Mirae Asset, NH, Hana, Shinhan alarmed by Vegas casino project
The Drew Las Vegas / Courtesy of Witkoff Group
Korean investors at risk of losing 300 billion won
By Park Jae-hyuk
Korean institutional and individual investors who invested in the stalled Drew Las Vegas construction project are at risk of losing up to 300 billion won ($270 million), according to industry sources, Sunday.
The institutional and individual investors are reportedly considering filing lawsuits against the brokerage firms ― Mirae Asset Daewoo, NH Investment & Securities, Hana Financial Investment and Shinhan Financial Investment ― over their highly probable losses.
The dispute over the U.S. casino-resort erupted after senior lenders including JPMorgan Chase & Co. and Deutsche Bank decided to divest from the project by selling the security interest on their loans.
The plan to build a 68-story, five-star hotel with 3,780 guest rooms and a casino has faced concerns ever since it was halted last March amid the COVID-19 pandemic and its developer Witkoff Group virtually defaulted on a $2 billion project loan last May.
According to sources, the foreign investment banks asked for the Korean brokerages to make an additional $350 million investment last November to acquire their security rights.
The Korean brokerages which had organized a consortium in 2018 for making mezzanine and equity investments in the project, eventually refused the offer, although Hana Financial Investment reportedly wanted to accept it.
As a result, Koch Real Estate Investments announced last week it would buy the stalled development project on the Las Vegas Strip, in partnership with Fontainebleau Development.
“We believe strongly in the Las Vegas market and see the property as a great opportunity to contribute to the long-term success and positive trajectory of this vibrant and innovative region,” Koch Real Estate Investments President Jake Francis said in a statement. “We are excited about the partnership and look forward to working together as the project evolves.”
Korean investors are able to exercise their rights to request the distribution of the remaining assets, but those assets are expected to be sold at prices much lower than their initial investment. This means the investors are highly likely to lose their principals.
“There still remains the possibility of negotiating with the buyer of the security rights, so it is hard to say the amount of losses has been fixed,” said an official of one of the Korean brokerages that participated in the project.
The Korean brokerages drew attention when they announced their financing in the Drew Las Vegas construction project in 2019, because it was the first time for domestic financial firms to take part in a large-scale resort development project in the U.S. as underwriters.
They attracted 300 billion won from institutional and individual investors here for the project.
The institutions include pension funds, Hyundai Motor Securities, Hyundai Motor Group's foundations, Shinhan Financial Investment, Kangwon Land and local broadcasters. Shinhan Financial Investment was in charge of attracting retail investors.
Although Witkoff Group said last year it remained committed to completing the project, financial experts have warned that uncertainties are lingering in the U.S. commercial real estate market.
“If the COVID-19 pandemic is prolonged, businesses will face falling profits with worsening cash flow from their commercial real estate,” Korea Institute of Finance research fellow Kim Hyun-tae said. “This will result in Korean securities firms facing risks from their investments in foreign real estate. The Drew Las Vegas case can be an example which hints that such risks have become a reality.”