Foreclosure is normally not a topic for amusement, but the Las Vegas real estate scene is like a brand new Hasbro game show, Monopoly.TV.
The developer of the $3 billion Cosmopolitan Resort & Casino says its lender, Deutsche Bank, filed a notice of foreclosure on the property for a construction loan of $760 million that just matured.
Developer and owner Ian Bruce Eichner says in a statement that his company is working with Deutsche Bank and Merrill Lynch to find new investors.
Eichner tells The Associated Press in the statement that, “This action by our lender comes as no surprise.”
He blames challenges in the real estate and capital markets for difficulty in raising capital for the project, which is now under construction.
The project: The Cosmopolitan is being built to wrap around the old Jockey Club time-share on the strip. The owners were able to make the deal by revitalizing the Jockey Club towers and connecting them with a new parking garage. It’s an interesting plan, because the only artifact of humankind likely to outlast the cockroaches is fractional-ownership real estate.
The Cosmopolitan isn’t the first local hotel-casino project to run into problems because of the current economic climate.
“We have seen selected projects fail to move forward that had previously announced plans with the current credit crunch and the tightened lending requirements,” Las Vegas-based Applied Analysis principal Brian Gordon said. “Certainly, that has impacted many projects throughout the Las Vegas Valley, including resort and nonresort projects.”
Tight credit markets have been cited as the reason for postponing planned resort developments at the Tropicana, the Silverton and Southern Highlands Resort.
However, unlike the Cosmopolitan, which broke ground in October 2005, none of those projects had begun construction.
The most famous example of a stalled Strip project was the Stratosphere, which was conceived by casino operator Bob Stupak in the early 1990s.
Grand Casinos stepped in and finished the 1,149-foot tower hotel-casino project after Stupak ran into financial trouble that had stopped construction. Construction work was halted again in the mid-1990s, this time on a hotel room section, when the company went bankrupt. The development was eventually bought and completed by billionaire Carl Icahn.
Construction stopped on the Landmark in 1962 for four years before an influx of cash from the pension fund of the Teamsters Union restarted the project.
Billionaire Howard Hughes bought the property in 1969 when the owner ran afoul of creditors. Hughes finished construction and opened the property later that year.
“We’ve had a few of those,” said Michael Green, a history professor at College of Southern Nevada. “Happily, not too many where they’ve started running into trouble. In the end it seems to work out, it just takes a few years.”
The fire sale?
MGM Mirage President Jim Murren said he wasn’t surprised by news of the default.
Murren said the project was a challenge from the start because it is wedged in between MGM Mirage’s Bellagio and its $7.8 billion CityCenter development. He said the amount of site work plus the challenge of selling high-rise residential condominiums in the hotel and casino project may have doomed the Cosmopolitan.
Murren also suggested that the Cosmopolitan’s owner may have been having trouble getting commitments for its five-level retail section.
Although Deutsche Bank and Merrill Lynch have approached MGM Mirage officials about the site, Murren said gaming company isn’t interested in the Cosmopolitan project — at least for now.
“It’s not something we’re looking at,” Murren said. “We hope somebody can find a way of fixing this because it doesn’t help the Strip, Las Vegas or us to have a half-finished project sitting there.”
Still, Murren did not dismiss the possibility that the company might consider taking over the project if it made financial sense.
I’m thinking this last bit is Kirk Kerkorian’s right-hand man talking the price down. MGM/Mirage’s City Center is about to get a few acres bigger, I’d say. And if anyone can rid the Strip of time-share owners (or cockroaches) it’s Kirk Kerkorian…
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