Virgin Hotels, along with a group of investors, announced Friday it’s purchasing the Hard Rock Hotel in Las Vegas and will rebrand the resort as a Virgin Hotel property. But according to one investor the deal itself, not just the name on the building, is completely new to the gaming business.
In a press conference at the resort, Virgin Group founder Richard Branson, Virgin Hotels CEO Raul Leal, and Richard Bosworth – head of a group of investors bankrolling the deal – said the transaction had closed that morning.
“So today were here to make that announcement,” Leal said. “It’s taken us a while to find the right asset and the right location here in Las Vegas. We have purchased the Hard Rock Hotel with an amazing group of partners.”
Those partners include Bosworth, Juniper Capital Partners, Fengate Real Asset Investments (who in turn have the partners Dream, Cowie Capital Partners, and other private investors) and of course Virgin Hotels.
Along with investing (the exact price for the Hard Rock and ownership percentages are confidential according to Alex Krys, co-founder and managing partner of Juniper Capital Partners) Virgin will manage hotel operations and provide use of Virgin branding.
Bosworth said under the new ownership structure, the Hard Rock’s current casino management company, Warner Hospitality, will lease the casino from the property’s owners. It’s a new mode of casino resort ownership, Bosworth said, for Nevada and the rest of the country.
“I want to be clear about this,” Bosworth said. “In this case the landlord is really a new financial structure.
“What we have learned is in the capital markets if you look at the 30-year borrowing rates in the state of Nevada for the casino industry versus what it is for hospitality as an example, there’s a difference of 400 basis point spread for your borrowing costs. So, when you structure it financially as a casino lease – and it is a casino lease – what you’re doing is basically being able to access capital and the capital markets to acquire (funds) to renovate.”
Bosworth said the change is needed because the high cost of casino financing has seriously impacted the casino business in Las Vegas.
“When you look around town and you see there’s been so many stalled construction projects since the great recession, you have to wonder why,” he said. “It’s certainly not because of the economic dynamics. This town has had record breaking hotel revenues, record breaking food and beverage revenues, record breaking entertainment revenues but it also has record low return on invested capital.”
Bosworth added it was “incredibly expensive” when you include the costs for building, financing and carrying debt.
“For us, we wanted to make sure that we had a capital smart and a real estate smart acquisition, so we can spend hundreds of millions of dollars to transform the property,” he said.
The transformation is in preliminary stages, Bosworth said. A local architect of record has been selected but a deal hasn’t been signed. Still, some of the details are public.
According to Virgin, the off-Strip resort will have 1,504 rooms, suites and penthouse suites, along with a 60,000-square foot, newly renovated casino.
And Bosworth said visitors can also expect to see seven new restaurants and three nightclubs and bars. “There’s going to be a very extensive food and beverage reprogramming of the property,” he said.
The first major work will be done in the back of house and pool areas in the first quarter of next year to minimize the impact on guests. Extensive renovations will begin mid-April 2019. According to Virgin, the transformation should be completed by late fall 2019.
While the property will be competing against all Las Vegas, Bosworth said, in terms of “energy” its competitors will be the Cosmopolitan and Aria. In terms of product it’s offering, he said, the competition could be the Delano.
In addition, Bosworth said the property will soon have another announcement that he believes will help the property become more competitive in the lucrative convention and meeting market.
“We will have an announcement in 90 days that will make it very clear how we plan to drive Sunday through Thursday business,” Bosworth said.
“The property does have strong occupancy Sunday through Thursday. But we will be tapping into one of greatest conference and meeting networks in the world that will be affiliated with us and Virgin to drive strong convention conference business. And that will give is a much more profitable lift.”
