Vegas Mega-Resort Rolls Snake Eyes
Another lavish multibillion-dollar Las Vegas Strip resort project has suffered a recession-related setback: On June 9, the $3.1-billion Fontainebleau Las Vegas, which is about 70% complete, filed for Chapter 11 bankruptcy protection. Construction of the 63-story hotel-casino-retail complex is now halted.
Scheduled to open in October, the project is being built by Fontainebleau Resorts LLC, an investment group led by Miami-based developer Jeffery Soffer, who also owns the famed Morris Lapidus Fontainebleau hotel in Miami Beach. It so far has invested over $2 billion in the Las Vegas project.
The bankruptcy filing follows the departure of Glenn Schaeffer, Fontainebleau Resorts’ co-founder and top executive, in late May. His position as CEO, president and member of its board of managers remains vacant. On April 23, Fontainebleau Resorts filed a $3-billion lawsuit in Clark County District Court against the project’s 11 lenders for refusing to provide $800 million of prearranged financing. The complaint called it “nothing more than the banks’ baseless attempt to walk away from the project and abandon their obligations.” It is a crucial chunk of funding needed for the project’s completion, industry sources say.
“When banks, especially ones that have received taxpayer dollars, make a commitment to finance a worthy project with thousands of existing jobs on the line, they have an obligation to keep that promise,” says Majority Leader Harry Reid (D-Nev.).
Lenders include Bank of America, which agreed to provide $100 million, and JP Morgan Chase, which was to provide $90 million. The banks have received a combined $77.5 billion of federal bailout aid. The Union Labor Life Insurance Co. Investment Co., a unit of union-owned ULLICO Inc., Washington, D.C., also committed $30 million toward Fontainebleau’s construction through its “J for Jobs” program, which creates jobs for union workers. ULLICO and Fontainebleau reportedly had been in talks about additional financing to bridge the gap, says a project official who requested anonymity. ULLICO Chief Investment Officer Herbert Kolben declined comment.
J for Jobs is no stranger to Las Vegas. It has underwritten several projects along the Strip, including the $45-million Turnberry Towers and the $119.6-million Allure Las Vegas. In 2004, it provided $100 million for Wynn Las Vegas, creating more than 30 million work hours, or the equivalent of 16,386 union jobs, which J for Jobs’ officials say is the most ever generated under the program.
On April 20, lenders terminated Fontainebleau’s project financing based on “one or more events of defaults,” but failed to specify the nature of the defaults, says a company spokesman. Construction has been on life support during the last few months, scaling back from 3,300 craft workers to 250. It was expected to employ a peak of 5,000 during the final push toward completion.
“They were already operating with a skeleton crew and continuing to lay people off. Now, the contractor liens are starting to accumulate, and they owe more than $250 million to subcontractors,” says another project official, who requested anonymity. “You have a significant number of contractors who are owed significant amounts of money. If you want them to finish the job, you have to figure out a way to pay them off.”
Turnberry West Construction Inc., Las Vegas, the project’s general contractor, is a Soffer-owned company, but it does not self-perform any of its work. Instead, it relies upon a network of specialty contractors to perform construction. Colsanti Specialty Services Inc., Macomb, Mich., and Ceco Concrete Construction LLC, Tempe, Ariz., are the project’s main concrete contractors.
The 25-acre Fontainebleau complex consists of a 737-ft-tall, 3.4-million-sq-ft cast-in-place concave-shaped tower, with a blue-glass skin and floor plates averaging 51,500 sq ft. Plans call for 1,018 condo-hotel units, a 100,000-sq-ft casino, a 60,000-sq-ft spa and a 3,200-seat performing arts center. There also will be 300,000 sq ft of retail space, 390,000 sq ft of conference area and meeting rooms, and 27 restaurants and nightclubs.
Fontainebleau’s economic importance to the region has intensified following the recent delay and cancellation of other Strip mega-projects, including the $4.8 billion, 5,000-room Echelon resort development, which resulted in the loss of 5,000 construction jobs.
Harrah’s Entertainment Inc., earlier this year, delayed opening a new $375-million, 350-ft-tall hotel tower at Caesars Palace due to a decline in the number of visitors to the city. The 23-story Octavius Tower was set to open this summer as part of a $1-billion casino-resort upgrade and expansion. Las Vegas Sands Corp. also has halted work on its $600-million, 398-unit St. Regis condominium tower, which had been expected to open next March.
The project deferments have hobbled the region’s once robust construction industry, resulting in a loss of 22,600 jobs statewide over the past year, according to the Nevada Dept. of Employment, Training and Rehabilitation. Construction once accounted for 11.2% of all employment within the state, but it now makes up just 8.2% of that total, the agency says.
Fontainebleau is taking steps to secure the construction site until new funding can be obtained. “They are just trying to waterproof it, and make sure all the doors are in. It will not be a long-term protection. They just want to protect the asset, but for a much shorter period of time than Echelon,” says Marc Furman, senior administrative assistant with the Southwest Council of Carpenters in Las Vegas. “There is a lot of stuff already in the building, and you need to protect it so it does not get damaged. It is so far done that I believe it will eventually get completed.”
Even so, the lawsuits have already begun. CCCS International, a Summerville, S.C.-based construction consulting firm, filed suit in March against Fontainebleau Las Vegas for contract termination "for no justifiable basis" as well as non-payment of more than $1 million in fees.
