Los Angeles hotel and nightclub mogul Sam Nazarian lost day-to-day control of his Las Vegas hotel, but so far his investment partners are sticking by him.
Nazarian's rapidly expanding empire suffered an unexpected setback Tuesday when the majority owner of the SLS Las Vegas announced that it was taking over day-to-day control of the hotel after embarrassing details about Nazarian surfaced during a routine vetting for a gaming license.
But experts said that as long as Nazarian's hotels, clubs and restaurants keep making money, his admitted drug use and payments to a twice-convicted felon won't have much of an effect.
"I think investors will still work with him in the future," said Robert La Forgia, founder of Las Vegas-based Apertor Hospitality, an asset management and advisory firm specializing in hotels and gaming. "I don't see that this hiccup will be a long-term issue for Sam."
Through his company, SBE Entertainment, Nazarian oversees dozens of restaurants and nightclubs, plus six boutique hotels across the U.S., with plans to open eight additional SLS hotels by 2016. The new hotels include projects in New York, the Bahamas and Beijing.
The Nevada Gaming Commission is expected to decide Thursday whether to approve Nazarian's gaming license for SLS Las Vegas, which opened in August. State law requires anyone with more than a 5% stake in a casino to hold a license. Nazarian and SBE own a 10% stake in the 1,600-room hotel.
The license is currently held by the private real estate investment firm Stockbridge Capital, which owns a 90% stake in the hotel. Stockbridge's managing director, Terry Francher, now oversees day-to-day operations of the hotel.
Nazarian's recent troubles began earlier this month when the Nevada Gaming Control Board prompted Nazarian to admit during public testimony to paying up to $3 million to former car customizer Derrick Armstrong, an ex-felon, and payments to a convicted racketeer and Death Row Records founder Marion "Suge" Knight.
Nazarian told the board that the payments were part of an extortion scheme, according to transcripts of the hearing.
During the hearing, Nazarian also acknowledged taking cocaine but described it as a mistake.
Stockbridge's takeover of the $800-million SLS hotel was meant to send a signal of stability to investors, according to company representatives who asked to remain anonymous because they are not authorized to speak. Stockbridge said it still plans to partner with Nazarian in a future hotel project in Seattle. Other hotel projects also appear to be on track.
Nazarian signed his first international deal in June to operate a 300-room luxury hotel and 107 residences in the Bahamas, owned by Baha Mar Resorts Ltd. SLS LUX at Baha Mar is scheduled to open in the spring of 2015.
"We are looking forward to SLS being a part of our brand," said Baha Mar spokeswoman Pauline Yoshihashi.
The Connecticut-based private investment firm Cain Hoy Enterprises recently announced plans to recapitalize SBE, boosting its valuation to $350 million. Cain Hoy, headed by Henry R. Silverman, former head of real estate and infrastructure at Guggenheim Partners, also announced a joint venture to expand SBE's acquisitions of hotels, casinos and restaurants.
Those plans are unchanged by the gaming board investigation, the company said in a statement.
Under the deal, Silverman and Cain Hoy senior partners Thomas D. Christopoul and M. Ali Rashid will join the SBE board of directors.