Housing Doom Housing Bubble Blog

Wow- how bad does it have to be for this to happen?  A major casino project on the Strip facing foreclosure:

[Hat tip to JW and to M!]

The developer of the $3 billion Cosmopolitan Resort & Casino says its lender, Deutsche Bank, filed a notice of foreclosure on the property for a construction loan of $760 million that just matured. Developer and owner Ian Bruce Eichner says in a statement that his company is working with Deutsche Bank and Merrill Lynch to find new investors. Eichner tells The Associated Press in the statement that, "This action by our lender comes as no surprise." He blames challenges in the real estate and capital markets for difficulty in raising capital for the project, which is now under construction.

This project is located right between the new City Center and the Ballagio- as good a location as one can get on the Strip.  Their website describes this project:

• • Two full-service high-rise hotel & condo-hotel towers extending 52 floors and rising
  approximately 600 feet
  • 6.9 million square feet of development on an 8.5 acre site
  • 2,998 luxury hotel rooms, suites, penthouses & condo-hotel units offering unmatched
  panoramic views of the Las Vegas Strip
  • 150,000 square feet of integrated ballroom, business, convention and conference space to
  be managed by Global Hyatt Corporation
  • 80,000 square foot casino incorporating the most advanced gaming technology
  • 265,000 square feet of shopping and dining encapsulated within a sleek and striking
  custom-designed 3-story glass façade and accessible directly from Las Vegas Boulevard
  • A multi-purpose theater
  • 40,000 square foot spa, salon & fitness center
  • Three wedding chapels
  • A 5-acre playground with multiple outdoor decks, including the exclusive Cosmo Club
  with its beautiful sandy beach overlooking the Las Vegas Strip, an adult deck featuring
  European-style bathing, multi-level bungalows and an amazing array of cabanas with
  fabulous Vegas views
  • 5-level underground parking structure for up to 3,800 vehicles

The financial difficulties of the Cosmopolitan brings up some interesting questions- What will this mean for the City Center project, as well as others on the Strip?  What does this mean for existing casinos?

Whatever the answer, it is likely that rounding up a new batch of investors won’t be easy.  The credit crunch has made all kinds of financing more difficult to obtain, and projects like this require require a lot of financing, with a long lag time before any revenue is generated.

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For those of you who have been hoping to see some of Wall Street’s less savory subprime players get their "just desserts" it may not be happening:

A decision by the U.S. Supreme Court could make it more difficult for investors to sue over the collapse of the subprime mortgage market.

Yesterday’s ruling puts strict limitations on when lawyers, accountants, and other professionals can be sued in securities fraud cases. The 5-3 decision in Stoneridge Investment Partners v. Scientific-Atlanta Inc. means that in many lawsuits over stock prices, only the "primary violators" of the alleged fraud can be sued. The court said private plaintiffs couldn’t bring such suits against defendants for "aiding and abetting" fraudulent bookkeeping.

While the decision’s most immediate effect is expected to be felt in lawsuits by Enron’s investors against investment banks, the decision could also put limits on suits by investors in mortgage-backed securities over the ongoing subprime mortgage crisis.

"There are a lot of people, credit rating agencies, mortgage consultants, and others who are immunized by this decision," an expert on corporate governance at Columbia Law School, John Coffee, said.

"The importance of this decision to the subprime mortgage crisis is that professionals, whom we call ’secondary actors,’ are less likely to be dragged into expensive litigation," a co-chairwoman of the securities litigation practice at Foley Hoag LLP, Lisa Woods, said. Other legal experts questioned whether the decision would hinder investors holding mortgage-backed securities. Yesterday’s decision deals only with suits brought under federal securities laws.

Just exactly how much this ruling "immunizes" players remains to be seen:

The majority opinion, written by Justice Kennedy, notes that the alleged fraud "took place in the marketplace for goods and services, not in the investment sphere."

That seeming distinction between the "marketplace for goods" and the "investment sphere" could mean the effect of the decision is relatively narrow and wouldn’t apply to some securities fraud cases.

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Here’s RealtyTrak’s VP of Marketing Rick Sharga encouraging buyers to jump in and buy foreclosures in the foreclosure "hot spots":

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