BROADCASTS.com

b"With Josh Beroukhim,\\xa0Full-time real estate investor & owner of Bridge Properties, Founder of BehindtheDeals.com
Turnberry's Ill-fated Fontainebleau Hotel Development
Josh Beroukhim publishes articles analyzing and drawing lessons from high-profile real estate deals on his website behindthedeals.com.\\xa0 He joins Steve to talk about a recent piece he wrote on the Fontainebleau Las Vegas, a hotel which the development firm Turnberry Associates nearly completed in 2009, only to have the project stopped cold and the company bankrupted when its lender, Bank of America, called in its nearly $3 billion loan.
The story begins with Turnberry's purchase in 2005 of the iconic Fontainebleau Hotel in Miami Beach. The company's plan was to make $1 billion in renovations to the Miami Beach property and simultaneously build a 4000 room sister hotel in Las Vegas.\\xa0 The Fontainebleau Las Vegas hotel broke ground in 2007 and just two years later, with the property 70% complete and more than $2 billion dollars spent on building costs and improvements, the project came to a crashing halt.\\xa0 With about $800 million left to complete the hotel and the real estate and financial sectors in free fall, BoA decided to kill the remainder of its loan to Turnberry.\\xa0 What happened next, when Turnberry found itself in Miami Bankruptcy Court, is where the deal that Beroukhim's analysis keys in on is first struck.
Icahn Buys The Fontainebleau Las Vegas Out Of Bankruptcy
In bankruptcy court, Turnberry was forced to sell the Fontainebleau Las Vegas to the highest bidder. While there was a lot of interest in this opportunity, in the end only three bids were submitted, and the only one of those which qualified was hostile takeover legend Carl Icahn's offer of $150 million. Just on the cost of the lot itself, Carl Icahn scored big, paying only $6 million an acre for primetime land that Turnberry had paid $34 million an acre for.\\xa0 Considering how much money Turnberry and Bank of America had sunk into the hotel, the discount Icahn scored was obviously deep, but Beroukhim lays out the nuts and bolts of the deal's value.
Fast forward momentarily to 2016 when Icahn hired a brokerage firm to list the still unfinished hotel at $650 million\\u2014which observers believed he would get, plus or minus 5%\\u2014to get a glimpse of the windfall involved.\\xa0 Backtracking, Steve asks Josh whether Icahn had plans improve or finish the hotel and then resell it. His answer is that, from the beginning, Icahn's plan seemed to be to hold onto the property in its unfinished state and sell it when the market improved.\\xa0 In fact, he went even further than that, auctioning off all the furniture, mattresses, beds, wallpaper, and carpets for about $5 million, pennies on the dollar deals for its buyers. Steve observes that this looks like it was taken from the playbook of Icahn's infamous corporate raiding years, buying distressed companies and stripping their assets and selling the remains.\\xa0 In this case, Icahn clearly had no interest in owning Las Vegas real estate or operating a hotel.
Breaking Down the Deal, Icahn Wins Big
So far, the salient details of the deal are that Icahn paid $150 million for the property, sold $5 million worth of furniture, and is going to sell it for around $650 million, but Steve asks Josh to walk him through his analysis and break the numbers down further.\\xa0 For starters, Beroukhim responds, there were acquisition costs of about $2.5 million for due diligence costs, closing costs, and legal fees.\\xa0 The annual \\u201ccarrying costs\\u201d\\u2014unavoidable expenses like property taxes, insurance, and maintenance\\u2014Josh calculates at $5 million/year, which comes out to around $35 million for the 7-year duration that Icahn has owned the property.\\xa0 There was also a one-time cost of $1 million to cover the building in a special ta..."