On Tuesday, billionaire Carl Icahn announced he had sold the unfinished Fontainebleau resort in Las Vegas for $600 million, quadrupling his money in seven years. Just up the Las Vegas strip a few weeks earlier, in June, Golden Entertainment said it had agreed to buy the Stratosphere resort for $850 million from Goldman Sachs.
These summer deals for the Fontainebleau and Stratosphere show Icahn at his best and are a reminder that while many people go to Las Vegas to gamble, Icahn has been enormously successful playing his own game, betting on the booms and busts of Las Vegas that have humbled other big players.
One of the greatest deals Icahn ever made was for the Stratosphere resort, a hotel-casino that includes the nation’s tallest freestanding observation tower. The vision of Bob Stupak and located north of the Las Vegas Strip, the Stratosphere opened in 1996 and by the winter of 1997 it was in bankruptcy court.
Icahn took control of the situation by buying big chunks of the Stratosphere’s debt for pennies on the dollar, becoming its biggest creditor. He purchased the Stratosphere out of bankruptcy court in 1998 and eventually bought out the minority shareholders, too.
But he didn’t stop there. Icahn bought 17 acres of vacant land surrounding the hotel, tracking down the owners of individual homes and properties, many of them abandoned in what was then an economically depressed part of town. Some observers thought Icahn had lost his mind. After picking up some other casino assets like Las Vegas’ Arizona Charlie’s, Icahn’s Vegas bet all-in totaled about $300 million.
As Bob Stupak had envisioned, Las Vegas boomed and tourists found their way up the Las Vegas Strip to the Stratosphere. With the credit markets flowing, Icahn sold the Stratosphere assets for $1.3 billion to Goldman Sachs’ Whitehall Street Real Estate Fund in 2007 at the top of the market cycle. Goldman Sachs’ lending arm funded the deal with lots of debt and the land Icahn had purchased around the Stratosphere was the key to the deal that closed on the eve of the financial crisis. Icahn made $1 billion in profits.
Within a year of the deal, the financial crisis was in full swing and Las Vegas was hit particularly hard. Goldman Sachs’ Whitehall funds saw most of their $1.8 billion of equity nearly wiped out by 2010 and the Stratosphere played a role in this misfortune. A decade after Goldman’s deal, Golden Entertainment agreed in June to buy all the Stratosphere assets for $850 million, $450 million less than Goldman's Whitehall paid.
After the financial crisis hit, Icahn returned to Las Vegas, scooping up the unfinished Fontainebleau resort and condo project across the street from the Las Vegas Convention Center for $148 million. The lavish project was being developed by Jeffrey Soffer, who was seeking to branch out of the real estate legacy his father, Donald Soffer, had built in south Florida.
Soffer managed to build 70% of the Fontainebleau in Las Vegas, but with the credit crisis raging Bank of America stopped funding some $800 million in construction loans and in 2009 the project filed for bankruptcy protection. There, Icahn submitted the only qualifying bid for the project. After taking over, Icahn quickly sold all the Fontainebleau’s furniture, rugs and mattresses, then he waited as the unfinished property sat idle.
“It’s pretty stormy in Vegas right now,” Icahn said at the time. “We’ve always liked Vegas, but it’s probably overbuilt a bit too much. But that doesn’t mean it will be overbuilt forever. We have hope the sun will come out again.”
With the Las Vegas market recovering, Icahn put the Fontainebleau up for sale in 2015, asking $650 million and estimating it would cost $1.2 billion to complete.
In 2017, Steve Witkoff and Howard Lorber, who runs Vector Group, came calling. Like Goldman Sachs and Soffer before them, the duo are new to the Las Vegas scene. This week Witkoff and Lorber agreed to pay $600 million for the project, handing Icahn another big Las Vegas payday—a $450 million profit.
“This successful investment is an example of our ‘contrarian modus operandi, which seeks to invest in undervalued assets and businesses, nurture, guide and improve their condition and operations, and ultimately sell them for large gains," Icahn crowed on Tuesday.
The way Icahn has successfully played Las Vegas not only shows Icahn as a contrarian, it also shows that he has the patience to buy and hold assets for years. A trader by nature, he won’t hold assets forever like Warren Buffett, but he also isn’t always a quick flip artist like his reputation suggests.
Icahn’s selling of the Fontainebleau may be worth noting for another reason. At 81, the last few years have not been good for Icahn in the investing arena. In fact, they have been pretty awful. His investment fund has lost money for three straight years. One reason is that Icahn made a bad bet on companies connected to oil and commodities. The other is that he has continued to hedge against the rising stock market, convinced that the markets are headed into a storm. That has cost Icahn, but he remains undeterred. Now, Icahn is selling his main Las Vegas asset. In June, he sold his American Railcar Leasing, an asset Icahn has controlled for many years, in a $3 billion deal to Sumitomo Mitsui Banking. It’s clear which way Icahn thinks the wind is blowing.
