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Rod Smith

Awaiting Buy, Castaways Losing Some Equipment

12 March 2004

LAS VEGAS -- The bankrupt Castaways is being scavenged by equipment lessors, even while its most likely buyer is facing a Monday deadline to complete a purchase agreement.

The property's bowling lane equipment and participation, or rented revenue sharing, slot machines already have been pulled out, and sources say the scavenging could deal a blow to the property's purchase value and pose challenges for a timely reopening.

The bowling equipment, including 50 automatic telescorers, has been removed by Dallas-based Dallas Bowling and Billiards.

Vestin spokesman Steve Stern estimated that the value of the bowling equipment removed so far is between $750,000 and $1 million.

Sources said it is not clear if the lanes are being removed, but that an operator will need the scorekeeping equipment to operate the bowling alley.

About 200 participation slot machines have been removed by International Game Technology, Alliance Gaming Corp. and WMS Gaming, Stern said.

CB Richard Ellis Senior Vice President John Knott said removing the equipment could have a material effect on the market resale value of the Castaways, and estimated that each slot on the floor adds about $5,000 to the resale price of a casino.

Removing the 200 slots could nip about $1 million out of the market resale value of the Castaways.

However, University of Nevada, Las Vegas professor Hal Rothman said any future owner "will probably have a different vision for the place and want different equipment, so it's not necessarily clear it will affect the value."

Knott said that the market value of the Castaways could also be hurt by the question of whether the Gaming Control Board will move as quickly to approve licenses for new owners as it did with the sale of Binion's Horseshoe. Knott also said removing the equipment from the Castaways could delay reopening the hotel-casino since there have been backlogs in ordering equipment such as slot machines.

Stern said the lessors have had security interests in all the equipment removed so far and all the seizures have been approved by the U.S. Bankruptcy Court.

"Vestin suggested (the equipment) be left until (the Castaways) sold to see if a new owner wants it," but the court has approved the removals, Stern said.

Heath Federal Sign, however, has agreed to leave the reader board on the street marquee in place until the property is sold to facilitate transfer to a new owner and a reopening of the property.

Sources familiar with the deal said the most likely buyer is still the partnership of Randy Miller, Rich Gonzales and Rich Iannone. The group owns the Longhorn casino on Boulder Highway and the Bighorn casino in North Las Vegas. The partners have an exclusive option through Monday to buy the property at 2800 Fremont St., near Boulder Highway.

Miller said he is familiar with the removal of the equipment, but it does not diminish his partnership's interest in buying the Castaways.

"For us, we don't have a problem. We'll be changing the name and changing the theme. Most of the stuff in there is easily replaced, from what we have found in our due diligence," Miller said.

The partners have had a team conducting due diligence and evaluating the property for the past week, Miller said.

"We haven't found anything yet to make us back away from the deal," Miller said.

However, he said a 15- to 30-day extension of the Monday deadline is likely, based on negotiations with Vestin.

"Overall, we're pleasantly surprised by the condition of the place. I don't think it would take much to get it operational again," Miller said.

The Castaways was closed Jan. 29 after creditor Vestin Mortgage, acting under authority of a U.S. Bankruptcy Court order, notified Castaways owner VSS Enterprises it would enter the casino and collect its collateral backing a mortgage loan.

Vestin then bought the bankrupt 25.9-acre property, formerly known as the Showboat, for $20.7 million on Feb. 1 at a foreclosure sale after its bankrupt former owners were unable to satisfy terms of a $22 million-plus mortgage note. Vestin has since been marketing the property for sale.

The Castaways filed for bankruptcy protection on June 26, citing debts of more than $50 million.