FULL SPEED AHEAD

Now, for some good news about a Strip construction project.

Progress on the Fontainebleau Las Vegas is proceeding, seemingly unfazed by the financial uncertainties and cost overruns that are plaguing projects such as the Cosmopolitan, Tropicana and the neighboring Crown Las Vegas.

Fontainebleau Resorts Chief Operating Officer Howard Karawan said that although the company's owners have been keeping a low profile, the $2.9 billion project is fully financed and moving toward a late 2009 opening.

The owners have been out of sight in Las Vegas while they have been preparing to open a $500 million expansion of Fontainebleau Miami this summer.

However, marketing of the Strip project will kick into high gear once that project is finished.

"The initial marketing will be on the back of Miami," Karawan said. "It will give us a good 14 months advance on the Las Vegas opening."

Karawan said the company still plans to begin selling the 1,018 planned condominium units this September in what he admits could be a tough market.

"It's a difficult market, but this is a pretty unique project in terms of what it is offering," Karawan said. "We're still looking forward to some good success in selling the condos and we'll react to the market conditions as they unfold. Right now plans haven't changed."

Fontainebleau Las Vegas, which is expected to employ 6,000 people when it opens, expects to raise $700 million to $900 million from condo presales, according to a document circulated among investors and analysts last year.

The units will range from 540-square-foot studios to 900-square-foot one-bedroom units. Each floor is being built with 17 condominiums running up the center of the hotel tower.

"From our prospective, it provides more financial support for the capital structure if Fontainebleau can successfully sell the desired amount of condo units," Wachovia Capital Markets bond analyst Dennis Farrell Jr. said.

However, if the company cannot sell the units at their expected price, Fontainebleau Resorts will be forced to raise more equity, Farrell said.

The current financing has approximately $474 million in equity contributions from Fontainebleau Resorts and its subsidiaries. The Strip project now carries approximately $2.4 billion debt, according to last year's investor document.

Last June, Fontainebleau Resorts, a privately held company controlled by Miami-based developer Jeffrey Soffer, announced it secured approximately $4 billion in financing partly to complete the Las Vegas project and the Miami expansion.

Melbourne, Australia-based gaming company Crown Ltd., which billionaire James Packer controls, contributed $250 million in April 2007 for a 19.6 percent stake in Fontainebleau Resorts.

Soffer, a principal owner of Aventura, Fla.-based Turnberry Associates, bought the 25-acre, old El Rancho site in May 2000 for $45 million.

Farrell said the property will be in a highly leveraged position if the condominium sales don't go as planned. This could limit its ability to spend more on capital investment or marketing the first couple of years.

"The market is definitely looking for the condo sales," Farrell said. "The condo market is obviously weak and it will be interesting to see at what price it makes more sense for Fontainebleau to hold onto the units as hotel rooms."

Construction on the 730-foot hotel-condominium tower, which will also contain 2,871 hotel rooms with 152 suites as large as 10,000 square feet, is scheduled to top out its 63rd floor on Oct. 25, making it the Strip's tallest hotel tower.

When completed, the project will have a 100,000-square-foot casino with 1,700 slot machines and 125 table games, a performing arts theater, shops, restaurants and 353,000 square feet of convention space.

Karawan, former president of Kerzner International's resort operations, joined Fontainebleau Resorts in September to oversee operations in Las Vegas and Miami.

Soffer and former Mandalay Resort Group President Glenn Schaeffer co-founded Fontainebleau Resorts in 2005. Schaeffer is the company's chief executive officer.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.