Analyst: Fontainebleau Could Cost $2B to Finish

Anyone thinking about taking over the stalled Fontainebleau casino-hotel project on the Las Vegas Strip would likely have to invest $2 billion to buy out its debt and finish construction, an industry analyst said Friday.

Bill Lerner of Union Gaming Group said Friday that the finished resort would have to compete with other new developments that include 9,300 hotel rooms opening in the next year even as the gambling market shrinks and visitor spending on the Strip declines.

"If project capital were available, we'd be surprised to see Fontainebleau generate a return in excess of the cost of this capital," Lerner said.

The planned resort, where construction was reduced to skeleton levels in April and later halted, is already $1.6 billion in debt but would take an estimated $1.5 billion to finish, Lerner said.

Lawyers for Fontainebleau Las Vegas Holdings LLC have said in papers they filed in federal bankruptcy court in Miami that they're talking to a potential buyer, but they do not say who.

The Wall Street Journal cites anonymous sources in reporting this week that Penn National Gaming Inc. is negotiating to buy the 24-acre project, which Fontainebleau says was roughly 70 percent complete when they ran out of money.

Penn National spokesman Joe Jaffoni on Friday would neither confirm nor deny the report. But the Wyomissing, Pa.-based casino operator has been looking at a number of deals in Las Vegas and elsewhere and is interested in expanding to Sin City.

The company, which operates 12 casinos and seven racetracks, reported earning $28.5 million in the second quarter this year and said it had $795 million cash on hand and $2.28 billion in long-term debt less current maturities.

JP Morgan Chase & Co. analyst Joseph Greff told investors on Friday that he thinks that the newspaper is "somewhat off the mark" and that Penn is unlikely to buy Fontainebleau.

"If true, we think investors would generally view this as a negative. We probably would as well, but it would depend on price and returns," Greff said. "We believe that Penn has done some work looking at Fontainebleau, much as it has looked at many property acquisition candidates over the last year."