It used to be that if you had a casino, you owned the land below. It doesn’t always work that way these days.
Huge financial corporations, real estate investment trusts, or REITs, have bought up many casinos on the Las Vegas Strip. But instead of developing them, they just rent them to the same casino to operate them.
And as you will hear, these sales are legally considered non-sales, so the state was unable to recoup millions in sales taxes.
But it’s not the only major real estate development on the boulevard.
It’s been reported that critical funding has come in for a resort-arena just south of the Sahara resort – and if that happens, there’s talk it could become the home of a future NBA team from Vegas.
And speaking of the NBA: Houston Nuggets owner Tillman Fertitta plans to build a new casino resort on the Strip from CityCenter.
As a real estate reporter for the Las Vegas Review-Journal, Eli Segall has been all over these stories. He joined state of nevada host Joe Schoenmann for more.
Segall said an economic factor was driving many of these REIT transactions.
“Until very recently, interest rates were extremely low. So basically anyone who wanted to buy real estate, whether it was a 500 square foot condo to a 3,000 room hotel, could potentially lock in very low borrowing costs. I think that’s helped fuel a lot of the real estate activity that we’ve seen on the Strip and certainly fueled the huge home buying bonanza that we’ve seen over the past year. So it has slowed down recently.
Earlier this year, REITs participated in the purchases of The Venetian, The Palazzo, the former Sands Expo & Convention Center and The Cosmopolitan. Because of these agreements, Segall said MGM Resorts no longer owns real estate on the Strip.
He said it has become increasingly popular in the casino industry over the past few years, but is seen in other industries, such as the Las Vegas Raiders practice facility.
“The company selling it obviously gets a huge amount of money up front,” Segall said. But the downside is losing ultimate control of real estate.
Transfer duties are normally paid when you sell a property. In 2007, Nevada lawmakers reconfigured the transfer tax for these types of sales after becoming convinced that transfer taxes could result in the same entity being taxed more than once, particularly if that entity sells different parcels to different buyers. Segall reported that about two dozen of those transactions worth $27 billion could have generated $125 million in taxes for the state.
“They’re structured in a very complex way that allows buyers and sellers to claim an exemption under state law to not pay transfer tax. It’s not like there’s a code specific tax that says these REIT sale-leasebacks are exempt, that doesn’t exist,” Segall said. “And the law that was changed in 2007, that was interesting, and actually involved a lobbyist who was advocating with state lawmakers about all these big BLM land sales that were going on at the time.”
When its initial report came out, neither lawmakers nor Gov. Steve Sisolak knew about the tax structure.
“The higher the selling price, the bigger the tax bill,” he said. “So the Bellagio alone, which was sold in 2019, when MGM sold to Blackstone, it was a $4.2 billion sale. ‘taxes, but there was literally $0 paid.’
New ground property
Tillman Fertitta, an entrepreneur from Houston, owns Golden Nugget casinos nationwide. He is currently developing a 43-story, 2,400-room property on the southeast corner of Harmon and Las Vegas Boulevard.
He paid about $45 million per acre, Segall reported. And this plot has housed so many different businesses, including a TravelLodge, souvenir shops, and the Harley Davidson cafe.
“It really had nothing to do with what was there, because when someone pays that much money for a property, they’re just going to tear down whatever’s there,” said- he declared.
Future NBA arena?
NBA player Jackie Robinson has talked about developing an arena adjacent to the Sahara. Recently, he told Clark County commissioners he had funding for a 27-acre, $4.9 billion project that could eventually house an NBA team.
It’s been in the works for nearly a decade, Segall said, and the price has risen significantly over the years.
“We’ll see what happens,” he said. “Over the years he’s discussed a lot of different funding plans. At one point, I think it was 2017, he told me his funding was signed, done, sealed, delivered…something thing along those lines…. The following year, he said he had a loan agreement with the Qatar International Bank.In 2019, he explained this very complex financing plan in front of the county commission and talked about transferring money from one bank to another central banks in the United States and Europe and people in Zürich.”