Colony may be passive partner |

Colony may be passive partner

The acquisition Tuesday of Stateline-based Harveys Casino Resorts and Los Angeles-based Colony Capital could be a marriage made in investment heaven.

For Colony, a real estate investment trust, or REIT, the transaction begins its first venture into the gaming industry.

“Colony has been exploring a strategic entry into the resort gaming industry for several years,” said Thomas Barrack, Jr., Colony’s chairman and chief executive officer. “We view this investment as an exciting extension of our historic focus on the hospitality area.”

The availability of Harveys, with financially solid casino/hotels in three states, offered a prime opportunity for Colony, which already owns $5 billion worth of resort properties throughout the world.

“I think we were most interested in securing a platform that includes a high-quality management team and quality assets,” said Kelvin Davis, Colony’s president and chief operating officer. “We’ll use this platform to take advantage of a myriad of opportunities in other gaming markets.”

According to William Eadington, director of the University of Nevada, Reno Institute for the Study of Gambling and Commercial Gaming, the merger could be the “best of all worlds from Harvey’s perspective.”

Colony is “likely to be a relatively passive partner. Harveys has a strong reputation for having a capable management team,” he said.

Combining the assets of Colony and Harveys will open financial opportunities not previously available to either company by itself.

“They have access to capital at lower interest rates,” Eadington said. “Instead of paying 10 or 12 percent, they may be able to attract debt capital at 7 to 7.5 percent, in the same league as the Mirage, Harrah’s or Starwoods.

“That’s very advantageous.”

It could especially be advantageous for a big entry into Las Vegas where big money flows.

Harveys already has a toe-hold in the gaming capital. Last year, the company purchased an option to buy 34 acres in Las Vegas near the MGM Grand, known as “The Drink” property after a nightclub that stands on one corner.

“The stated objective of Chuck (Scharer, Harveys president and chief executive officer) is to re-enter the Las Vegas gaming market at the appropriate time,” Davis said. “We share that objective. It’s a high priority, but not the driving priority.”

Gaming analyst Alan Woinski, president and CEO of Gaming Venture Corp. USA in New Jersey, considers Colony’s acquisition of Harveys a very good deal.

“Colony is buying a very stable company that’s established in areas where the amount of competition will be minimal,” Woinski said. “(Harveys) has a strong foothold.”

Woinski predicted that, in the next few years, a lot of casinos could be in trouble due to intense competition plus older casinos that can no longer compete without major upgrades.

“The company with the best (financial condition) is the one that’s going to get in first,” Woinski said, referring to the probable opening of gaming in new states. “Harveys could be the first one in. And the first one in always makes the most money.”

Colony Capital is a private, international real estate-related investment firm headed by by Barrack and Davis. Since its formation in 1991, most of Colony’s transactions have been in the hospitality and tourism business, with significant investments in luxury hotel resorts throughout the world. Those include Hawaii’s The Orchid at Mauna Lani and the Hilton Waikoloa Village, L’Ermitage Hotel in Beverly Hills and the Hotel Guanahani on St. Barts.

Harveys, founded in 1944, owns and operates Harveys Resort Hotel/Casino in Stateline, Harveys Casino Hotel in Council Bluffs, Iowa, and Harveys Wagon Wheel Hotel/Casino in Central City, Colo.

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