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Gaming Guru

Chris Jones
 

Developer Gives Up, Will Sell Neonopolis

25 May 2004

In the market for a boondoggle?

If so, you're in luck.

The developer of the Neonopolis retail and entertainment center said Friday it plans to sell the nearly $100 million project rather than try to revive the struggling mall once hailed as a key to resurrecting business in downtown Las Vegas.

"It came down to a choice of redeveloping it or exiting it," Theresa Miller, spokeswoman for mall owner Prudential Real Estate Investors, said Friday. "And since we're in the property investment business and not the redevelopment business, we thought it would be best for the property, best for the city and best for our investors if we took the exiting option and let someone with the skills to redevelop it come in."

Word that the property is for sale came Friday as Las Vegas sent a demand letter to the retail center's owners, requiring them to comply with the 1998 agreement that sunk $32 million of taxpayer money into the project -- including $15 million to build an accompanying city-owned garage -- or repay the city about $10 million.

Las Vegas gave the company 16 days to comply and said city approval of any sale would be unlikely until its demands are met.

A buyer for Neonopolis has not been identified, and any deal would be complicated by the development agreement and the city's demands.

Neonopolis management on Thursday asked Mayor Oscar Goodman, a harsh critic of the project he inherited from his predecessor, Jan Jones, to be more supportive of future ownership.

"They asked me to be supportive or else they said it wouldn't work," Goodman said. "They need my cheerleading ability."

Goodman said it was premature to discuss any details of the possible deals described to him. But he said the likely buyer would take the property in an entirely different direction.

"What I've been told about a potential buyer suggests it could be a potentially exciting development for that area of downtown," the mayor said.

Prudential's decision came less than two months after the Parsippany, N.J.-based company hired brokerage service CB Richard Ellis to manage and lease the 250,000-square-foot mall, which has struggled to attract both tenants and customers since it opened in May 2002.

CB Richard Ellis has scheduled a Tuesday party at Neonopolis to showcase the property before prospective buyers in town for next week's International Council of Shopping Centers trade show, said Mark Bouchard, managing director of CB Richard Ellis' Las Vegas office.

"Prudential is not the best company to continue to own the asset," Bouchard said. "We need to get somebody in there that's going to have a long-term development perspective, a new idea and a different approach."

Miller said Prudential is still in the "very early stages" of marketing the center. It's so early, in fact, that Goodman and Las Vegas City Manager Doug Selby didn't learn until Thursday of the company's sale plans, Bouchard said.

Miller said an asking price has not been determined.

Bouchard said CB Richard Ellis already has met with several interested parties, although he refused to reveal their names, citing confidentiality agreements. They include local businesses as well as some from outside the United States, he said.

Bouchard added that one bidder "is quite a bit farther down the road" than the other would-be owners. He said no deal is imminent, but he hopes to complete a sale by the end of this year.

Las Vegas leaders also would have to approve the mall's new owner, City Attorney Brad Jerbic said.

In the demand letter sent Friday, Selby said it's unlikely the city would grant approval until Neonopolis complies with the center's development agreement. A similar demand letter was sent in February.

The agreement requires, among other things, that management provide the city annual financial statements. It also bars conversion of portions of the complex into office space, which Neonopolis has done.

Selby called the owners' lack of interest in resolving the issues "disconcerting" and an indication that they lack a long-term commitment to the project. He added that unless Las Vegas sees "significant and tangible" efforts toward complying with the development agreement, the city will explore all options for collection of the debt, including litigation and liens.

It appeared Friday, however, that city officials would like to see a fresh start at the troubled property. "It's struggled ever since it opened," Selby said. "It (any sale) provides an opportunity for that to become a viable venue."

Despite Goodman's comments about a new direction, Bouchard said CB Richard Ellis is focused on finding a buyer that would maintain Neonopolis as a retail center.

The development agreement prohibits gaming within Neonopolis, though city leaders and representatives from the Fremont Street Experience have expressed a willingness to reconsider such restrictions. Currently, the mall includes Jillian's bar & restaurant, a Crown Theatres cineplex and a dozen or so small eateries and stores.

Problems have beset Neonopolis since plans for the project first were made public in December 1997. The following year, city officials filed eminent domain lawsuits against the owners of two downtown businesses that initially refused to make way for the project; settlements eventually were reached with both parties.

WestStar Cinemas, the parent company of Mann Theatres, in September 1999 filed for bankruptcy protection, a move that temporarily left Neonopolis without an anchor tenant.

The center's opening date, originally set for November 2000, was pushed back on multiple occasions, and once its doors finally opened two years ago, tenant after tenant fled the nearly empty project.

Last summer, Goodman blasted a decision to convert some space to office use, while several tenants railed that the center's former third-party management company, New York-based JSS Advisors, was engaged in questionable business practices including nepotism and "absentee management."

Also, Neonopolis' for-pay parking garage generated so few customers that it cost the city of Las Vegas nearly $400,000 in its first year of operation.

The center's most visible controversy came earlier this year when a gay Ohio businessman claimed that Prudential and JSS Advisors kicked out his proposed nightclub because it would cater largely to homosexual customers. Officials from both companies denied those discrimination allegations, though JSS Advisors' contract to oversee Neonopolis was canceled just weeks after that incident went public.

Despite it all, Bouchard holds out hope that the right operator can turn Neonopolis around. "We are still extremely optimistic about Neonopolis and share the mayor's vision about downtown," he said.