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Sunday, August 13, 2000
Copyright © Las Vegas Review-Journal
Aladdin owner faces music as his resort sets to open
Jack Sommer has been widely criticized, but
he says the newest Strip casino is unparalleled.
By Jeff Simpson
lasvegas.com Gaming Wire
Nevada Gaming Control Board member Bobby Siller recently employed a single word -- complex -- to describe the financial workings of the Aladdin.
Operated by a privately held company composed of American and British partners, the $1.4 billion project that is set to open Thursday has left observers looking closely at the arrangement.
At the center of the megaresort's ownership mix sits Jack Sommer, head of the Sommer Family Trust.
The family's investment arm purchased the original Aladdin and its 34 acres in 1994 for $80 million. The casino closed in 1997 and was imploded a year later to make way for Sommer's vision of a mixed-use gaming project.
"Some people say the three laws of real estate are location, location, location," Sommer said. "My three rules are location, concept and execution.
"We have the best location, a brilliant location and are about to demonstrate unparalleled execution of our plan."
Yet, in the days leading to the project's opening Sommer has become the object of public scorn.
On July 12, the same day the Aladdin and its owners appeared before the control board for a state gaming license, the Wall Street Journal published an article highly critical of the multimillionaire.
The lengthy piece suggested the developer exaggerated his real-estate experience to Aladdin investors and misled them regarding the family trust's ability to meet potential cost overruns.
Sommer and his lawyer disputed some of the quotes attributed to him, particularly one that had Sommer suggesting that his Aladdin partners had put up all of the money for the project.
"Our return on investment is (potentially) infinite," he was quoted as saying.
The control board added to Sommer's headaches, peppering him with comments critical of his financial acumen.
"Most people coming before us, in your position, have used sound business judgment," Siller said. "I'm questioning your judgment. Do you understand that?"
Most insulting was Siller's final jab.
"Your personal affairs are in the red," the ex-FBI special agent scolded Sommer. "Your development is in the red, and your only substantial source of income is loans from your mother."
How did Sommer come to face such barbs?
As the son of Sigmund Sommer, a prominent New York City-area real estate developer, young Jack Sommer worked for his dad during summer vacations and joined the family's real estate firm after studying business at Boston University.
"My father's father was also in real estate," Jack Sommer said. "It's been a family business since 1885, and real estate is all I've ever done."
The elder Sommer died in 1979, leaving most of his assets to a trust jointly controlled by Jack Sommer, his 79-year-old wife, Viola, and her brother, Eugene Landsberg.
Sommer managed the family's assets after his father's death, and he and his wife, Laura, moved to Las Vegas in 1988.
After arriving in the desert, the younger Sommer spent four years acquiring 640 acres on the outskirts of northwest Las Vegas at Buffalo Drive and Racel Street, where he negotiated a 30-year long-term development agreement with the city of Las Vegas for his Mountain Spa project.
"Either you pay a lot of money in the center of the action or you pay less on the outside and wait for development to reach you," Sommer said.
He initially financed the project, but later borrowed additional funds in an unorthodox deal with Lehman Brothers. The agreement gave Sommer $35 million, but if a hotel is not built at the site he will owe a $5 million annual penalty until the principal is repaid. He must also pay a $29 million loan fee.
In two or three years, Sommer expects to begin construction of a resort hotel at Mountain Spa. A 27-hole golf course is set to open in November, and Sommer said high-priced residential lots will go on sale, with commercial parcels to follow.
"Laura was responsible for my decision to develop Mountain Spa, and she also gave me the encouragement to buy the Aladdin," Sommer said.
When the family trust sold a major New York property in 1994, Sommer needed to find a real estate investment for the proceeds to avoid substantial capital-gains taxes. The Aladdin was on the market at the time.
Sommer's sealed bid on the property was accepted. After operating the '60s-era resort for a few years, he closed the casino, imploded it, and his Aladdin began to take shape.
The Sommer trust contributed the project's land, and partner TrizecHahn kicked in $250 million to build the Desert Passage retail mall. The trust owns one-third of Desert Passage; TrizecHahn owns two-thirds.
The hotel and gaming portions of the project are controlled by Aladdin Gaming. The trust provided the land and an initial outlay of more than $20 million for a 75 percent interest in Aladdin Gaming. British casino company London Clubs International PLC contributed $50 million in exchange for a 25 percent stake in the gaming company.
London Club's interest was upped to 40 percent late last year after the company spent an estimated $30 million to meet cost overruns.
London Clubs Chairman Alan Goodenough said he was disappointed by the trust's inability or unwillingness to cover its share of the overruns, and some tension between the two partners was evident during their control board appearance.
Control board member Dennis Neilander told Sommer he believes the trust has significant assets, but many of their holdings cannot be easily sold. Sommer blamed the problem on tough rent control laws in New York City that make it difficult to sell some parcels.
Meantime, Sommer assured gaming regulators that the trust can fund future shortfalls.
That said, Goodenough and Sommer say they are upbeat about the project and confident the partnership will work.
Sommer also says he'll continue to be an active corporate citizen, employing more than 4,000 at the Aladdin, developing Mountain Spa, helping to revitalize downtown through his membership on the City Center Development Corp. and making charitable contributions through the Aladdin's philanthropic foundation.
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