Credit Crunch Hinders Pair of Vegas Hotel Projects

Morgans Hotel Group has entered into an agreement with Boyd Gaming Corp., relating to the firms’ joint venture on the development of a Mondrian hotel and Delano hotel within Boyd’s existing Ecehlon development in Las Vegas. Under the terms of the revised deal, Morgans’ $30 million deposit will be returned with interest. Additionally, Morgans will no longer be responsible for $41 million in future funding and will not have to provide a construction loan guaranty on the project. Also, the agreement awards Morgans Hotel Group sole control over the Mondrian and Delano brands in connection with the project. The agreement limits the firms’ expenditures for pre-development and related costs to $420,000 each. The joint venture has established a deadline of Dec. 31, 2009 to obtain new funding for the project. Each firm has the right to terminate the joint venture by that deadline as well. Morgans officials signaled that the lack of available capital due to tight credit markets pushed the firm to scale down its commitment to the project. “We believe that the amended agreement provides substantial flexibility and represents a sensible framework for [Morgans] to move forward with the Echelon project on the basis of a vastly reduced capital commitment,” Fred Kleisner, Morgans president & CEO, said in a prepared statement. This news comes on the heels of the joint venture’s announcement in August that it would delay the entire project as it could not withstand the difficult capital markets. The joint venture had intended to begin construction when the economic environment improved, but no developments on the site have begun yet. At the time of the joint venture’s inception in January 2006, the Mondrian and Delano were scheduled to be completed in 2010.