Fontainebleau developers: Design change could help costs

Bankruptcy court filing indicates Miami developer could add money to project

Monday, July 6, 2009 | 2:54 p.m.

Download the bankruptcy court filing

Court filings shed light on Fontainebleau financing (7-2-2009)
Practice of building before designs are done hits wall at Fontainebleau (6-28-2009)
Flood of new hotel rooms dims Vegas outlook for '10 (6-23-2009)
More subcontractors accuse Fontainebleau of failing to pay for work (6-23-2009)
Fontainebleau subcontractors want bankruptcy case moved (6-22-09)
State gaming regulators shied away from policing borrowing (6-21-2009)
Fontainebleau subcontractors say contractor conflicted (6-19-09)
Judge orders mediation for Fontainebleau, banks (6-19-09)
Businesses file suits claiming Fontainebleau bills went unpaid (6-18-09)
Judge to expedite Fontainebleau bankruptcy case (6-17-09)
Lenders: Cost overruns led to Fontainebleau loan default (6-16-09)
Bank of America wants change in Fontainebleau bankruptcy plan (6-11-09)
Fontainebleau debt rating downgraded after bankruptcy (6-11-09)
Fontainebleau wants expedited hearing on $656 million (6-10-09)
Investment companies sue banks over Fontainebleau financing (6-10-09)
Australian company writes off Fontainebleau ownership interest (6-10-09)
Fontainebleau developer files for bankruptcy; more jobs cut (6-9-09)

Developers of the idled Fontainebleau resort in Las Vegas are hinting at a couple of strategies to help get the project back on track -- and keep them in control of the development.

In a filing Thursday in Miami's bankruptcy court, Fontainebleau Las Vegas Holdings LLC and affiliated companies revealed they are considering design changes to the $2.9 billion resort to contain its soaring construction costs.

Fontainebleau has not revealed how much costs have surpassed its development budget and has referred to the resort as being a $2.9 billion property. But lenders say they've been told by Fontainebleau the financing cost alone is approaching $3.175 billion -- and that doesn't count the initial equity investments.

Fontainebleau also disclosed in the filing that Miami developer Jeffrey Soffer, who controls the Fontainebleau companies, may provide more financing for the project to help get it back on track.

A request for comment was left Monday with officials at Fontainebleau regarding potential design changes; as well as the potential additional investment Soffer may make in the company.

The disclosures came in a motion opposing a request by a group of subcontractors to move the case from Miami to bankruptcy court in Las Vegas.

The subcontractors say most of the affected parties in the case live and work in Las Vegas and that the Las Vegas bankruptcy court is well qualified to handle construction lien claims in the case -- liens the subcontractors say will supersede the claims of lenders under Nevada law.

Fontainebleau said Soffer and other members of its board of managers make all the decisions about Fontainebleau from their base in Miami.

"Most recently, since the collapse of Lehman Brothers – the largest lender to the 'retail' affiliates – in 2008, and the revolver (bank) lenders' subsequent refusal to fund their $800 million of financing commitments to the debtors, the members of the board of managers have continuously met with lenders in these cases and utilized their relationships to meet with other sources of credit and equity all over the world; they have authorized and approved the reductions in the debtors’ workforce; they have been intimately involved in the development of the stabilization model the debtors wish to employ; and they are considering design alternatives to ameliorate the cost of construction," Fontainebleau said in its filing.

"The debtors are in the best position to obtain funding to complete the project from Miami. Indeed, it likely will be necessary for Mr. Soffer to provide some of those funds. Once they obtain financing and capital, then the debtors may seek an expeditious exit from these chapter 11 proceedings and resume construction of the project," the filing said. "Only through financing and additional equity will the debtors be able to employ 5,000 workers and generate nearly $41 million per month in wages and benefits.

"Until that time, however, there exists a partially constructed project, few employees and no revenue in Las Vegas. There is simply no reason to rush to Las Vegas to accomplish what the debtors’ control group is striving to achieve in Miami. By retaining jurisdiction closest to the debtors’ financial epicenter, these cases possess the greatest chance of success," Fontainebleau said.

The subcontractors seeking to move the case to Nevada represent less than 5 percent of the $2 billion in claims in the Fontainebleau bankruptcy cases -- including the claims of lenders, Fontainebleau said.

Lenders and other big players in the case are based in New York and other cities around the world -- making Las Vegas an inconvenient venue for them, Fontainebleau said.

Soffer and his company, Turnberry Associates, are known in Las Vegas for developing high-rise condominiums and the Town Square shopping center.

Turnberry's fortunes soured at Fontainebleau as the recession prevented sales of condominiums that would have covered substantial construction costs.

And, lenders have charged, the recession has weakened the financial outlook at Fontainebleau to the point that they believe it could not cover its debt costs even if it opened in the next year or so.

In a filing last week backing up their decision to halt funding to the resort, Bank of America and other big bank lenders submitted an appraisal showing the resort would be worth $1.764 billion if it opened next May -- far below its financing costs they calculate at $3.175 billion.

This and other factors, the banks say, show the project was insolvent before it filed for bankruptcy last month. Their refusal to continue funding the resort led to the halt of construction at the project, 70 percent completed, and prompted Fontainebleau to sue the lenders to force them to fund $656 million of the $800 million revolver loan. That lawsuit has been referred to mediation.

With lenders and contractors asserting claims of more than $2 billion against Fontainebleau, the company is in danger of losing control of the project.

Thomas Lehman, a veteran Miami bankruptcy attorney and a partner with the firm Tew Cardenas,

told the Miami Herald for a story on Soffer published Sunday that the banks probably cut off funding in order to take control of Fontainebleau or to win concessions.

"I imagine the lender is conditioning any further funding on either changes in management or conditions for management," Lehman told the Herald.

"Generally, where the lenders want to take control, there's probably not enough value" for the developer to retain ownership after a bankruptcy, he told the Herald.

Discussion: 12 comments so far…

By mred

7/6/09 at 5:17 p.m.

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Reminds me of the Hampton House (Ensign's Friends?)-pictures of which are on the net -big expensive house with cheap furniture. Maybe they can get "design on a dime" to help. (Go with reconditioned mattresses?)
By CynicalObserver

7/6/09 at 11:56 p.m.

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By CynicalObserver

7/6/09 at 11:58 p.m.

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Thomas Lehman, the lawyer quoted in the story above, who the Miami Herald claims is "a veteran bankruptcy lawyer" obviously did not bother to actually read the Fontainbleau Las Vegas bankruptcy court file before pontificating to the Herald in what was a largely worthless puff piece, criticizing Jeffrey Soffer for being born to rich parents.

If Mr. Lehman had bothered to read the documents ACTUALLY filed with the bankruptcy court in Miami, Mr. Lehman would have seen that NONE of the mortgage lenders who currently hold all of the loans secured by the Fontainbleau Las Vegas, are trying to get rid of the Soffers or their employees as managers of the project.

Neither is the bankruptcy court judge trying to remove the Soffers from control of Fontainebleau Las Vegas.

In fact, the bankruptcy case is going quite well for the Soffers and for Fontainebleau Las Vegas. The Miami bankruptcy court judge is saying he wants construction of the project finsihed, not mothballed.

In the real world of bankruptcy, no developer puts additional equity money into a project, if he thinks his mortgage lenders are going to take control of a project away from him. So attorney Lehman's comments in the Herald are just plain stupid.
By CynicalObserver

7/7/09 at 12:11 a.m.

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The only beef the Soffers have with mortgage lenders on the project are the "Revolving Lenders" who are currently owed $0, who are the ones accused by the other lenders and the Soffers of breaching the revolving loan contract by refusing to disburse money when Fontainbleau Las Vegas asked for it. Those Revolving Lenders include several U.S. and foreign banks who have bad trouble passing the Treasury Department's "stress test" for major banks, or who have already been bailed out by their foreign governments: Bank of America, Merrill Lynch (owned by BofA), Royal Bank of Scotland, and a few others. The only seemingly economically healthy banks involved in the Revolving Lender group are Deutsche Bank and JP Morgan Chase.

The massive number of mortgage lenders, who already have disbursed loan proceeds to Fontainbleau Las Vegas in excess of $1 Billion for land acquisition and construction work on the project, and who are called the "Term Lenders" are suing those Revolving Lenders in U.S. District Court here in Las Vegas, for breach of contract, as previously reported by Steve Green. Those Term Lenders have hired the same team of plaintiff's lawyers who bludgeoned Merrill Lynch for giving Orange County California bad investment advice prior to its bankruptcy. Those same lawywers were successful in forcing Merrill Lynch to pay a mega million dollar settlement to the county.

Bank of America is usually very quiet when it is sued by its borrowers (let alone fellow mortgage lenders) on a really big case. They usually put their heads in the sand, and hide behind their lawyers. However, in this case, it appears that BofA is conducting a public smear campaign against the Soffers, planting uninformative pop culture stories with the Miami Herald, attacking Jeff Soffer personally, stories which quote lawyers who know nothing about the bankruptcy case and related litigation. It also appears that BofA's people delivered bogus, defamatory court documents to newspaper reporters which BofA's lawyers never actually filed with the bankruptcy court.

Perhaps BofA is conducting this uncharacteristic, surreptitous publicity campaign against Fontainbleau, because of BofA's potential mega million dollar liability for scruing up the Fontainbleau Las Vegas project. Perhaps BofA is showing they are uncharacteristically worried about having to huge amounts of money in delay damages to the Fontainebleau Las Vegas owners and the Term Lenders who have not breached their contracts, and who have funded their loans when Fontainbleau's management asked them to.

Readers need to read the actual free view bankruptcy court file at: http://www.kccllc.net/FBLV

Click on the tabs at the left side of the page which say "Court Documents" and "Adversary Proceeding" to see what is actually occurring in the Fontainbleau Las Vegas case in Miami.
By scandalrag

7/7/09 at 10:10 a.m.

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@cynicalobserver:

Yes, because one side's filings in a court proceding are always the most truthful sorce of information. Jeff Soffer underplanned and way underbudgeted for the building. He got involved with Lehman Bros and got screwed. Everything he's done in his life he's f'ed up and been bailed out by Don. Except this time even Don Soffer doesn't have enough money to bail him out. I do feel sorry for Jackie and Don who are really good businesspeople and have to carry this moron.

Go back to your Macbook and come up with some new PR spin. The Soffers have to be paying you to do much better than this.
By hooloogoo

7/7/09 at 10:16 p.m.

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.
..
...Bankruptcy lawyers are currently billing ye olde General Motors forty million dollars for thirty days work to sell ye olde assets like Cadillac and Chevrolet to the new General Motors Corporation and thus relieving them of ye olde liabilities like your uncle's pension, Hourly rates for theses bankruptcy attorneys are one thousand dollars plus their one hundred dollar letters written to concerned parties. This is going on under the watchful eye of (tee hee) your federal government..

...Current shareholders will be issued an empty bag which they can puke or take a poop in..

...Any money coming West from Florida for the Fontainebleau Project should be examined for white powder substances..
..
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By Will_not_trust_Soffer_again

7/8/09 at 12:20 a.m.

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Jeff Soffer is the most arrogant S.O.B! I have ever worked for in my entire life. He was born with a silver spoon in his mouth and now he is choking on it! While he plays up his playboy lifestyle those of us of whom built his dreams are filing for bankrupt! I continue to read these articles on the Fontainebleau Las Wages and wonder why the writer never bothers to investigate or mention what Jeff Soffer has done with the Fontainebleau Miami. There are so many people that have been owed money on the Miami hotel long before the Vegas debacle. On the Miami project Turnberry Construction tried to act as a GC and ran the project into the ground. Turnberry should have stayed a developer and had a reputable General Contractor build the hotel, like the one they had in place before they thought they could save money and play "Builder Jeff". James Cummings was that contractor, of whom's reputation to build on time and within the budget is to this day still intact. Turnberry went to Cummings and hired one of their Sr. Project Managers and thought they could head up that project themselves. Strike #2; They hired Roger McElfresh to be their President of Construction, the known card cheat banned from casinos in Vegas as reported in the Las Vegas Sun. Do I have an axe to grind? Sure I do, these people are cheaters with no moral compass. All of us little guys are the ones who financed the construction and to this day are still not paid. The lien rights are a crock of $h*t. If the building never changes hands, or they bond around our liens, or out lawyer us we are screwed out of our entitlement - BEING PAID FOR MATERIALS & LABOR. We do not have the money to screw people the way Soffer has nor would we. I have had to pay for the materials and labor that are in his hotel - maybe I own some towels or doormats! I can only hope that Soffer feels some liability for what he is doing to the little guy. Make sure you check the Herald Link and read the reviews - Spot On!
By appeal2

7/8/09 at 3:40 a.m.

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Now that the Bamster has screwed over bondholders at Chrysler and GM and showed that contracts are not worth the paper they are written, these banks have taken their cue. Why should they honor a written contract?
By goingbust

7/8/09 at 9:59 a.m.

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(removed by newspaper staff for factual accuracy)
By larsdorders

7/8/09 at 11:34 a.m.

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W.N.T.S.A, I applaud your honesty and candor, in finally ..........."Naming Names".
After what seemed like months of foreplay in these blogs, the guilty are finally being "outed" for all to see. The card cheat in question has other family involved in project management, and even the subcontracting side of the project, and one wonders where the costs for the Scotland golf trip...and other juicy bones were buried........
By larsdorders

7/8/09 at 12:50 p.m.

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Change design ? I thought it was a 70% complete project?

But Stuff like the guestroom bathrooms that are hopelessly trendy, but totally disfunctional?

That train already left the station..............
By getsmart1

7/10/09 at 12:02 p.m.

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Regardless of who's right or wrong, I'm sure all you Union houses have done your best to get Turnberry West to pay your outstanding bills. Kind of disheartening that the UAW has way more power over the politicians, that you helped elect, to keep GM afloat. I guess the Fountainbleau is to small a project, our representatives don't need to bother. Thanks for the help Harry and Barrick, you can count on my vote next election as well as my unemployed workers!