Trouble brewing?

Wednesday, Jan. 16, 2008 | 5:50 p.m.

Is the perfect storm brewing on the Strip?

Today, Deutsche Bank filed a notice of default with Clark County on a $760 million construction loan for the $3 billion Cosmopolitan resort.

Owner Ian Bruce Eichner wasn’t available for interviews.

In a statement, he blamed “challenges in the real estate market and capital markets for difficulty in raising capital for the project.”

The notice is a first step that would allow the bank, if the loan isn’t paid or some other agreement reached, to take possession of the property.

As a worst case scenario, the property could file for Chapter 11 bankruptcy protection to fend off a takeover. Selling a casino, or even bringing in major partners, is a difficult and lengthy undertaking that requires investors to get a gaming license.

On the equity side of the equation, Eichner has been attempting to raise $400 million on Wall Street -- supposedly to finish the Cosmopolitan.

While the resort’s future appears uncertain, the default notice also raises a red flag for the rest of the new wave of luxury resorts underway on the Strip -- especially those that haven’t yet planned the final touches and still need money to finish the job.

The crush of luxury resorts in this new wave has soaked up skilled labor and made Las Vegas Boulevard one of the most expensive locations in the nation to build. Moreover, cost overruns on megaresorts -- more like planning a city rather than a hotel -- are rampant.

Developers have been reluctant to blame any financing problems on cost overruns because that could get them in trouble with their Wall Street bankers, who are already skittish about the economic downturn and on the hook for billions of dollars’ worth of casino loans.

A prime example is Harrah’s Entertainment, which is attempting to sell some $9 billion in loans tied to the financing of its $28 billion takeover by private equity giants. Several banks are underwriting the takeover and assuming the debt on the deal, which will close Jan. 28. But there’s concern that the banks will have trouble selling the loans and will be reluctant to lend to others, especially if those addresses are on Las Vegas Boulevard.

Las Vegas’ modern era was built on credit, which has all but dried up for many projects -- forcing them to seek additional equity partners, who in turn place additional demands on the relationship.

Meanwhile, the worsening economy could hurt the Strip this year before tourism gets a boost from several major resorts expected to open at the end of 2009 and the following year.

Some say it’s just part of the natural boom and bust cycle on the Strip. The question is just how big of a bust this dip -- after such a high-flying run on Wall Street -- will be.