Town Square foreclosed on, Forest City takes over leasing

Crowds hit the streets of Town Square on Halloween night Oct. 31, 2010.

Map of Town Square

Town Square

6605 Las Vegas Blvd. South , Las Vegas

Lenders owed nearly $513 million have completed their takeover of the Town Square mall and office complex in Las Vegas, despite a last-minute legal effort by the developer to block the foreclosure auction.

A $276.5 million trustee's deed was filed against the property Friday by lenders. And mall giant Forest City Enterprises Inc. of Cleveland -- owner of the Galleria at Sunset mall in Henderson -- is now marketing Town Square to potential tenants and is managing the property. Forest City is also developing the new Las Vegas City Hall and mixed-use office project.

Jeff Linton, vice president, corporate communication, at Forest City, said the company has no plans at this time to acquire the mall and that it will be managed by Forest City subsidiary Forest City Asset Services.

Town Square, developed by the Miami-based Soffer family's Turnberry Associates development company, is at Interstates 15 and 215 and has some 900,000 square feet of retail, restaurant and entertainment space and another 300,000 square feet of office space.

The property ran into trouble during the recession and was unable to meet debt obligations. Turnberry, known in Las Vegas for developing luxury condominium towers, also lost control of the unfinished Fontainebleau hotel-casino during that Las Vegas property's bankruptcy.

Prior to the Town Square foreclosure, Turnberry had been in talks about re-acquiring all or part of Town Square from the lenders. The defaulted loan amount of $512.5 million includes about $449 million in principal balance, $42 million of accrued default interest and $22 million in late charges.

Those talks apparently broke down, causing Town Square owner Turnberry/Centra Sub LLC and Turnberry executive Jeff Soffer to file suit Feb. 25 in Clark County District Court against law firm Ballard Spahr LLP, trustee for the loan; and lenders Bank of Nova Scotia and Deutsche Bank.

The lawsuit said that Town Square -- consisting of 22 buildings spread over 97 acres -- is "well-leased" to national and regional tenants.

The suit says that after the lifestyle center-type mall opened in November 2007, its $449 million construction loan came due in March 2009 and that Soffer and the Bank of Nova Scotia and 14 more lenders engaged in negotiations leading to a deal in December 2009 in which "a new company would be established by Mr. Soffer and that Town Square would then be deeded to Mr. Soffer's new company immediately upon any foreclosure against Town Square."

The suit said that because of this deal, Soffer didn't seek any new financings or other solutions regarding the defaulted loan -- but that Bank of Nova Scotia later breached the terms of this agreement and proceeded with plans for the foreclosure.

The suit suggested hedge funds had obtained some of the Town Square debt and complained that if it foreclosed, Bank of Nova Scotia could "allow a variety of vulturesque hedge funds to sift through the debt obligations of the original construction loan" while "ignoring Mr. Soffer's rights, title and interest in the new agreement and Town Square."

"Said hedge funds have no intent to own, manage or preserve the Town Square property, but rather, to cull the remaining debt obligations of the construction loan for a quick turn of profit," charged the lawsuit, filed by Las Vegas attorney Daniel McNutt of the law firm Carbajal & McNutt LLP. "Such actions will cause irreparable harm to the brand, viability, business practices and marketability of Town Square."

Attorneys with the Las Vegas office of Ballard Spahr fired back, charging in a March 2 response that the Turnberry/Soffer lawsuit was a "last-ditch attempt to obtain some business concessions" from the lenders.

They said there was no agreement between Soffer and the lenders in which they would re-sell the property to Soffer, as alleged by Soffer. A term sheet outlining this plan was never finalized into a binding contract and the term sheet itself contains the disclaimer it's "for discussion purposes only," Ballard Spahr's attorneys said.

Ballard Spahr also charged that it was Turnberry and Soffer who failed to live up to the terms outlined in a term sheet calling for them to put up $22 million -- $12 million into an interest reserve and to pay down the loan balance by $10 million.

The law firm said that since the loan went into default in March 2009, average monthly interest payments of $1.6 million per month and operation expenses -- running from $975,000 to $1.5 million per month -- have been paid out of the revenue generated by the property.

"To cover operating shortfalls at the property, however, in February and March 2011 the lenders stopped receiving interest payments and, instead deposited the funds into a debt-service reserve account," the response says. On Feb. 10, $400,000 from this debt service reserve account was applied to cover a deficit in the property operating account, the filing says.

"The lenders expect this deficit to increase in March and subsequent months. With no prospect for repayment, the lenders will be required to fund these operating shortfalls in order to protect the property," the response said.

Ballard Spahr said it was critical that the lenders take control of the property to stabilize its tenancy as Turnberry/Centra has turned away potential tenants because of Turnberry/Centra's inability to finance required tenant improvements.

"As a result of plaintiff's inability to contribute capital, prospective new tenants are at risk of signing lease agreements at competing retail projects that have the ability to immediately commit capital and sign leases with new tenants," the filing said.

One example cited in the court filing is that Turnberry had a potential tenant, Dick's Sporting Goods, that would require a capital commitment of $3 million for tenant improvements.

Dick's would generate revenue for the property of $7 million and the lenders were eager to get Dick's to sign the lease since they can afford the capital contribution, the filing said.

Records show that during a hearing last week, Turnberry/Centra and Soffer dropped their last-minute bid to block the foreclosure when they withdrew their request for a restraining order or injunction. However, their lawsuit against the lenders remains open.

"Town Square has become the premier shopping center for Las Vegas' residents and visitors. Its success and impact on the community is a testament to the commitment and dedication of Turnberry Associates' management team. We are proud of Town Square and want to see it continue to flourish," Turnberry said in a statement Wednesday.