Vegas venture brings Branson, Canadian union together
LiUNA expects casino-hotel to pay off with stronger returns than equity funds
When celebrity British billionaire Richard Branson stepped off his Virgin Atlantic airline’s inaugural flight from London to Las Vegas in 2000, he was wearing a rhinestone-studded red jumpsuit and declared Sin City his kind of town.
So when the flamboyant entrepreneur announced this March he’d bought the aging Hard Rock Hotel and Casino in Vegas with plans to turn it into a sleek Virginbranded property by late 2019, the only surprise was how long it had taken him.
But what did come as a surprise to many was his biggest partner in the US$520-million purchase: the pension fund of a Canadian construction union.
“It promises double-digit returns on our investment, it guarantees union jobs ... and having Virgin involved gives it real appeal,” says Joseph Mancinelli, international vice-president of the Labourers’ International Union of North America (LiUNA) and its central and Eastern Canada regional manager.
The property will continue to operate under the Hard Rock banner until August when it will undergo a year-and-a-half facelift expected to cost more than US$300 million, according to published reports.
The final product, redone in Virgin’s signature design, will offer 1,500 rooms, several penthouse suites, a 60,000-square-foot, fullyrenovated casino, multiple pools over five acres, restaurants and bars as well as numerous meeting and convention spaces.
Even with the ambitious refit, the hotel-casino will be dwarfed by dozens of other hotels in town. But Branson has said he wanted something “a bit smaller, a bit more boutique” to set his property apart from the gleaming towers on the city ’s boisterous Strip, just over a kilometre away.
Virgin opened its first hotel in 2015 in a historic Chicago building — within a year it was named the No. 1 hotel in America by Condé Nast Traveler — and will open another in San Francisco this summer, with more in the works in Nashville, Washington, Dallas, New Orleans and Edinburgh.
For LiUNA, getting involved in the initial stages of Virgin’s hotel empire was as important as the union’s US$120-million investment in the Las Vegas project itself.
“We think this will become a significant hotel brand,” says Lou Serafini, president and CEO of Toronto-based Fengate Capital Management, which looks after the union’s $7-billion-plus pension fund, one of the five fastest growing funds in Canada
The idea to invest in Virgin’s Vegas project first came to LiUNA last fall through Juniper Capital Partners, an international investment company with Canadian roots that specializes in out-of-favour assets with attractive valuations. After analyzing the proposal for LiUNA, Fengate not only encouraged the investment, it put some of its own money into the project and rounded up several smaller partners as well.
LiUNA’s involvement in Virgin’s Vegas project is part of an industry trend toward investing pension fund money in real assets — real estate, infrastructure, building conversion, P3 projects — and away from more traditional equity funds.
In recent years, for instance, LiUNA pension money has renovated eight Ontario hospitals, several courthouses and an Ontario Provincial Police dispatch centre through P3 procurement arrangements, Mancinelli says. It has also converted an older building in Hamilton, Ont., into student housing.
About 20 per cent of LiUNA’s fund is now tied up in real assets, which the union leader says have produced stronger, more reliable returns than stocks and bonds over the past decade. In Vegas, for example, LiUNA’s fund managers are predicting returns of between 18 and 26 per cent once the operation is up and running.
For LiUNA, there are also benefits in these kinds of projects beyond strong returns.
In Las Vegas, the company that will oversee the hotel-casino renovations, Taylor Construction, has guaranteed it will use unionized painters, drywallers, carpenters, electricians and plumbers for the work. And Virgin has agreed to keep on most of Hard Rock’s 2,000-plus staff, the majority of them members of UNITE HERE, one of North America’s largest hospitality industry unions.
In return, LiUNA, with more than 600,000 North American members and close ties to other unions across Canada and the U.S., can attract convention business to Virgin’s Vegas hotel and casino through discount programs.
“All of this is important to us,” Mancinelli says. “We are creating jobs as well as making a good return for the pension fund, which in turn benefits all of our workers.”
It promises double-digit returns on our investment, it guarantees union jobs ... and having Virgin involved gives it real appeal.