A major hedge fund provided much of the financing for the purchase and renovation of the former Reno Hilton by Grand Sierra Resort Corp.
Tom Schrade, president and chief executive officer of Grand Sierra Resort, said last week the hedge fund which he didn't name provided $203 million for the acquisition and redevelopment of the hotel.
Another financial institution provided a $20 million revolving line of credit for redevelopment costs and Grand Sierra Resort put $35 million equity into the first phase of the project, Schrade said.
The company looks to begin paying down some of its debt quickly as it's contracted for sale of about 300 of the 825 luxury hotel condominiums it's developing in the property. Another 80 condo units have sales pending.
In essence, Schrade said, the sales of condo units will generate cash that allow some of the redevelopment costs to be self-funded by Grand Sierra Resorts.
The top 11 floors of the hotel will be developed as "The Summit at Grand Sierra Resort" hotel condominiums. Construction in the hotel tower is expected to begin in September.
The initial phase of the redevelopment also includes renovation of the public areas and casino and exterior amenities.
The Navegante Group headed by gaming veteran Larry Woolf is operating the casino.
Grand Sierra Resorts closed on its $151 million purchase of the property from Harrah's Entertainment in June.
Schrade said the financing by the hedge fund came as a surprise to the principals after they'd been working on other financing mechanism for about two years.
In New York to discuss the credit rating of bonds the company initially planned as a key part of its financing strategy, Schrade encountered principals of the hedge fund.
"They really liked our project, and they knew that Reno was a place they wanted to be," he said.
Steven H. Gold, chairman of Hotel Financial Strategies Inc., a Beverly Hills, Calif., company that helped put the deal together, described the hedge fund financing as "a very aggressive package."
Schrade said the interest rate is somewhat higher than the company would have encountered in more traditional financing avenues. But the financing package doesn't include pre-payment penalties a key consideration for Grand Sierra Resorts as it makes fast sales of the condo units.
Next up are plans for residential condos, a water park and retail development. That will require a separate financing package, Schrade said.
Construction of the 150,000-square-foot water park is scheduled to begin in 2007.
By the time it's done, the total redevelopment of the 145-acre property is projected to carry a price tag of $1.8 billion.
