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StumbleHoward Hughes’ heirs fight for control over Summerlin property
STEVE MARCUS / LAS VEGAS SUN
The Summerlin Centre Mall sits abandoned in July.
Friday, July 17, 2009 | 2 a.m.
Sun Archives
- Mail operator remains upbeat (5-29-2009)
- General Growth Properties reports quarterly loss (5-7-2009)
- General Growth files for Chapter 11 protection (4-24-2009)
- General Growth files for bankruptcy; malls likely to stay open (4-15-2009)
- General Growth stock up on news report (3-31-2009)
- General Growth extends forbearance request (3-16-2009)
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Beyond the Sun
Rights to 7,400 vacant acres of Summerlin are hanging in the balance of a Bankruptcy Court tug-of-war.
Heirs of billionaire Howard Hughes are fighting to regain more say over the land. They allege their interest in the acreage has been compromised by General Growth Properties Inc. The Chicago-based corporation owns Summerlin developer Howard Hughes Corp. and filed for bankruptcy protection April 16.
The issue for Hughes’ heirs is how they will be compensated under a 1996 deal in which they sold Howard Hughes Corp. and its land holdings, including the Summerlin acreage, to Rouse Co. General Growth acquired Rouse in 2004.
To understand the dispute, it helps to know the history.
Howard Hughes accumulated 25,000 acres west of Las Vegas in the 1950s. Most of that land became Summerlin, a 22,500-acre community named after his paternal grandmother.
The Hughes heirs initially were reported to include 21 cousins and an aunt, but are now thought to include hundreds of people, including the initial heirs’ descendants and attorneys with stakes in the fortune.
Under the terms of their deal with Rouse, Hughes’ heirs received an initial payment and were to receive additional payments of stock as the land was developed and sold, including a final payment to be determined by an appraisal of the remaining land this year.
Their final payment is supposed to be for half the value of the remaining land, reported at the end of 2008 as totaling 7,381 acres.
Hughes’ heirs allege General Growth has jeopardized the final payoff for the land.
One group of Hughes heirs, represented by A&K Endowment Inc., is objecting to General Growth’s use of the acreage as collateral against loans made to the company before and after the bankruptcy.
“The Rouse Co. (owned by General Growth) holds legal title to the Summerlin development but, until the purchase price is fully paid to the (sellers), does not have equitable title,” attorneys for A&K said in court papers.
Legal title refers to the duties and responsibilities of maintaining and controlling a property, while equitable title refers to the benefits and enjoyment of that property.
A&K’s objection to General Growth’s motion for approval of interim financing and use of collateral during the bankruptcy proceeding was rejected, however. A&K is appealing.
A&K attorneys could not be reached for comment. But in court papers, they said their issues on appeal are whether the Bankruptcy Court erred on several counts.
General Growth, however, believes its contract with the Hughes heirs can be rejected by the court. General Growth had been sharing profits from the development of Summerlin by issuing shares of common stock to Hughes’ heirs. By February, however, General Growth said it was not obligated to issue any stock as Summerlin’s net development and sales cash flows had dried up.
General Growth said in recent regulatory filings it expects the appraisal scheduled for this year will show that the market value or liquidation value of the land will be less than its current $1 billion carrying cost, no surprise given the depressed state of the residential and commercial real estate markets in Las Vegas.
But with its declining stock price, General Growth said before bankruptcy that if it were to make the final payment next year, it would have to issue so many shares that the Hughes heirs would end up in control of General Growth.
Whether General Growth makes the final payment — and the fate of the land in which Hughes’ heirs claim an interest — is up in the air.
It’s unknown whether General Growth will attempt to cancel the final payment to the heirs. General Growth spokesman Jim Graham on Wednesday said such contractual issues are typically not addressed until near the end of the bankruptcy proceedings, and for this case, that looks like it is a long way off. The Summerlin aspect is complicated enough, but General Growth also is the nation’s largest owner of shopping malls, so its bankruptcy case is massive.
“We still do not know how long it will take for our bankruptcy proceedings to reach a conclusion,” Graham said.
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It was unfortunate that we had 2 bad candidates for President. You haven't seen anything yet. If u remember Jimmy Carter's term u can expect interest rates to reach into the teens and our protection compromised.I hope we do not have another 911.
Ds_Gentle _Master You are insane if you think for one minute this is Obama's fault. When these deals were put together Obama was a volunteer on the south side of Chicago. It is amazing the reach you right wingers still attempt to sell when everyone of your baseless arguments have been proven wrong. I guess the Bush administration,the great deregulators McCain and Gramm had nothing to do with this failed economy? Seek counceling,take your meds and think before you post such dribble. You fool no one. Incidently General Growth,which is a corporation older than Obama has failed business ventures all over America, that to must be Obamas fault.
chazbean Your predictions are not predictions. Markets change, what goes up does come down and there will be inflation and higher interest rates. Millions of dollars are waiting on the side lines for this to happen. I guess the great communicator Ronnie was not responsible for run away inflation with his failed supply side economics and trickle down theory? You to need to think before you make a fool of yourself.
I guess in reality as someone like you and Ds_Gentle_Master put it this is all Hoover's fault then.
Ds_Gentle_Master. During the campaign for president McCain took a special flight to Washington to support bailouts for the financial institutions, and Bush gave the first 350 BILLION DOLLARS to the fianancial institutions. They were saving America. Think!
I blame the Howard Hughes spawn. If they had just sold this land for cash, they wouldn't have anything to worry about. Instead, they got into an iffy deal to try to squeeze some more money out of it. Bad move. You're going to lost it all, dummies.
Homer you are very selective on your blaming the conservatives. Was it not on JIMMY Carters watch that we had high interest rates , Hostages being held in Iran. Was is not on Slick Willie's watch that we had the bombing of the Cole and the bombing of the WTC? Please get your facts straight. Obama is over his head!! Learn how to spell counseling.
Aside from the strange rhetorical comments on this story, above, let's focus on the reality of bankruptcy law.
If the Hughes heirs' lawyers were so stupid as to close the sale of the land, without recording a mortgage lien on the property to secure their share of profits and future appraisal based payment, the Hughes heirs' lawyers malpracticed, plain and simple.
All over the United States, sellers of land, who thought they were entitled to a share of future profits from the development of their property, are losing that money, and any interest in the real estate, because the bankruptcy case law is very clear that "if it isn't a mortgage you can't collect". In the bankruptcy of Lennar affiliate, LandSource, alone, two families are set to lose millions and millions of dollars in value because their lawyers improperly structured a profit participation sale.
Having already lost in the hearing where they opposed the use of the Summerlin land as collateral for new loans for General Growth Properties, the Hughes heirs have received a strong signal from the bankruptcy judge that they don't have a "secured claim" to the land. As a result, they are unsecured creditors, and will receive little or nothing by the time the bankruptcy case is finished. The Hughes heirs need to be looking at a malpractice lawsuit against the lawyers who represented them in their sale of the land to Rouse, and not looking to prevailing on any appeal of the bankruptcy court's decision.
Ds_Gentle _Master, chazbean -- what?
CynicalO -- good to see a reasonable post! And you're right, looks like the heirs' lawyers were incompetent. The problem with a malpractice lawsuit is getting a competent attorney to take it at an affordable rate, then a court actually delivering justice. Judges are also attorneys and the Bar Monopoly tends to circle the wagons to protect its own.
Obama and Carter have something to do with Summerlin? A capitalist system has recessions, depressions, booms and busts. You must not understand the system, read Adam Smith.