Korea’s Mirae, Hana, NH Face Losses as Witkoff’s $2.5B Vegas Casino Defaults

South Korea’s dalliance with US hotels has been derailed for the second time in five weeks, after a $2.5 billion Las Vegas strip project financed by a Seoul-based asset manager has defaulted on its debt obligations.

New York-based Witkoff, which is developing The Drew Las Vegas casino in the Nevada gambling hub, has failed to make a payment on approximately $500 million in project financing supplied by undisclosed US banks, according to a local Korean media account.

A consortium of some of South Korea’s largest institutional investors – including Mirae Asset Management, NH Investment & Securities, and Hana Financial Investment – have invested KRW 600 billion ($490 million) in the 67-storey resort on the Vegas strip, which is planned to include a 3,780-key Marriott hotel, a casino, and a theatre.

Witkoff, which purchased the project with Miami real estate subsidiary of cigarette maker Vector Group in 2017, was said in January to be close to securing $2 billion in project financing to ensure the completion of the project by 2022, prior to the spread of COVID-19 to the US.

The missed payment comes as Mirae is being sued by Chinese insurer Anbang after the Seoul-based asset manager backed out of a deal to acquire a portfolio of US luxury hotels for $5.8 billion.

Making a Play in Las Vegas

Although the current deferment relates only to local senior debt in the US, the South Korean investors, which have contributed KRW 600 billion ($490) to the project in mezzanine financing, will reportedly face losses should the US lenders choose to seize the project assets.

Mirae Asset and Hana Financial were said to have provided a combined $100 million in funding for the development by taking over JP Morgan’s mezzanine financing in April last year.

That bridging deal came after Mirae and NH Investment & Securities had extended a subordinated loan of $150 million for the project in December 2018.

South Korean gambling outfit Kangwon Land and a subsidiary of Hyundai Motor Group have also invested an undisclosed amount in mezzanine financing for the project.

Buying a Stalled Project

Witkoff, which owns more than 11 million square feet (1 million square metres) of commercial property in the US, purchased the project with New Valley for $600 million, after the casino project went bankrupt after the global financial crisis.

Once known as The Fontainebleau, the original developers – Miami-based developer Turnberry Associates – broke ground on the project in 2007, but construction halted when lenders pulled out in the wake of 2008’s financial meltdown.

The project was then snapped up in 2010 by billionaire Carl Icahn who paid $150 million for the troubled asset before flipping the unfinished project to Witkoff seven years later.

Steven Witkoff, who gave the developer its name, decided to christen the Vegas project The Drew after his son, Andrew, who died of an OxyContin overdose in 2011.

Betting on US Hotels

Mirae’s gamble on the Las Vegas casino could add a second failed US hotel deal to the Korean investor’s US track record after its deal with Anbang become a victim of the COVID-19 crisis.

Anbang at the end of April sued the South Korean asset manager for walking away from the acquisition, claiming that Mirae had backed out because COVID-19 had laid waste to the US hotel sector.

Mirae countersued Anbang a week later, citing irregularities in the title deeds of several of the hotels in the portfolio.

Despite a slight recovery in recent weeks, average hotel occupancy in the US still stood at only 35 percent for the week ending 23 May 2020, down from 70 percent for the same week the year before, according to data provider STR.