Fontainebleau accuses Deutsche Bank of railroading its project

May 13, 2009 8:04 PM
Staff & Wire Reports |

The soap opera-like saga surrounding Fontainebleau Las Vegas and its reluctant lenders reached new depths yesterday when developers of the Strip hotel/casino charged Deutsche Bank with trying to railroad the project.

In an amendment to its $3 billion lawsuit against Deutsche Bank and 10 other lenders, Fontainebleau accused Deutsche Bank of a conflict of interest because of the bank’s ownership of the nearby Cosmopolitan hotel/casino project.

Deutsche Bank is one of 11 lenders who pulled $770 million in Fontainebleau Las Vegas funding after serving the project’s developer with a notice of default.

The amended lawsuit accuses Deutsche Bank of "seeking to destroy the Fontainebleau in order to minimize competition" against the $3.9 billion Cosmopolitan, which is owned by the bank and is scheduled to open the middle of next year.

The amended lawsuit also seeks additional penalties against Deutsche Bank because of its role in stopping the Fontainebleau’s funding.

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The lawsuit accuses the bank of "tortious interference" in convincing the other banks to breach their commitments to loan Fontainebleau the money to complete the project. Further, Deutsche Bank is continuing to undermine the developer’s "attempts to resolve the pending dispute" with the banks, according to the lawsuit.

Deutsche Bank responded in an e-mail statement, saying "we believe the claim in the amended complaint is without merit, and we will defend ourselves vigorously against this allegation."

Deutsche Bank is responsible for $80 million of the disputed loan. Five banks had committed more, including Bank of America, which controls $200 million of the loan.

Bank of America said Tuesday discussions with the developer continue regarding restructured financing. The bank declined to comment on the amended lawsuit.

The Cosmopolitan will have 2,998 hotel-condominium units on 8.5 acres of Las Vegas Boulevard between MGM Mirage’s CityCenter and Bellagio.

The $3.1 billion Fontainebleau project, which is scheduled to open late this year, is designed for 3,815 hotel and condominium units on 24 acres of the Strip. It is located north of the Riviera Hotel.

Both projects are designed with casinos, shops, restaurants and other amenities.

Deutsche Bank bought the Cosmopolitan in a foreclosure sale in August for $1 billion after original developer Bruce Eichner defaulted on the project. The bank has been funding construction.

Deutsche Bank is rumored to have an agreement with Hilton Hotels Corp. to purchase the Cosmopolitan before its completion, although both sides have declined comment.

In the initial lawsuit, filed in Clark County District Court on April 23, Fontainebleau’s developers said they did not default on any loans and that the banks’ termination of the loan was "nothing more than the banks’ baseless attempt to walk away from the project and abandon their obligations."

The project’s officials and supporters, which includes Senate Majority Leader Harry Reid, have pointed out that many of the banks that stopped the loans received billions of dollars in federal bailout money that was intended to be used to increase the flow of credit for businesses.

The Germany-based Deutsche Bank, however, received no federal money from the U.S. government.

The lending dispute has brought construction on the Fontainebleau project to a near standstill with the vast majority of the 3,300 construction workers laid off in late April.

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