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LAS VEGAS-Publicly held Morgans Hotel Group Co. of New York says it is taking on DLJ Merchant Banking Partners as a partner in order to affect its acquisition and further development of the assets of Hard Rock Hotel Inc. Per the agreement, DLJMB and affiliates will invest up to $250 million in the joint venture, Hard Rock Holdings, which will own, manage, renovate and develop the various operating assets, land and intellectual property assets of Hard Rock.
Morgans Hotel Group in May agreed to acquire the 647-room Hard Rock Hotel & Casino here and a neighboring 544-unit apartment complex from Hard Rock founder Peter Morton for $770 million. The acquisition includes the rights to use the "Hard Rock Hotel" and "Hard Rock Casino" trademarks in connection with casinos and hotel/casinos in specified locations, as well as certain other intellectual property such as merchandising and retail rights. At the time the acquisition was announced, MHG said it would look to bring in one or more joint venture partners to share in the investment in the existing assets.
Under the terms of the joint venture agreement, DLJMB will fund 100% of the capital commitments to expand the Hard Rock property, up to a total of an additional $150 million. MHG will have the option to fund the expansion projects proportionate to its equity interest in the joint venture.
At closing of the acquisition, expected early next year, MHG and DLJMB will enter into a Management Services Agreement under which MHG will manage the Hard Rock Hotel, retail, food and beverage and other businesses related to operating the Hard Rock. The term of the contract is 20 years with two 10-year renewals and is subject to certain performance tests beginning in 2009.
MHG already has executed a definitive lease agreement for operation of the casino with an affiliate of Golden Gaming Inc., a major gaming enterprise in Nevada. The lease has a term of up to two years and will commence immediately upon the closing of the Hard Rock acquisition.
The 11-story Hard Rock Hotel & Casino sits on 16.7 acres on the burgeoning Harmon Avenue corridor. The popular music scene destination was built in 1995 and expanded in 1999. Amenities include a 30,000-sf casino; a beach club; the Body English nightclub; the Joint concert hall; five restaurants; three cocktail lounges; several retail stores; and an 8,000-sf spa, salon and fitness center.
The apartment complex sits on 23 acres adjacent to the hotel. MHG said in May that the apartment parcel will be held for future development, with a portion of it possibly available for sale to another developer. Morton had plans and entitlements in place for a $1.2-billion hotel expansion and condominium development for the apartment parcel. Those plans are being acquired as part of the overall acquisition.
MHG president and CEO Ed Sheetz has said the land involved in the transaction was valued at $10 million per acre. Backing out the value of the land and intellectual property, MHG believes it paid $450 million for the hotel.
The transaction represents the third planned offering in the Las Vegas market by Morgans Hotel Group. MHG has formed a joint-venture partnership with Boyd Gaming for the development of Echelon Place, which will be anchored by 1,600 hotel rooms flying the MHG hotel brands Delano and Mondrian. Completion is slated for 2010.
Morgans Hotel Group owns and operates Morgans, Royalton and Hudson in New York; Delano and the Shore Club in Miami; Mondrian in Los Angeles and Scottsdale; Clift in San Francisco; and Sanderson and St. Martins Lane in London.
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