Financing imperils projects

Two multibillion-dollar Strip developments less than two miles apart could become victims of the tightening credit markets and rising construction costs.

Wall Street investment house Deutsche Bank last week notified developers of the Cosmopolitan that it will begin foreclosure proceedings on the mixed-use development being built in the shadow of MGM Mirage’s massive CityCenter complex.

A little north on the Strip, a potential $6 billion development modeled after the Plaza in New York City that was to be built on the site of the imploded New Frontier may be put on hold because of the current subprime crisis.

“It’s extremely difficult to borrow capital in the current market,” Wachovia Capital Markets bond analyst Dennis Farrell Jr. said Monday. “This is not only happening in Las Vegas but across the country.”

The Cosmopolitan foreclosure comes about three weeks after an announcement that a deal had been reached to keep the Strip project from entering foreclosure. The Wall Street Journal reported Saturday, however, that New York-based developer Bruce Eichner was unable to complete the tentative deal to save the project.

The Review-Journal reported last month that a deal was being completed between Global Hyatt Corp. and New York-based Marathon Asset Management to recapitalize the condominium-hotel project.

The two groups had agreed to contribute cash in exchange for large equity stakes in the Cosmopolitan. But the deal could not be completed by a deadline Thursday. Deutsche Bank, the lead lender on a $760 million loan, notified Eichner, Hyatt and Marathon that it was beginning foreclosure proceedings on the project.

Analysts said they believe the move by Deutsche Bank could help push the bank’s continuing negotiations with Hyatt and Marathon to a faster resolution.

Eichner and Cosmopolitan Chief Operating Officer Scott Butera did not return phone calls Monday. Hyatt representatives also did not return a phone call seeking comment.

Increased construction costs for the Cosmopolitan helped drive the budget from its original $2 billion price in early 2006 to a current estimate of $3.9 billion.

Prospective lenders said in January that Eichner needed to increase his equity to at least 10 percent because of the rising costs before they would provide new funding.

Eichner contributed the 8.5-acre site, which was purchased for $90 million in 2004, and $50 million from a subsidiary of Global Hyatt.

Eichner told the Wall Street Journal last week that 83 percent of the project’s condominium units have been sold, with buyers putting down 20 percent nonrefundable deposits on sales totaling $1.35 billion.

Perini Building Corp., the Cosmopolitan’s general contractor, said Monday it will continue construction on the project. Perini, which has been involved with the Cosmopolitan from the beginning, signed a month-to-month agreement with Deutsche Bank on Jan. 18. The Cosmopolitan had been expected to be completed in late 2009.

While financing for the Cosmopolitan project is in limbo, the developers of the Plaza have decided to shelve their project until the credit markets loosen.

The Israeli investors who own on the 34.5-acre New Frontier site told Israel’s most widely distributed newspaper, Yediot Ahronot, the project’s sponsors do not plan to seek financing until the current subprime crisis ends.

Plaza Las Vegas Chief Operating Officer Daniel Wade declined to comment on Monday, saying any statements will come through the project’s public relations firm.

However, Elad Group President Miki Naftali said late Monday in an e-mail the “there is no credibility to the rumor” and that “the project is forging ahead.”

The Plaza is being developed by Elad IDB Las Vegas, a joint venture between New York-based Elad Group and Property & Building Corp., a subsidiary of Israeli-based IDB Holdings Corp.

Details of how the development group planned to finance the project have never been made public. The group paid approximately $35 million per acre, which set a record for Strip land.

Deutsche Bank gaming analyst Bill Lerner said the project’s financing was questionable even before the lending markets tightened.

“The ability to sell expensive residential units probably would have given it a chance,” Lerner said. “That’s probably not on the table right now. The cost of development, not just the financing cost but the construction cost, has materially inflated.”

Analysts said that if banks are lending money at all, it is at a rate three to four percentage points higher than last year.

The Plaza plans called for seven towers as high as 671 feet containing 4,100 hotel rooms and 2,600 condominium units. It was to be anchored by the Strip’s largest casino at 175,900 square feet. It was scheduled to open in 2012.

The project received approval from Clark County planning officials in December. Plans for the project are scheduled to go before the Clark County Commission on Wednesday.

The postponement of the Plaza takes 6,700 rooms out a projected growth pipeline of nearly 45,000 rooms that were to be coming online by 2012.

With suspended or canceled projects, including a new resort with 9,000 rooms on the Tropicana site, the 3,000-room W Las Vegas on Harmon Avenue and the 1,400-room Southern Highland Resort, the local room growth rate has significantly decreased during the past eight months.

“It’s like the perfect storm of negative factors that are going to continue to impact the pipeline here,” Lerner said.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or (702) 477-3893.

ad-high_impact_4
Business
A Walk Through Circus Circus
It only takes a short walk through Circus Circus to realize it attracts a demographic like no other casino on the Strip: families with young children. (Todd Prince/Las Vegas Review-Journal)
Morphy Auctions, a vintage slot machines seller, wants gaming license
Vice president Don Grimmer talks about Morphy Auctions at the company's warehouse located at 4520 Arville Street in Las Vegas on Thursday, Aug. 16, 2018. (Rick Velotta/Las Vegas Review-Journal)
Nevada's venture capital money doesn't stay in state
Zach Miles, associate vice president for economic development for UNLV, said there’s venture money in Southern Nevada, “but trying to find the right groups to tap into for that money is different.” According to a 2017 report from the Kauffman Foundation, Las Vegas ranked number 34 out of 40 metropolitan areas for growth entrepreneurship, a metric of how much startups grow. With a lack of growing startups in Las Vegas, investment money is being sent outside of state borders. The southwest region of the U.S. received $386 million in funding in the second quarter, with about $25.2 million in Nevada. The San Francisco area alone received about $5.6 billion. (source: CB Insights)
Neon wraps can light up the night for advertising
Vinyl wrap company 5150 Wraps talks about neon wraps, a new technology that the company believes can boost advertising at night. (Marcus Villagran/Las Vegas Review-Journal) @brokejournalist
Nevada on the forefront of drone safety
Dr. Chris Walach, senior director of Nevada Institute for Autonomous Systems, talks to a reporter at NIAS's new Nevada Drone Center for Excellence of Public Safety, located inside the Switch Innevation Center in Las Vegas. K.M. Cannon Las Vegas Review-Journal @KMCannonPhoto
Motel 8 on south Strip will become site of hotel-casino
Israeli hoteliers Asher Gabay and Benny Zerah bought Motel 8 on the south Strip for $7.4 million, records show. They plan to bulldoze the property and build a hotel-casino. Motel 8 was built in the 1960s and used to be one of several roadside inns on what's now the south Strip. But it looks out of place today, dwarfed by the towering Mandalay Bay right across the street.
Project billed as one of the world's largest marijuana dispensaries plans to open Nov. 1
Planet 13 co-CEO Larry Scheffler talks about what to expect from the new marijuana dispensary, Thursday, July 19, 2018. (Marcus Villagran/Las Vegas Review-Journal) @brokejournalist
Oasis Biotech opens in Las Vegas
Brock Leach, chief operating officer of Oasis Biotech, discusses the new plant factory at its grand opening on July 18. (Bailey Schulz/Las Vegas Review-Journal)
UNLV Tech Park innovation building breaks ground
Construction on the first innovation building at the UNLV Tech Park is underway. (Bailey Schulz/Las Vegas Review-Journal)
Caesars Forum Meeting Center
Caesars broke ground Monday on its $375 million Caesars Forum Meeting Center (convention center) just east of the High Roller observation wheel. (Caesars Entertainment)
Technology reshapes the pawn shop industry
Devin Battersby attaches a black-colored device to the back of her iPhone and snaps several of the inside and outside of a Louis Vuitton wallet. The device, installed with artificial intelligence capabilities, analyzes the images using a patented microscopic technology. Within a few minutes, Battersby receives an answer on her app. The designer item is authentic.
Recreational marijuana has been legal in Nevada for one year
Exhale Nevada CEO Pete Findley talks about the one year anniversary of the legalization of recreational marijuana in Nevada. (K.M. Cannon/Las Vegas Review-Journal)
Young adults aren't saving for retirement
Financial advisors talk about saving trends among young adults. (Bailey Schulz/Las Vegas Review-Journal)
President Trump’s tariffs could raise costs for real estate developers, analysts say
President Donald Trump made his fortune in real estate, but by slapping tariffs on imports from close allies, developers in Las Vegas and other cities could get hit hard.
Las Vegas business and tariffs
Barry Yost, co-owner of Precision Tube Laser, LLC, places a metal pipe into the TruLaser Tube 5000 laser cutting machine on Wednesday, June 20, 2018, in Las Vegas. Bizuayehu Tesfaye/Las Vegas Review-Journal @bizutesfaye
Nevada Film Office Connects Businesses To Producers
The director of the Nevada Film Office discusses its revamped locations database and how it will affect local businesses. (Bailey Schulz/Las Vegas Review-Journal)
Opendoor isn't the typical house flipping company
Unlike most house flippers, the company aims to make money from transaction costs rather than from selling homes for more than their purchase price.
The Venetian gondoliers sing Italian songs
Gondolier Marciano sings a the classic Italian song "Volare" as he leads guests through the canals of The Venetian in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal)
Building In Logandale
Texas homebuilder D.R. Horton bought 43 lots in rural Logandale. (Eli Segall/Las Vegas Review-Journal)
Indoor farming in Southern Nevada
Experts discuss Nevada's indoor farming industry. (Bailey Schulz/Las Vegas Review-Journal)
Former Fontainebleau could have become a Waldorf Astoria
Months after developer Steve Witkoff bought the Fontainebleau last summer, he unveiled plans to turn the mothballed hotel into a Marriott-managed resort called The Drew. But if Richard “Boz” Bosworth’s plans didn’t fall through, the north Las Vegas Strip tower could have become a Waldorf Astoria with several floors of timeshare units. (Eli Segall/Las Vegas Review-Journal)
LVCVA CEO Rossi Ralenkotter announces plans to retire
Rossi Ralenkotter, CEO of the LVCVA, on Tuesday confirmed a Las Vegas Review-Journal report that he is preparing to retire. Richard N. Velotta/ Las Vegas Review-Journal
Cousins Maine Lobster to open inside 2 Las Vegas Smith’s stores
Cousins Maine Lobster food truck company will open inside Las Vegas’ two newest Smith’s at Skye Canyon Park Drive and U.S. Highway 95, and at Warm Springs Road and Durango Drive. Cousins currently sells outside some Las Vegas Smith’s stores and at Fremont Street and Las Vegas Boulevard. (K.M. Cannon/Las Vegas Review-Journal)
Las Vegas home prices to continue to rise, expert says
Lawrence Yun, chief economist at the National Association of Realtors, gives homebuyers a pulse on the Las Vegas housing market. (Eli Segall/Las Vegas Review-Journal)
NV Energy announces clean energy investment
The company is planning to add six solar projects in Nevada, along with the state's first major battery energy storage capacity. Bailey Schulz/Las Vegas Review-Journal
3 Mario Batali restaurants on Las Vegas Strip to close
Days after new sexual misconduct allegations were made against celebrity chef Mario Batali, his company announced Friday that it will close its three Las Vegas restaurants July 27. Employees of Carnevino Italian Steakhouse, B&B Ristorante and Otto Enoteca e Pizzeria, all located in The Venetian and Palazzo resorts, were informed of the decision Friday morning. Bastianich is scheduled to visit the restaurants Friday to speak to employees about the next two months of operation as well as how the company plans to help them transition to new positions.
Nevada has its first cybersecurity apprenticeship program
The Learning Center education company in Las Vegas has launched the first apprenticeship program for cybersecurity in Nevada. It was approved by the State Apprenticeship Council on May 15. (K.M. Cannon/Las Vegas Review-Journal)
TOP NEWS
News Headlines
ad-infeed_1
ads_infeed_2
Local Spotlight
Add Event
Home Front Page Footer Listing
Circular
You May Like

You May Like