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Lenders seek to foreclose on Town Square mall in Las Vegas

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Town Square

Updated Thursday, Jan. 13, 2011 | 4:10 p.m.

Map of Town Square

Town Square

6605 Las Vegas Blvd. South , Las Vegas

Lenders owed $449 million have asked a New York bankruptcy court to allow them to foreclose on and resell the big Town Square mall and office complex in Las Vegas.

Talks for a voluntary foreclosure have broken down, attorneys said in a motion filed this week in the massive bankruptcy case of Lehman Brothers Holdings Inc.

The lenders seeking to foreclose on the Las Vegas mall are led by their administrative agent, the Bank of Nova Scotia, New York Agency.

Bank of Nova Scotia claims Lehman Brothers is not a party to the first-priority mortgage encumbering Town Square and that Lehman "has no property interest in the Town Square Mall."

Nevertheless, a title insurance company handling the foreclosure has told Bank of Nova Scotia that any title issued after the foreclosure will exclude a $72 million claim Lehman has asserted against Town Square's developers, brother and sister Jeff and Jacquelyn Soffer.

The Soffers' Florida-based Turnberry development company is known in Las Vegas for developing not just Town Square, but high-rise condominiums and the bankrupt and stalled Fontainebleau casino resort.

In 2009, the Soffers sued Lehman Brothers, the collapse of which in part triggered the nation's financial near-meltdown in 2008.

The Soffers and three of their companies charged Lehman had reneged on part of a commitment to provide $1.5 billion in financing for three projects developed by the Soffers' Aventura, Fla.-based Turnberry Associates development company, where the siblings are executives.

The projects were the Fontainebleau Las Vegas retail project, the 93-acre Town Square shopping center in Las Vegas and the Aventura Mall in Florida.

While the Fontainebleau and Aventura financings closed, Lehman Brothers failed to provide promised long-term financing for Town Square in Las Vegas, the lawsuit charged.

The Turnberry companies said the initial $520 million in Town Square construction financing was provided principally by Deutsche Bank.

Development of Town Square started in 2004 and Turnberry later sought customary long-term take-out financing as well as an additional $100 million for the project, the lawsuit said.

The Soffers asserted in their suit that at the insistence of Lehman, they personally were the borrowers in July 2007 under a $95 million "interim advance" credit facility for Town Square, with the expectation that Lehman would later include the interim advance in permanent financing.

"Lehman has now made clear that it is refusing to honor its commitment to provide the permanent financing," charged the lawsuit, filed several months after Lehman filed for bankruptcy on Sept. 15, 2008.

But Lehman Brothers, in responding to the lawsuit, denied it made representations it would provide long-term financing for Town Square and filed a counterclaim accusing the Soffers of breach of contract for failing to pay $72 million due under the $95 million loan.

Later, Lehman Brothers sued Jeff Soffer, seeking to recover hundreds of millions of dollars loaned for the Fontainebleau project.

In August, Town Square acknowledged lenders had initiated foreclosure proceedings against it and said the foreclosure would have no effect on operations at the center with 900,000 square feet of retail, restaurant and entertainment space and another 300,000 square feet of office space.

In a statement Thursday, Turnberry said talks about a voluntary foreclosure are ongoing and that it hopes to maintain an ownership stake in the property at Las Vegas Boulevard and Interstate 215.

“This filing is not a surprise, nor is it new,’’ said Mike Wethington, general manager of Town Square Las Vegas. “Our lenders filed their initial foreclosure action last summer, and we have continued to discuss a resolution with them. Those talks are ongoing. The Bank of Nova Scotia filed this action in the Lehman Brothers bankruptcy case simply to protect its interest in the mall.

"The financial negotiations taking place have no effect on the daily operations of Town Square and do not reflect the shopping center’s performance. We’ve opened approximately 16 tenants in 2010, and several additional ones are on tap for 2011. Our retailers, restaurants, vendors, employees and customers will notice no changes as a result of this action.

"Turnberry continues to manage the property, and we are optimistic that we will emerge from these negotiations with those management rights and an equity interest in the mall,” Wethington said.

The $72 million allegedly owed by the Soffers to Lehman Brothers for the Town Square loan remains a hurdle for Bank of Nova Scotia as it tries to foreclose on Town Square.

Bank of Nova Scotia insists the Lehman Brothers bankruptcy estate has no enforceable interest in Town Square -- in part because an appraisal found the value of the property in May was $415 million and has likely fallen further since then, less than the $449 million owed under the first-priority mortgage.

Attorneys for Lehman Brothers have not yet responded to those assertions.

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  1. as long as it doesn't affect the operations it's not really a big deal for us not involved with the project. Town Square is definitely one of the best places in town to eat, shop, and play.

  2. I totally agree Jerry. We go there all the time.

  3. It's a fine mall, opened at the wrong time. But it's still a mall, a movie-set recreation of an imaginary Main Street, a facsimile of community and culture. Let's keep it in perspective: if it closes, the Fashion Show does the job just as well (actually better, when it's freezing outside).

  4. What I don't get is why don't developers finish one project, get it up and running, then start paying it down before taking on more debt? Is it greed or stupidity? This recklessness seems to be a big factor in why we had the meltdown. The Fontainebleau was such a great project and, now, just look at it - an empty shell rusting in the sun.

  5. "bldblu" I'd say your sky has fallen already. Time to hightail it out of Las Vegas and let those of us who care figure it out.

  6. "This recklessness seems to be a big factor in why we had the meltdown."

    Jerry, you may be right in some regard, but that "recklessness" is also what fuels Las Vegas. Sometimes it works, sometimes it falls flat, but I prefer a place where people at least try and sometimes fail to one where they acquiesce to the pundits and naysayers and do nothing.

  7. Seems very popular, but put a fork in it, it is done.

    Not to get political, but Brian Sandoval can not do the Jim Gibbons tap dance. The State is in big trouble, despite the rah rah types like Alan Stock and the development board, low taxes and small government can't compete with Big China etc.

    We can't compete with New Mexico on some levels, for God's sake, get real people.

  8. mred, you're post is irrelevant to the topic at hand.

  9. Parsing through the information at hand, it sounds like some Lehman entity which is in bankruptcy has a second lien mortgage on Town Center. Under the "automatic stay" provision of the Bankruptcy Code, a first mortgage lender like Bank of Nova Scotia cannot foreclose when a second or otherwise junior mortgage lender is in bankruptcy, unless the junior lender's bankruptcy judge approves.

    I've been reading the Lehman bankruptcy files, sporadically, for the last two years, as well as business news stories about specific disputes under the umbrella of the Lehman bankruptcy case. As a result, my overall impression is that Lehman's bankruptcy judge in New York never allows anyone to do something to "hurt" Lehman as a Chapter 11 debtor. Comparatively, the bankruptcy judges in Las Vegas are far tougher on Chapter 11 debtors.

    As a result, I expect Lehman's ever protective bankruptcy judge to "Say No" unless Bank of Nova Scotia and the other lenders it represents give Lehman a cash payment in the form of green mail.

    In the not-too-distant past, wise commercial mortgage lenders would not allow second mortgages on office, commercial or industrial properties which served as their collateral for just this sort of reason. A screwed up or cantankerous junior mortgage holder usually makes a first mortgage lender's foreclosure far more difficult and expensive. The fact that regional banks, mega banks, and investment banks (including foreign banks doing business in the USA) threw caution to the wind, and allowed themselves to get into this sort of situation with title to their collateral junked up with junior liens, just shows one of the reasons why America's banking system is so messed up today.

  10. One of my favorite places in the city. Great variety of shops, restaurants, bars, and the RAVE theaters are great. Hopefully all will go smooth and someone will be able to take it over without any turbulence.

  11. I read Bank of Nova Scotia's motion for relief from stay in Lehman's NY bankruptcy case. It says, in essence, that Lehman has a lien on nearly half of the ownership interests in the mall owner's parent company, and that Lehman has a lien on nearly half of the ownership interests in the mall owner's grandparent companies. According to Bank of Nova Scotia, those liens secure a huge loan by Lehman to the Soffers, which was used by the Soffers to finance improvements to the Town Center property. In litigating against the Soffers in a lawsuit which is under the umbrella of the Lehman bankruptcy case, Lehman is making equitable claims against the Soffers, and vice versa.

    What is interesting, from the motion for relief from stay, is the clear implication that Bank of Nova Scotia, and the investors in its construction loan for Town Center, willingly facilitated the making of Lehman's loan. This is just the sort of loan, complicating a bank lender's foreclosure, which would not have been allowed in the old days.

    As a result it will be interesting to see if Lehman objects to the foreclosure. The hearing on whether Lehman's bankruptcy judge will allow foreclosure on Town Center is on February 16th in New York.