Vietnam’s first integrated resort has its share of challenges. Chien Lee has $20 million that says they will be overcome.
Chien Lee likes China’s consumers—a lot. He’s followed them in their travels throughout China as a founder of Guangzhoubased budget hotel giant 7 Days Inn. He’s followed them to Macau’s baccarat tables as a founder of Asia Entertainment & Resources, now Iao Kun Group Holding, the first publicly traded VIP room/junket operator and the first to list its shares in the United States. Now he’s following them as they spend their way across Asia, betting US$20 million on the come that Vietnam’s The Grand – Ho Tram, a “hidden diamond,” as he calls it, is destined to take its place among the region’s top gambling and leisure attractions.
Mr Lee’s investment in The Grand, made through his Miami, Fla.-based NewCity Capital, has bought him a seat on the board of the resort’s privately held owners, Asian Coast Development (Canada) Ltd, and he intends to play an active role in building the resort’s Chinese clientele and guiding expansion plans that include a second hotel and more tourist-focused offerings. ACDL and its majority investor, Harbinger Capital, are happy to have him too. “We are very excited,” said Harbinger boss Phil Falcone, the American privateequity tycoon who promptly followed Mr Lee’s gambit with another $50 million from Harbinger.
Mr Lee recently sat down with Inside Asian Gaming to share his vision for The Grand and his growing interest in gaming, which is a new focus for him. He likes the limited-license nature of the industry. He’s mainly looking at emerging markets around the region, but he’s not ruling out the US either. It’s been something of a home base for the Guangzhou native since the early 1980s, and he’s comfortable with the financial climate there, as AERL/Iao Kun’s 2010 Nasdaq listing amply shows.
The interview took place on the eve of Iao Kun Group’s planned introductory listing on the Hong Kong Stock Exchange and was held at a VIP room at Galaxy Macau, one of five Iao Kun controls in the city, together with rooms at StarWorld Hotel & Casino, Sands Cotai Central, City of Dreams and Le Royal Arc Casino.
IAG: NewCity Capital has invested US$20 million in The Grand – Ho Tram, a beautiful property, for sure, but one with some well-documented challenges in terms of its accessibility. And of course there is a ban in Vietnam on domestic casino play, another sizable obstacle. What is the thinking behind this huge bet?
Mr Lee: Ho Tram is a really, really interesting deal. I’ve followed this deal for almost one and a half years already. I watched them, the process: MGM has a contract to manage them, they pull out of the contract; the issue with the licensing delay; a lot of things going on. But I look at this, and my personal feeling is, this is a hidden diamond. They have challenges. They’re a little bit far away from the airport, no locals gaming, I understand all those challenges. But I like it. When you have challenge, that’s the opportunity. And this project is controlled by Harbinger, Phil, and I’ve been talking and been in communication with Phil. So I decided to invest. And Phil loved it. He said, “Chien, come in. You have the background, you have the gaming background, you have the hotel background.” So I came in, not only to bring capital to the project; I bring my experience to help to push this to the next level. That’s my goal. I think we can do that. In my mind there is no doubt this project will be successful. Ho Tram, it’s almost like a landmark in Vietnam. I see Vietnam as one of the most exciting countries for tourism going forward. Vietnam is beautiful. The people over there are educated and very nice. So buy the first, biggest destination for tourism in Vietnam.
What I see in Asia, you only have nine major gaming licenses, Las Vegas-style. I’m talking about more than $2 billion investments. Six are in Macau, two in Singapore, one in Vietnam. I know there are different gaming facilities, in Cambodia, the Philippines, South Korea—I’m talking about Las Vegasstyle, which is not just gaming, where you have one five-star hotel and you have gaming tables, I’m not talking about that. You need to have different things—golf courses, convention facilities—that mix. So if the definition is that, Asia only has nine. Vietnam is one of them. And this project, you have the gaming license. You have 400 acres of land next to the ocean. And the hotel and gaming facilities are already built. And the golf course, already built. Everything is finished. If you look around now, a lot of major gaming companies are focused on Japan, maybe Taiwan, South Korea. My thinking is, even if you got that license today, it takes you five to seven years to build, to open. But Ho Tram is already open, it’s already there. I’m thinking: this investment is immediate. So I see the opportunity. They’re already built. Everything is there. They have a really excellent product ready.
But there are the challenges. It’s difficult to get to, for one thing.
But you think about that. From Ho Chi Minh City today it’s two hours’ ride. Used to be three hours, but this year they opened up some of the highway, shortened it to two hours. And I heard, by end of this year, another section of the highway is going to open. So it shortens to one and a half hours. So a one-and-a-half-, two-hour drive. Not that bad. For a lot of people coming from China to Macau it’s about the same. You fly to Guangzhou or drive there. To Hong Kong, it’s one hour on the boat, and you go to the ferry port, you come out, come in, it’s about the same. A little bit inconvenient, but not that bad. That’s No. 1. No. 2, we have the helicopter port on site, so going forward, if we need it, we can provide helicopter service, same as from Hong Kong to Macau: 20 minutes from the Ho Chi Minh airport to the site. So for those important VIPs, we can provide helicopter service. And when we bring people to the property for the first time they will like it. And the property is not that big. Only 541 rooms. It’s not like a Macau. We don’t need those huge, huge numbers. We need only a few percent of Macau VIPs and other visitors to go. That’s good enough to support this. And by the time—next year, or next two years—locals gaming comes in, plus some VIP support, with both in the mix, locals gaming, VIPs, this project will be hugely successful.
And your investment, in terms of taking The Grand to the “next level,” as you put it? What’s the vision?
Well, you know, now we have the golf course in addition to the hotel and the gaming facility. So, first of all, we have to try to drive up the gaming business. The second step is Tower 2, Phase 1A. We’re in the middle of developing it, and it’s been suggested we could do hotel-condominiums, not only a hotel; and that’s our thought at this moment: we can get into selling some of the rooms, either to investors or VIP players, and when they come there they live in their own property, when they are not there they can give it to the hotel to help them lease it out, you know, like a time share. And by the time we build out the different phases, we can mix in some other ideas. You know, times change. When you’re going forward you will change what is needed for the market. It could be other facilities. It could be a theme park, or whatever, just to throw out some ideas.
And there is your background in gaming in Macau through Iao Kun, and in hospitality in China, both obviously considerable assets.
Yes, I have some background, certainly.
They must be happy to have you involved.
That’s what I’ve heard from the board, and from the management, yes.
You like the current management?
Yes, yes. I am working with the management team. I’m on the board of ACDL. And I’m working together with the other board members to make this successful.
It doesn’t appear that you’re going to be a silent partner by any means.
I will actively be involved, yes. I’m not going to be silent.
Not to classify The Grand as such, but your track record from the beginning reveals a decided pull toward distressed assets. You were buying South Florida real estate in the middle of the S&L crisis.
Yes, yes, I’m glad you say that. I don’t know. I’ve been doing that for 30 years. It’s the same thing. I buy a property; it might be empty; that’s why you’re buying at a good price. They don’t have the income, it’s empty. Then after I buy them, the question is, what can I do? Am I able to fill them up, increase the rental? Same thing. I like non-performing assets.
Is it that history that drew you to The Grand?
Yes. That’s one of the reasons. The next reason is because of the gaming. Gaming is sort of a really unique industry because it’s limited resources. It’s not when you have money then you get a license. It’s not that. Let’s say Singapore: they only have two, they’re not going to issue any more. In Macau, for now, they only have six, they’re not issuing more. That makes it unique and special.
More specifically, you’ll be bringing in Iao Kun’s players?
I want to answer you because everybody asks me that. Unfortunately, I cannot answer because of the dual listing, that process. We’re in a quiet period. But I would use my own resources, my network, not only Iao Kun but other junkets I know in Macau. Also my hotel chain. In 7 Days Inn we have 100 million club members, bigger than Vietnam’s entire population.
You see that as a potential feeder market?
Absolutely. We are exploiting how to use my network in China and some other travel related networks to push the tourists to Ho Tram. Absolutely.
Do you see the interest from Chinese players? It seems they’re more willing these days, given recent events in China, to explore the gaming landscape beyond Macau. Certainly we’re seeing the impact on the Las Vegas Strip. Are they becoming a similar force elsewhere in Asia?
What I see the last couple of years is the VIP industry is looking beyond Macau. A lot of VIP operators are looking beyond Macau. I see people looking at Australia, the Philippines, South Korea, Vietnam—yes, even the US. I think people realize Macau is the main base, but they look at it now as more spread out across Asia and North America. I think that’s the right way to do it.
ACDL doesn’t report publicly, of course, so we’ve all been somewhat in the dark, one year in, about the operation.
We are getting really in shape now. We are in transition, from nothing, just opening, to starting to build up a customer base. You know, the hotel on weekends is almost 100% occupied. It’s a mix of tourists and locals from Vietnam, from Ho Chi Minh.
Where are the tourists coming from?
China, Korea, Japan, you know, pan-Asia.
You’re transporting them in from Ho Chi Minh?
That’s correct. We have bus service. A transportation service. When they come in we have a service there to provide them.
What’s the ratio of VIP to mass market?
I would say, right now, 50-50. We’ve created an international marketing department, and we have personnel on the ground in Macau and personnel on the ground in Guangzhou, Shanghai, Beijing, South Korea, you know, the pan-Asia markets. So we are building up the foundation.
How far along is the second hotel tower?
We are on the way. It is already started, the pilings, those things, and we are discussing now an appropriate time to start construction. Could be early next year, this year, it depends. We are working on it.
Will it include gaming?
This is Phase 1a. The gaming is already there. When Phase 2 opens there will be extra tables. But 1a, the second tower, is not going to have gaming.
So there will be a next phase?
A future phase. When we build it. And we will have more tables.
On the gaming side, certainly you’ve got plenty of statutory room to expand.
Exactly. To 180 tables. Now we have 90 and 1,000 slots. So for Phase 2 we can add 90 more tables and 1,000 more slot machines.
For now, with Phase 1a, what other amenities and attractions are contemplated?
We are at the planning stage. We have not finalized anything yet. We have some different ideas. We hope to include some excitement there. We are working on it.
What else do you see for NewCity in the near term? What’s interesting to you?
I always focus on consumer retail and lodging. But I’m not limiting myself to anything. Any industry, any deal that’s exciting, that catches my eye, I will do it. Technology. Health care. Those industries I look at. And if the opportunity is there I will invest.
Do you see yourself staying in Asia, or are you looking beyond?
I mostly look at Asia and the US both. But more focused on Asia. I think there is more opportunity here. But I’m not letting the US market go. I always keep my eyes open, always looking for opportunities. A lot of people are approaching me, in gaming. I did Macau, the investment in the junket. Did Vietnam.
Taking the junket public, the first ever to list, and in the US as well, that was groundbreaking.
Yes, I think listing in the US, it brings a very positive side to Macau and to the Macau junket business. We’ve been listed three and a half years already and we’ve been very successful on that side. I’m hoping the junket business will have more people doing that.
Now, as Iao Kun, you’re dual-listing. Why?
It allows us to access two markets. You have the US capital markets and the Asia capital markets.
It’s an introductory listing, not an equityraising. Why go that route?
On that, I’d rather not say. We’re still under a quiet period.
Do you think maybe Hong Kong and Asian investors understand the junket business better than investors in New York?
Yes, because they are here. They understand Macau and the VIP business. In Las Vegas they don’t have that system. It’s a little bit difficult to expand into the US.
But you like the gaming space.
It’s a coincidence, you know. But I like gaming. I like gaming, yes. And I’ve received a lot of calls from different regions— Cambodia, South Korea, a lot of people approaching me. I’m looking into it. I’ve looked at a couple projects. Even Las Vegas. I keep my eyes open.
Las Vegas, that’s interesting.
Yes. Just to throw out an idea. I don’t know. I always watch. Sometimes you need to watch for a year, two years, three years. … Atlantic City. Hotels keep closing, Casinos keep closing. Everybody says it’s bad. But for me, you never know, it could be an opportunity.
No shortage of properties there that could use some capital. Revel went pretty cheap.
But you need to have a really good plan. You don’t just come in. You need a five-year, 10-year plan. What’s in your mind? What can you do, you know, after you invest? That’s the most important. What kind of landmark do we have? What kind of resources can you push? Why can you do it different than other people? Everybody invests. Everybody has money. But you need to stand out. After you invest, how can you help the project become much different than it was before? It’s not just putting in money, putting in money; but putting in money and creating change.