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Mezzanine loans

Korean LPs to sue Mirae, NH over Las Vegas loan loss

May 13, 2021 (Gmt+09:00)

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

South Korean institutional investors in the Drew Las Vegas development are preparing to file a lawsuit against two domestic brokerage firms, seeking compensation for the loss of their entire investment of 300 billion won ($265 million) in the long-stalled project.

In 2019, Mirae Asset Securities Co. and NH Investment & Securities Co. underwrote the junior mezzanine tranche of 300 billion won to fund the construction on the Las Vegas Strip, and sold it down to domestic institutional and retail investors.

The institutional investors include pension funds, mutual aid associations, Hyundai Motor Securities Co., Hyundai Motor Group’s foundation, the Korean casino operator Kangwon Land and the country’s major broadcasting companies.

They are seeking around 90 billion won in compensation from the two brokerage houses. They alleged that Mirae and NH had failed to give a full explanation of the complexity and the risk of the loan product when they marketed it.

They hired a domestic law firm LIN to launch a lawsuit in a Seoul court later this month. If retail investors joined them in the legal action, the compensation amount will likely increase. It was first reported by the Financial News on May 12 and confirmed by a source involved in the lawsuit.

The institutional investors also argued that both Mirae and NH failed to alert them to the loss, and neither of them took appropriate action in response.
"If the brokerage companies had informed the investors of the risk in detail, it is highly likely that the investors would have not made the investment," the daily quoted an official of the law firm LIN as saying.

But Mirae and NH refuted the allegation, saying they notified them of the risk in advance in their presentation material, according to the daily.

The Drew Las Vegas is a 68-story building under construction on the Las Vegas Strip, Nevada. With a floor space of 803,146 square meters, it consists of the JW Marriott hotel with 3,780 rooms, casino, convention center and theater. Since ground was broken in 2007, the property has changed hands a couple of times.

But its construction was shelved due to the COVID-19 pandemic and its developer Witkoff Group defaulted on a $2 billion project loan in May 2020.

Following the default, its senior lenders had tapped the Korean brokerage companies to sell their security right over the property last year, the daily added.

Eventually, the real estate unit of Koch Industries bought the right and secured a majority stake in the unfinished resort earlier this year, while Mirae and NH failed to narrow differences with Shinhan Financial Investment Co. which took charge of the portion of retail investors.

By Hyun-il Lee

Yeonhee Kim edited this article.

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