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Arnold M. Knightly

Construction halted on Fontainebleau Las Vegas

15 June 2009

LAS VEGAS, Nevada –- Construction on the Fontainebleau Las Vegas has been halted and the 24-acre site is being secured while the project is in bankruptcy court, a project spokesman confirmed Thursday.

"There is a fairly significant contingent of security at the site now," Fontainebleau spokesman Lance Ignon said. "But the question is how far you want to wrap the physical structure? We want to determine if some very near-term events in court may preclude the need to wrap it entirely and allow us to resume construction."

Fontainebleau Las Vegas' attorneys late Wednesday filed a motion seeking an expedited hearing on its lawsuit against a group of lenders. Fontainebleau is asking that the banks release $656 million in funds immediately so construction on the Strip project can resume.

A bankruptcy court scheduled a hearing Wednesday to set a date to hear the motion.

Fontainebleau wants the court to order the banks, led by Bank of America and JPMorgan Chase, to provide the funding they pulled in early March.

"Prompt adjudication of this motion will assist in the ultimate disposition of this case by establishing the revolver banks' breach and plaintiff's right to hundreds of millions of dollars in additional cash collateral," Fontainebleau Las Vegas lawyers wrote in their motion. "Indeed, a favorable resolution of this litigation is the only means by which to obtain funding to complete construction of the project."

The lack of funding led to Tuesday's bankruptcy filing by Fontainebleau Las Vegas and two affiliates seeking Chapter 11 protection in U.S. Bankruptcy Court in Southern District of Florida in Miami.

Fontainebleau Resorts, the project's developer, in April originally filed a $3 billion lawsuit against the banks in Clark County District Court, but moved the lawsuit to the Florida bankruptcy court when it filed Tuesday night.

"This lawsuit is an important and valuable asset of Fontainebleau Las Vegas' bankruptcy estate and its resolution is essential to a resumption of construction and a successful reorganization," David Friedman, an attorney for Fontainebleau Las Vegas, said in a statement Wednesday.

The project's developer made a decision early last week to "button the project up" while Fontainebleau executives were preparing for a possible bankruptcy, people familiar with the situation said.

The 63-story, 3,815-room development was 70 percent complete when work was slowed in late April after the banks pulled their funding.

Nearly 3,000 construction workers were laid off in late April, but approximately 250 workers stayed on the job through the bankruptcy filing.

The subcontractors are owed more than $250 million dating back 21/2 months, according to one project official who asked to remain anonymous.

"People continue to work on a good faith basis," the official said. "If they had some place else to go, they would be gone."

The developers are securing the project site because of concerns about theft of construction and furnishing materials and vandalism of some of the rooms on the lower floors that have been fully furnished.

Open areas of the project, such as areas where windows haven't been installed, will need to be covered.

"I think they are just trying to waterproof it, and make sure all the doors are in," Marc Furman, administrative assistant for the Southwest Regional Council of Carpenters, said. "It won't be a long-term protection. They just want to protect the asset, but for a much shorter period of time than say, Echelon."

Boyd Gaming Corp. halted work on the $4.8 billion Echelon project in August, 14 months after breaking ground. The project had $500 million of work completed and three of the five proposed hotel towers were up to the eighth floor of concrete and steel construction.

Boyd has been paying for round-the-clock security to guard the site, which still has cranes and other heavy equipment on the site, against theft and vandalism.

"(Fontainebleau) is a much more fragile asset," Furman said. "There is a lot of stuff already in the building, and you need to protect it so it doesn't get damaged, and make sure the security is there."

The Fontainebleau Las Vegas is 737 feet tall with 3.4 million square feet. Along with the rooms, the site includes a 100,000-square-foot casino, a 60,000-square-foot spa and a 3,200-seat performing arts center, nearly 300,000 square feet of retail space, 390,000 square feet of conference area and meeting rooms, and 27 restaurants, nightclubs and bars.