The deck was stacked against Goldman Sachs when it bet on western US casinos just before the financial crisis.
In April 2007, the New York-based investment bank bought American Casino & Entertainment Properties for $1.3 billion from financier Carl Icahn. Goldman financed the deal with capital from Whitehall Street Global Real Estate 2007, its $4.8 billion opportunistic real estate fund.
A decade later, publicly-listed casino operator Golden Entertainment is purchasing ACEP for $781 million in cash and four million shares in a deal valued at $850 million.
A Goldman spokeswoman declined to comment, but PERE understands that the firm plans to sell Golden’s stock over time.
ACEP’s portfolio comprises three properties off the Las Vegas Strip – the most famous of which is the Stratosphere Casino, Hotel & Tower, known for being the tallest freestanding observation tower in the US – as well as the Aquarius Casino Resort in Laughlin, Nevada. All the properties comprise a mix of hotel rooms, casinos, restaurants and other amenities, including an RV park at one of the Las Vegas properties.
“ACEP is the poster child for bad real estate,” said one source. “It was widely lambasted as a terrible investment.”
In its decade under Goldman ownership, ACEP suffered from a perception problem stemming from Goldman’s larger conflicts of interest. The financial giant was the main lender on ACEP and multiple other deals from its Whitehall funds, which led some investors to question whether Goldman as a lender was benefitting at its funds’ expense.
“It’s an interesting case study in disasters and a reminder that you don’t lend to another affiliate,” said one executive who worked at Goldman during that time.
Although ACEP’s revenues have declined since Goldman took ownership, Golden was optimistic about the company’s future.
“We believe the American properties are poised to benefit tremendously from anticipated continued economic growth in Nevada,” Golden’s chief executive Blake Sartini said.
Other major investments from the 2007 Whitehall fund included the take-private of Equity Inns in 2007 for $1.3 billion in cash. In 2015, Whitehall sold the company to a real estate investment trust for $1.8 billion. After the ACEP sale, expected to close later this year, the vehicle is understood to have a few assets remaining. Goldman declined to disclose recent performance data on the fund.