale is also a sign that investors have not given up on the north Strip, which has lagged other areas of the resort corridor with lighter foot traffic, unfinished projects and large vacant lots.
Mike Mixer, executive managing director of brokerage Colliers International’s Las Vegas office, affirmed that sale is a “very positive development” for the north Strip since Witkoff is an experienced “major-market developer” and has “great relationships with many of the big hotel chains.”
While Mixer speculates that the development is likely to be rebranded, the
Fontainebleau was originally envisioned as a $2.8bn, 3,815-room project, covering 24.5 acres.
Amenities were planned to include 24 restaurants and lounges, a 60,000 sq ft spa, a 3,300-seat performance hall and a retail centre. The property would also have hosted a 95,000 sq ft casino, small by Las Vegas standards.
“The Fontainebleau marks a unique opportunity on the Strip,” wrote Brent Pirosch, director of gaming consulting with commercial real estate services firm CBRE, in a July analysis of the Las Vegas Strip gaming market. “New development projects on the Strip tend to cost at least $1m per key to be competitive.
“Depending on the final buildout for Fontainebleau, however, the per key development cost, including the $600m acquisition price, could be less than half what these others paid.
“This would help significantly reduce their development risk and still allow for a highly competitive product,” he concluded.
The sale is a windfall for Icahn, who bought the property, sight unseen, for around $150m after the Fontainebleau Las Vegas filed for bankruptcy protection in 2009 during the great recession.
The original developers included Crown Resorts boss James Packer who reportedly lost $279m after the project folded.
While the price was slightly less than Icahn had been seeking for the Fontainebleau, he still proclaimed the sale a win, and said that his group had acquired the property “when others were unwilling to invest.”
Icahn called the $457m profit “an example of our ‘contrarian’ modus operandi,” with his company looking to acquire distressed properties “and ultimately sell them for large gains.”
Speaking back in 2015, when he put the venue up for sale, the casino investor suggested that Las Vegas still has “a fair amount of room to run,” he acknowledged that he preferred to find a buyer for the property rather than “take the time and energy to build it out.”