Credit crunch hits $3B casino project - Monday 28th of January 2008
Nevadas foreclosure crisis claimed a high-profile victim on Wednesday, as investment bank Deutsche Bank took the first step toward foreclosing on the $3 billion Cosmopolitan Resort & Casino project.
Developer and owner Ian Bruce Eichner said his company, 3700 Associates LLC, was working with Deutsche Bank and Merrill Lynch to find new investors. The construction loan from Deutsche Bank of $760 million went into default Wednesday, the company said.
"This action by our lender comes as no surprise," Eichner said in a statement to The Associated Press. "With the current challenges within the real estate and debt capital markets, which are out of our control ... we both anticipated and planned for this."
Eichner said his company has had "multiple conversations with several groups of interested investors, which continue to be ongoing."
A Deutsche Bank spokesman did not immediately return a message seeking comment.
The 2,998-room high-rise casino and hotel is under construction and due to open in late 2009 between the Bellagio casino resort and the CityCenter casino complex on the Las Vegas Strip.
Most of the units were condo-hotel rooms, which allow buyers to rent out the residences to hotel guests and split a fee with the resort management.
That led some observers to speculate that the project may have suffered from the weakening condominium market.
But the company said demand for the units was strong, with 84 percent of the 2,184 units sold, and added it was not the cause of the financing problem.
Some 20,000 planned condo units in the Las Vegas area have been canceled or suspended in the last four years, according to research firm Applied Analysis.
Sales of condo units and townhouses plummeted in December, down 55 percent from a year earlier to 167 units, according to the Greater Las Vegas Association of Realtors.
"The state of the luxury condominium market is somewhat challenging," said Applied Analysis principal Brian Gordon. "The question remains: Is this a project-specific issue or is it a market issue?"
MGM Mirage Inc. (MGM, Fortune 500) said Tuesday that condo sales at its CityCenter project on the Strip were strong. It said it sold half of its 2,647 condominium units for $1.63 billion, with two years remaining before its planned opening in late 2009.
CityCenter executive vice president Tony Dennis said Cosmopolitan developers were likely hampered by a tightening of credit markets following the subprime mortgage meltdown.
The Cosmopolitan, which broke ground in October 2005, was still constructing the public areas of its property. CityCenter, which began construction in June 2006, is up to the 38th floor.
"Were self-financing. We were not leaving ourselves exposed to the market," said Dennis. "Big difference."
Panorama Towers, a luxury offering just west of the Strip is also selling well, said developer Laurence Hallier. The third Panorama tower is to open in September, and $900 million in units have been sold so far.
"Its not the market that it was a year and a half ago, but I think for really good product in the best location, I believe theres ample market," Hallier said.
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