Thursday, April 8, 2010 • Source: Portfolio.com
Stephen Siegel sees potential where others see failure. The entrepreneur is making big money on the Las Vegas real estate scene and has plans to keep expanding.
By Steve Friess
The walls of the tiny conference room in Las Vegas seem to be splattered with the inside of someone’s brains.
That is to say, there are renderings and photos everywhere of a long list of colorful projects, from a mountain-peak retreat to the renovation of a storied off-Strip hotel to a smattering of low-rise apartment buildings. There are even, randomly, images of a series of planned Jamba Juice-like shops aimed at the Hispanic market.
And here’s the twist: They’re all a go. In fact, some are done.
Yes, you read that right. Someone is investing in Vegas again, and in real estate no less. And not losing his shirt.
His name is Stephen Siegel, a 39-year-old former street tough from Los Angeles who has a gimmick. He owns a growing chain of no-lease apartment buildings in which tenants receive seven coupons for free meals at the coffee shops of one of his two small casinos every time they pay their weekly rent. The more Siegel Suites he opens, then, the more tenants also become restaurant patrons who add a drink or a salad and, of course, may play in the casino.
If that sounds a bit predatory, consider that Siegel’s No. 1 fan happens to be Las Vegas Mayor Oscar Goodman. Goodman says Siegel’s practice of buying lost-cause properties overrun by drugs and crime and renovating them into viable, safe residences solves two problems at once, blight and the need for quality, safe, lower-income housing.
“They go in there, they renovate them, and each one is more successful than the next,” Goodman says. “They change the whole ambiance of them, they have promotions, they really clean them up. And they don’t ask anything from me in terms of incentives or anything.”
Siegel, who bought his first Vegas building in 2004 after finding himself priced out of the Los Angeles market, now has 19 properties in Nevada accounting for 4,000 units that rent for $159 a week on up, utilities, cable, and wireless Internet included and full-kitchen equipped. His goal is 10,000 units; as many as 18,000 free meal coupons are redeemed monthly. The cash flow from Siegel Suites and access to credit through his many dealings with the banks also helped Siegel buy three more seemingly lost-cause resorts.
Not bad for a guy without a high-school degree who dropped out of school at age 15 to fix up old Volkswagens for resale as a self-taught car mechanic. With little parental guidance—his dad was out of the picture by age 11, and his mom couldn’t control him—he ran with gangs, but also always held jobs delivering pizza or flipping burgers.
By his late teens, Siegel saw friends going to jail and decided to channel his energies instead into building a legitimate enterprise. A series of businesses followed—a car stereo and alarm shop in the rough L.A. neighborhood of La Brea and Pico, an auto body shop in the San Fernando Valley, a children’s furniture manufacturing business. It was a period of learning how to fix and operate a company, he said.
“I met this guy, he had a small little warehouse where he made children’s furniture, and I walked in and I saw the potential,” Siegel recalls of that operation. “He didn’t know how to run a business. He was a good salesman, but he couldn’t build the product in time, couldn’t get it right, couldn’t do it. I took the place from 12 employees to 400 in four months, we were selling to Wal-Mart, Toys R Us, Sears. I knew nothing about this business, but the minute I got in there I just got going.”
Siegel says he has a tough time staying interested in one project for very long. By 1999, he was back in the body-shop business in North Hollywood, buying into a failing collision operation and turning it within months into what he says was a $500,000-a-month company.
“When something is nice and shiny and running right, I don’t want to buy it,” Siegel said. “I buy stuff that people say, ‘Are you crazy?’ or ‘There are too many problems there.’ I’ve always done that.”
That body shop led to real estate. He bought a small apartment building near the shop and filled it with employees because “I knew they could pay the rent because they worked for me.” The next thing he knew, he was buying and selling apartment buildings around L.A. until the boom there made it unaffordable.
That’s when he scoped out Vegas, seeking a distressed property to fix up. He found his first match in Vista Arms, a trashed, crime-riddled building “full of crackheads, criminals, and prostitutes” where senior tenants feared for their lives in the hallways. It had one thing going for it that made it worth its $6 million price: It backed up against the Las Vegas Convention Center.
“People said we were never going to clean it up, but we cut down all the trees, got rid of the pay phones, painted the building, I walked every unit, I got rid of people who were problems,” he said.
Siegel sold the building for $10.5 million in 2006 to the convention center, which tore it down. But that didn’t stop him from applying the same approach to snapping up building after building all over Las Vegas. At first he resisted the weekly rent model, which was unusual in the apartment business elsewhere, but quickly realized that this city was different.
“In Vegas, the weekly program works better for the residents,” he says. “They get paid weekly, it’s easier for them to get a little bit of money during the week and get all their amenities included than coming up with a chunk of money at the end of the month.”
In 2006, his company branded the collection of buildings as Siegel Suites, a posh name he admits that started as an inside joke. But, as usual, Siegel became antsy and, being in Vegas, itched to get into the gambling game. So in January 2008, he bought and renovated the bankrupt, run-down Gold Spike and merged it with a small motel next door that happened to have that all-important Las Vegas Boulevard address.
The “Stay Here, Eat Free” idea that has become Siegel Suites’ signature emerged almost by accident. Siegel started marketing to his own tenants with special food deals and then realized as the recession really began strangling the city that offering the free meal coupons was an amenity that set him apart not just from traditional apartment buildings, but also his chief competitor, Budget Suites. In December 2008, he spent $11.5 million on a failing casino about 10 miles north of the Strip near the Las Vegas Motor Speedway, the 179-room Barcelona Lounge. It’s been rebranded Siegel Slots & Suites and is being remodeled.
“When the model started working, we said, ‘You know, we have to keep acquiring more Siegel Suites properties,’” says Siegel, who now has nearly 900 employees. “Whether the economy’s good or bad, it’s important to keep building our mass of customers who we can give value and divert them to where we want to put them.”
As has been the case for many a Vegas hospitality entrepreneur, though, Siegel is now dreaming bigger and fancier. In the past year, he bought two bankrupt near-Strip hotels, the Artisan, a funky property with a bar that’s always been popular among local arts and music fans, and the St. Tropez, a Palm Springs-style low-rise hotel of 150 rooms directly across the street from the Hard Rock Hotel and Casino slightly east of the Strip.
Siegel bought the casinoless St. Tropez last fall for $10.5 million; the foreclosed prior owner had rejected a $40 million offer at the height of the market in 2007. It is undergoing a $3 million reconstruction that will be renamed Rumor when it opens in June. It’s Siegel’s first serious play for the mid- to high-end Las Vegas Strip customer. He plans to charge for valet—unheard of in Vegas—and to attract room rates of $130 a night.
“It’s a true, true, true boutique hotel,” Siegel said. “There’s nothing like that in Vegas. I have no competition.”
As usual, Siegel’s expectations are met with skepticism. Vegas tourism experts find it hard to imagine that he’ll get anything close to that room rate for an off-Strip resort without a casino at a time when the average daily room rate for the city was just $92.93 in 2009, and full-service Strip resorts like Mirage and Mandalay Bay often offer lodging for less than $150 a night.
“Without a casino, it’s a tough road,” says Anthony Curtis, publisher of the Las Vegas Advisor newsletter. “People come to Vegas wanting the action within arm’s length. But it’s tricky with these guys, because they’ve done really well so far.”
Siegel, of course, is undeterred. He acquired a 50-percent stake in the only hotel and restaurant atop Mount Charleston, the 12,000-foot peak about 40 minutes northwest of Las Vegas. And even though he’s not Hispanic, he plans to launch a Jamba Juice competitor because, he said, “Hispanics love juice.” A recent announcement by 7-Eleven that they’ll be expanding in Las Vegas has prompted discussions of a partnership with Siegel Suites to attach several next to the extended-stay residences because “we have the same clientele,” he says.
“I’m a dealmaker, I’m able to make deals, that’s what I do,” Siegel says in the staccato cadence that perhaps reflects his rapid-fire brain action. “I’m able to make deals, bring volume into that business, build on it, and I understand that whether you’re fixing a car, making a pencil, fixing an apartment building, or running a hotel, at the end of the day, it’s all the same.”