Update: Taken by surprise, the Hard Rock’s owners swung into action with a countersuit.
If you’re in New York City next Monday and have a little “mad money” in your pocket, like a hundred grand or so, you have the exciting opportunity to become a junior secured creditor in the Hard Rock Hotel & Casino, aka “Project Paradise.” Lender NRFC HRH Holdings has retained Las Vegas-based Global Gaming & Hospitality to hold a foreclosure auction of a pair of Morgans Hotel Group subsidiaries along with other HRH collateral (including “gaming assets and intellectual property”) that is securing a mezzanine loan that’s junior to a pair of other loans — part of $1.36 billion that Morgans has borrowed against the property over the last several years.
This comes on the heels of reports that Morgans, coming off a $37 million loss in 3Q10 and tottering under $801 million in debt, is peddling a pair of NYC hotels to ease its burden. Ominously, one of its major investors wants “to discuss a wide range of strategic alternatives” for the company, which bit off way more than it could chew when it purchased the HRH LV for $760 million, leaving ex-owner Peter Morton laughing all the way to the bank. Inflation of the property into a jumbled, Strip-sized megaresort has further weighed on the bottom lines of Morgans and its financier/majority HRH owner DLJ Merchant Partners. Lenders could also void Morgans management contract, unless the Vegas market rebounds and rescues the HRH from taking a ride on the Foreclosure Express.
Morgans recently surrendered the deed to a hotel project in Miami, where it operates (and partly owns) the Shore Club, which is also in foreclosure. Should the HRH LV go that route, the winner of Monday’s auction will have purchased a place in the queue, should its assets go on the block.
As for one of the casino’s prize assets, its brand name, it’ll be a footrace between creditors and Hard Rock Café International to see who can wrest that particular plum from Morgans’ grasp. The former, owned by the Seminole Tribe, is using a recent six-figure fine imposed by Nevada regulators as further ammunition in its war with Morgans and DLJ.
According to the Nevada Gaming Control Board, Morgans has essentially been running an outlaw operation characterized by “excessive drunkenness, public sexual acts, date rape, prostitution, extortion/misquoting of service charges, drug distribution and abuse, violence, the admittance of minors, the dumping of incapacitated club-goers into casino venues and failure to cooperate with law enforcement.” The hotel-casino’s pool party may be called “Rehab” but, from the sound of things, it’s Hard Rock employees and hosts who need to be in detox. Morgans was initially defiant, refusing to admit culpability and boasting that only 2.5% of its HRH employees (all employed in nightclubs or security [!]) couldn’t pass a drug test.
According to Sun reporter Rick Velotta, during an appearance last Friday on Nevada Week in Review, Morgans execs told the Nevada Gaming Commission that “rogue employees” were running rampant and upper management was powerless to stop them. This sorry admission is one more metric of just how far over its head Morgans has been since party animal ex-CEO Ed Scheetz (left) bought the place five years ago. If, per HRH attorney Frank Schreck, Morgans has been “vigilant” against illegal drug use on property, the number and breadth of violations is such that I’d hate to see what laxity looks like. (The recent drug bust of Bruno Mars has supposedly caused other pop acts to pout that they won’t be able to get stoned on-property, according to Schreck.) The sole saving grace for Morgans is that no snorting or toking (or screwing) was observed on the casino floor. If it had, DLJ would be shopping around for a new casino-management company.
Given the hotelier’s ropey financial condition, we can count it out of its continued participation in Echelon … from which it pinched the “Mondrian” brand it now plans to slap on the HRH Tower. Being shot of serially inept Morgans would be a blessing in disguise for Boyd Gaming, giving it a pre-made excuse to downsize Echelon into something more market-friendly.
Sinai strife. The continuing unrest in Egypt is having some unfortunate ramifications for the gambling business. Casinos in Taba, on the Sinai peninsula, went dark last weekend. If the inevitable downfall of Hosni Mubarak‘s junta brings about democratic elections, conventional wisdom holds that Egyptian social norms will take a more conservative swing. That could be very bad news for the country’s two-dozen-plus casinos. By extension, it would also bode ill for Genting Bhd, which operates there, as well as for Caesars Entertainment. Gary Loveman‘s company runs London Club Cairo and Caesars Cairo through its London Clubs International subsidiary.
It’ll be in prestigious company, as MGM Resorts International chose a heckuva bad time to cozy up to the Mubarak family (Pansy Ho? Gamal Mubarak? MGM sure knows how to pick ’em). As Richard Abowitz points out, Hosni Mubarak’s dim future is a penumbra that falls over MGM’s Egyptian joint venture, too.
[…] This post was mentioned on Twitter by BriAnna Gentuso, David McKee. David McKee said: New: HRH LV in foreclosure; $MHGC subsidiaries up for auction next week. Plus, HET's Egyptian problem. https://www.lasvegasadvisor.com/stiffs-and-georges/?p=5714 […]
Ouch. I did not think things were that bad at the HR; however, when Morgans purchased the place, I could not believe the price they paid even in the best of times! Never mind that they completely over-expanded the place. If I were Jim Allen, I would put AC on the back burner and pounce all over the LV Hard Rock first by purchasing its debt on the cheap and then moving in.
Thank you Stiffs, I now know who Bruno Mars is, and that he was arrested for cocaine. I had to look that up on Google, because Senor Stiffmeister chose to lump cocaine and cannabis use together in a blatant false equivalency. Tabloid and conservative media are usually where such misleading comparisons are made, it was a suprise to see it here. If cannabis was subbed for alcohol at Rehab, you would not have the fights, nudity, or emergency medical personel at the ready, but the line to get into Luckys cafe would be long. OK, maybe a little nudity… Alcohol and cocaine kill, and not a little. Cannabis does not. If people are worried that cannabis use brings down our society, I suggest they stop drinking from the Hearst Kool Aide supply and pick up a book…
BTW I love the HRH. Great food and a cute little casino…
Hard Rock expanded their property at the wrong time with a location 2 miles east of the Strip. After September of 2008 it will be extremely difficult for a property off the Strip that costs over $1 billion dollars to build to make a profit. It will be intersting to see who buys the Hard Rock.
Mike, no equivalency — false or otherwise — was intended. I really don’t care who was using what drugs where at the HRH, though staffers do seem to be “getting high on their own supply.” (The idea of bands not wanting to play there anymore because their stash might get confiscated is amusing, too.) IMO, pot should be decriminalized in the U.S. and probably legalized. Heck, maybe cocaine, too. The “War on Drugs” is mostly an excuse to infringe on people’s civil liberties, if you ask me.
A few years ago, a client of mine had an interest in acquiring the Hard Rock. But, Morgans was well on their way to expanding the property. Unfortunately, the Morgan Executive in New York who I spoke with, gave me a big huff and a puff about ‘how dare I ask that.’
As everyone knows now, their expansion was a mistake. Also, was their trying to attract the sleazy underbelly as your main customer base. This has led to all of their problems.
Too bad, better management would have been more concerned for the bottom line, and the property (may) could still be enduring rather than running away from a debt that is ultimately hanging them.
Just a thought: How did Morgan’s get $1.2 Billion to waste like this?
I would love to see Peter Morton come back. He knew how to run the place. He could probably pick it up for 1/3 of what he sold it for, and then turn a profit.
Since NorthStar (the forcloser-to-be) just wants its $96 million back, Morton could theoretically regain the property for a 1/8th of what he made when he sold it. It’s a long shot but still … wow.
I dunno what sort of voodoo Morgans put on DLJ, its banker, to compound a $760 million purchase price with a comparable amount of capex spending. Perhaps it was the “In for a penny, in for a pound” business plan. Morgans apparently knew it couldn’t afford the whole HRH enchilada but didn’t try to recruit joint-venture partners until after it had bought the place for Morton.
Surprise, surprise, nobody was interested (at those prices, anyway) and MHGC sold down its ownership stake, bit by bit, to DLJ — basically in lieu of repayment on the purchase loan. However, despite now bearing 85% of the risk, DLJ seems to have let Morgans do pretty much what it wanted, so the bank had no one but itself to blame for the $1.2 billion splurge.
Las Vegas April 19 2010 Hard Rock Hotel Casino and Morgans Hotel Group elevate the Las Vegas pool scene with the opening of SKYBAR. The intimate daytime pool setting and sophisticated evening environment overlooks the glittering expanse of the Las Vegas Strip. The new SKYBAR is the ultimate blend of Morgans Hotel Group s history of refined socializing and the evolution of the new Hard Rock said Phil Shalala CMO of Hard Rock Hotel Casino.