After a long, abyssal plunge, Las Vegas‘ real estate market has bottomed out — or so knowledgeable people tell me. Seems that the banks ’round here ignored Mitt Romney‘s (bad) advice to dump the “shadow inventory” en masse into the marketplace, which would have sent housing prices into an incredible downward spiral. No, they’re keeping those homes buttoned up as the market tightens (I’m hearing of nine- to 12-month waiting periods for a short sale), as well as laying off bundles of houses to investment firms which will rent them or hang onto them until the laws of supply and demand turn in their favor … Which is exactly what MGM Resorts International did with a sizeable tranche of CityCenter condos, ditching 429 Veer Towers units for $119 million (or $278,688.52 apiece). No doubt eager to palliate a major advertiser, the Las Vegas Review-Journal duly packaged the story as a triumph for MGM and a harbinger of economic turnaround on the Strip. It even dredged up Eric Trump to proclaim, “We’re moving at a faster pace than anybody and at higher sales prices.” Mind you he said that after Trump International sold 300 of its units to Hilton Grand Vacations at $333K apiece. (For once, Trump made the better deal.) Analysts like Union Gaming‘s Bill Lerner speedily forgot what a boondoggle Strip-side condos have been and warbled, “it clearly signals a rebound in the Las Vegas condo market.” Yes, if a dead-cat bounce counts as a rebound.
The Motley Fool was not amused. “MGM has fire sale at CityCenter” was its headline, saying the metaresort “has become a symbol of 
the Great Recession” whose condos “have sold like molasses.” As a cash-flow generator, CityCenter has been an underachiever, on pace for 3% ROI. Then again, if you’re like the fashion model I saw at Bagatelle on Election Night, bragging about her $4,000 pair of boots, getting a CityCenter condo for 300 grand must seem like a red-tag sale. The actual buyer, LVT Owner LLC fairly screams “dummy corporation,” and the paper trail ends on Park Avenue at a foreign-held company with the equally generic moniker LVT JV LLC. According to the R-J‘s Hubble Smith, East Coast-based Ladder Capital Finance sits atop this pyramid of opaque holding companies. It looks like Ladder’s plan is to both sell the condos and underwrite the sales, although it’s got so many irons in the fire it didn’t even consider the CityCenter transaction worthy of a press release.
Meanwhile, debate continues as to whether Ameristar Casinos is over- or underpriced at $26.50 a share (or 7.6X EBITDA). Motley Fool contributor Jeff Hwang makes a fascinating and provocative case for the argument that, no, Pinnacle Entertainment‘s offer isn’t going to close the deal and here’ why. (Hwang is rarely wrong.) Among other things, Penn National Gaming had to pay a higher multiple for Harrah’s Maryland Heights, a situation where it had a seller (Caesars Entertainment) on the ropes.
Although I’d be shocked if, as Hwang contends, Las Vegas Sands emerges as a player in this scenario, Sheldon Adelson would then be able to buy a regional empire far cheaper than he could build one. However, Hwang’s endgame sees not Adelson but MGM CEO Jim Murren emerging victorious. The MGM and Ameristar player databases already enjoy a symbiotic relationship. There are almost no regional redundancies between MGM and Ameristar, not to mention that such a takeover who give MGM an excuse to unload its half of the declining Grand Victoria riverboat and get the heck out of toxic Illinois before things get even worse. As Ameristar was — and Pinnacle isn’t — MGM is a heavy contender for a Springfield casino in Massachusetts. (Springfield is the most strategically located city in that part of the Bay State … but that’s a topic for another day.) Does MGM want to repeat Caesars’ mistake of letting the Lake Charles market slip through its grasp? Also, MGM has been busy refinancing its debt, including offering senior secured notes at double-digit interest rates. With at least $335 million a year in new debt servicing, any purchase would have to be tremendously accretive. Ameristar’s 2011 cash flow was $253 million. Is it worth the stretch? Then again, it’s not like MGM couldn’t use some new revenue streams — and rather badly.
