Elusive American dreams?

KUALA LUMPUR: With the US economy battling weak growth prospects and
uncertainty, depressed asset prices may seem like a golden opportunity
for investors to get a foot in the door of the land of plenty.

This year, two Malaysian corporate giants were among those who made
investments in the US. But the American dream may not materialise
anytime soon as Malaysian billionaire Tan Sri Quek Leng Chan recently
found out.

Quek’s bet on the US airline industry has proven to be a costly
gamble after AMR Corp — the parent company of American Airlines and
regional carrier American Eagle — filed for bankruptcy protection in
late November.

Just three months after Quek bought a 7.3% stake in August, the value
of his original US$92 million (RM290 million) stake plunged by as much
as 93% — from the US$3.78 share price level to a historic low of
US$0.26.

Apart from Quek, another high stakes US investment by a Malaysian
corporate giant is the Genting Group’s plan to build a casino resort in
Miami, Florida.

Genting’s Miami proposition stands in stark contrast to its
newly-opened Resorts World New York City (RW NYC), at the Aqueduct
Racetrack in Queens, which is enjoying high patronage.

While RW NYC is a slot machine casino, it stands to gain should New York ease up on its gaming laws.

This comes as New York governor Andrew M Cuomo mulls plans for the
state to legalise commercial, non-native American casinos which could
allow racetrack casinos to expand into full-fledged casinos.

But that is not the case for Florida, whose state laws limit casino
gambling to resorts operated by native American tribes and slot machines
at horse and dog race tracks.The risk Genting faces is that Florida has
yet to pass laws to pave the way for casino operations by non-native
Americans.

Be that as it may, Genting has already sunk some US$490 million
(RM1.5 billion) in Miami to acquire real estate for what it hopes could
be its Resorts World Genting casino resort.
Genting, which is led by
Tan Sri Lim Kok Thay, has already pieced together about 12ha of land in
Miami by combining the 5.6ha Omni Centre site and the 3ha Checkers site
on Biscayne Boulevard.

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Lim (centre) waits to be introduced during a reception at the Adrienne Arsht Centre for the Performing Arts in Miami, Florida on June 16. Although the casino concession is not yet within reach, Genting has gone ahead to showcase its plans for a US$3 billion bayfront Miami resort.

The Biscayne Bay land cost Genting US$236 million in May this year
while the Omni Centre site was purchased in August for US$49.6 million,
which excludes the cost of acquiring US$205 million mortgage notes on
the Omni Centre.

But the investment will not hurt the cash-rich Genting Group. Its
main vehicle, Genting Bhd, sits on a cash pile of RM14.17 billion and
some RM53.16 billion in assets.

Although the casino concession in Miami is not yet within reach,
Genting has gone ahead to showcase its plans for a US$3 billion
bay-front Miami resort.

According to an artist’s impression released on Sept 14, the Miami
resort will house four hotels, two condominium blocks, retail space, 50
restaurants and a convention centre, while two floors have been set
aside in the proposed hotel for a casino.

Genting spokesman Tadd Schwartz was quoted as saying that the group
will build all its planned buildings at once if the casino plans are
approved in the next year or two.
Otherwise, construction will progress based on market demand for the properties, which could drag on for 10 to 15 years.
A
quicker option for Genting could be to open a casino alongside dining
and entertainment outlets as early as next year at its recently
purchased 650,000 sq ft Omni Mall in Miami, Genting principal Colin Au
was quoted as saying.

But this plan also depends on Florida passing the necessary laws.
Genting and other casino giants have been lobbying Florida legislators
to allow gaming outside native American tribal areas in the state. But
they are up against strong anti-gaming lobbyists, which include the Walt
Disney Company.

This January holds crucial dates for Genting and other casino
operators to push their case for Miami to open the door to casino
resorts.

The Florida state legislature will reconvene in January 2012 and is
scheduled to deliberate on the issue of liberalising non-native American
casinos over the next one to two years.
According to news reports,
Florida lawmakers have already introduced a bill that would authorise
three new casinos in South Florida’s Miami-Dade and Broward counties.

Even if Florida approves, Genting’s Miami casino could face
competition from Las Vegas Sands Corp, which has reportedly found a
potential site in downtown Miami for a Miami Sands resort.

Other big names said to be eyeing casinos in Miami include Caesars Entertainment and Wynn Resorts.

Another interested party is said to be the Seminole Tribe, south
Florida’s largest casino resorts operator under a 20-year limited gaming
compact.

Market observers say that even if Florida warms up to casino resorts,
the state could limit the number of gambling licences to two or three.

Another policy risk that Genting and other resort-style casinos face
is the possibility that the US could pass federal laws to legalise
Internet gambling.

While the 2012 election could keep online gambling off the table at
federal level, some parties believe the US Congress could pass
legislation legalising it as early as 2013.

On a state level, Nevada is already planning to license intrastate
online gambling in early 2012, following the passing of a bill in June
2011. New Jersey and several other states are reportedly likely to
follow suit.

If that comes to pass, casino resort operators — with their heavy
capital investment and operational costs — could see fiercer competition
for mass market rollers who would have the easier alternative of
gambling online.

In this legislative landscape, one local property analyst is of the
view that Genting could have waited for legislation to be passed before
investing in Miami real estate.

“Of course if it waits, it would have to pay more as prices would
become more expensive after the legislation is passed. But it is better
to pay more for having the certainty. Otherwise, Genting may end up with
no casino resort but an expensive, unintended foray into Miami’s real
estate market,” said the analyst.