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LAS VEGAS-The $37.5-million first trust deed for a partially completed 430-unit off-Strip condominium development is up for grabs. There is $37.5 million of outstanding principal on the loan, which is in an advanced stage of default; the sale has been approved by the bankruptcy court and published. The buyer would be able to foreclose on the property almost immediately, according to investment bank George Smith Partners, which originated the loan for a related fund and now is charged with selling it off.

Conceived by Slade Development, Vantage Lofts sits in the hills of Henderson, close to high-end shopping and dining at The District at Green Valley Ranch and the new M Resort and Casino. The area is largely a single-family estate neighborhood that encompasses among others the gated McDonald Highlands golf course community.

George Smith Partners principal David Rifkind tells GlobeSt.com he originated the loan in early 2007 so that Slade Development could pay off the $25-million construction loan from Stearns Bank and complete the first 110 units. The original lender, Scripps Investment & Loan, had put up $32 million that it subordinated to the new loan from George Smith Partners’ client.

At the time, 60 of the 110 units had been presold with hard deposits and the plan was that the first two buildings would be completed. Sales from those two would pay off the new first mortgage, at which point Scripps would move back into first position and finish the third building. The market then disappeared and the plan never materialized.

Now the property is split into two parcels. The southern parcel has three buildings on its containing 110 units; the first two buildings, containing 80 of the units, are 90% completed, with only finishes and landscaping needed for completion, while the third building is 50% completed, Rifkind says. The southern parcel is entitled for an additional 30 units while the northern parcel is believed to be entitled for an additional 290 units, Rifkind says.

“The rapid deterioration of the market precipitated the first lender to stop funding and declare the loan in default,” Rifkind says. “Slade then made a business judgment to file bankruptcy and in the process of that they effectively lost control and the lender was granted the right to foreclose.”

The lender is selling the note rather than foreclosing for three reasons, says Rifkind, who has a history as a loan work-out guy in the 1980s. The first is that it is a capital provider, not a developer, and so would prefer not to have to finish the project out, Rifkind says. The second is that the lender, a private fund of approximately $900 million, feels the sale of this loan and several others will benefit the balance of the portfolio. The third is the property and the project themselves.

“The Las Vegas market in our judgment is showing more than anecdotal signs of bottoming and this project is not just another patch of land; it’s very well conceived from a design and location standpoint,” Rifkind says. “It’s got phenomenal views, it’s the only multifamily in the area, its right below McDonald Highlands and it is very close to the I-215 freeway, which connects to everywhere else in the Valley. A developer who understands the market can jump in and create a new value proposition at a lower basis and probably make a lot of money.”

There are not many comparables for “course-of-construction” condo sales. There are “broken condo” comparables, however, and they have been strong, Rifkind says. “We are surprised at the strength of the market for broken condo loans, which is one of the things that give us optimism [about our sale]. Vantage Lofts has the advantage of having no closed unit sales, giving the buyer much greater versatility in its options.”

One potential outcome is that the subordinated lenders steps up and buys the senior debt, or someone else buys the loan and the subordinated debt disappears. In a foreclosure any debt positioned behind the first mortgage is wiped out.

“There is unbelievable demand for something good and this is one of the best assets in the marketplace,” Rifkind says. “The urgency isn’t being created by the seller’s position; the urgency is being created by the buyers’ ability to foreclose in 30 days.”

There is no bid deadline. Rifkind says the lender is looking for a qualified investor that has access to capital but also the operating ability, local knowledge and current experience in Las Vegas that would be appropriate.

“We’re more of a high quality boutique seller of assets that makes a market as opposed to a high-volume, bid-based sellers,” he says. “That’s how we’ve done most sales to date because our assets are usually larger, whole loans that have a story and require a depth of understanding of the market.”

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