Saturday, October 02, 2004
Copyright © Las Vegas Review-Journal

ACQUISITIONS: Station snaps up Castaways

Locals giant steps in, completes three-way deal for shuttered landmark

Locals giant Station Casinos on Friday stepped in suddenly to complete a three-way $33.7 million deal for the Castaways. Photo by RONDA CHURCHILL/REVIEW-JOURNAL Station Casinos said it hasn't decided the future for its new property, the Castaways. Photo by RONDA CHURCHILL/REVIEW-JOURNAL

Station Casinos emerged suddenly Friday as a surprise buyer of the Castaways even though the company hasn't decided whether to mothball or reopen the 50-year-old property.

In an unexpected move, Station anted up $33.7 million to buy the 445-room hotel-casino from the Vestin Group in a three-way transaction involving MGI Group, a partnership of Randy Miller, Rich Gonzales and Rich Iannone that also owns the Longhorn casino on Boulder Highway and the Bighorn casino in North Las Vegas.

First, Station paid Miller's group $12.1 million to assume its position in a binding sales contract signed with Vestin in June. Station then turned around and paid Vestin the agreed-upon sales price of $21.6 million.

"So Station made a $12 million mistake," said a local real-estate executive who asked not to be named.

He said Station could have bought the failed landmark at the top of the Boulder Strip for about $21 million had it moved more quickly after the property was closed and sold at auction.

On the other hand, he said Castaways's creditors, who were shut out because of the way the three-way deal was done, could have been partially paid off if Station had been willing to make the higher bid earlier.

Vestin's fiduciary responsibility, however, was to its fund investors whose investments in loans were all paid off as a result of the three-way sales deal, Vestin Chairman Michael Shustek said.

It was unclear Friday whether Station would operate the Castaways, and under what brand name, or mothball the property to protect its nearby Boulder Station from competition.

Station chief legal officer Scott Nielson said his company will have to evaluate the potential for redeveloping and possibly reopening the property. Until then, he said, the company does not want to overpromise the community by saying if or when it might be reopened.

"The current plant is not competitive. We think some changes would have to be made," Nielson said. "We like the site and it's hard to find sites that are grandfathered in."

He was referring to legislation adopted in 1997 that limited the areas in the Las Vegas Valley in which hotel-casinos could be located.

University of Nevada, Las Vegas professor Bill Thompson, who specializes in gaming studies, said: "It would not hurt the community for Station to level the property and put in a park, but it doesn't do anything for us to leave it vacant."

Nielson said Station's interest in the Castaways mainly came from it being one of the limited number of gaming-entitled properties in the Las Vegas Valley.

If it is reopened, however, Nielson said Station is confident it could find its own niche for a redeveloped Castaways.

"We think we can differentiate the property and bring it back to be successful," he said.

Thompson said if Station does redevelop and reopen the Castaways, "it will have the advantage of having a strong operator rather than an owner who'd be operating on the margins."

Nielson also said it would be premature to say whether a reopened Castaways would be organized by the Culinary union as it was in the past.

However, Culinary Local 226 Secretary-Treasurer D. Taylor said the property would be a "pretty expensive mothball," and that Station, whose properties are not organized, could do a lot to redeem itself with the union if it reopened the hotel-casino and rehired the workers who lost their jobs.

Engineers and security personnel at the Castaways were notified Friday afternoon that Station Casinos was the new owner and would be responsible for further operations.

Security at the property has been costing between $50,000 and $60,000 a month, and Vestin has been letting the MGI Group proceed with improvements even though the title had not been conveyed, pending approval of the partners' license applications, which were submitted to the Gaming Control Board last month.

MGI Group was betting it could reflag the Castaways as La Joya del Sol, complete renovations and reopen it in December. Last month, the partners applied to the Nevada Gaming Control Board for gaming licenses to operate the property.

Station's decision to enter the deal early in September when MGI's preliminary plans for renovating and reopening the Castaways became public is only the latest step in the troubled property's recent history.

Harrah's bought Showboat Inc. from its shareholders in 1998 for $550 million, principally for the brand name and to own and operate Showboat properties in Atlantic City and East Chicago that it still has rather than for the Las Vegas hotel-casino.

VSS previously bought the former Showboat from past owner Harrah's Entertainment in March 2000 for $23.5 million. It renamed the property and introduced its Spanish ocean theme.

The property was severely affected by the tourism slowdown that followed the Sept. 11, 2001, terrorist attacks and also by the country's economic recession, but many experts believe the loss of its Showboat name was the beginning of the property's end.

The Castaways filed for bankruptcy protection on June 26, 2003, listing debts of more than $50 million.

The Castaways was closed and 800 workers laid off Jan. 29 after creditor Vestin Mortgage, acting under authority of a U.S. Bankruptcy Court order, notified Castaways owner VSS Enterprises it would enter the casino and collect its collateral backing a mortgage loan.

Vestin then bought the bankrupt 25.9-acre property, formerly known as the Showboat, for $20.7 million on Feb. 1 at a foreclosure sale after its bankrupt former owners were unable to satisfy terms of a $22 million-plus mortgage note.

Vestin proceeded to market the property and agreed in April to sell it to the MGI Group. Despite the initial agreement, Vestin kept marketing the Castaways into June when the definitive sales agreement was reached.

Miller could not be reached for comment.