Another Las Vegas construction project bites the dust. On June 9, the Las Vegas Fontainebleau filed for bankruptcy. This was to be a big addition to the Las Vegas corridor, it was supposed to have 3,815 hotel rooms and condos. Plus it was to have many other upscale amenities such as a spa, restaurants and expensive retail stores. Even with all the obvious funding trouble that the Fontainebleau was having, it wasn’t entirely certain what action the developer would take. Bankruptcy filings were made by the Fontainebleau Las Vegas and two of it’s entities, Fontainebleau Las Vegas Holding and Fontainebleau Las Vegas Capital Corp.. Las Vegas Fontainebleau and Miami Beach Fontainebleau are related, but different corporations so the Miami Beach Florida location will not be adversely affected by the failure of the Las Vegas Fontainebleau.
The developer of Fontainebleau has claimed in separate legal paperwork that various lenders have hampered the success of Fontainebleau and contributed to its demise. Howard Karawan, an officer of the Fontainebleau, is quoted in the Review Journal as saying, “It is unfortunate that our lenders forced us to take this step. By reneging on the revolving credit facility, they effectively shut down the project and put thousands of people out of work.” In a lawsuit filed by attorneys for the Fontainebleau on April 23, the claim is made that its bank lenders, which include JP Morgan and Bank of America are partly responsible for its failure. This is due to the banks not honoring their agreement to loan an additional $770,000,000 to the project.
The lenders are making a counter claim that Fontainebleau defaulted on its loans. Since bankruptcy has been filed, the billion dollar suit has been dropped and refiled in bankruptcy court. The Fontainebleau alleges a conflict of interest involving the Deutsche Bank because it is the owner of the Cosmopolitan which is a rival company. Also included in the lawsuit are creditors including both unsecured and secured. The unsecured creditors to be listed in the suit haven’t been identified yet. So far only a list of twenty secured creditors are named in the suit.
If lenders had honored their financial obligations, then the Fontainebleau wouldn’t be in this trouble is the claim the developer is making. In April, 3,000 construction workers working on the Fontainebleau were let go as were additional office staff employees. The Fontainebleau was going to provide Las Vegas with several thousand new jobs. Now, not only are those future jobs in jeopardy, but thousands of construction workers have already been laid off.
For condominium builders this is another sign of trouble in the Las Vegas housing market. This is bad for developers but good news for buyers. Even though developers are going bankrupt at an alarming rate, this is a excellent time to be a Las Vegas condo buyer. Condo and town home prices are now at an average of $65,000, which is 53.4% lower than last year. Even though I think Las Vegas housing prices will go down more, I wouldn’t hesitate to purchase at today’s prices.
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