Reno Gazette-Journal from Reno, Nevada • Page 25

Wednesday, August 18, 1982 3D Reno Evening Gazette Perlman brothers planning to buy Dunes for $143 million By ROBERT MACY The AP City. Caesars World bought out Two years ago Shenker suffered million expansion and remodeling program at the Dunes. According to a complicated agreement, the Perlmans would form a new corporation to merge with Dunes Hotels and Casinos Inc. no later than Feb. 1, 1983, when Clifford Perlman's non-competition clause with Caesars ends.

Under the agreement, the Perl-mans would buy some 4.8 million shares of Dunes stock at $30 per share with payment in cash, short- and long-term notes. The stock was trading at $19 per share at the close of business Monday and failed to open on the American Stock Exchange Tuesday. If shareholders refuse to accept the proposed merger, Shenker is expected to sell his 2.1 million shares. Thus the Perlmans would either become sole owners of the property or majority owners such as Shenker is now. Neither the Perlmans nor Shenker could be reached for comment Tuesday night.

Clifford Perlman, 56, is recognized as one of the top hotel executives on the Las Vegas Strip and was credited with much of the success of Caesars Palace. It had been rumored for more than a week that he was seeking to purchase the Dunes. New Jersey gaming officials forced the Perlmans to resign their posts at Caesars World as a condition to the company obtaining a gaming license for its Boardwalk Regency Hotel in Atlantic lion, down slightly from $77.3 mil lion a year ago. In the second quarter a year ago, the company earned $3.9 million, 80 cents a share, and in the half, $4.5 million, 94 cents a share. In the announcement, Shenker, company chairman, said the expansion of the Dunes Oasis Casino in Las Vegas by 27,000 square feet should provide increased cash flow and have a positive effect on earnings.

The expanded area is to open August 20. Part of the loss was attributable to an interest accounting change involving the Dunes Atlantic City project in New Jersey, said spokesman James Zemelman. a serious heart attack and the efforts to sell intensified. Sources said the difference with the Perlman offer was that Shenker's family was now pressuring him to sell his interest in the property because of his health. Also Tuesday, Dunes Hotels and Casinos Inc.

reported a $2.9 million second-quarter loss and a $1.1 million loss for the first half, citing the economy and the devaluation of the Mexican peso. The company said second-quarter revenue was $37.2 million, down 14 percent from $42.9 million a year earlier. First-half revenue was $77.2 mil the Perlmans for $92 million. Clifford Perlman resigned as chairman of Caesars Palace last month after failing to persuade the New Jersey Supreme Court that he had a right to remain in charge of the company's Nevada subsidiary. The Perlmans started Caesars after making a fortune from a chain of Lums hot dog stands.

Shenker, 77, a former St. Louis attorney, has been negotiating with various parties to sell the Dunes for more than four years. Sources close to Shenker said he never really wanted to sell, but was obligated to talk to potential buyers because the Dunes was a public company. LAS VEGAS Caesars World founders Clifford and Stuart Perl-man have signed a "non-binding" letter of intent to purchase the Dunes Hotel and Casino for some $143 million in cash and notes. The sale, if approved by Dunes stockholders and gaming officials, would place Clifford Perlman back a Strip hotel six months after his resignation as chairman of Caesars Palace, the glittering resort adjacent to the Dunes.

And it would end a four-year effort by Morris Shenker to sell the property that has been a Las Vegas fixture since 1955. The sale announcement comes on the eve of the opening of a $15 alloon clause at center of fi debate MS I ICIER 1HAE3AE3V tiHft mm Is "creative" financing really the salvation of the nation's ailing real-estate industry or is it a dangerous balloon that is all too likely to blow up in the faces of unwary home-buyers? That question is increasingly being argued by housing experts as the availability of conventional fixed-rate mortgages falls to an all-time low and alternative forms of financing attract a growing majority of U.S. buyers. The controversy swirls around so-called balloon clauses, which are generally part of a three-to-five year payback package that keeps monthly outlays at a level the buyer can handle, but then hits him with a big "balloon" payment at the end. Some critics, such as William F.

McKenna, chairman of the President's Commission on Housing, have maintained that financing a short-term mortgage with a balloon clause can create problems as serious as delinquency and foreclosure for an underfinanced or unemployed purchaser. Such concerns seem especially worrisome at a time when, William O'Connell, Savings League president, reports, "The rise in the number of delinquent mortgages indicates that the recession is biting deeper into household budgets." Now, though, the real-estate industry is fighting back with studies purporting to show no discernible distinction in foreclosures between those who bought homes via the conventional or the alternative financing routes. (The Mortgage Bankers Asso- LOUIS RUKEYSER ciation reported 140,000 home foreclosures in the first quarter of 1982.) There's no question that alternative financing is not only catching on, but threatening to take over in the current dismal housing market. Only 40 percent of the 2.35 million existing homes that changed hands last year were financed by conventional mortgages (at rates generally from 14-18 percent). Kenneth T.

Rosen, chairman of the real estate and urban economics program at the University of California at Berkeley, tells me he thinks that level of sales will be roughly matched in 1982, despite the terrors of recession and high interest rates, but that alternative financing may have to rise to 80 percent of the total. In a study made for Century 21 Real Estate which claims to be the world's largest realty organization, Rosen found that delinquency rates were indeed similar for conventional and alternative financing (over five percent) and that foreclosures were holding at a "surprising low" one-half of one percent. Richard J. Loughlin, president of Century 21, acknowledged to me that the research was conducted to counter reports that alternative financing had led to a rising rate of mortgage delinquencies and foreclosures. He offered the study as evidence that the vast majority of delinquencies are traceable to the "effect of the recession" rather than to the form of financing Arguing that "creative" financing provided the only route to home ownership for many Americans today, the realty executive said about 71 percent of Century 21's transactions now involve buyers who pay less than they would on a conventional fixed-rate mortgage.

(That study, taken when a 15' percent rate prevailed nationally, showed that because of alternative financing, these buyers were in effect paying 12.1 percent.) Clearly, alternative financing in which a typical buyer might, for example, make a 10 to 20 percent down payment and cover the rest of the purchase with primary and secondary sources of financing (including a second mortgage with a balloon payment) is both enticing and potentially dangerous. Loughlin did not deny that there were possible pitfalls. Indeed, he offered three useful cautions of his own for anyone contemplating this kind of financing: (1) Avoid one- or two-year terms; a three-year loan should be the minimum, with five years vastly preferable. (2) Don't necessarily wait till the end of the term to refinance your mortgage; move when money becomes available or rates are comparatively low. (3) Don't take on secondary financing that exceeds 30 percent of your home's worth.

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