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Korean investors face $270 mn loss on Las Vegas hotel loans

Feb 12, 2021 (Gmt+09:00)

The Drew Las Vegas (Courtesy of JW Marriott)
The Drew Las Vegas (Courtesy of JW Marriott)

South Korean investors in the Drew Las Vegas development project are at higher risk of losing their investment of 300 billion won ($271 million) in the stalled development project in Nevada, after its senior lenders decided to sell the security interest on their loans to a third party.

The developer Witkoff Group defaulted on a $2 billion project loan in May of last year, after its construction was shelved due to the COVID-19 pandemic. 

Mirae Asset Daewoo Co., NH Investment & Securities Co., Shinhan Investment Corp. and Hana Financial Investment Co. had underwritten 300 billion won ($271 million) in mezzanine loans on the Drew Las Vegas property in 2019 and sold them down to domestic investors. 

Although the Korean brokerage firms had granted a grace period on the debt payment, its senior lenders recently decided to exit their investment by selling their security right over the property.

Since then, the brokerage houses had held negotiations with the unidentified senior lenders to take over their security interest. But they failed to reach an agreement by the Feb. 9 deadline stipulated by the latter, according to investment banking sources on Feb. 10.

This week, the real estate unit of Koch Industries and Fontainebleau Development reportedly acquired a 75% stake in the unfinished resort. Fontainebleau Soffer, co-founded by the high-profile US developer Jeffrey Soffer, was an early developer of the property before the project went bankrupt in 2009 during the global financial crisis.

Korean investors in the 300 billion won mezzanine loans include pension funds, mutual aid associations, Hyundai Motor Securities, Hyundai Motor Group’s foundation, the Korean casino operator Kangwon Land and the country’s major broadcasting companies. Retail investors also participated in the mezzanine financing.

They may exercise their rights over the remaining assets after the senior lenders' divestment, but they are highly likely to be sold at a far lower price than their initial investment.

The Drew Las Vegas is a 68-story building with a floor space of 803,146 square meters consisting of the JW Marriott hotel with 3,780 rooms, casino, convention center and theater. It is one of the tallest buildings in Las Vegas.

Since ground was broken in 2007, the property has changed hands a couple of times.

In the first half of 2019, the four Korean brokerage firms had provided 700 billion won in project financing on the development in aggregate. It broke down into 300 billion won in mezzanine loans; and 400 billion won in senior loans they took over from foreign financial institutions, including JPMorgan and Deutsche Bank.

Mirae Asset Daewoo and NH Investment underwrote the junior mezzanine tranche, with Hana Financial arranging the senior mezzanine loans. Shinhan took charge of the portion of retail investors.

“We were unable to reach an agreement among ourselves, so we couldn't take over the security right,” said an official at one of the four Korean brokerage companies. “We will contact the buyer of the security right to find ways to reduce our losses.”  

By Seon-Pyo Hong

rickey@hankyung.com 

Yeonhee Kim edited this article.

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