The Fontainebleau LV is the latest in a long line of Las Vegas builders having money problems. It filed for Chapter 11 bankruptcy at 11pm on Tuesday June 9th. This newest Las Vegas Boulevard property was to be an upscale resort with over 3,000 rooms. The Fontainebleau was going to include expensive shops, restaurants and a spa. Although it was widely known to be in financial trouble, no one on the outside of the company was entirely sure what course of action the developers would take. Three companies related to the Fontainebleau Las Vegas project all filed paperwork for bankruptcy protection, these companies included Fontainebleau Las Vegas Holding and Fontainebleau Las Vegas Capital Corp.. Fontainebleau, the Las Vegas condominiums project is affiliated with the Fontainebleau Miami Beach Development, but it is a separate legal entity and is not affected at all by this bankruptcy.
The developer of Fontainebleau has claimed in separate legal paperwork that various lenders have hampered the success of Fontainebleau and contributed to its demise. Howard Karawan, an officer of the Fontainebleau, is quoted in the Review Journal as saying, “It is unfortunate that our lenders forced us to take this step. By reneging on the revolving credit facility, they effectively shut down the project and put thousands of people out of work.” The Fontainebleau alleges, in a lawsuit brought April 23, 2009, that it's lender's didn't give it the funding that it was promised. The Fontainebleau claims it was owned $770 million in financing to finish the plans.
The banks say that this is untrue and that Fontainebleau is actually to blame because it defaulted on its loans. Due to the bankruptcy filing, the 3 billion dollar lawsuit has been moved to the bankruptcy court. Also, the builder also has complained about a conflict of interest with Deutsche Bank because the bank owns the Cosmopolitan which is a rival in the Las Vegas condominiums market. Secured and unsecured creditors are both included in the lawsuit against the lenders. Twenty secured creditors have been listed in the suit. The list of unsecured creditors hasn't been filed yet.
The Fontainebleau developer says that if the banks kept their agreements these events wouldn't have happened. Three thousand people working on the building of the Fontainebleau are now unemployed as of April as are lots of office support workers. The Fontainebleau was going to provide Las Vegas with several thousand new jobs. Now, not only are those future jobs in jeopardy, but thousands of construction workers have already been laid off.
This is another big set back for LV condo project developers, most of whom are facing financing problems and low sales. With the bad news comes the good news for buyers. It is definitely a condo buyers market in Las Vegas right now. Condo and town home prices are now at an average of $65,000, which is 53.4% lower than last year. My opinion is that house and condo prices in Las Vegas will continue to decline a little more through this year, but even considering that, you can get great value at today's prices.
