Lenders seeking to foreclose on Town Square

A group of lenders is asking a bankruptcy judge to remove an obstacle to foreclosure on Town Square, a combination retail and office center that opened on the eve of Southern Nevada's real estate crash.

The Bank of Nova Scotia, New York Agency, on Tuesday filed a motion asking the judge in the Lehman Bros. Holdings' bankruptcy case to allow it to foreclose on the project.

The bank leads a group of lenders that made a $449 million construction loan to one of the Turnberry family of real estate development companies.

Lehman, the giant investment banking company that failed in 2008, also made a loan to the Town Square developers.

"This filing is not a surprise, nor is it new,'' Mike Wethington, general manager of Town Square Las Vegas, said in a statement.

"Our lenders filed their initial foreclosure action last summer, and we have continued to discuss a resolution with them. Those talks are ongoing," he said. "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."

A brother and sister, Jeffrey and Jacquelyn Soffer, control a majority interest in the Turnberry companies, which own Town Square.

The siblings opened the project in November 2007 on Las Vegas Boulevard South between Sunset Road and the Las Vegas Beltway. It contains 900,000 square feet of retail space and 250,000 square feet of office space.

The bankruptcy court motion claimed that the construction loan has been in default since March 2009. Despite comments to the contrary from Turnberrry, negotiations to restructure the loan have "broken down," according to the motion,

An appraisal in May 2010 estimated the market value of the mall at $415 million, $34 million less than the amount owed on the construction loan, according to the motion.

The bankruptcy judge, however, has an "automatic stay" in the case preventing foreclosure on a $95 million loan made by Lehman. Turnberry is suing Lehman based on claims that the company promised but failed to make a $625 million loan to refinance the construction loan and the $95 million Lehman loan.

In its motion, the Bank of Nova Scotia said it believes the Lehman loan was used to fund equity investments in Town Square and other entities. The Bank of Nova Scotia argues that Lehman has no property interest in Town Square.

The project's office space is 90 percent vacant, compared to an average vacancy rate of 25 percent in the Las Vegas market, said John Stater, research manager of Colliers International. Turnberry said the retail space has 13 percent vacancy.

The lenders face good prospects for selling Town Square to a new owner. "We're starting to see more buyers come into the market," Stater said.

Some buyers want to buy distressed real estate at deep discounts but others will pay "a fairly good price" for high-quality, fully leased retail centers, the analyst said.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.