Foreclosure on Las Vegas Casino to Begin

dirty

dirty

EOG Master
[FONT=times new roman,times,serif][FONT=times new roman,times,serif]By JENNIFER S. FORSYTH
March 15, 2008; Page B6[/FONT]
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The developer of the Cosmopolitan Resort Casino, a $3.9 billion condo-hotel complex on the Las Vegas Strip, has been notified by its primary lender that it will begin foreclosure proceedings.
The move by Deutsche Bank AG, the lender on a $760 million senior loan, comes after the developer, Ian Bruce Eichner, wasn't able to finalize a deal for new financing amid the credit crunch. Mr. Eichner in late February cut a tentative deal with two of his other lenders, Global Hyatt Corp. and New York hedge fund Marathon Asset Management, for a possible rescue of the twin-tower project. A default on the loan in January triggered automatic defaults on an additional $175 million in loans.
If foreclosure is completed, the project could prove to be one of the first big development projects in the country to be victimized for the continuing difficulties of securing new debt in a business that is heavily dependent on it. Even developer Harry Macklowe, a New York real-estate mogul who is swimming in debt after earlier this year being unable to pay off loans on seven Manhattan skyscrapers that he bought for $7 billion, has managed to work out extensions with his lenders and has so far avoided foreclosure.
The problems with the Cosmopolitan come as Las Vegas is in the midst of an unprecedented construction boom that is affecting nearly every corner of the Strip, the main tourist thoroughfare.
Marathon and Hyatt had agreed in February to contribute substantial cash to the deal in exchange for a major equity stake in the project. The team went back to Deutsche Bank in an effort to get new funding. However, an agreement wasn't struck before Thursday, when Deutsche Bank notified the lenders that foreclosure would commence.
"Deutsche Bank informed Marathon that they intend to continue to pursue their remedies and proceed with a foreclosure on the property," a Marathon spokesman said Friday. "Notwithstanding these proceedings, Marathon and Deutsche Bank continue to be actively engaged in discussions regarding a recapitalization of the project."
Mr. Eichner said Deutsche Bank lenders told him over the phone of their plans, but as of Friday afternoon he hadn't received written notification. Work is proceeding on the project, Mr. Eichner said.
Mr. Eichner and the Marathon spokesman blamed the project's problems on the credit-market meltdown and a jump in construction costs since building began in 2005. Mr. Eichner said buyer interest in the condos themselves had been strong. Before the residential-mortgage crisis hit the Las Vegas market, the project sold 83% of the condo units, with buyers putting down 20% nonrefundable deposits on sales totaling $1.35 billion, he said.
"Debt for any large construction project is largely unavailable, and even for what is available, the cost of construction financing right now is so high that it makes it difficult for an investor to obtain the returns to justify the equity investment," Mr. Eichner said.
Hyatt officials previously said they would manage and brand the 3,000 room condo and hotel complex, which is going up adjacent to the Bellagio. A Hyatt spokeswoman didn't return phone calls seeking comment.
The Marathon spokesman said the firm has assessed the project's continued viability and believes it can be successfully completed. A Deutsche Bank spokesman declined to comment.

Write to Jennifer S. Forsyth at jennifer.forsyth@wsj.com






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ktb

ktb

2
Re: Foreclosure on Las Vegas Casino to Begin

that's freakin insane. I've seen ads for this place forever. supposed to be the next high end resort / luxury living i.e. turnberry towers with a casino.

I cant really say where exactly is the location, but from passing by alot... very close to bellagio.

News like this has got to scare the hell out of investors... I think this building was supposed to be greatly presold already too. My friend has dreamed of owning one of those MGM condos for years, and recently the sales agent contacted him to tell him the price on the unit he liked had dropped from around $1.5MM to around $1MM... too bad the HOA of roughly $700 a month is still required tdhough.
 
FrankieGotti

FrankieGotti

2
Re: Foreclosure on Las Vegas Casino to Begin

holy shit, that is ridiculous. Investors are scared stiff because vegas has been one of the few places that didn't follow economic trends at all.
 
Flamingo kid

Flamingo kid

Everybody's hands go UP!
Re: Foreclosure on Las Vegas Casino to Begin

Does this mean the people who put down 20 pct lost their money forever?
 
The Prophet

The Prophet

EOG Dedicated
Re: Foreclosure on Las Vegas Casino to Begin

Mar. 18, 2008

STRIP DEVELOPMENT: Financing imperils projects

Credit crunch could bring halt to Cosmopolitan, Plaza resorts

Two multibillion-dollar Strip developments less than two miles apart could become victims of the tightening credit markets and rising construction costs.

Wall Street investment house Deutsche Bank last week notified developers of the Cosmopolitan that it will begin foreclosure proceedings on the mixed-use development being built in the shadow of MGM Mirage's massive CityCenter complex.

A little north on the Strip, a potential $6 billion development modeled after the Plaza in New York City that was to be built on the site of the imploded New Frontier may be put on hold because of the current subprime crisis.

"It's extremely difficult to borrow capital in the current market," Wachovia Capital Markets bond analyst Dennis Farrell Jr. said Monday. "This is not only happening in Las Vegas but across the country."

The Cosmopolitan foreclosure comes about three weeks after an announcement that a deal had been reached to keep the Strip project from entering foreclosure. The Wall Street Journal reported Saturday, however, that New York-based developer Bruce Eichner was unable to complete the tentative deal to save the project.

The Review-Journal reported last month that a deal was being completed between Global Hyatt Corp. and New York-based Marathon Asset Management to recapitalize the condominium-hotel project.

The two groups had agreed to contribute cash in exchange for large equity stakes in the Cosmopolitan. But the deal could not be completed by a deadline Thursday. Deutsche Bank, the lead lender on a $760 million loan, notified Eichner, Hyatt and Marathon that it was beginning foreclosure proceedings on the project.

Analysts said they believe the move by Deutsche Bank could help push the bank's continuing negotiations with Hyatt and Marathon to a faster resolution.

Eichner and Cosmopolitan Chief Operating Officer Scott Butera did not return phone calls Monday. Hyatt representatives also did not return a phone call seeking comment.

Increased construction costs for the Cosmopolitan helped drive the budget from its original $2 billion price in early 2006 to a current estimate of $3.9 billion.

Prospective lenders said in January that Eichner needed to increase his equity to at least 10 percent because of the rising costs before they would provide new funding.

Eichner contributed the 8.5-acre site, which was purchased for $90 million in 2004, and $50 million from a subsidiary of Global Hyatt.

Eichner told the Wall Street Journal last week that 83 percent of the project's condominium units have been sold, with buyers putting down 20 percent nonrefundable deposits on sales totaling $1.35 billion. :doh1

Perini Building Corp., the Cosmopolitan's general contractor, said Monday it will continue construction on the project. :+clueless Perini, which has been involved with the Cosmopolitan from the beginning, signed a month-to-month agreement with Deutsche Bank on Jan. 18. The Cosmopolitan had been expected to be completed in late 2009.

While financing for the Cosmopolitan project is in limbo, the developers of the Plaza have decided to shelve their project until the credit markets loosen.

The Israeli investors who own on the 34.5-acre New Frontier site told Israel's most widely distributed newspaper, Yediot Ahronot, the project's sponsors do not plan to seek financing until the current subprime crisis ends.

Plaza Las Vegas Chief Operating Officer Daniel Wade declined to comment on Monday, saying any statements will come through the project's public relations firm.

However, Elad Group President Miki Naftali said late Monday in an e-mail the "there is no credibility to the rumor" and that "the project is forging ahead."

The Plaza is being developed by Elad IDB Las Vegas, a joint venture between New York-based Elad Group and Property & Building Corp., a subsidiary of Israeli-based IDB Holdings Corp.

Details of how the development group planned to finance the project have never been made public. The group paid approximately $35 million per acre, which set a record for Strip land. :+textinb3

Deutsche Bank gaming analyst Bill Lerner said the project's financing was questionable even before the lending markets tightened.

"The ability to sell expensive residential units probably would have given it a chance," Lerner said. "That's probably not on the table right now. The cost of development, not just the financing cost but the construction cost, has materially inflated."

Analysts said that if banks are lending money at all, it is at a rate three to four percentage points higher than last year.

The Plaza plans called for seven towers as high as 671 feet containing 4,100 hotel rooms and 2,600 condominium units. It was to be anchored by the Strip's largest casino at 175,900 square feet. It was scheduled to open in 2012.

The project received approval from Clark County planning officials in December. Plans for the project are scheduled to go before the Clark County Commission on Wednesday.

The postponement of the Plaza takes 6,700 rooms out a projected growth pipeline of nearly 45,000 rooms that were to be coming online by 2012.

With suspended or canceled projects, including a new resort with 9,000 rooms on the Tropicana site, the 3,000-room W Las Vegas on Harmon Avenue and the 1,400-room Southern Highland Resort, the local room growth rate has significantly decreased during the past eight months.

"It's like the perfect storm of negative factors that are going to continue to impact the pipeline here," Lerner said.

.
 
WildBill

WildBill

2
Re: Foreclosure on Las Vegas Casino to Begin

Flamingo kid said:
Does this mean the people who put down 20 pct lost their money forever?
Click to expand...

Extremely unlikely. This thing will get done just a question of what the ownership structure will be like on opening day. The whole mess has nothing to do with business model problems or lack of profit potential, it just lacks credit right now in a credit market where no banks want to risk a penny of precious capital. Investment funds are doing hideous things right now to avoid risk, taking pathetic interest amounts holding treasuries just because some worry the sky is falling and every loan could go bad. However even in the worst of loan markets, subprime housing, about 85% of all outstanding loans are still being paid on time. The hype and the fear have overshadowed the reality.
 
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