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Fontainebleau: Bank wanted to minimize Cosmopolitan competition

Updated Tuesday, May 12, 2009 | 6:14 p.m.

Fontainebleau Las Vegas

In an amended lawsuit filed Tuesday, developers of the Fontainebleau Las Vegas resort allege that Deutsche Bank – among a group of lenders that had agreed to finance the property's construction – conspired to hurt Fontainebleau to minimize competition with the Cosmopolitan, an under-construction resort the bank acquired out of foreclosure last year.

The future of the Fontainebleau Las Vegas, which is more than halfway complete, remains in jeopardy after lenders last month pulled $770 million in financing needed to finish the property. Fontainebleau developers have filed suit, alleging the banks unlawfully reneged on their financing obligations.

The amended complaint states that Deutsche Bank also sought to persuade other banks to pull funding for Fontainebleau Las Vegas and has worked to discourage other banks from working out their differences with the project's developers.

"This claim is an attempt by the Fontainebleau's developers to distract from the fact that they have breached their loan covenants," Deutsche Bank spokesman John Gallagher said. " We will defend ourselves vigorously against this meritless allegation."

The Cosmopolitan, with nearly 3,000 rooms, is under construction at the corner of Harmon Avenue and Las Vegas Boulevard for an expected opening next year. Fontainebleau was scheduled to open in October with more than 3,800 rooms between the Riviera and Sahara casinos. Both multibillion-dollar resorts plan to offer condominium-hotel units that owners purchase and rent to visitors.

In a letter sent to Fontainebleau Las Vegas, Bank of America – the lead bank arranging the $770 million loan – said developers defaulted on a loan agreement but did not elaborate. Fontainebleau denies any default on their part.

Work has slowed dramatically on the Fontainebleau and many construction workers have been laid off.

Deutsche Bank also provided funding for CityCenter, an $8.6 billion resort complex owned by MGM Mirage and Dubai World that will in open in stages this year.

Bank of America, Royal Bank of Scotland and Sumitomo Mitsui bank, which also loaned money for CityCenter, are Fontainebleau lenders named in the suit but are not the subject of conflict of interest allegations.

Deutsche Bank acquired the Cosmopolitan for about $1 billion after the developer defaulted on a construction loan. The developer had put less than $50 million into the project as equity.

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