The Wall Street Journal-20080131-Casino Developer Seeks Rescue
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Casino Developer Seeks Rescue
Full Text (601 words)The developer of Cosmopolitan Resort Casino on the Las Vegas Strip is negotiating for a rescue from two of his partners in the $3 billion project, people familiar with the matter said.
One scenario under consideration is for hotel giant Global Hyatt Corp. and hedge fund Marathon Asset Management to purchase the development, these people said.
The negotiations come about two weeks after the developer, Ian Bruce Eichner, defaulted on a $760 million predevelopment loan supporting the construction of the twin-tower resort casino. Hyatt officials had previously announced a deal with Mr. Eichner to manage and brand the 3,000-room hotel and condo-hotel complex currently under construction.
Mr. Eichner said yesterday that negotiations among the partners were still continuing but "there is a strong possibility that this will go forward." If so, it means the likelihood of a foreclosure diminishes and Mr. Eichner would avoid the embarrassment of being one of the first big commercial real-estate failures of the credit crisis.
The developer said he didn't know yet what his future role in the project would be, but that he would be very satisfied if Hyatt and Marathon took over. "I'd like to see this project completed on time and on budget and in the manner in which it was designed," he said.
A spokesman for Marathon acknowledged that the New York-based firm "is reviewing all its alternatives with regards to successful completion of the development, including purchasing the property." A Hyatt spokeswoman issued a statement saying that the company "does not comment on speculation concerning unconfirmed transactions"
Hyatt and Marathon, both invested in the property, have compelling reasons to consider a purchase. Deutsche Bank AG holds the $760 million senior mortgage. Hyatt and Marathon hold junior debt totaling about $175 million behind that, according to a person familiar with the matter. Their junior positions could be wiped out in the event of a foreclosure, according to two people familiar with the matter.
One option, Mr. Eichner says, is for Hyatt and Marathon to put substantially more cash into the development, which would allow the $760 million predevelopment loan from Deutsche Bank to be paid off and entice the bank to provide a much bigger construction loan to complete the project. That would, in essence, give Marathon and Hyatt control. A spokesman for Deutsche Bank declined to comment.
Completing such a deal with closely held Hyatt and Marathon could assuage anxieties in Las Vegas, which is in the midst of an unprecedented $35 billion building boom expected to create 40,000 new hotel rooms by 2012.
Some projects are seeing delays or getting canceled as financing dries up and the housing market slows. Plans to significantly renovate the legendary but fading Las Vegas Tropicana are on hold after the casino's owner, Kentucky-based Columbia Sussex Corp., lost its Atlantic City casino due to poor management. This week, a group of bondholders sued Columbia Sussex's casino affiliate, Tropicana Entertainment LLC for $960 million, alleging that mismanagement lead to a devaluation of the company.
As with the Cosmopolitan, many of the new projects are partially funded by the sale of luxury residential units or condo-hotels: hotel rooms that individuals buy and own, and turn over to a management company to rent out nightly when the owners aren't using the room. The Cosmopolitan has been scheduled to open in 2009.
After news of the default became public, Mr. Eichner released a written statement blaming "current challenges within the real-estate and debt-capital markets which are out of our control." The statement said he was working with lenders Deutsche Bank and Merrill Lynch & Co. to raise new equity.
