Las Vegas Sun

November 23, 2017

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Hughes heirs object to proposal for separate Summerlin company


Steve Marcus

This March 2006 file photo shows a view of homes in Summerlin, looking south from the Red Rock Detention Basin.

Heirs of the late billionaire Howard Hughes filed an objection Friday to a plan in the General Growth Properties Inc. bankruptcy case in which the Las Vegas planned community of Summerlin would be spun off into a separate company.

Under a deal dating to 1996, the Hughes heirs were supposed to be paid half the value of Summerlin’s undeveloped land based on a 2009 appraisal, but that didn’t happen because of the bankruptcy of Summerlin parent General Growth (GGP).

Hughes had acquired 25,000 acres in western Las Vegas in the 1950s that eventually became Summerlin — named for his paternal grandmother.

His heirs sold the land in 1996 with the understanding they would be paid over time, due to uncertainties then about the real value of the property.

Over the years, the heirs have been receiving payments from General Growth, subsidiaries The Howard Hughes Corp. and Howard Hughes Properties Inc., and their corporate predecessors as Summerlin land was sold off and developed — with the final payment to be based on the 2009 appraisal.

On March 31, Chicago-based General Growth filed a motion for approval of procedures in which investment groups have agreed to pump $6.55 billion into the company and buy stock warrants at a value General Growth says is $519 million. The investors are Brookfield Asset Management, Pershing Square Capital Management and Fairholme Capital Management

Under this plan, certain General Growth assets around the county such as Summerlin would be spun off.

General Growth continues to consider competing bids for the company. Competing shopping mall owner Simon Property Group has already offered to buy General Growth, an offer General Growth has said it is weighing.

In their objection Friday, the Hughes heirs called the plan to create a new company called GGO (General Growth Opportunities) potentially an unfair transfer of value that could shortchange the Hughes heirs.

The heirs also charged that the plan to issue stock warrants under the Brookfield investment plan misvalued the warrants at $519 million. The Hughes heirs calculate the value at more than $884 million, “or a staggering and unprecedented 14 percent of the proposed investment.”

These investment agreements would dictate a reorganization plan for General Growth, even though they provide just a “cursory and inadequate description of the assets and liabilities to be contributed by GGP to GGO,” attorneys for the heirs said.

This means, attorneys for the Hughes heirs said, “parties in interest have no way of ascertaining what value, if any, GGO will ultimately have.”

“This proposed investment structure has the potential to result in a further windfall to the (investment group) at the expense of GGP’s equity holders,” the heirs complained.

The Hughes parties noted the value of the undeveloped land they have a stake in is still in the hundreds of millions of dollars.

The land at the end of 2009 had a book value of $1.115 billion and now has a taxable value of about $430 million, the court filing said.

Christopher Wu, managing director of Carl Marks Advisory Group LLC in New York, a financial advisor to the Hughes heirs, said Friday that the market value of the land is likely higher than the $430 million.

He said the Hughes heirs now want what’s owed to them from their stake in Summerlin, one of the nation’s most successful planned communities that generated substantial profits for General Growth and the heirs for years before the recession reduced real estate activity in Las Vegas.

“We’re looking for a fair shake like other creditors,” Wu said.

SalesTraq, a Las Vegas company that tracks real estate activity, reported that in 2009, 350 homes were sold in Summerlin, down from 410 in 2008.

The Hughes heirs, in their filing, noted they were supposed to be paid for their Summerlin holdings with General Growth stock.

With General Growth in bankruptcy, the heirs now may be inclined to be paid in cash like other creditors as opposed to receiving stock in General Growth or GGO.

The heirs “have general unsecured claims arising under the (1996 deal) which should be grouped together with, and treated the same as, the debtors’ other general unsecured claims. Although the (1996 contingent stock agreement) provides for payment by GGP to the (heirs) in common stock of GGP, the stock is merely the currency of payment and was required to be registered, freely tradable on the New York Stock Exchange, and payable to the (heirs) at current market values. This payment obligation was accelerated as of the (bankruptcy date) and converted to U.S. dollars pursuant to” the bankruptcy code, they said in their filing.

This isn’t the first effort by heirs of Hughes to assert themselves in the bankruptcy case.

Last year, a group of heirs organized as A&K Endowment Inc. appealed a ruling in the General Growth bankruptcy case in which Summerlin land — estimated to be 7,400 acres — was encumbered by liens so General Growth could obtain debtor in possession (DIP) financing.

The heirs argued the land could not be used as collateral for the loan without their approval because that would jeopardize their interest in the property. But a federal judge hearing their appeal turned it down in February.

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