The money men behind the flashy sports book operator Cantor Gaming are trying to shake up the real estate sector of the gaming industry.
Just as they have driven dramatic changes in Las Vegas sports books with their high-end and mobile sports-wagering offerings, the investors have now launched what they say will be a new business model to serve casinos’ global real estate needs. And they hired two top real estate brokers to push the initiative forward.
Longtime hotel and casino brokers John Knott II and Michael Parks were hired away from commercial brokerage CBRE in Las Vegas last month to run the global gaming real estate business at commercial real estate brokerage Newmark Grubb Knight Frank, a sister company to Cantor.
Knott and Parks, who spent more than a decade running the gaming real estate business at CBRE, say the move gives them a chance to offer their clients new financial services, thanks to the Cantor investors’ extensive business on Wall Street.
“If you have a project, we can bring everything to bear, ranging from getting the land appraised to financing to project management,” Knott said. “We didn’t do restructuring when this last downturn happened. Others were helping our clients restructure their debt. We didn’t do mergers and acquisitions. Now, all of that’s available here under one roof. That was not the case where we were before.”
Knott and Parks were a prize catch for Newmark Grubb Knight Frank. The team is known for selling more than $3 billion in gaming land and properties over the years. Their past sales include the Sahara, the D, the former Las Vegas Hilton (now LVH), Caesars Tahoe, Flamingo Laughlin, Trump Marina in Atlantic City and Boomtown in Reno. They also have a consulting practice that offers feasibility and market studies for gaming projects.
How the transition for Knott and Parks came about takes a scorecard to understand. Here’s what happened:
The assets of national commercial real estate brokerage Grubb & Ellis Co. were bought out of bankruptcy in April by a New York company called BGC Partners Inc., which serves the wholesale financial and commercial real estate markets.
BGC is named for securities trading innovator B. Gerald Cantor, who in 1945 created Wall Street trading house Cantor Fitzgerald.
Las Vegas-based Cantor Gaming is a Cantor Fitzgerald company.
And while BGC Partners and Cantor Fitzgerald are separate companies, they have the same CEO: Howard Lutnick. Michael Lehrman, global head of real estate at BGC, also is a Cantor Fitzgerald executive.
As for the commercial real estate business, BGC Partners acquired in October the U.S. commercial real estate firm Newmark Knight Frank. In picking up the Grubb & Ellis assets and combining them with Newmark Knight Frank, BGC expanded in Grubb & Ellis markets, including Las Vegas.
Given Cantor Fitzgerald’s already significant investment in Las Vegas with Cantor Gaming and Lehrman’s previous experience doing commercial banking for gaming companies in Las Vegas with Credit Suisse bank, the decision was made to offer the gaming industry more real estate services with Knott and Parks leading the ground offensive locally.
“We’re big fans of Las Vegas and active players in the Las Vegas market,” Lehrman said. “We’re one of the few firms you could look to in gaming who understands it holistically and who you could look at as a funding source and as a service provider.”
VEGAS INC recently sat down with Knott and Parks to discuss gaming real estate trends. Here’s what they had to say:
On gaming land sales
After several difficult years during the recession, there’s now some interest in land among qualified gaming users, as opposed to the many speculators who tried to engineer deals but were often unqualified to do so, Knott said.
“A year and a half ago, you probably would have had trouble selling, regardless of what your price was,” he said. “Today, you can sell, but you may not be happy with the price you’re going to get.”
“Prices are still down 80 to 90 percent from their peak in 2006 and 2007 on the land side,” he added. “But those will gradually come back as development makes more sense.”
On Las Vegas properties
There’s “significant demand” from buyers looking for bargains, Knott said.
“There’s limited interested on the sell side,” he said. “As a result, there seems to be a gap between what the buy side is willing to pay and what the sell side needs to get. But that gap has narrowed.”
Knott suggested that if buyers look at key gaming indicators with an eye toward the future, they may be able to meet sellers on price. Indicators such as gaming win, visitor volume, occupancy rates, hotel rates and food and beverage sales have improved.
“The buyer needs to see this trend and say, ‘I need to buy not on what I’m seeing last year or right now. I need to see it’s going to get better, and I’m going to participate in that,’” Knott said.
The planned reopening of the Sahara in 2014 as a hip boutique concept called SLS Las Vegas could speed up decisions about what will be done with the stalled Fontainebleau and Echelon projects, Knott said. If the economy improves enough that new gaming megaresorts once again become feasible, those are the two that could come to market most quickly, he said.
They have land entitled for gaming, and owners with the ability to finance their development, Knott said. Plus, as partially constructed structures, finishing them could simply be a matter of resuming construction. That’s assuming they’re not razed so newly designed structures could take their place.
“Fontainebleau could come to market fastest if (the structure) has been properly protected, and there’s a desire to enter the market,” Knott said.
On SLS Las Vegas
Despite concerns from debt rating agencies and observers about its location and proposed $415 million debt load, Knott and Parks said they’re sure hotelier Sam Nazarian will succeed with SLS Las Vegas.
“Absolutely, that plan is feasible,” Knott said. “A location on the Strip surrounded by three streets – that location doesn’t bother me at all.”
“We think he’ll be successful in driving traffic to the property with the concepts he has,” Parks said. “We think Las Vegas will be thirsty for a new casino when it’s scheduled to open in 2014.”
On The Westin Casuarina
The property east of the Strip on Flamingo Road was seized by lenders last year and now is being operated by a special servicer. Knott said the lenders don’t appear to be in a hurry to sell it.
“A number of people have tried to pursue that asset,” he said. “There’s no discussion of what the value is of it. It’s got to be north of $100 million. It’s a good location, particularly with what’s going on with (the adjacent) Project Linq. The property is nice. It’s in good shape.”
“You’re probably looking at a change of ownership for that property,” Knott added. “It wouldn’t surprise me if it was the end of next year or the year after that."
The Tropicana Avenue property just east of the Strip was taken over by investors this year as part of its bankruptcy.
“We’ve had ongoing dialogue with the (new) owner,” Knott said. “They have interested parties. The question is: What is someone’s vision to go forward with that property, and how does that translate into how much they can afford to pay the owners?”
Still, Knott noted that the new owner has made “significant strides from an operational standpoint already in turning that asset around.”
On The Cosmopolitan
The $3.9 billion resort has struggled to turn a profit after opening during the worst recession in recent memory.
Even so, it recently made strides in boosting gaming revenue.
“It’s a beautiful property with great food and beverage concepts, and that’s carrying the property for the time being while they build up their customer database on the gaming side,” Parks said. “They’ll get there.”
There have been occasional rumors that owner Deutsche Bank, which isn’t in the business of running casinos, may want to sell the property. But Knott said that’s not likely to happen soon.
“Deutsche Bank is a German bank,” he said. “The German banks have gone through a pretty tough period. There’s not a lot of desire to take the kind of write off that would be required to sell it in today’s marketplace. They’ve got a business plan they’re pursuing and they’ve made progress.”