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Fontainebleau work will not stop despite layoffs

4 May 2009

By Arnold M. Knightly and Tony Illia
and Tony Illia

LAS VEGAS, Nevada -- Putting the brakes on the $3.1 billion Fontainebleau Las Vegas project will create problems once the developer and contractors begin bringing back the work force to complete the project.

Dr. David Shields, director of the construction management program at the University of Nevada, Las Vegas, said just how long it will take to get the work force back to full speed will depend on many factors, including how long the project ends up being idled or slowed to whether the workers coming back to the project are new or if they have worked on the project before.

"When you're called back, there's a remobilization to the level that you were at with bringing all your tools and equipment back to the project," Shields said. "The contractors have to find the appropriate people. If they're new people, of course they'll have to become familiar with the project."

Fontainebleau Las Vegas' contractors began laying off and furloughing workers this week after a group of banks withheld a portion of a $130 million loan that was to be used to pay construction costs.

The 63-story, 3,815-room development is reportedly about 70 percent complete and is scheduled to open in October.

Early Friday, some workers were told they could not take the furloughs but would be laid off instead because the developers believe it will take longer than expected to straighten out the financial issues and the project could be shut down completely, a worker who did not want to be identified said.

"(The foreman) said it could take a couple months," said the worker. "That was longer than they thought when they offered the furloughs."

Union officials, however, said they think work on the project will continue.

"I don't think they are going to completely shut down," said Tommy White, secretary-treasurer of Laborers Union Local 872, which had 250 crafts workers laid off between general contractors and subcontractors. "They are too far along. Not everybody will get laid off on that project. But it's not going to be as big as push as it once was."

The laborers local has had 250 crafts workers laid off this week, he said.

Steve Redlinger, a spokesman for the Southern Nevada Building and Construction Trades Council, an affiliate of 17 labor unions, said the unions have not been given an indication if there are plans to shut down.

Work on the 24-acre site, however, was drastically slowed this week when contractors began pulling their work crews after it became increasingly obvious a construction payment scheduled for Thursday was not going to be made.

That furloughs aren't being offered now could slow down the project once contractors begin ratcheting up the work force again, though.

Union workers who have been laid off will have to go to the bottom of their union's out-of-work list, which already have hundreds of people waiting for jobs.

In the meantime, with work on the project slowing down, the developer and contractors have many issues to deal with besides their financing problems.

Decisions must be made on what to do with site-specific equipment, including tower cranes. Many machines are large and costly and take time to set up and disassemble.

The massive development requires large equipment for its construction. Many pieces are being rented, including two large tower cranes used for building the tower skyward.

High-value equipment items like copper wire, air handlers, and escalator equipment must be removed and safely stored elsewhere or face damage and theft if left unattended on the site.

"It takes a lot of money to close down a project," said Marc Furman, administrative assistant for the Southwest Regional Council of Carpenters. "And this (project) is further along than Echelon (Boyd Gaming's $4.8 billion Strip project that stopped construction in August). It's really interesting."

Fontainebleau Resorts, an investment group led by Miami-based developer Jeffrey Soffer, has invested about $2 billion in debt and cash in the project thus far. Some question the decision to slow development so close to completion.

"A project is going to be worth more as a completed operation as opposed to structural steel sticking out of the ground," said George Ogilvie, managing partner of McDonald Carano Wilson, a Las Vegas practice specializing in construction law.

Fontainebleau Las Vegas' problems began last week when 11 lenders pulled $800 million in arranged financing after the developer was served with a default. The developer filed a lawsuit against the banks in response.

Developers and the Bank of America-led lender group say they are negotiating a new "structured financing" for the project.

Copyright GamingWire. All rights reserved.


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