Star Entertainment weighs apartment option for Sydney site

Star is considering selling its casino at Pyrmont in Sydney to a developer with an eye to it being turned into residential apartments. Picture: Nikki Short/NewsWire

Star Entertainment is believed to have been exploring the prospect of turning its Sydney hotel and casino complex into apartments as part of its desperate search for cash.

The understanding is that various groups have been assessing the site to determine whether a developer could transform the Pyrmont casino property near Darling Harbour into inner-city apartments.

Market sources at the weekend believed the casino operator would likely be in voluntary administration by Wednesday after it has already remained in safe harbour protection with FTI Consulting in its quarter and flagged risks it is unable to continue as a going concern.

It was unable to sign off on its accounts on Friday, triggering an automatic suspension from trading, unless it had received “liquidity proposals”. Market sources believed that the company was hoping for a last-minute reprieve from its lenders, owed $428m.

Lendlease and Mitsubishi bought Sydney’s Gold Field House site at 1 Alfred Street on Circular Quay from China’s Dalian Wanda for a luxury residential property project, so the company, which Star boss Steve McCann previously ran, would have likely taken a look at the Sydney property. However, some believe that the price a developer would be prepared to pay for the site would be about $200m or $300m, and it would face competition with a site close by owned by the Abu Dhabi Investment Authority housing two hotels that is also for sale.

The ADIA-owned Darling Harbour site, which contains the Novotel and ibis, has a $400m asking price and would be a more simple development proposition for a residential play with about 500 dwellings. But it has struggled to find buyers, say sources, due to the current market downturn.

Groups such as Mirvac and Lendlease have looked, but have walked away, and the appetite is not there in the current high interest rate environment for such projects.

Yet having two large sites available next door could be a drawcard for some.

The challenge for the Star Entertainment site is that it would need to be rezoned for residential property, then presales would need to be secured, so any buyer would need to need to take a three-to five-year view.

But market experts say the capital is just not there in the current market for such a project.

Already, Star Entertainment has sold its Sydney Event Centre at the complex to Foundation Theatres for $60m in a deal that includes additional spaces within The Star Sydney complex.

It has already sold the leasehold of the heritage-listed Treasury Casino building in Brisbane to Griffith University for $67.5m, and the carpark building has also been for sale.

Meanwhile, it is believed that Blackstone, which owns Star’s major rival Crown Resorts, has no interest in buying the Pyrmont property in Sydney, but may be keen to gain control of Star’s ­Sydney casino licence.

It would likely then shut down the facility and use its slot machines for its own casino complex at Barangaroo, although some say there would not be room on its gaming floor.

The understanding is that the New York-based private equity firm has set its sights on the Gold Coast casino, leaving Star shareholder Bruce Mathieson facing a run for his money in his quest to buy the complex.

Should Star fall into administration, as expected, shareholders would not be provided preferential treatment in any auction, and Blackstone would be positioned to outbid Mr Mathieson.

Market experts believe the Gold Coast casino is Star’s most sought after asset and could sell for $300m to $400m.

There is $1.6bn of debt on Star’s Queen’s Wharf hotel and casino complex development in Brisbane, of which it is a joint venture partner with Chow Tai Fook and Far East Consortium.