Company sues to block foreclosure sale of hotel

By Steve Green

Thursday, Oct. 1, 2009 | 2:05 a.m.

A company planning to renovate and reopen a Las Vegas hotel on Paradise Road has sued bankrupt Lehman Brothers Holdings Inc. in hopes of blocking a foreclosure sale of the property.

A/P Hotel LLC filed suit against Lehman Brothers on Tuesday in Clark County District Court.

At issue is the closed Atrium Suites Las Vegas hotel, 4255 S. Paradise Road, next to the Hard Rock hotel-casino. The non-gaming hotel was previously known as the Crowne Plaza.

A/P says in its suit that it planned to purchase and renovate the 202-room property into the Paradise Boutique Hotel and that in 2007 it obtained a $66 million lending commitment from Lehman Brothers for the project.

Of that amount, $39.8 million was funded at closing and other funds were placed in escrow or were to be disbursed as the renovations moved along, with a projected completion date of May 31 of this year.

The lawsuit said funding for the project was halted after the collapse of Lehman and its bankruptcy on Sept. 15, 2008, which heightened the U.S. financial crisis.

A/P Hotel has borrowed some $55.2 million of the $66 million but had to halt work on the project when Lehman failed to respond to a disbursement request after its bankruptcy, the lawsuit says.

The lawsuit says that on Sept. 19, 2008, A/P sent a letter to Lehman seeking assurances it would continue to fund the project.

"Plaintiff specifically notified Lehman Brothers Holdings that if it failed to fund, plaintiff would not be able to continue the renovation work on the project and would experience significant losses and damages," the lawsuit says.

A/P's suit says Lehman did not respond to the letter and failed within the required 10-day period to fund a Sept. 29, 2008, disbursement request for $1.3 million.

A/P then stopped making debt service payments, triggering foreclosure proceedings by Lehman, the lawsuit says.

This week's lawsuit says Lehman has continued to refuse to fund the project.

"As a result, the project ceased," A/P's suit said.

Lehman, in bankruptcy court papers, has asserted it can foreclose on the project as early as Oct. 12, but it agreed to allow A/P to contest the foreclosure with the Nevada lawsuit.

A/P says its obligations under the lending contract were excused by Lehman's breach of the deal.

A/P is seeking a court order blocking the foreclosure, charging in its lawsuit that since Lehman breached the loan agreement, it is not entitled to foreclose.

"The inability to complete the project, exacerbated by market declines in recent months, has greatly diminished the project's value," the lawsuit says.