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Arnold M. Knightly

Tropicana makeover on hold for now

17 August 2007

LAS VEGAS, Nevada -- The start of the Tropicana's $2.5 billion makeover has been delayed until at least 2008 because of a volatile debt market and rising construction costs, a company spokesman confirmed late Wednesday.

"There will be a delay in the Tropicana project tied to some operating issues and some credit markets," said Hud Englehart, spokesman for the gaming property's parent company, Fort Mitchell, Ky.-based Columbia Sussex Corp.

"The company will continue to evaluate those markets to determine when the project will be initiated," he said.

The Tropicana received approval in March from Clark County commissioners to expand the 34-acre property from its current inventory of 1,880 rooms. Those plans call for a mixed-use, five-tower, 10,000-room development at the corner of Tropicana Avenue and Las Vegas Boulevard.

Although the announcement further delays the much-discussed renovation of the 50-year-old property, it could help smooth troubled negotiations over a new labor contract between Columbia Sussex and the Culinary union, a union official said.

The delay comes during a credit crunch in world markets that has many large financiers withdrawing from worldwide commitments. Earlier this week, the Financial Times reported that Goldman Sachs and Deutsche Bank withdrew a commitment to underwrite the raising of up to $1 billion for the movie company Metro-Goldwyn-Mayer.

Brain Gordon, a principal at Las Vegas-based financial consulting group Applied Analysis, said many of the financial firms Columbia Sussex may be soliciting to help back the project may be already heavily invested in other Strip projects.

"Wall Street ... may be looking to evaluate the performance of those financing tools before entering into other large-scale projects," he said.

Many financial institutions are already backing billions in debt financing for Strip projects. There is $26.8 billion in projects under construction along the Strip, a report by the Global Gaming Group at CB Richard Ellis shows.

Goldman Sachs and Credit Suisse are backing loans tied to the proposed $5.7 billion Plaza project on the site of the New Frontier. Debt financing totaling $565 million for Fontainebleau is being financed through nine banks including Deutsche Bank, Bank of America and Merrill Lynch.

Many financial institutions are helping finance buyouts of Harrah's Entertainment, Station Casinos and the parent company of the Stratosphere and both Arizona Charlie's hotel-casinos.

Construction costs have also been rising.

A report by Rider Levett Bucknall notes construction costs in Las Vegas have increased 9.1 percent since January and 17.3 percent since July 2006.

Englehart said pending labor negotiations with Culinary Local 226 and Bartenders Local 165 had "nothing to do with" the delay, emphasizing it "is purely market timing issues."

Both sides are scheduled to meet Aug. 29 to continue negotiating a new contract for nearly 700 workers.

Culinary Secretary-Treasurer D. Taylor said the Tropicana renovation delay will simplify the negotiation.

"We think negotiations should move rather quickly now since there is no complications about construction now," Taylor said.

The Tropicana's owners have been criticized by the union for what it views as aggressive layoffs.

The union says 300 of its workers have been laid off since Columbia Sussex took over the property in January from Aztar Corp. Another couple of hundred nonunion workers have been let go, the union says.

The financing concerns come as Columbia Sussex is changing at the top. John Jacob was hired as chief financial officer Aug. 2, replacing Richard FitzPatrick, who had been with the company about a year.

Columbia Sussex is a privately held company controlled by its Chief Executive Officer William Yung III. It owns and operates 14 casinos in North America under its subsidiary, Tropicana Casinos & Resorts.