A Las Vegas-based real estate company has an option to acquire Harrah’s New Orleans Casino — a potential transaction that was unknown to key state legislators who are considering major legislation sought by the casino’s owners and that also raises new questions about whether the state is getting the best deal possible.
Vici Properties, a real estate investment trust, has the right to purchase the casino and its 450-room hotel and parking garage, according to an October agreement filed with the federal Securities and Exchange Commission.
Under the complex deal, Vici would lease the casino complex back to Harrah’s owner, Caesars Entertainment, to operate it.
Vici’s five-year option to acquire the New Orleans casino began in October. The company is an independent, publicly traded firm created out of Caesars’ 2015 bankruptcy. It owns several casinos that Caesars operates.
A Caesars spokesman downplayed the importance of the proposed acquisition for Louisiana lawmakers as they consider House Bill 553, which would give Harrah’s a no-bid, 30-year extension of its right to operate the only land casino in New Orleans. Harrah’s is seeking the extension six years before the contract expires in 2024.
The legislation, sponsored by House Speaker Taylor Barras, R-New Iberia, has passed the House Criminal Justice Committee and the full House and will be considered Tuesday by the Senate Judiciary B Committee. It must pass the full Senate as well to become law.
But Mike Sherman, a New Orleans real-estate lawyer who was formerly executive counsel to Mayor Mitch Landrieu, said he believes the legislation represents a bad deal for the public — and that lawmakers need to know about the potential sale as they consider HB553.
In essence, Sherman says, extending the state contract would massively inflate the value of the casino company’s New Orleans property, and Caesars would then cash in by selling it to Vici.
“Harrah’s is pursuing a real-estate flip of epic proportions,” said Sherman. “In just six years, its casino will be worthless as its gaming contract comes to an end. If the Legislature extends the gaming contract for 30 years, Harrah’s will be worth upwards of $1 billion based upon the value created by the state. The citizens are entitled to approximately $500 million of (that) value ... when Harrah’s flips the property to Vici.”
Harrah’s, however, would benefit from the legislation even if the sale does not take place.
Sherman has worked for Joseph Jaeger Jr., a major New Orleans hotel owner and developer who has emerged as the biggest critic of HB553. But Sherman said he performed his analysis of the planned deal independently and for no compensation.
According to Sherman and Jaeger, the casino earns about $70 million per year, which translates into a total worth of about $700 million. Harrah’s officials say they are planning to invest $350 million to upgrade the property if the Legislature renews the 30-year contract. This would boost the value to about $1 billion, according to Sherman and Jaeger. But if the contract expires, they say, the casino will lose much of its worth.
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