The Soffers are on the verge of settling with creditors over the debacle once known as the Fontainebleau Las Vegas, a still-skeletal $2 billion high rise in Sin City that ranks as one of the biggest busts of the U.S. real estate crisis.
A federal bankruptcy judge in Miami said Wednesday he was inclined to approve a $178 million settlement that would pay contractors on the failed casino tower about 25 cents on the dollar. Contractors would divvy up about $85 million for a total claims pool of $600 million, but which a creditor lawyer said would probably end up closer to $350 million once negotiations are finished.
The money will be paid out to creditors and lawyers in arbitration or by court order, a process that could add another year or two onto a case that began with a Chapter 11 bankruptcy filing in June 2009. Construction lenders would recoup about $89 million.
I certainly have sympathy for all of the people who have money coming to them and seem to have been waiting forever, Judge A. Jay Cristol told an audience about 70 lawyers (half of them participating by speaker phone) at an afternoon hearing in downtown Miami.
The settlement money would come from the $93 million in sale proceeds paid by corporate raider Carl Icahn when he bought the unfinished tower out of bankruptcy in 2010; the money has been in an frozen escrow account pending the bankruptcy outcome. An additional $33 million would come from title companies that backed the project., as well as from a $50 million completion guarantee funded by Jeff Soffer and his sister, Jacquelyn.
The brother-and-sister team run the familys real estate firm, Turnberry, which got its start with the creation of Aventura and now includes both the Aventura Mall and the Fontainebleau Miami Beach. The 68-story Fontainebleau Vegas is described in court papers as essentially a tear-down: valuable for its land on the north end of the Strip, but burdened by a five-year-old, unfinished tower that Icahn may demolish.
While Judge Cristol said the settlement would probably meet his approval, he said he would consider written objections by a Las Vegas contractor who wanted its $1 million lawsuit against Jeff Soffer protected from the settlement.
A $50 million settlement by Mr. Soffer to get out of all the problems he is currently facing is not a large amount, said Henry Marinello, a Miami lawyer representing the Tracy and Ryder Landscape Inc., a large Nevada-based landscaping contractor.
The settlement would end claims by lenders and contractors in the bankruptcy case, but the Soffers still face litigation involving the Fontainebleau Vegas.
Jeff Soffer, the lead developer in both Fontainebleau projects, has blamed the Vegas debacle on Lehman Brothers cutting off funds after it collapsed in 2008, followed by some of the nations top banks holding back about $800 million in construction funds slated for completing the project. But lenders accused Soffer and his development team at Turnberry of mismanagement and over-spending allegations repeated by the bankruptcy trustee in a separate suit seeking damages from Soffer and his top executives. That litigation is still pending and will not be covered by the settlement.
The Soffers did not attend the hearing.
Jeff Soffer presided over Fontainebleau Vegas and put in $30 million cash collateral for the $50 million completion guarantee before the project started in 2007. His sister became part of the guarantee when she bought a judgment from a lender that had successfully sued to force Jeff to pay the remaining $20 million. Both Soffers claimed they should get the money back since the funds could only be used to complete a project that now had no hope of being finished. The two essentially surrendered their claims to the money as part of the settlement, said Mario Romine, general counsel for Turnberry Associates.
Soneet Kapila, a Fort Lauderdale accountant appointed as bankruptcy trustee for the case, blamed the four years leading up to the a settlement on the fact that the case is one of the most complicated ever to be heard in South Florida.
When it is high-level and sophisticated litigation, there are a lot of things to resolve, he said. Its the nature of it.