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Arnold M. Knightly

Analysts see possibilities in land acquired with tower

30 April 2007

LAS VEGAS, Nevada -- Whitehall Street Real Estate Funds is buying a Las Vegas landmark in the Stratosphere, and analysts say, a big untapped resource -- the adjacent 17 undeveloped acres.

The property that started in 1979 as the 100-room Vegas World and evolved into the 1,149-foot tower is now the cornerstone of a $1.3 billion multiproperty sale by corporate raider Carl Icahn.

Icahn's American Entertainment Properties Corp. announced Monday that it had agreed to sell its gaming subsidiary to an investment group led by Goldman's Whitehall Street Real Estate Funds.

"I think that the new buyers have a great opportunity," American Casino & Entertainment Properties President and Chief Operating Officer Rich Brown said. "With the proper investment in this company in some of these properties, from an expansion standpoint, I think there is great upside with everything that is going on here in Las Vegas. It's a win-win for both sides here."

American Casino & Entertainment Properties is the parent company of the Stratosphere, both Arizona Charlie's, and Aquarius in Laughlin.

Brown said he met with the new owners during the sale negotiations but no long-term strategy has been developed for the company.

"Goldman is making a decent long-term investment in where the Strip is heading," Susquehanna Financial Group gaming analyst Robert La Fleur told Bloomberg News. "The Stratosphere and the land could be more valuable imploded and built up with something else."

One of the Stratosphere's major untapped resources is the adjacent 17 undeveloped acres. The land could be used for a master-planned development similar to one Icahn hinted at in the past but never pursued.

"We have some internal plans that we've put together in the past," Brown said. "What will happen now is (we will) take a look at the former master plans that we put in place that Carl didn't want to move forward on. We're going to take a look at those with the new owners."

Already-planned renovations at the other properties will proceed, Brown said. Plans includes a major refurbishing of the 1,907 hotel rooms at the Aquarius starting in August.

Majestic Research gaming analyst Matthew Jacob said it will be interesting to see whether Whitehall will view the purchase as an investment opportunity.

"It remains to be seen how long they hold on to these assets and what they do with it," Jacob said. "Whether or not they want to reinvest into these properties."

Analysts seem to agree that Whitehall will look most to the 34-acre Stratosphere site for value.

"There is clearly an element of value being assigned to the property adjacent to the Stratosphere," said Brian Gordon, a principal at Applied Analysis. "Overall, it looks like there is an opportunity for future expansion to maximize the value of the underlying real estate."

The Stratosphere went through a $75 million expansion in 2001 that added hotel rooms, a swimming pool and an events center.

Local attorney John Delikanakis, vice president of the Beverly Green Neighborhood Association near the Stratosphere, said he is excited by the new ownership and looks forward to see what direction the new owners take the property.

"I think the new owners have an opportunity to maximize the use of the land," Delikanakis said. "We would welcome and support any development that would make the area better."

Delikanakis was one of the vocal opponents of plans in 2001 for a proposed roller coaster that would have run 120 mph down the side of the Stratosphere tower and across Las Vegas Boulevard before curving 415 feet above Paradise Road.

The Las Vegas City Council denied the proposal and the denial was upheld in District Court and Nevada Supreme Court.

Icahn's attorney, John Moran Jr., told the Las Vegas Sun in May 2001 that Icahn was ready to spend $100 million on a master plan if the roller coaster was approved.

Mayor Pro Tem Gary Reese initially supported the roller coaster proposal and has been a champion of the Stratosphere and the economic development opportunities it represents. He said he doesn't know anything about the new ownership but hopes it will choose to keep Brown.

"I've worked very closely with Mr. Brown and he's a great guy," Reese said. "I hope they keep him on board."

This is Whitehall's second investment in local gaming. The investment group holds a 40 percent equity investment in the Las Vegas Hilton through WH/LVH Managers Vetco.