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Marcus Corp.'s Las Vegas Gamble
The hotel company reckons with a high-end property.
In Las Vegas, you either win or you lose. But for Marcus Corp., the Milwaukee hotel and theater company, a 2007 acquisition in Sin City has meant a little of both. In January of that year,  the company bought a plush Vegas hotel, the Platinum, from a Chicago real estate developer, Michael Scott Peterson, who had sought to position the property as a quieter alternative to the raucous casino-hotels on the Las Vegas strip. Located about a half-mile from Las Vegas Blvd. on East Flamingo Road, the orange and tan-colored Platinum would court business customers and others looking for a relaxing hideaway after a long night of gambling.

And the concept seemed to work. Construction began in 2004 with some of the project's early revenue coming from rooms sold as condos to buyers in the market for an affordable vacation home. The deal offered by sales agents was that the owners, if they chose, could sign an agreement with the hotel allowing it to rent out the condos as hotel rooms when not in use. Hotel management would handle all the needed paperwork and cleaning, and checks sharing a portion of the profits would arrive in the condo owners' mailboxes, easy as pie.

Such "condo hotels" had proven successful in other cities, including Chicago, and sales teams sold all of the units that could be pre-sold within a couple months, according to the Las Vegas Sun. According to lawsuits later filed against the hotel, the sales closed in 2006, and the hotel opened its doors in October of that year. Peterson subsequently sold the $120 million project to Marcus Corp., which owns 20 upscale hotels around the country, including the Pfister, Intercontinental and Hilton Milwaukee City Center hotels in Milwaukee.

As the housing market imploded in 2007 and the country felt the first pangs of the Great Recession, Platinum's market climate looked grimmer and grimmer. Eventually, owners filed class action lawsuits against Marcus in federal court, alleging they were misled in 2004 into thinking their condos would pay for themselves with the rental revenue coming in. Many of the plaintiffs were underwhelmed by the profits and accused the Platinum of failing to market the rooms properly. Some said sales representatives exaggerated the size and quality of the suites, citing a promotional document that said the hotel would be "positioned slightly below the more widely recognized hotels such as the Four Seasons, Mandalay Bay, the Bellagio and Mirage and slightly above the traditional names such as Caesars, Bally's, the Tropicana and MGM."

One family from California sued separately, saying they decided against allowing the hotel to rent out their suite but suspected hotel management was renting it out anyway. According to the family's complaint, they asked a cleaning woman to photograph light fixtures in the suite's bathroom so they could order new ones, and the woman found that the unit "had been used and was in disarray." The TV remote had been moved; someone had apparently lain in both the beds in the master and guest bedrooms; someone had taken food from the refrigerator; and "the toilet in the guest bathroom had been used and not flushed." The family said they paid almost $1 million for the property and felt violated by the unwelcome guests, which they alleged included "Platinum Hotel staff members and their friends."

Marcus Corp. reported a $1.4 million loss today for its third fiscal quarter and blamed much of the red ink on settlements in cases involving the Platinum. In the third quarter, $1.4 million was spent on "costs related to the settlement of lawsuits concerning the company's Las Vegas property," bringing the total spent in fiscal year 2013 on the cases up to $3.0 million, according to the news release filed with the SEC. It says all of the cases have now been resolved, leaving the Platinum, which is still booking guests looking for a quiet alternative to Las Vegas' mayhem, in the free and clear.

"We are pleased to have this issue behind us and may now move forward without the impact these litigation costs have had on our reported results during the past four years," President and CEO Gregory Marcus said in the release.

(image from Google Maps)




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