Los Angeles Business Journal: Investor's Aladdin gamble marks departure in strategy - Up Front

Los Angeles real estate investor Richard Alter has stayed below the radar for the last decade, plying his trade with the backing of traditionally close-to-the-vest Chinese backers.

Now, a play for the bankrupt Aladdin Hotel and Casino in Las Vegas has thrust the managing partner of Financial Capital Investment Co. willingly into the limelight.

The Aladdin, which opened in 2000, stumbled under the weight of $510 million in debt and filed for Chapter 11 bankruptcy protection in September 2001.

Alter and his partner, Eddie Chao, have offered $25 million cash and the assumption of $485 million in debt on the Arabian-themed casino. If their bid is accepted, they say would spend $90 million renovating the casino into "ASIA," moving the casino thematically from the Mid East to the Far East.

Financial Capital is one of two public bidders for the project. The other, OpBiz LLC, was tapped by a federal bankruptcy judge in Las Vegas as the "stalking horse," or the bid to beat, on May 8.

OpBiz is led by Planet Hollywood President Robert Earl, who put together a team of Starwood Hotels & Resorts Inc. and New York investment firm Bay Harbor Management LC. Its offer, approved by Aladdin's creditors, was for $14 million in cash and the assumption of $496 million in debt. The group said it would spend $125 million on rehabbing the casino.

Alter's group, which includes Marriott International Inc., would spend $90 million in a facelift that would include demolishing a 7,000-seat theater that sits between the street and the casino entrance.

The hotel would be operated under Starwood's Sheraton hotel brand.

Though no other bidders have been identified, Bill Noal a partner in Gordon & Silver Ltd. in Las Vegas, the firm representing the hotel's owner, Aladdin Gaming LLC, said the group was in discussions with "a number of parties."

"In terms of what's been made public," he said, "there are only two proposals that are available and that have been filed with the court."

Aladdin Gaming LLC is a venture of Sommer Enterprises LLC and London Clubs International

The bankruptcy court will consider new offers until July 17, and will render its decision on the buyer July 20.

Aiming low

If successful, Alter said he intends to increase the percentage of slot machines in the casino by 10 percent and shoot for "middle of the road gamblers."

"No high rollers," he said. "Our competition won't be the Bellagio or the Venetian or any of Steve Wynn's casinos."

He calls the Aladdin, which generates $60 million a year in revenues, the "center of the universe in the world's best location" on the Las Vegas strip.

But the project will prove a challenge for whichever bidder emerges as the winner.

Tourism-dependent Las Vegas, like most other resort cities, is in the middle of an economic slump. The number of visitors to the city has been flat for the last two years, according to data from the city's convention and visitors bureau. On average, hotels were 85.6 percent occupied in March, down 6.7 percent from 2002.

Despite this, Alter said the Aladdin's hotel has remained 98 percent full.

Alter and Chao completed a number of deals in the mid-1990s, largely backed by money from Asian investors, according to several Los Angeles hotel brokers familiar with the firm.

By 1998, Financial Capital completed more than $800 million in real estate deals, mostly in Southern Califomia. In Los Angeles alone, they brokered the sale of the downtown Pacific Center, 520 Broadway in Santa Monica and 811 Wilshire Building, among others.

Typically, Alter strings together the deals and Chao travels overseas to shop the proposals around to investors, often taking an equity stake.

They helped investors buy the Biltmore, the Inter-Continental and the Argyle, taking pieces of equity in each of the deals. They also own the Whittier Hilton Hotel, a Mission Viejo Fairfield Inn and they are the asset manager of the Sheraton Gateway Hotel downtown.

In 1999, Inter-Continental's purchase by Bass Holdings, the same company that owns the Holiday Inn chain, prompted Alter to void their contract, saying the company violated a non-competition clause.

"They weren't supposed to operate another hotel with 15 miles," Alter said, "but when they were sold, suddenly there were dozens of their hotels all around us."

Inter-Continental sued, only to settle out of court a year later.

Until now Alter hasn't had much luck in Las Vegas. After a failed attempt to purchase the Regent Hotel fell through shortly after the Sept. 11 attacks, he has been unable to find a new deal.

Now he's betting big the Aladdin is going to work out. In Las Vegas, even Financial Capital Investment bets high, Alter said.

"We've never been a billion dollar deal kind of company," he said. "But this is different. This is Las Vegas."