Goldman Sachs Fund Gets OK to Buy Stratosphere For $1.3 Billion

A Goldman Sachs investment fund came closer to putting a $1.3 billion bet on the Las Vegas Strip, as it was approved Thursday to buy the iconic 1,149-foot-tall Stratosphere tower and casino-hotel, a mid-market property that caters to budget travelers.

Managing director Jonathan Langer of Goldman Sachs & Co. told members of the Nevada Gaming Commission that the investment giant believed high-end developments on the north end of the Strip could leave some tourists out in the cold.

"We feel that the middle-class customer, which we feel is the biggest piece of the demographic pie in terms of who's coming here, is potentially being priced out of the Las Vegas Strip," Langer
said. "We feel this presents an opportunity for the Stratosphere to take advantage and cater specifically to that customer."

The purchase, announced last April, includes two local Arizona Charlie's casinos and the Aquarius Casino Resort in Laughlin, Nev., as well as a 17-acre parcel attached to the Stratosphere. They were previously owned by billionaire Carl Icahn's American Real Estate Partners LP.

The gaming commission voted unanimously to approve the deal.

Langer said the fund was preparing to immediately spend $54 million to upgrade the properties, including a $25 million transformation of unfinished retail space at the Stratosphere into meeting space, $10 million to change a bingo hall at Arizona Charlie's Decatur into meeting space and a $19 million room renovation at Aquarius.

He said the fund was "still evaluating our options" regarding the 17-acre parcel, and added the Whitehall 2007 fund had $5 billion in committed equity to fund possible expansions.

Goldman Sachs said it was taking on $1.2 billion in debt and adding more than $200 million in equity to the deal after all was said and done.

Commission chair Peter Bernhard called the deal "highly leveraged," but approved it, saying he was comfortable with the fund's plans.

"It's a big investment and it's not without risk," he said. "But it's your money."

Langer and two other Goldman Sachs executives were approved in Nevada as casino owners in 1996 for a 40 percent stake in the Las Vegas Hilton casino-hotel. The group also took a passive, minority stake in the $5.4 billion going-private deal of Station Casinos Inc. with Colony Capital LLC, which closed in November.

The latest deal is just one in a wave of private equity investments in the casino industry, which is rich with steady cash flows and appreciating real estate. Another major deal set to close this month is the $17.1 billion purchase of Harrah's Entertainment Inc. by private equity firms Texas Pacific Group and Apollo Management.

"We're bullish on the gaming sector," Langer said. "We also view Las Vegas as a great long-term bet on the U.S. economy."

(Copyright 2008 by The Associated Press.  All Rights Reserved.)


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