Nothing as fertile as Vegas Strip

Jun 26, 2007 5:13 AM

By David Stratton

When Kansas-based real estate mogul Phil Ruffin paid $165 million for the Frontier and its 41 acres on the Las Vegas Strip in 1998, his critics said he overpaid by $15 million.

Later this summer, Ruffin will be laughing all the way to the bank. In August, he is scheduled to close a $1.24 billion sale of 34.5 acres of that Strip property to Elad Group, owner of Manhattan’s Plaza Hotel.

Ruffin is among a pack of investors profiting from soaring real estate values in Southern Nevada, where prime Strip property prices have roughly doubled in the last three years.

Of course, the quintessential deal maker — and money manufacturer — has to be Kirk Kerkorian, a modern day version of the Monopoly game’s Rich Uncle Pennybags.

In fact, Kerkorian’s latest act of gamesmanship is straight from the Monopoly board: he passed on Boardwalk and Park Place in order to strike a better deal at the corner of Baltic and Mediterranean Avenues!

For his effort, Kerkorian will realize a gain to the tune of $3 billion — without even passing Go.

Here’s how he’s doing it: His Tracinda Corp., which owns 56 percent of MGM Mirage, in May offered to cherry-pick the company’s best hotel, Bellagio, as well as its massive, $7.4 billion CityCenter project now under construction on the Strip.

Kerkorian voided the offer last week after MGM announced a new Strip project with Atlantis developer Kerzner International Holdings. MGM will contribute the land — across from the Sahara Hotel — at a value of $20 million per acre for the project, which Tracinda expects will unlock untapped shareholder value.

Even though MGM shares fell on the news, they remain 28 percent higher as a result of 90-year-old Kerkorian’s gamut, increasing the value of his MGM holdings by $2.8 billion to $12.8 billion.

Details of the multi-billion dollar project are sketchy, but a broad conceptual design has been agreed upon by MGM and Kerzner executives. Planning is expected to take about one year to complete, followed by a three-year construction phase.

The as-yet unnamed resort project may use existing brands owned by either MGM or Kerzner, or a new brand will be introduced.

In what could be one of the biggest private equity buyouts this year, Apollo Management LP and Texas Pacific Group are working out a deal to buy Harrah’s Entertainment Inc., the world’s largest casino operator, for $27.8 billion, including the assumption of $10.7 billion in debt.

And just last week, Fortress Investment Group LLC and other investors struck a deal to buy Penn National Gaming Inc. for $6.1 billion.

It will be interesting to see where the next mega deal emerges. When it does, don’t be surprised if Kerkorian is involved. His Community Chest is overflowing.