Morgans Hotel Group lowers capital commitment to Echelon joint venture project

New York (AP) -- Morgans Hotel Group Co. slashed its capital commitment to the USD 4.8 billion Echelon mega-development Thursday, signaling another speedbump in the joint venture project with casino operator Boyd Gaming Corp.

Last month, Boyd suspended work on the Las Vegas project after the capital market crunch prevented the company from obtaining financing for key portions of the development. Boyd said at the time that it planned to resume construction in three to four quarters if credit market conditions and economic conditions improve.

On July 1, Las Vegas-based Boyd pushed the deadline back to Sept. 15 to obtain construction financing for Delano and Mondrian brand hotels it planned to build in a USD 1 billion joint venture with Morgans. Construction on the hotels was to have begun this summer.

Morgans said Thursday that it amended its agreement with Boyd to extend the deadline to obtain construction financing to Dec. 31, 2009. The amendment also calls for the boutique hotel operator to get back its USD 30 million deposit, plus interest, and erases about USD 41 million in future funding obligations. Morgans is also no longer obligated to provide a construction loan guarantee and has sole control over the use of the Delano and Mondrian brands in relation to the development.

In addition, Morgans and Boyd's amended deal restricts the amount the companies must put toward predevelopment and related costs to about USD 420,000 each.

It was also previously announced that Boyd's separate USD 500 million joint venture with General Growth Properties to develop 300,000 square feet of the retail space at the Echelon was running into difficulties.

Shares of Morgans Hotel Group gained 21 cents to USD 12.86 in morning trading, while Boyd Gaming's stock added 19 cents to USD 9.97.