Detroit’s Greektown Casino-Hotel Sold for $1 Billion
On Wednesday, JACK Entertainment LLC announced that it has agreed to sell the Greektown Casino-Hotel in Detroit, Michigan for $1 billion cash. The company had purchased the now 18-year-old casino in 2013 and had intended to change its name to “Jack Detroit Casino-Hotel Greektown,” but that never happened.
The details of the deal are interesting in that two companies are going in on the purchase together. Penn National Gaming is acquiring the operations of Greektown Casino-Hotel for $300 million, while VICI Properties Inc. is buying the land and real estate for $700 million. Penn National will then enter into a triple net lease with VICI in which VICI will rent the property to Penn National for $55.6 million per year for 15 years with four options to renew for 5 years each.
Basically, Penn National wants the gambling investment and VICI wants the property investment.
A natural question at this point would be, “What in the world is a ‘triple net lease’?” Allow me to explain.
In a triple net lease, the tenant, which is Penn National in this case, not only pays the landlord (VICI) rent, but also pays for the maintenance, building insurance, and property taxes. In a normal lease situation, called a gross lease, the landlord takes care of all of those expenses. That’s what we are all used to seeing when we rent an apartment or when a business rents office space in a building. Here, though, Penn National is on the hook for everything, almost as if it owns the property.
If that sounds weird, I’m right there with you, but there are a couple reasons why a tenant would want to enter into a triple net lease. First, because the tenant has to pay for maintenance, property taxes, and insurance, the landlord typically gives a healthy rent discount. And second, the tenant is more in control; Penn National won’t have to rely on VICI to fix the plumbing or upgrade the hotel rooms. As mentioned, it is almost as if Penn National actually owns Greektown.
For VICI, one of the main benefits of this relationship is obvious: it doesn’t have to deal with those major expenses. The upshot of this is that VICI’s cash flow will be more predictable – it doesn’t have to wonder how much insurance will go up or worry if it will be hit with a huge maintenance bill on year. Tenants typically sign long leases, as well – 15 years at a minimum in the case of Penn National and Greektown – so that adds further financial stability for VICI.
I Have Fond Memories of Losing Money at Greektown Casino
Detroit is not generally front of mind when it comes to gambling, but some readers might be surprised that the city is home to three major casinos: Greektown, MGM Grand Detroit, and MotorCity Casino. A fourth casino – Caesars Windsor – is directly across the Detroit river in Windsor, Ontario, Canada, and can be easily seen from Detroit. As Detroit isn’t much of a player in the “big time” poker scene, it doesn’t typically get a lot of attention in the industry, but the casinos are pretty solid.
I had the opportunity to visit Greektown Casino back in late 2004 or early 2005 – I don’t quite remember the exact date – well before it was acquired by JACK Entertainment and subsequently renovated. And I’ll tell you, it was a very nice place. Is it the Bellagio or the Wynn? No, but I certainly enjoyed my time there.
Well, to be honest, I enjoyed my time before I entered the casino a bit more. It was a business trip when I worked for a small strategic consulting firm, shortly before I entered the poker world. My colleague and I were visiting auto part factories in the area (naturally) and had some time to kill one night, so we decided to hit up Greektown Casino. Beforehand, we of course had to go to a Greek restaurant, so we gorged ourselves with a spread that would have fed our entire office. It was fantastic.
We entered Greektown Casino bites away from a food coma, which was a bad idea, but whatever, right? I wanted to play poker, but my colleague wasn’t a gambler in the slightest, so I opted against it, as I knew it would be a long time commitment and it would be rude to abandon him for the rest of the night. Instead, we tried our hands at low-stakes blackjack. It did not go well. I don’t remember how much I put on the table – it wouldn’t have been more than $100 – but I do know that I left with only a sherbet-orange 25-cent chip. Don’t ask me how I had a quarter chip left over from playing blackjack, but I did.
That all had nothing to do with the news about the sale of Greektown, but why not tell my stupid story of gambling failure?
Back to the main topic, Penn National Gaming now operates 41 properties in 19 states. Its brands include Argosy, Hollywood Casino, L’Auberge, Boomtown Casino, and Ameristar. It also owns the Tropicana Las Vegas and M Resort.
JACK Entertainment is chaired by Dan Gilbert, who co-founded Quicken Loans and is the majority owner of the Cleveland Cavaliers of the NBA.