Hopes remain for financing despite investor foreclosure moves

Faced with several foreclosure actions and no sources of fresh funding, the owners of the boarded-up Moulin Rouge hotel and a couple of adjacent properties turned to Chapter 11 bankruptcy protection on Nov. 17.

Henderson-based CapSource scheduled a foreclosure sale just hours before the bankruptcy filing, representing investors who had loaned owner Moulin Rouge Properties USD 2.5 million. Also, Olympic Coast Investment of Seattle set in motion the machinery for a Dec. 3 foreclosure on behalf of investors in two mortgages totaling $ 20 million.

Republic Urban Properties, announced earlier this year as the lead financier of the latest version of the ambitious redevelopment plan for the 15.5-acre site along West Bonanza Road, has not pushed to collect the USD 13 million it is owed.

Moulin Rouge also faces a string of other unpaid bills to law firms, contractors, the city’s water department and individuals who made loans amounting to about USD 3.5 million. Because these sums were mostly unsecured, they take a back seat to mortgages and cannot seize collateral for repayment. Although not seeking money, the city’s Neighborhood Services Department cited the owners for the Moulin Rouge’s dilapidated condition and ordered them to submit a cleanup plan by the end of the year.

At least for the near term, the ambitious USD 1 billion redevelopment project that envisioned a 700-room hotel tower, an indoor entertainment venue and a casino along with the restoration of some of the mid-1950s architecture will go nowhere.

However, managing partner Dale Scott said he has held discussions with numerous lenders that would lead to exiting bankruptcy by the middle of next year.

„We are very optimistic about obtaining financing and reorganizing so that the project will move forward,“ he said.

He acknowledged that major institutions have shied away from the project, deeming it too high a risk, in a part of town dominated by low-income housing and industrial companies and isolated from Fremont Street and the Strip. So, he said he is turning to private investors more willing to take a chance in an area with relatively low land prices.

But reliance on private money has also caused at least some of the Moulin Rouge’s troubles. Both CapSource and Olympic are considered hard-money lenders, willing to lend to projects others shrink from but on more expensive terms than more traditional institutions.

In another case, Redondo Beach, Calif., investor James Whisenant loaned Moulin Rouge USD 200,000 in July 2007, with the terms calling for repayment in one month with USD 80,000 interest, a USD 100,000 initial default fee for missing the deadline and on-going late penalties of more than USD 2,800 a day. Moulin Rouge never repaid the loan and is now in District Court litigation over it.

„Sometimes you don’t make the best decisions,“ Scott said. „That is one we truly regret.“

He added that accepting money on such expensive terms does reflect upon a project’s viability.

Furthermore, with visitor counts declining and thousands of new hotel rooms coming on line, projects elsewhere in town have halted midstream or before they began. Many in the casino industry have concluded that it could take several years for the market to strengthen enough to support new projects.

Still, said Olympic Coast President John Hoss, „I think Dale and (partner) Chauncey (Moore) will pull it out. They have been on the edge many times and always pulled it out before.“

Although the buildings now on the land are worth nothing but scrap, Scott said he has obtained an appraisal earlier this year that values it at USD 74.4 million, due partly to the zoning changes obtained earlier this year and an unrestricted gaming license from the brief period that the hotel was open. Part of the property along McWilliams Avenue had previously been residential but now has commercial zoning.

Scott and Moore are also the two top officers of Moulin Rouge Development Corp., the entity that holds the unresricted gaming license for the hotel portion of the land but has not filed bankruptcy.

„It represents a ground-level opportunity for someone who is a contrarian,“ said Michael Van Every, a senior vice president at Republic Urban. „Money is available, but the question is at what price and terms.“

To date, he said, Republic hasn’t found any takers for the Moulin Rouge.

The hotel has endured largely due to its place in history; it was the city’s first racially integrated resort when it opened in May 1955. Even though it closed five months later, it returned to prominence in 1960 as the place where civil rights leaders hammered out a deal with city business leaders to end Jim Crow segregation, what has become known as the Moulin Rouge Agreement.

Since then, proposals have periodically surfaced to bring the hotel back into operation but never materialized.

Scott and partner Chauncey Moore spent USD 14.9 million in four separate transactions to assemble the land starting in August 2004. Scott, although he has no background in building hotels or casinos, said he started working on the project by soliciting individuals to put up money for the purchase, people now listed as creditors.

The walls of a conference room in their offices next to the Moulin Rouge are lined with renderings of several configurations of what the redeveloped hotel would look like. However, Scott said the end product would be governed by whatever financing they could obtain. Even though their concept’s size and scope has changed a few times in the past four years, Scott said he had moved further along than the never-realized dreams of previous owners.