Another Bankrupt Las Vegas Condominiums Project

     There is more carnage in the Las Vegas condominiums market, as of yesterday, June 9, 2009, the Fontainebleau filed for Chapter 11 bankruptcy protection in the state of Florida. The Fontainebleau is a multi-use Las Vegas strip property that was designed to have 3,815 hotel rooms, condos, a casino, stores, 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. Fontainebleau and two of it’s entities, Fontainebleau Las Vegas Holding and Fontainebleau Las Vegas Capital Corp., all individually filed paperwork on Tuesday night. 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 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.” On April 23, 2009 lawyers for Fontainebleau filed a lawsuit against some of their lenders including Bank of America and JP Morgan Chase because they allege the banks defaulted on an agreement to provide $770 million in financing which was needed to complete the project.

Banks Make A Counter Claim 

The banks in turn counter that Fontainebleau defaulted on a loan. Due to the bankruptcy filing, the 3 billion dollar lawsuits have been moved to the bankruptcy court. In addition, the developer 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. Also included in the lawsuit against the banks are secured and unsecured creditors. A total of 20 secured creditors are listed in the complaint, as of now, the list of unsecured creditors hasn’t been filed with the courts yet.

The developer claims if it were not due to the problems with securing money, these developments would not have occurred. In April, 3,000 construction workers working on the Fontainebleau were let go as were additional office staff employees. In addition to the current construction staff job losses, thousands of potential new jobs are either lost or postponed due to the delay in the opening of the Fontainebleau.

All this is another set back for Las Vegas condominiums developers. On the other hand, this can only be good for buyers, as long as you’re not one of the many buyers in Las Vegas who have put down large down payments for a condo only to have the project stalled and unable to get your cash back. Even with another bankrupt stalled condominium project, things are good for buyers. Today the Review Journal business section said condos are down 53.4% from one year ago and the average price of a condo or townhome is $65,000. Believe it or not, I actually think prices could still go a little lower, but I wouldn’t hesitate to buy a unit today at the right price.

Please view my other hub on house selling: Why Can't I Sell My House