Double up or quits!

Like an alcoholic with someone else's bar tab, Colony Capital is going after more gaming resort assets with their intent to provide a loan to MGM Mirage. MGM was recently sued by its partner Dubai World, and faces covenant waivers expirations next week. Just to show how crazy the situation is, MGM has hired Morgan Stanley to advise (!) it on bids for some of its non-Vegas casinos.

Yes, that's the same Colony whose recently home runs have included Stations Casino (RIP). You can't fault Tom Barrack's hubris, but talk about not learning the lesson first time round. Still, every one who has touched this situation seem to be financial morons - would you have Morgan Stanley advise you on real estate, after their recent disasters with MSREF VI?

Las Vagrants

Talk about a neon car-crash. It's been general knowledge for a while that the Las Vegas real estate market was heading for a hard landing. Yet today's announcement that house prices in that area have collapsed by 41% since their 2006 peak is quite stunning.

Into this mix of falling prices and soaring unemployment steps Station Casinos, which is announcing a proposed pre-packaged bankruptcy today. For information, this crazily leveraged deal was backed by Colony Capital, and unsuccessfully tried to do a debt for equity swap back in December.

Still, I don't think Colony needs to feel alone. The informal newsflow trickling into my firm about various private equity real estate funds is pretty horrifying. Talk of debt facilities maturing in the next few weeks which are not being refinanced, falling occupancy rates and rising capital expenditure requirements are joining the deleveraging party.

Of course, these real estate funds wouldn't be in this mess if they'd have a modicum of common sense in their deal underwriting. Even today, a fund updated me with a 50% drop in equity values. And yet they still think that by 2012, prices will have not only recovered, but doubled from their purchase price in the boom years of 2006-2007. Proof that people can always dream in Vegas...