Tuesday, April 21, 2009 | 2:10 a.m.
Turnberry, the developer that launched the high-rise condominium trend in Las Vegas in the boom years of the early 2000s, is now being sued by its partner in a recent luxury condo project that didn't generate sufficient sales when the residential real estate market weakened.
The Prudential Insurance Company of America, which says it was forced to cover a bank loan on the Turnberry Towers development and then take over the project, filed suit in U.S. District Court in Las Vegas on Friday against Turnberry West LLC, Turnberry Residential Pipeline LP, Turnberry Residential Limited Partner LP and Turnberry principal Jeffrey Soffer.
Prudential is Turnberry's partner in the luxury condominium development at Karen Avenue and Paradise Road near the Las Vegas Hilton. The project consists of 636 condominiums in two 45-story towers, the suit said.
Turnberry earlier developed the four-tower Turnberry Place condominiums on Paradise Road and the three-tower Residences at MGM Grand.
Officials at Turnberry could not immediately be reached for comment on the lawsuit. John Riordan, an official at Turnberry in Las Vegas, was quoted recently by the Las Vegas Business Press as saying about 200 units remain to be sold at Turnberry Towers. Turnberry officials also have said residents of the two towers will be unaffected by Prudential's takeover of the project.
Besides its condominium towers, Turnberry is known for developing the Town Square shopping center at Las Vegas Boulevard and Interstate 215 and for its investment in the 3,800-room Fontainebleau casino resort now under construction on the Las Vegas Strip and next to Turnberry Place.
Prudential says it lived up to its end of the deal to build the Turnberry Towers by investing more than $164 million, but that Turnberry has failed to pay $10 million it agreed to pay on a construction loan and it has failed to cover costs and expenses in excess of the project's budget.
Prudential charged Turnberry has wrongfully applied condominium sales proceeds and earnest money deposits to its personal benefit and its “misconduct” has left Prudential on the hook for $35 million more than what it had agreed to invest in the project.
Prudential said it was forced to assume control of the project “due to developer's misconduct'” and has been compelled to honor obligations Turnberry had promised to honor for contracts, liens, claims, taxes and other costs and expenses.
Cited in the lawsuit was a 2006 construction loan for $360 million that was funded by several banks and administered by Bank of America. The suit charges that between 2006 and 2009, Turnberry wrongfully diverted $12 million in condominium sales proceeds to fund cost overruns rather than to pay down the balance on the loan. Turnberry is also accused of failing to refund required customer purchase deposits totaling $4.2 million.
When the loan matured in February, Prudential said it thought it would need to pay $140 million and Turnberry would need to pay $10 million. But Bank of America determined another $12 million was needed, the suit said.
Prudential says that instead of paying its $10 million, Turnberry refused, citing Prudential's alleged prior breach of the parties' contribution agreement.
Prudential said that to prevent a mortgage lien from encumbering the property and subjecting it to foreclosure, it was then forced to purchase the loan by paying Bank of America $164 million.
After Prudential took over the project, it said it learned that Turnberry had misdirected funds set aside for payment to subcontractors and used that money to fund cost overruns in violation of the development agreement.
Prudential said it now faces another $7 million in annual expenses until all the condominiums are sold -- the sell-out date wasn't projected in the lawsuit.
In the lawsuit, Prudential is seeking compensatory damages and a declaration that Turnberry has breached its duties under the partnership and that Turnberry has forfeited its interest in the partnership.
The suit was filed by attorney Thomas Ryan of the Las Vegas law firm of Lewis and Roca and Randy Papetti of the firm's Phoenix office.