Passions Of A Zealot

by Andrew Calvo

Who Is Phil Ruffin? (Hint: He’s The One Who Just Bought MGM’s Treasure Island)

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In a pretty surprising move, MGM Mirage sold their Treasure Island Casino Resorton the Las Vegas strip to Phil Ruffin today. The casino sold for almost $775 million, $500 million in cash and $275 million in secured notes in a transaction that is already fully financed and scheduled to close in the second quarter of 2009. Treasure Island was originally built in 1993 by Steve Wynn at a cost of $430 million.

The first question in my mind was “Who is Phil Ruffin?” most people have probably never heard of him, but in the past few years he has started to make his mark in Las Vegas – maybe not to the general public like Steve Wynn and Donald Trump have, but he is starting to become an important player on the strip.

Ruffin, owner of the private Ruffin Companies located in Kansas, started out in the oil exploration business – they own over 100 oil wells, and from there have diversified into convenience stores, hotels, real estate and lately – gambling.

His website is sorely outdated, listing one of his hotel properties as the New Frontier – which has been sold and demolished; so its unclear how accurate it is, listing only three hotels a few office buildings and the Greyhound Racetrack. The latest press release is from the announcement of the Trump International Hotel & Towers – dated almost three years ago.

His first purchase in Vegas was the New Frontier hotel, which he bought in 1998 for $165 million. His intention was to build a resort called “Montreux” named after a town in Switzerland. Instead he sold the vacant land to El-Ad Properties for over $1.2 billion dollars last year (wow what a ROI). El-Ad was supposed to build the Plaza Las Vegas on the site but has temporarily suspended construction due to the economy.

Phil did keep a small portion of the New Frontier property for himself so he could go into a 50/50 joint venture with Donald Trump to build the Trump International Hotel Las Vegas. Currently that project is only half completed (one tower is finished – the other, identical tower hasn’t even begun construction yet).

He also owns a Greyhound Racetrack in Kansas that he has threatened to close down since his attempt to put in slot machines was shot down by the Kansas Government.

According to the press release from MGM Mirage – Ruffin stated he would have never been able to purchase Treasure Island if the economy wasn’t in the doldrums suggesting that MGM was looking to get rid of it at a very aggressive price. The Treasure Island property has always been in my mind as one of MGM’s second tier properties which were not given the same attention as their marquee properties such as Bellagio, MGM Grand, and New York, New York, so its not very surprising that this property was sold – but it is a little surprising that MGM was willing to let go of one of their prime strip properties.

A few weeks ago MGM announced it would look to sell some of its vacant land on the strip – the property which was expected to go first was its joint venture with Kerzner International at the north end.

This transaction brings two questions to mind – what is Phil Ruffin up to? and what other properties is MGM looking to get rid of?

If MGM is to get rid of any other strip casino properties – I’d fully expect the Mirage to be the next one to go. If the Monte Carlo wasn’t so integrated into City Center – I’d say that one would go as well, but since its in between New York, NY & City Center and will have direct access to the City Center project, it would be foolish for MGM to divest of the Monte Carlo. Since Mirage and Treasure Island were built as sister properties – almost seeming to share a lot of services, so it’s interesting that one was sold without the other. I have a feeling that Mirage will go to Ruffin next, or perhaps another buyer – ever since Siegfried & Roy’s show was shut down the Mirage has lost a lot of its luster.

Phil Ruffin is definitely a person I will be watching in Vegas right now. There’s no word if this is just a one-off purchase or if he is looking to take advantage of the depressed market prices and pick up other properties that companies such as Harrahs may be looking to sell to raise cash. This type of transaction demonstrates that people with the capital behind them are able to make a deal happen – especially when 75% is paid in cash.

I’m going to keep an eye on Phil – he’s someone to watch..

andrew@alconic-inc.com

Written by Andrew Calvo

December 15, 2008 at 10:35 pm

Too Many Rumors On Hilton’s Boutique Brand

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In the past few weeks rumors about Hilton’s boutique brand have been running rampant – everything from when it was to be announced, to what it was going to be  named and what its “theme” would be

The whole story is now almost becoming tabloid chatter and I’m almost about to throw my hands up and stop writing about it until something firm comes out of Hilton.

Just this week on HotelChatter.com and HotelsMag.com anonymous comments have been received by the editor and posted within comments suggesting that it’s name will be everything from The Quinn to The Vox to The Clarendon– thats not including it’s codename within Hilton of “Global21“.

Personally, I think both names are horrible – why would a hotel brand want to be identified with a brand of vodka (and also sounds like Vodka)? And a name like Quinn sounds like it belongs on a bed and breakfast that originally opened 100 years ago.

No matter what name it ends up being – it’s going to be a highly anticipated brand launch – in either January or March.

andrew@alconic-inc.com

Written by Andrew Calvo

December 15, 2008 at 12:15 pm

Wall Street Journal Wrong About Lightstone? I Don’t Think So.

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Last week I wrote an post based on an article from the Wall Street Journal about the Lightstone Group being forced to give control of Extended Stay Hotels back to the banks due to cash liquidity problems expected to occur in the next 60-90 days.

I came across a blog post from Hotel News Now’s Assistant News Editor Patrick Mayock who saw a press release from Lightstone which said:

“Extended Stay Hotels had no discussions or interaction with the Wall Street Journal on today’s story. The company remains in compliance with all of its debt terms. It is profitable on an operating basis, is current with its vendors and intends to remain so. The business model remains a viable one, and we expect to continue to improve and grow the business.”

That statement doesn’t directly dispute the fact that it may experience problems within 60-90 days, and the WSJ article never even said that it isn’t in compliance with its debt terms – it merely was referring to what would happen in a few months time if economic conditions continued to deteriorate. Coming out with this statement is risky because if 60-90 days down the road Extended Stay does miss debt payments and/or banks seek to gain control of the company I find it hard to believe that Extended Stay & Lightstone didn’t see it coming and suddenly woke up and realized they had a problem. Major corporations and banks especially in this economy are not that ill informed about their own financials and the financials of a large loan.

Secondly – whether Lightstone or Extended Stay Hotels had any interaction or discussion with the WSJ prior to the article being published has no bearing on anything.

Thirdly, the Extended Stay segment is a great segment to be in – and the potential of the segment in the future is great, but banks don’t care about the future if you’re not going to be able to pay your debt payments.

The Wall Street Journal isn’t some fly-by-night operation which writes a story based on a rumor a reporter may hear while walking down a street in Manhattan. I hate to say it, but I feel there is some strong validity behind the WSJ’s article and especially since the statement that Patrick Mayock quoted doesn’t directly dispute anything in the article – I think Extended Stay is running into problems.

I’ve heard reports of hotels in some areas having less than 25% occupancy, and special events and banquets being cancelled left and right due to cost concerns. While hotels of all types are still good invesmtnets for the long term – the short term prospects for them, especially if it was an overleveraged transaction to begin with is a completely different story.

I’ll keep you all posted with any more updates that come out of this event.

andrew@alconic-inc.com

Written by Andrew Calvo

December 15, 2008 at 12:44 am

MetroBank – “America’s Next Great Bank” – Coming Soon

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NOTE: I’m writing this post because I’m fascinated by the power of branding. Branding is something that Vernon Hill and Commerce Bank have done very very well – and I’m sure (as you’ll read below) his next ventures will take it a step further.

Vernon Hill II – the founder and former CEO of Commerce Bank in NJ, which has been since renamed TD Bank is the banking industries equivalent to Barry Sternlicht. Hill understands branding and what it takes to create a great brand that people ask for and recognize from afar.

Please note: Commerce Bank (Headquartered in Mount Laurel, NJ) was bought out by TD, and as of November 1st, 2008 the Commerce Bank name was changed to TD Bank. For simplicities sake, all references to Commerce Bank are in regards to the company which is now known as TD Bank unless otherwise noted.

In 35 years he took Commerce Bank from a one branch operation into a company that has almost 400 branches up and down the East Coast of the US. Probably 75% of that growth occurred within the past 10 years. Commerce Bank became so popular because they offered things that most other banks didn’t – 7 day a week banking, open on holidays, late hours, instant debit cards (so you don’t have to wait a week to get the card in the mail), and next day availability of funds if deposited prior to 6PM, vs 3PM for almost every other bank in America.

Compared to other banks who would try to nickel and dime everyone, Commerce Bank was a refreshing change, and it showed. Commerce is now the 5th largest bank in the New York, Pennsylvania, New Jersey, Delaware market. Pretty impressive when you consider the four larger banks are Chase, HSBC, Wachovia and Bank of America. I always found it interesting how whenever you passed a commerce bank – the parking lot always seemed filled. If you live near a Commerce, I’m sure you know what I’m referring too.

Personally, my first bank account was with a bank called Investors Savings Bank – I loved it, and I really knew nothing other than ISB. Then as I got older I started realizing that simple things – such as being able to make a deposit with a real person after work (4PM and on) was impossible unless it was a Friday. Sunday the banks were closed. Period. Holidays – forget it, it’s almost as though the banking industry looked for excuses to close for a day they claimed was a holiday. The last and final straw was the waiting for a check to clear. It took 24 hours for the first 100 dollars to clear, and then another 2 days for the next two hundred, for the entire amount over 300, you had to wait a full 5 business days.

Since I’m not rich and dont have hundreds of dollars in my bank account – there were times when I struggled for a few days for my checks to clear – Commerce was a saving grace, and I’d never switch from it. Other banks – WaMu especially – tried to compete with Commerce, offering “fun” stores, and free checking and even late hours – but they never got the simple things – being open 7 days a week, being open until 8PM, and next day availablity. Now that WaMu was purchased by Chase bank, any progress they’ve made to deviate from the banking industries norm will most likely be erased.

My family even had a close personal friend who was an executive at ISB – I told him I switched to Commerce, and he asked why – I gave three reasons – 7 Day Banking, Late Hours and Next Day Availablity of funds. His response? You’ll regret that – no one will beat the personalized service that we are able to offer and a big bank like Commerce will never do. My response? Those three reasons are more important than personalized service. Not that Commerce doesnt offer it – I know everyone in my local branch and they know me. Convenience won out, and Im sure the majority of people will agree.

Last year, Vernon Hill was forced to retire from Commerce Bank due to questions about his real estate ownership of the property that the banks were located on. As one of New Jerseys richest citizens, most people (at least those who weren’t close to him) expected him to somewhat quietly go into retirement, maybe doing some consulting here and there.

Last week – I found out that he’s aiming for a comeback.

Almost 20 years ago, Vernon created another Commerce Bank – named Commerce Bank Harrisburg (Which I’ll refer to as Commerce Bank PA from now on) – which was a franchise of the Commerce Bank that he had been building for years up and down the East Coast. The exact reason that he took this franchising route is unknown to me – perhaps that was how he thought the bank could quickly grow – by franchising it in other areas. But nonetheless, it never grew beyond 30-odd branches around Harrisburg PA, and it was not included in the TD merger.

After his retirement from Commerce Bank in New Jersey, Vernon apparently became a large investor in First Republic Bank of Pennsylvania, a small 12 branch bank in the Philadelphia area of NJ/PA.

Additionally, he attempted (and as far as i know – is still working on) launching a new bank in the United Kingdom called “Metro Bank”. Bringing the convenience that Commerce Bank brought to America to the UK for the first time.

In early November, Commerce Bank PA announced it was merging with First Republic Bank, renaming itself Metro Bank, and beginning an aggressive expansion beginning in South Jersey and then going into new markets. They also announced what seems to be their new slogan “Americas Next Great Bank” a definite play on the Commerce slogan – with the promise of even greater things to come.

Logo for Vernon Hill's MetroBank

Logo for Vernon Hill's MetroBank

More details have been provided about the UK MetroBank, its expected within a year they will have four branches open, and within a decade – 200 throughout Greater London. Vernon Hill is not the primary owner of the company, but he is a major investor and is playing a big part in its growth. If Vernon is able to replicate what he did in America when first opening Commerce (7 day banking, convenience and customer serice paramount) the UK banking industry will be shaken up.

I’m very interested to see how this MetroBank will pan out – will it evolve into a viable competitor to what is now TD Bank, and allow him to expand throughout the country, and then throughout the world? Vernon is not a force to be reckoned with, with his background and connections he has the ability to get the job done. Lets see if he can pull it off once again.

andrew@alconic-inc.com

Written by Andrew Calvo

December 12, 2008 at 12:01 am

Lightstone To Lose Extended Stay, So What Happens Next?

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In one of the last greatest real estate deals before the economic downturn – The Lightstone Group, purchased Extended Stay Hotels from the Blackstone Group for $7 billion – putting down only $1 billion- the rest all being debt. At the time it was announced there were two questions – #1 Who is The Lightstone Group and #2 What were they thinking?

I’m pretty familiar with The Lightstone Group – its headquarters is less than 20 minutes from where I live in Lakewood, NJ across the street from the airport that I’ve flown out of hundreds of times with a friend who has his Private Pilots license. I’ve been following the company since I first read an article about its CEO David Lichtenstein, who started the company by purchasing a small two family home in Lakewood – then trading up built a real estate empire that at one time was estimated to be worth over 10 billion dollars.

Unlike most real estate developers The Lightstone Group is more than happy staying below the radar, even though some of their properties are definitely above the radar – their most notable ownership interests besides Extended Stay Hotels is the Prime Outlets, a nationwide owner of high end outlet malls along the lines of Chelsea Property Group’s Premium Outlets. Lightstone also owns a large commercial portfolio primarily consisting of strip malls, as well as many many garden style apartment complexes. This is all after only 20 short years. Only the most astute real estate industry followers (or locals – like me) have ever heard of Lightstone – in fact they don’t even put their name on any of their properties like most other developers do.

In the past they have made some very good choices about purchasing real estate holdings which may not be glamorous or have the cachet of the GM Building in New York City, but they are all cash-flow positive and good investments. That’s one reason why there was so much concern as to why they purchased Extended Stay. Not only was the deal highly leveraged, affording them very little wiggle room in the case of a downturn, but did they have experience in operating a hospitality company when their past experience is all commercial & apartment holdings?

I personally was shocked when the deal was announced, it was a deal which instantly raised their profile and was very out of the ordinary for a regular purchase, but it seemed as though they wanted to get into hospitality (Everyone was doing it at the time) and this was a good opportunity for them. Their CEO was excited to instantly be the largest Extended Stay hotel operator in the country with a great brand, as well as owning over 600 properties (all are owned by the company – it does not franchise).

Or so they thought.

Today’s Wall Street Journal had a story on how Lightstone might be forced to turn over Extended Stay to its banks. Extended Stay wouldn’t be going bankrupt, nor would it be broken up (at least not at this point) but Lightstone would no longer have any ownership in the properties. According to the story, Lightstone isn’t late on any debt payments, but expects to be late within 60 days if the downturn doesn’t suddenly turn around.

Extended Stay is in an awkward position because all of their hotels are, well, Extended Stay Hotels – designed for business travellers who will be staying over a number of days, weeks or months – a market which has lost a lot of customers over the past few months as the economy slows down. Most of these travellers would be construction workers, or temporary workers working at a location for a few weeks or a few months. Traditional overnight business travellers would be more likely to stay at a Sheraton or Marriott – especially in major urban areas where these hotels don’t have much of a presence.

Extended Stay has a great brand and alot of locations throughout the country – but its all based upon one hotel-room type, extended stay, which is a niche market in of itself. Unlike other hotel companies which have a little bit of extended stay, a little bit of luxury, a little bit of select-service, etc.

I wonder what will happen to the brand – the banks will not hold onto it for too long, that’s not what they want. Will Blackstone buy it back at a discounted rate? (It still owns a small equity stake in it) or will another major hotel company scoop it up on the cheap? Since Lightstone owns the properties as well as the brand, I don’t see Starwood Hotels or Hilton or any of the other major hotel companies purchasing Extended Stay from the banks – they’ve spent the last few years trying to divest of all corporate-owned properties and just collect franchise and management fees.

I wouldn’t be too surprised to see Starwood Capital purchase Extended Stay. It’s no secret that Starwood Capital is waiting on the sidelines for the economy and real estate market to settle so they can make purchases on the cheap – its what they excel at. Extended Stay would be a great platform for Starwood Capital to create an extended stay brand – the part of the equation which I thought they go after when they launched their Hotel Fund in 2006. One of Lightstone’s reasons for purchasing the company at the price they did was the intention to re-do management, not by cutting employees – but just running the company better. While it’s brand may not be as well known as a Homewood Suites, or Marriott, having a brand named after the same term used for the entire niche market “extended stay hotels” is powerful. So is the fact that the brand contains the largest number of extended stay hotels in the country. The marketing spin that can be put behind it as well as opening the brand up to franchising can lead to great growth in the future – and I’m sure that was always Lightstone’s intention, but unfortunately the economy put a damper on that and they might just lose it altogether.

andrew@alconic-inc.com

Written by Andrew Calvo

December 8, 2008 at 1:55 am

Steve Wynn’s Encore TV Commercial

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Steve Wynn is one of the greatest names in the Las Vegas Casino scene. Everything he’s done has set the tone for the next decade in innovation for Las Vegas casinos – and sometimes even the casino industry outside of Las Vegas. After creating the Mirage Casino with it’s exploding volcano, Treasure Island with its hourly live-action pirate show right on the strip, and then the Bellagio with its over the top, super luxury design – Wynn sold his comapny to MGM, but he wasnt done yet.

He started work on the Wynn Las Vegas, then purchased the former Desert Inn casino and built Encore, which is mainly a boutique hotel vs a casino. Wynn hasnt stopped there though – he’s intending on building a conference center, and completely re-doing the Wynn Las Vegas Golf Course. Wynn sees the future bright for high end casinos and super luxury accommodations and Steve Wynn is one of the few who have the golden touch.

Steve has always been over the top – when he opened the Wynn Las Vegas in 2005 he stood atop the roof with a helicopter filming his introduction – almost everyone (myself included) thought it was fake, apparently it wasnt. Not to be outdone, he did the same thing for the Encore, where you can view it on Encore’s website and on TV as well.  To prove it was all real, a behind-the-scenes video was produced.

It’s very impressive. I have to give kudos to Steve for putting himself out there like that, and it shows the dedication he has to his own properties.

You can see all the videos below, take the time to watch them. They are pretty cool.

Wynn Las Vegas Opening Video

Encore Las Vegas Opening Video

Behind-The-Scenes Film for Encore

Written by Andrew Calvo

December 3, 2008 at 4:16 pm

Park Hyatt on Extell’s W 57th Property Discovered Through Sleuthing

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Gotta love this – alot of the “tips” that I’ve had on my blog came from the internet itself. An architectural firm that was a little too descriptive with their description, or a construction firm that was too quick to publicize the projects that they are working on. Today, Steve Cuzzo – the real estate reporter for the NY Post, along with some help from Curbed.com did some sleuthing which ended up with an anonymous comment stating it was going to be a Park Hyatt. Then – perhaps by just visiting the website of the company whose workers and name is all over the site (AEGIS – a security design firm) found a description for “Park Hyatt– Extell – w 57th Street” on their website.

Ah, gotta love good old fashioned investigations based on information that’s publicly available! It’s where alot of my scoops come from!

This is pretty big news because the site on 57th Street right next to Carnegie Hall has been vacant for awhile now, and Extell Development, the owner of the site has not given any indication as to what is going to be built on the site – besides saying a hotel and condos – sometimes it’s even been non-committal on that. W 57th Street is almost like a secondary 5th Ave, a wide street with a high-end feel. It’s also the street where Hilton is building their first timeshare property and Starwood Capital owns property that was expected to be the first Crillon Hotel built in America.

This would be only the second Hyatt in New York City, which is surprising since its such a high end brand that should have more exposure to the New York City market. Its due to have condos, as well as hotel rooms and be in the range of 60-80 stories. The hotel portion will take up less than 1/3rd of the entire tower, the largest part will be the condos. Since details on the entire project are so sketchy – it’s impossible to tell if the condos will be branded as Hyatt Residences, or if it will be a completely separate offering

So now the identity of what will be built on one site on W 57th has been discovered – the question in my mind is what will happen to Starwood Capital’s site a little further east?

andrew@alconic-inc.com

Written by Andrew Calvo

December 2, 2008 at 6:34 pm