Western Real Estate Business

JUN 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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M A R K E T H I G H L I G H T: L A S V E G A S 26 • June 2018 • Western Real Estate Business www.REBusinessOnline.com STRUCTURING NEVADA HOTEL CASINO DEALS One of the first questions clients ask when considering a hotel casino acquisition or the development of a new hotel casino project in Nevada is whether they have to obtain a gaming license. Since applying for a gaming license requires the disclo- sure of extensive, private personal information — and obtaining a gam- ing license can take several months — buyers and developers often want to learn about alternatives to the li- cense. Those alternatives are briefly sum- marized below. Sale-Leaseback: The sale-lease- back structure involves the current hotel casino owner and/or operator selling substantially all of the assets to the buyer. The buyer, in turn, then leases all of such assets back to the seller. The seller retains the gam- ing assets and liabilities, utilizes the other assets per the lease and con- tinues to operate the hotel casino for the lease term. The advantage of this structure is that the sale transaction can be closed quickly since the par- ties do not have to wait for the buyer to obtain its gaming license. A poten- tial disadvantage to the seller is that it still has to operate the property. Possible disadvantages to the buyer are that the buyer assumes the future licensing risk and, generally speak- ing, cannot share in the gaming rev- enues. Further, if the buyer or its des- ignee cannot obtain a gaming license prior to the end of the lease term, the seller will have to close down the ca- sino. In the short-term, this structure is used to permit a faster close of the sale transaction and give the buyer some additional time to obtain a gaming license. In the long-term, this structure is used where the buyer does not desire to obtain a gaming li- cense. An example of this long-term use is where certain gaming compa- nies like Caesars Entertainment and MGM Resorts sell their hotel casinos to REITs and then lease their proper- ties back in order to continue operat- ing them. Third-Party Operator Lease: The buyer or developer in a third-par- ty operator lease structure leases the casino to a third-party opera- tor who obtains a gaming license. These third-party operators have often previously been licensed and are licensed at multiple locations. As such, this operator can get li- censed faster than someone who has not previously been licensed. The advantage of this structure to the seller is that it provides more deal certainty over a buyer who has not been licensed before and may not be able to obtain a license. The ad- vantage to the buyer is that it miti- gates the licensing risk. A potential disadvantage to the seller is that the closing will not be able to happen as quickly as in the sale-leaseback structure. The disadvantage to the buyer is that the buyer cannot, gen- erally speaking, share in the gaming revenues. In the short-term, this structure is used to close the sale transaction quickly and to give the buyer some additional time to obtain a gaming license. In the long-term, this struc- ture is used where the buyer does not desire to ever obtain a gaming license. For example, some of the large hotel chains eschew operat- ing gaming at their properties and prefer to contract with an opera- tor to provide this amenity to their guests. The foregoing two structures may also be combined such that in a sale- leaseback transaction, a third-party operator, rather than the buyer, can use the leaseback period to obtain its gaming license. Once the opera- tor obtains its gaming license, the lease expires and the operator as- sumes operation of the casino from the seller. Management Agreement: The management agreement structure involves the buyer or developer en- tering into a management agreement with an experienced manager who will operate the casino on the own- er's behalf. With this structure, both the owner and the manager have to obtain gaming approvals. For this reason, this structure is not often used and it does not generally have a short-term application. In the long- term, this structure is used where the owner wants to utilize the manager's casino expertise and the owner and the manager each want to share in the gaming revenue generated from the casino. In summary, a buyer or developer does not have to obtain a gaming li- cense in order to have gaming at its hotel casino. If, however, the buyer or developer desires to retain or share in the gaming revenues, then it must obtain and maintain the appli- cable gaming approval. Further, in a competitive bidding sales process, a buyer that is familiar with the alter- native ways these deals can be struc- tured may be able to set itself apart from the other buyers by proposing a transaction that can be closed quick- ly, which would be more attractive to a seller. Some of the larger companies with long-term growth forecasts are focus- ing on expansion and amenity-rich office environments for recruiting purposes. However, more people in less space continues to be the trend for companies with slower growth opportunities that are focused on ef- ficiencies and overhead costs. The average standard amount of office space per employee dropped from 225 square feet per person to between 150 square feet and 175 square feet per person in the past couple years. That being said, occupancy cost is not always the main driver in choos- ing an office location. There seems to be much more emphasis now on qual- ity, functionality and conveniences. In many cases, this is based more on how we work rather than just cost savings. Open work spaces, perks like on-site dining and retail, and providing col- laborative environments that foster employee interaction have proven to increase employee productivity sig- nificantly. Design is a critical component of this type of work space. Companies are looking for workplace designs and furniture systems that offer flex- ibility and adaptability as technology evolves. Technological infrastructure enhances the culture and efficiency of a business and protects the security of a company's trade information. It also saves resources like time and physi- cal space. Many companies today rely on cloud services, which allow their employees to work on projects col- laboratively in teams without ever physically meeting in the office space. Open-office furniture systems and shared work space environments that offer unassigned touchdown desk space have been adopted to provide a more social work environment where employees can work in groups and connect creatively. Many employment sectors work long hours, and the bells and whistles go a long way in reduc- ing employee attrition to competitors, which, in turn, affects a company's bottom line. Well-being is another trend that's had serious traction over the past five years. Large employers tend to look for locations that offer fitness centers, green space and healthy food options. They want places their employees can eat together, relax and stay healthy physically and mentally but, ultimate- ly, they want to keep people at work. As such, companies continue to seek well-located lifestyle centers where employees don't waste time driv- ing to and from other areas of town for services. This bodes well for local projects like Downtown Summerlin, Tivoli, Town Square, Gramercy, City Center West, Green Valley Corporate Center and The HC|Hughes Center. These Class A office projects all offer immediate freeway access to and from all residential employment areas, a high concentration of amenities either on-site or within walking distance, and aggressive ownership offering creative solutions and collaborative contemporary work environments that include those much-desired well- ness amenities. But the big question yet to be an- swered is whether the latest trend of shared work space centers will be more attractive to Las Vegas employ- ees and companies than traditional office space, at least in the short-term. Platforms like Regus' Spaces and We- Work allow companies to pay only for the square footage and services they actually need and use. Time will tell whether we see this trend take flight in Las Vegas. OFFICE TRENDS TOWARD CREATIVE, COLLABORATIVE IN LAS VEGAS Patti Dillon Senior Vice President, Colliers International Sonia Church Vermeys Shareholder, Brownstein Hyatt Farber Schreck Angela Turriciano Otto Shareholder, Brownstein Hyatt Farber Schreck

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