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Though close to finished, the Fontainebleau may cost another $1.5 billion to complete, on top of $1 billion already owed to lenders.
Monday, Sept. 14, 2009 | 9:39 a.m.
Sun Archives
- Fontainebleau suit against lenders moved from bankruptcy court (8-5-2009)
- Another lawsuit alleges unpaid work at Fontainebleau (7-14-2009)
- Fontainebleau builder says it’s protected from paying severance (7-14-2009)
- Fontainebleau fires back, outlines bank dispute (7-8-2009)
- Fontainebleau developers: Design change could help costs (7-6-2009)
- 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)
With the Las Vegas Fontainebleau resort bankruptcy case seemingly stalled, a group of contractors is seeking permission to pursue construction lien claims in state court in Nevada -- outside of the bankruptcy process.
The contractors, in a court filing Friday, said they want to get started protecting their lien claims in state court in part because those claims are under attack by lenders in the bankruptcy court.
The lenders' efforts to subordinate the contractors' liens is based on the questionable assumption that Fontainebleau will find funding to resume construction on the stalled $2.9 billion resort, the contractors argued.
"While the lienholders remain hopeful the debtor will find additional funds (either through an equity infusion and/or junior debt facility) to complete the project, we are 90 days into this reorganization proceeding and reality has begun to set in. After three months, debtors have identified no exit strategy nor source of additional outside capital. With no financing, no equity infusion, and no plan, it has become clear (the lienholders) are forced to take action to protect their interests."
The contractors, represented by the Las Vegas office of the law firm Gordon Silver and the firm Shraiberg, Ferrara & Landau in Boca Raton, Fla., noted a couple of setbacks sustained by Fontainebleau during the bankruptcy process:
--Records indicate Fontainebleau's owners no longer have any equity in the project, as its debts and the costs to complete the resort exceed the value of the project.
--Fontainebleau has lost a key summary judgment ruling in its lawsuit against Bank of America and other banks that this spring canceled $656 million in planned funding for the resort, leading to the shutdown of the project and its June bankruptcy. A federal judge last month found the banks were correct in their interpretation of the credit contract at issue -- an interpretation the banks said justified their decision to stop funding Fontainebleau. Some factual issues in the lawsuit remain to be litigated and that case remains open.
The contractors participating in Friday's motion said they are owed $111 million and that state courts in Nevada are best suited to handle the complex process of sorting out the validity of liens against Fontainebleau.
They said if Fontainebleau finds funding and construction is resumed, the bankruptcy court could determine how confirmed liens are settled -- and if funding isn't found the lienholders could continue asserting claims through a potential foreclosure process against the resort.
"Because (lienholders) are not seeking by the proposal set forth in this motion to foreclose on the project or obtain payment of their claims without further order of this court, debtors can continue their efforts to find capital as the lien litigation proceeds," the lienholders said.
They said they prefer to proceed in Nevada court -- where they say contractors' liens take priority over lenders' liens -- because in the bankruptcy court they would have to challenge the lenders' liens. That would require substantial time and effort given that the court is in Miami, the contractors said.
"By way of example, in connection with the Venetian Casino Resort lien litigation, nine witnesses testified and approximately 400 exhibits were introduced in the trial of the single lien claim of Scott Co. of California, which lasted 33 days," the contractors' motion said. "In the 130-day trial of the lien claim of Lehrer McGovern Bovis, the general contractor of the Venetian, 43 fact witnesses and five expert witnesses gave testimony, and 11,000 exhibits were introduced.
"Though other parties may minimize the complexity or intricacy of the litigation of lien claims in Nevada, there is no question that a determination of the validity, priority and amounts of liens in large-scale construction projects such as the Fontainebleau Las Vegas is a time-consuming and tedious process," they said. "The Nevada mechanics' lien statute provides mechanisms for the greatest possible expediency in determining lien claims in Nevada."
Fontainebleau and the lenders have not yet responded to the contractors' motion to start the lien process in Nevada state court.
Separately, a hearing on a motion to transfer the entire bankruptcy case from Miami to Las Vegas has been moved from Sept. 9 to Sept. 22.
My sister works for Penn National Gaming. Over the weekend, she told me that it appears as though PNG will acquire Fontainebleau. They have already begun posting jobs for it. She told me that they do not do that unless it is a done deal. Unfortunately, I don't have any more info than that.
Hope the PNG rumor is true. But you have to wonder who will pay the 111 million in construction liens. In my experience, and I have a lot, the contractors throw everything except the kitchen sink into their claims. Wait a minute, even the kitchen sink. You name it-move out costs, remobilization, lost overhead, loss of productivity, Christ, maybe even the loss of a girlfriend. PNG has deep pockets from that other deal they finessed, but it's hard to believe they would simply pay through the nose to get FB. Bad location, who wants a Condo, not on the Monorail, Echelon disaster across the street. I guess if they get it in BK court for dimes on the dollar, maybe. But who fronts the 1.5 Billion to complete it? Banks? I don't think so. This will be veddy interesting, Artie..
TO DOC HOLIDAY It's not going to happen. Why would they want a Casino on the strip at this time? Maybe in 5 years.
Maybe because they can get a good deal? The purchase of TI was a good deal for the new owner. It all depends on the price.
Who knows...
Don't rule out the the BK court subordinates those construction leans too. Obviously, those companies think they have a case in the state court, but it is the Federal court that is going to make a decision in the end and BK courts have total power as far as unwinding these sorts of deals go. The public interest is not to have a hundred companies fighting over the bones of this property for 10 years. The court will say who owns what, or sell it off to someone like PNG, and move on. It will all be figured out in the next few months.
I hope Doc Holiday is right. If Penn's up to paying off the liens and settling the construction fiasco, then this may be a really great deal for them. Well, except that...
http://www.vegastripping.com/news/news.p...
The current set of buffoons seem to have planned for teeny, tiny "luxury rooms" and an all around craptastic layout for the resort. I wonder if The Fontainebleau is still unfinished enough for Penn to make it right and fix the interior plans so the resort can look more like... Well, a real luxury resort!
Never forget that under Section 363 of the Bankruptcy Code, or through the court's approval of a Chapter 11 Plan, a big piece of real estate can be auctioned off to the highest cash bidder, free and clear of all liens, claims and encumbrances.
The cash sales proceeds are then held in a court ordered escrow, and all of the mortgage lenders and mechanics lien claimants get to fight over the pecking order of being paid 100 Cents on the Dollar.
Although their subcontractors who have liens on the project get paid something in cash, generally, if the general contractor is affiliated with the bankruptcy debtor, even if they have liened the project, the affiliated general contractor doesn't get any money out of those sale proceeds until all of the secured creditors are paid in full.
In this situation, it certainly looks like the unsecured creditors are going to get nothing.
After it opens??? I wonder if they'll have enough money to change a light bulb?
Fontainebleau is a steal at $1.3 billion versus the $3.5 billion appraisal when funding was approved at an 80% loan to ratio value. Now that Fontainebleau is in bankruptcy and the industry is suffering, the price becomes lower and someone will purchase and pay down all the lien debts and they'll make nothing but money. If they don't pay down the liens, the local contractors will end up getting all their money when the new owners complete the project. Local contractors control the market in Clark County so the new owners have no choice but to cooperate with the locals of pay the piper. The Venetian is prime example when they tried to screw locals over, they broke the out of Towner's, the locals received every penny plus interest and attorney's fees.
Too bad Weinberg didn't take it. Where is he going to put Encore II? Or is he going to let that aweful Echelon be the big guy in his side of town? Maybe in the end Penn wouldn't be such a bad idea. Someone needs to take this over and finish it.