Mr. Simon identified an opportunity to purchase the senior debt of this underperforming hotel in Las Vegas, Nevada. Working as an operating/strategic partner, Mr. Simon approached Starwood Capital about being the capital partner in the transaction. Our work involved initial reconceptualization of the property into a more market acceptable strategy, identifying the physical weaknesses of the product offering and identifying re-branding strategies. Our team conceived of the strategy of buying the senior debt of $200 million from Mesa West (representing an institutional investor). The planned structure was to buy the senior debt at some discount to par and accrued interest, and thereby control the capital stack. By controlling the senior debt we were in a position to foreclose out some $400 million in EB5 debt investment as well as approximately $500 million in equity.
Our challenge was to find a buy-out number for the senior debt which afforded the senior debt holder to not recognize substantial discount in the face value of the investment and thereby avoid a public earnings reserve on its P&L. Our approach involved the structure of a cash pay down of the debt and a future payment to be realized on the basis of a waterfall of returns.
Our team produced a structured tender offer on the debt. On this particular transaction, we were out bid at the 11th hour by the equity investor whom found a new capital source to buy out the equity position, and assume the non-recourse carve-out guarantee