Fontainebleau Military Resort? Don't Bet on It

LAS VEGAS-The stalled 3,800-room, $3-billion Fontainebleau resort development on the Las Vegas Strip could become one of four Department of Defense resort properties around the world if you believe Craig Road Development Corp. We suggest you do not.The Las Vegas-based entity last week sent the bankruptcy judge a non-binding cash offer of $350-million but with the stalking horse bid already set at $156.2 million and the auction already scheduled for Jan. 21, 2010, the judge directed the company toward Fontainebleau, which will conduct the auction, and the examiner, which will supervise it. Fontainebleau’s financial advisor and investment banker Augusto Sasso of Moelis & Company testified in court recently that as a result of the stalking horse process at least 17 new parties have emerged with an interest in the project.

That total includes Craig Road Development, whose interest is “based upon discussions we are having with the US Army Family Morale and Welfare Command to acquire a Las Vegas resort for DOD military and veteran personnel,” the company states in its letter of interest to the judge dated Nov. 30. The company states in the letter that its partner in the investment would be Heroes Property Group LLC, for which no information was immediately available. Tentative plans call for spending $800 million to finish the resort as “one of three Department of Defense resort properties in the US,” the letter states. The partnership’s stated anticipated capital structure “targets senior financing of approximately $300 million, $650 million in subordinated debt and $200 million of equity.” Its planned management structure is for “the remaining members of the Fontainebleau senior management team…to continue with Fontainebleau under the same terms and conditions as currently in place.”

The DOD agency of which Craig Road speaks, however, is actually called the Family and Morale, Welfare and Recreation Command, and while Craig Road Development did not respond to a request for comment, William Bradner of the Family and MWR Command did respond. The Army currently operates four resort-style hotels on behalf of all the military services that are called Armed Forces Recreation Centers–in Hawaii, Korea, Germany, and Orlando, FL—and a fifth is currently under development on the Mid-Atlantic coast. “We have no plans at this time to participate in the purchase or operation of a facility in Las Vegas,” he wrote.