Tag Archives: Nevada real estate

Windfall for Lender – Or Will Natural Gas Discovery Benefit Victims of Ed Okun’s 1031 Tax Group Scam?

There’s a new ripple in the story of indicted 1031 exchange scammer Edward Okun, the 1031 Tax Group, and their victims.

Cordell Funding is a Miami-based hard money mortgage lender. Last fall, Cordell Funding sued Okun to recover $17 million it had loaned to Okun before his fraud-riddled real estate empire collapsed into bankruptcy actions and criminal indictments.

Cordell Funding initially sued Okun in a New York state court, but a federal judge transferred the suit to the U.S. Bankruptcy Court in Manhattan, where Gerard McHale, the court-appointed Chapter 11 trustee of Okun’s 1031 Tax Group, was selling off Okun’s assets.

As part of that bankruptcy case, McHale turned over the rights to several Okun properties to Cordell. One of the properties that McHale turned over to Cordell was the Shreveport Industrial Park, a nearly empty 42-year-old, 956,735-square-foot Class C industrial distribution building at 9595 Mansfield Road in Shreveport, Louisiana.

It wasn’t worth much — certainly not the $17 million that Cordell said it was owed by Okun.

Then natural gas was discovered in the area. 

In fact, it was discovered that under the Shreveport Industrial Park is the largest onshore natural gas field in North America.   It could hold as much as 20 trillion cubic-feet equivalent of natural gas reserves.

The mineral rights lease for the Sheveport Industrial Park is now valued at somewhere between $30 and $60 million.

And property values for the area have soared.

It looks like Cordell Funding got a windfall from the bankruptcy court. 

But when the natural gas field was discovered, bankruptcy trustee McHale went back to court to have the bankruptcy judge of the 1031 Tax Group vacate the order giving Cordell Funding rights to the Shreveport property. At the same time, McHale has asked the bankruptcy judge to approve a mineral rights lease with PetroHawk Energy for the benefit of the 1031 Tax Group victims.

Now whether Cordell Funding or the hundreds of creditors of the 1031 Tax Group gets the millions of dollars from the Shreveport natural gas discovery will be determined by the bankruptcy court.

UPDATE:

For the latest on Ed Okun (new federal indictments, plus the indictments of Laura Coleman and Richard B. Simring), click here.

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Terrible News Again for Herbst and the Casino Industry

The news is terrible again for Terrible Herbst.

Standard and Poor’s Ratings Services has lowered its rating on Herbst Gaming’s 8.125 percent senior subordinated notes to ‘D’ from ‘C’, following Herbst’s failure to make an interest payment on June 1, 2008.

The bad news for casinos is not limited to Herbst properties.  Bloomberg News reports that “Casino bonds are generating the worst returns for investors as companies from Apollo Management LP’s Harrah’s Entertainment Inc. to Herbst Gaming Inc. risk bankruptcy under the weight of their debt.”

Bloomberg also reports that “Herbst Gaming, operator of 8,400 slot machines in Nevada, stopped paying interest last month, Tropicana Entertainment LLC and Greektown Casino LLC filed for bankruptcy in May and bond prices show Harrah’s and Station Casinos, which piled on more than $25 billion of combined debt in the past year to go private, are also at risk of default.”

The culprit is a deadly trifecta of sharply falling revenues and property values combined with an enormous debt overload.

According to the Nevada Gaming Control Board, casino gambling revenue on the Las Vegas Strip fell 4.8 percent to $517.5 million in March, the third consecutive monthly drop.  Similar losses were experienced in Atlantic City, the second-largest U.S. gambling center, where casino revenue fell 6.7 percent this year through April after a 5.7 percent drop in 2007.

These falling revenues come just when the casinos are committed to paying back tremendous amounts of money that was borrowed when it seemed that the good times would never end.

As Bloomberg reports, the casinos “took on a record debt load before the economy’s latest slowdown. Leon Black’s Apollo, of New York, and Fort Worth, Texas-based TPG Inc. acquired Harrah’s in a leveraged buyout in January for $27 billion.  Station Casinos, owner of 12 Las Vegas-area properties, was taken over for $8.5 billion in November by its management and buyout firm Colony Capital LLC. ‘This would probably be the most leveraged’ the gaming industry has ever been, said Michael Paladino, an analyst at Fitch Ratings in New York. ‘There’s going to be an increase in defaults’.”

“Investors from William Yung, who led Columbia Sussex Corp.’s purchase of Tropicana, to Capital Research & Management Co., the biggest Harrah’s bondholder, are being stung by losses. Debt issued by a group of 10 of the biggest high-yield gaming companies from Las Vegas to Atlantic City and Connecticut will rise to a peak of 6.6 times cash flow this year from 6.5 times in 2007, Deutsche Bank predicts. The total debt for the group will increase to $47 billion from $45 billion.”

When it came to taking on debt, the casinos gambled big.

And this time, the analysts say, the odds are against the house.

 

$23 Million Settlement Reached with UBS in 1031 Exchange Scam Lawsuit

The plaintiffs in a class action lawsuit who allege they lost over $80 million that they had placed with Southwest Exchange, Inc. (SWX) and several other 1031 exchange accommodators or qualified intermediaries (QIs) have reached a settlement with one of the defendants, UBS Financial Services, Inc. (UBS).

You can read our earlier post about the lawsuit here.

Under the terms of the settlement, the plaintiffs will receive $23 million from UBS.

The settlement was approved by the court on March 28, 2008, and a notice was sent to the class action plaintiffs on April 2, 2008.

You can read the settlement notice sent by the law firm of Hollister & Brace here.

UBS is one of several defendants who are alleged to have participated with Donald Kay McGahn and and others in a scheme to steal the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

In addition to UBS, the plaintiffs claim that other major financial firms, including Citigroup and Salomon Smith Barney, participated in the scheme.

A criminal investigation continues.

UPDATE:

For more on UBS, click here.

More Terrible News for Terrible Herbst — Bonds Ratings Lowered and Still No Deal with Creditors

We wrote a post last month about the likelihood that Herbst Gaming will have to file for Chapter 11 bankruptcy protection from its creditors if it is unable to alter its payment structure for $1.14 billion in debt. 

The company is privately held by brothers Ed, Tim and Troy Herbst, but roughly $371 million of its debt is through publicly traded bonds, which have been negatively affected by the fall-out from the subprime mortgage crisis.

Now there is more terrible news for Terrible Herbst.

On Wednesday, Moody’s Investment Service lowered its bond credit ratings for Herbst Gaming.  The bonds were cut from B3 to Caa2. 

Standard & Poor’s also cut Herbst’s credit rating, from B to CCC. 

In addition, Standard & Poor’s announced that it had placed Herbst Gaming on a “developing watch,” indicating an ongoing reevaluation of the credit quality of Herbst’s debt obligations and the likelihood that its credit rating will be downgraded further.

Bonds rated A (“investment grade”) are judged to be of the highest quality, with minimal credit risk; bonds rated B (“junk bonds”) are considered speculative and are subject to high credit risk; and bonds rated C (also “junk bonds”) are judged to be of poor standing and subject to very high credit risk.

Moody’s said the downgrade took into consideration that Herbst Gaming may not meet its financial obligations in 2008.

“It remains unclear at this time what course of action the lenders may pursue with respect to the event of default,” Moody’s said. “The downgrade acknowledges that the continued volatility in the capital markets along with the high cost of borrowing makes it less likely that a strategic alternative will emerge that does not involve some level of impairment.”

The rating actions came after Herbst Gaming said it had engaged Goldman Sachs for evaluation of strategic and financial alternatives. These alternatives may include a re-capitalisation, refinancing, restructuring or re-organisation of the company’s obligations or a sale of some or all of its businesses.

So far, Herbst Gaming has been unable to negotiate a forbearance agreement with its lenders.

UPDATE:

For the lastest news on Standard and Poor’s Ratings Services lowering its rating on Herbst Gaming’s notes ‘D’ from ‘C’, following the Herbst’s failure to make an interest payment on June 1, 2008, and on the debt crisis across the casino industry, click here

 

Foreclosures Up 57% — REOs Up 100% From March 2007

For the third month in a row, U.S. foreclosure activity registered at more than 50 percent above the level it was at a year ago, according to the March 2008 RealtyTrac U.S. Foreclosure Market Report.

And for the second month in a row, the number of bank repossessions, or REOs, was up more than 100 percent year over year.

RealtyTrac’s latest report shows that foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 234,685 properties nationwide during the month, a 5 percent increase from the previous month and a 57 percent increase from March 2007.

The report also shows one in every 538 U.S. households received a foreclosure filing during the month.

“The March numbers show that overall foreclosure activity so far this year continues to run nearly 60 percent above the levels we saw last year,” said James J. Saccacio, chief executive officer of RealtyTrac. “On a year-over-year basis, default notices were up nearly 57 percent and bank repossessions were up nearly 129 percent, but auction notices were up only 32 percent, indicating that more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender. This deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without putting it up for public foreclosure auction.”

Nevada, California, Florida posted the top state foreclosure rates.

California, Florida, Ohio reported the highest foreclosure totals.

Even more homeowners are expected to go into default and foreclosure in the third and fourth quarters of this year, as the number of adjustable-rate mortgages (ARMs) resetting to higher rates peaks in May and June.

Las Vegas’ The Palazzo Hotel is the Largest “Green” Building in the World

We recently stayed at The Palazzo Hotel in Las Vegas, just shortly after it opened. 

We were pleasantly surprised to find that, despite its size, The Palazzo has an intimate feeling, and the staff is warm and helpful. 

The hotel itself is magnificent.

Now we’ve learned that The Palazzo is the largest “green” building in the world.

The U.S. Green Building Council (USGBC) presented a Silver LEED Certificate (Leadership in Energy and Environmental Design) to The Palazzo at an award ceremony on April 10.

LEED certification is an independent, third-party verification that a building project is environmentally responsible, energy-efficient, and is a healthy place to live and work.

Not only is the Palazzo the largest green building in the world; in fact, the $1.9-billion, 3,000-room, 50-story resort is more than four times bigger  than any other than any LEED-certified building.

Key features that contribute to The Palazzo’sconservation and environmental design include:

  • Artificial turf, drip irrigation and moisture sensors in planted areas result in over a 75 percent reduction in irrigation needs. 
  • Swimming pools are heated with an expansive solar pool heating system. In the summer, the excess solar energy not needed for the pools is directed to the hotel’s hot water system, reducing the need to heat water for guest suites. 
  • Air conditioning controls in guest suites that automatically setback by several degrees when guests are not present and reset to the desired temperature upon return. 
  • Team member service areas equipped with lighting occupancy sensors that shut off lights when no one is in the area. 
  • Interior plumbing fixtures use 37 percent less water than conventional buildings as a result of water-efficient showerheads, high efficiency toilets and low-flow lavatory faucet aerators. 
  • Moisture sensors monitor real time, site specific air temperature, humidity, rainfall and other factors to provide daily watering cycle adjustment. 
  • A waste recycling program implemented from demolition through completion diverted over 70 percent of waste from the landfill. 
  • The building’s structural steel averaged 95 percent recycled content, while the concrete averaged a 26 percent recycled content rate.

We’re strong advocates for green and environmentally conscious building. 

But we had no idea that The Palazzo was so green. 

We just thought it was a beautiful hotel.

The USGBC publishes a guide to building green homes online at greenhomeguide.org.

The site features a guide to green homes, green home programs, regreening exisiting homes, living green, resources, and green building news and events.

If The Palazzo can do it, and do it so beautifully, we can do it, too.

Terrible News for Terrible Herbst — Herbst Gaming May Be Subprime Losers

We’re racing fans, particularly of the Baja 1000, and we admire the Herbst family, owners of Terrible Herbst Motorsports and Herbst Gaming, for the success of their race cars and their other businesses, all of which have grown from a single Chicago gas station.

So we’re sad to report that as a result of the subprime crisis and its effect on the credit and bond markets, Herbst Gaming may file for protection from creditors under Chapter 11 of the US Bankruptcy Code if it is unable to alter its payment structure for $1.14 billion in debt.

Herbst Gaming, which operates 16 casinos and 7,200 slot machines in Nevada, as well as hotel and gaming properties in Louisiana and Missouri, is privately held by the Herbst brothers, but roughly three-quarters of its debt is provided by publicly traded bonds. 

According to recent filings with the SEC, Herbst Gaming has said that its operations are being negatively affected by the subprime mortgage crisis, a statewide ban on smoking in taverns and restaurants, higher gasoline prices, and loss of gaming customers to Indian casinos. 

Herbst Gaming’s revenues were $849.2 million in 2007, almost 43 percent higher than 2006, after spending $543 million to acquire two major casino companies and nearly doubling the size of its casino holdings.   A 20% loss in revenue from its slot route business coupled with the increased debt load from the acquisitions resulted in a net loss of $127.2 million last year.

Herbst Gaming expects to enter into discussions with its credit agreement lenders to negotiate a forbearance agreement.

“If either the credit agreement indebtedness or the subordinated indebtedness were to be accelerated upon a default, we would be required to refinance or restructure the payments on that debt,” the company stated. “If we were unable to do so, we may be required to seek protection under Chapter 11 of the U. S. Bankruptcy Code.”

We’re still rooting for the Terrible Herbst Team.

UPDATE:

To read the latest news on Herbst Gaming, see our post More Terrible News for Terrible Herbst — Bonds Ratings Lowered and Still No Deal with Creditors.