New owners aim to upgrade Hawaiian Village

The ultrachic and expensive Crystals shopping center will share its section of the Strip with the knickknack kiosks of the Hawaiian Village for at least the near future.

Control of the property that includes Hawaiian Village, a 17.9-acre stretch encompassing six parcels on the east side of the Strip across from CityCenter, passed to four investment funds in mid-December after the previous owner could not secure financing for an Elvis- and Muhammad Ali-themed resort.

After meeting on Tuesday with the new management company of what is now called Metroflag, one of the new owners talked about potential but gave few specifics.

"We have a lot of ideas and a lot of capital," said Jeffrey Schaeffer, managing partner of Spectrum Group Investment in New York. "We intend to clean it up and explore every option to upgrade it," including spending on what he described as a backlog of maintenance.

After taking control of the parcel, he said, the new manager, Urban Retail Properties of Chicago, brought in a new security contractor to improve security. He added that several potential new tenants had made inquiries, but he did not disclose names.

Metroflag, formerly known as FX Luxury, could be dropped in favor of another name.

Looking over several years, he said, the ultimate redevelopment of the property will depend to a significant degree on the recovery in the local economy and the fortunes of the Strip.

"We are experienced real estate investors and we intend to create value over time," Schaeffer said.

But for now, the odd juxtaposition will remain in place. On the west side of the Strip stands CityCenter, the $8.5 billion offspring of a group of celebrity architects. On the other, Metroflag is an agglomeration of fast food outlets, sit-down restaurants, T-shirt shops and a motel that starts at Harmon Avenue and extends south to the Smith & Wollensky steakhouse next to the MGM Grand.

New York entertainment mogul Robert F.X. Sillerman began assembling the parcels in 1998, ultimately spending what was listed on his company's financial statements as $566 million for the whole package. After obtaining licenses to Muhammad Ali's and Elvis Presley's identities, he envisioned a 4,000-room, 500-condo casino resort as a paean to them.

But as the economy sank into recession, Sillerman defaulted on the $475 million in loans on the property two years ago. Schaeffer and the three other investors then began buying up pieces of the debt at what he described as a "substantial discount."

Last April, as the debt swelled to $504 million including missed payments, attempts at a financial restructuring led to a Chapter 11 bankruptcy filing. A proposal to sell the property drew a $188 million bid that was turned down. The investors then persuaded U.S. Bankruptcy Court Judge Bruce Markell to reject the liquidation plan, which would have cut them out entirely, and approve a different plan that allowed them to take ownership by pledging up to $5 million to refurbish the property plus smaller amounts to cover the case expenses.

Sillerman was given a chance to buy a 6 percent stake but declined, deciding to shift his focus to promoting a high-tech Ferris wheel. The first mortgage lenders were granted new loans of $266 million, with lower interest rates and easier terms. As a result, interest expenses that ran $42 million in 2009 will now run about $9 million a year, according to court documents. Projections showed that the rents from the various tenants should allow the property to produce profits.

Markell approved this plan in November. The ownership change came a month later.

Contact reporter Tim O'Reiley at toreiley@reviewjournal.com or 702-387-5290.