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Colony calls off MGM casino talks

The Los Angeles-based private equity real estate firm has stopped negotiations for a possible investment in MGM’s struggling casino development, City Center. Also, Colony chairman Tom Barrack says the real estate market is in the 'tank' and predicts the best opportunities will be in the banking sector.

Colony Capital is no longer in talks with MGM about a possible investment in the troubled City Center project in Las Vegas, according to sources.

The Los Angeles-based private equity real estate firm last week held “preliminary” discussions with the project owners MGM and Dubai World, after the $8.6 billion Las Vegas development ran into trouble.

People familiar with the matter told PERE last week that Colony had been trying to help both MGM and Dubai resolve a challenging situation saying the talks “may or may not lead to a deal”. Those talks have ended, but sources added today that the situation could change.

A spokeswoman for Colony declined to comment.

The City Center project is close to bankruptcy with Dubai World reportedly suing MGM citing poor management and cost overruns and MGM Mirage struggling from its own $13.5 billion debt load. An investment from Colony could possibly keep the project out of bankruptcy. That option now seems remote.

Colony has invested in six casino operating groups since its inception in 1991. In 2007, Colony led the take-private of the Las Vegas-based Station Casino group in a $5.4 billion deal, investing $1.28 billion from its Colony Investors VII and VIII funds, on top of a $300 million mezzanine investment. Station is considering filing for Chapter 11 as it struggles with its debt and declining revenues. 

Meanwhile Colony chairman Tom Barrack, speaking at the firm’s annual investor conference, said the real estate market was in the “tank” with commercial real estate set for more pain in the near future, as hundreds of billions of dollars of loans near their maturities over the next three to four years.

In a web video of the presentation, Barrack said some of the best opportunities would be found in the banking sector over the next 24 to 36 months. Lenders with “clean balance sheets” would find “amazing” opportunities, he predicted, saying the private equity industry would start to “move into that space”.

He stressed the importance of keeping private equity real estate teams together, saying everyone was going through “hell”.

“The checklist for now is … it's not a time for wimps; it's not a time to lament on the past; it's not a time to argue. It's time to suck it up, out our noses down and drive forward, inch by inch by inch and at the end of that process we will either heal it, fix it, [the private equity] investment structure will continue on in a different format or move into a different format – but it's team first.

“We are going to make it, we are going to bite, scratch, kick together and we'll just keep going through hell but it's going to be hell for all of us for a while.”