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Arnold M. Knightly

Fontainebleau files motion to leave offices

9 July 2009

LAS VEGAS, Nevada –- Fontainebleau Las Vegas employees have moved into new offices in Las Vegas while the developer tries to get the bankrupt Strip project back on track.

Company attorneys on Wednesday filed a motion asking the Florida bankruptcy court for permission to break its lease on offices near the construction site. Fontainebleau Las Vegas is paying nearly $31,000 per month for those offices, the company said in the filing.

Nearly 75 employees now work at the old Pepsi offices near Polaris and Sirius avenues, a former Fontainebleau employee said. Nearly 160 people worked in Las Vegas when the project filed for bankruptcy.

Fontainebleau was occupying two suites in the Plaza Building at 101 Convention Center Drive, a mile south of the stalled mixed-use development on June 29, the filing said.

The project's operations, accounting and information technologies worked in the building, which has been under lease since September 2007. The project filed for Chapter 11 bankruptcy June 9 in U.S. Bankruptcy Court in the Southern District of Florida. The lease is scheduled to expire March 31, 2010.

The company was served with a default notice June 12 stating Fontainebleau owed more than $30,000 in past-due rent.

The court filing states that if Fontainebleau is not allowed to cancel the lease, which expires in March, "the monthly lease payments will only serve as an administrative burden" on the company with no added benefit.

Wednesday's filing was the latest motion Fontainebleau attorneys have filed in response to motions from creditors.

Late Tuesday, Fontainebleau attorneys said in a filing that Fontainebleau did not default on its loans as claimed by several banks. The filing asks the court to issue a summary judgment in favor of the project's owners.

The developer is seeking $3 billion in damages from a group of banks led by Bank of America that backed out of an agreement to provide $656 million in financing. The developers said they filed for bankruptcy because of the banks' action.

The banks have pointed to possible defaults and cost overruns as reasons for their decision to back out of the loan agreement.

Fontainebleau's filing said the developer requested the funds in March because the project "faced a deteriorating local economy" and "a financial crisis in which their banks were failing" or "being acquired on the brink of failure."

Fontainebleau officials said they became worried about whether the banks would be able to fulfill their promise to loan the money if the developer didn't secure the money soon.

They noted that Lehman Bros., a major retail lender on the project, last year filed for bankruptcy while another lender, Bank of Nevada, was seized by the federal government. Merrill Lynch also was acquired by Bank of America, the administrative agent on the disputed loan.

With more than $2 billion in equity and financing committed to the project, the developer asked for the outstanding $656 million because it was concerned the banks "would attempt to evade their commitments and pull the plug or simply go out of business," the filing said.

The company last week also filed a response to a motion seeking to move the bankruptcy case to Clark County.

In its response, Fontaine-bleau notes that the creditors who filed the motion represent less than 5 percent of the more than $2 billion in claims against the project.

Also, the creditors are from various jurisdictions, including Milan, Italy; London; Tokyo; Paris; New York and other cities around the United States.

Las Vegas-based attorney Greg Garman, who represents 17 creditors holding more than $111 million liens, rejected Fontainebleau's response.

"The argument they advance basically amounts to Jeff Soffer (the majority owner) is in Miami and because Jeff Soffer is in Miami this case should be in Miami," said Garman, who will file a response with the Florida court by Friday.