Irvine Firm Buys Brothel for $1 Million
Strong Point Inc., the Irvine company that has been trying to close an $18-million deal to buy the Mustang Ranch bordello in Sparks, Nev., said Wednesday that it has acquired the much smaller Sue’s Bordello of Elko, Nev., for $1 million in cash, notes and stock.
The purchase was completed Tuesday and is believed to mark the first time a Nevada brothel has been owned by a publicly traded company. Nevada is the only state that allows local governments the option of licensing prostitutes and the houses in which they work.
Strong Point, whose common stock is traded over the counter, immediately brought in a new manager, cooks, bartenders, housekeepers and nine licensed prostitutes to continue operations after the previous owners, Robert and Joan Cherik, left Monday for retirement in Southern California, said Rodger W. Garrity, vice president of Strong Point.
Neither Garrity nor John D. Davis, the company’s president, would say more about the terms of the purchase or the Cheriks’ reason for selling.
“We’re excited about the future,” Garrity said. “We’re looking to show good earnings and make a nice growth stock.”
Garrity and Davis purchased half of Strong Point’s 3.2 million shares in April for “several hundred thousand dollars.” When the two took over Strong Point, the company stock was selling at about 50 cents a share.
But rumors of a possible bordello acquisition in early summer pushed the stock to $2.50 a share. By mid-August, after the formal announcement that the company had opened escrow on the Mustang Ranch, the price hit $3.25 a share. Davis said the stock is now back to $2 to $2.50 a share. The company has more than 300 shareholders.
Garrity said the company may close escrow on the 440-acre Mustang Ranch in Sparks by the end of the month, though it has until April 1. Strong Point also is talking with “two or three other brothels” about possible acquisition, he said.
But the company may have jumped into a declining market. Last August, when it opened escrow on the Mustang, the 100-bed facility was staffed by only about 50 prostitutes and business was down during what operators said then was the peak season. Fear of AIDS and general business sluggishness were believed to play roles in the decline.
The Mustang had been for sale since 1980, when the Internal Revenue Service filed liens on the property for back taxes and interest of about $10 million owed by its owners. Several other deals, at prices from $15 million to $25 million, have fallen through and, at one point, the ranch went into voluntary bankruptcy.
Garrity said the company plans to purchase the ranch through debt financing. He and Davis declined to disclose the identities of their financial backers but said the backers have told them they are close to completing the sale.
