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Mezzanine loans

Mirae, NH face lawsuit over Drew Las Vegas loan loss

Korean LPs seek over $80 mn in compensation for nearly $300 mn loss

By Jun 01, 2021 (Gmt+09:00)

The Drew Las Vegas (Courtesy of JW Marriott)
The Drew Las Vegas (Courtesy of JW Marriott)
Mirae Asset Securities Co. and NH Investment & Securities Co. have been sued by South Korean institutional investors over the loss of their combined 300 billion won ($271 million) investment in the shelved Drew Las Vegas development.

On May 31, a group of unidentified Korean institutions, including pension and savings funds, filed a class-action lawsuit with the Seoul Central District Court against Mirae and NH, according to investment banking sources. Domestic law firm LIN is acting on their behalf.

They are seeking 91.9 billion won ($83 million) in compensation, holding the two brokerage companies accountable for what they are claiming as an incomplete sale of the debt investment product. 

In a separate legal action, three unidentified Korean companies, which likewise participated in the investment, are also preparing to sue Mirae Asset and NH Investment, seeking 40 billion won in compensation. They hired other Korean law firms -- Hannuri and Hankyul.

In 2019, Mirae Asset and NH Investment 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.

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

The Korean limited partners alleged that Mirae and NH had failed to notify them of the deed in lieu of foreclosure (DIL) clause in the investment documents and its potential risk. DIL is an option to transfer the title of a property from the property owner to their lender in exchange for being relieved of the mortgage debt.

But Mirae and NH refuted the allegation, saying they had informed them of the risk in the relevant legal documents shared with the LPs.

The Drew Las Vegas has been left unfinished since ground was broken on the project in 2007. 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 tapped the Korean underwriters of the mezzanine tranche to sell their security rights to the property. But the Korean brokerage companies, which also include Hana Financial Investment Co. and Shinhan Financial Investment Co., failed to narrow their differences and thus all of the Korean LPs' investment in the mezzanine loan was confirmed as a loss.

Write to A-young Yoon at youngmoney@hankyung.com

Yeonhee Kim edited this article.

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