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LAS VEGAS-A new lawsuit has FX Real Estate and Entertainment Inc. of New York City closer to losing its only asset, a 17.7-acre property that sits across the Las Vegas Strip from the new CityCenter development. The land is currently occupied by a motel and several commercial and retail tenants with a mix of short and long-term leases but the revenue has not been enough to cover the debt placed on the property.

In January, FXRE defaulted on $475 million in first- and second-lien debt and, subsequent to that, the three first lien lenders have been collecting rent directly from tenants, though it’s not enough to cover the interest on the debt. In April, the first lien lenders sent a Notice of Breach and Election to Sell, which initiates the trustee sale procedure against the Las Vegas property to satisfy the first lien principal amount of $259 million and other obligations owed to them under the mortgage loan and secured by the property.

Under Nevada law, the Las Vegas subsidiaries have the legal right to cure the default during a 35-day redemption period that expired on May 18, 2009. After that the property may be sold in a trustee sale to satisfy the first lien lenders’ obligations secured by the property. The process typically takes 120 days.

In the lawsuit, which asks the court to appoint a receiver to operate the property prior to the sale, the first lien lenders’ agent alleges that the fees and expenses the first lien lenders are being charged by the borrower for managing the real property “are excessive and disproportionate to those customarily paid in Clark County.” FXRE has not yet responded to the complaint and could not immediately be reached Monday for comment.

Regardless of the success of the litigation a lot of money will be left on the table when all is said and done. Based on a property valuation report from an independent appraisal firm, FXRE recorded a fourth quarter impairment charge to the land $325.1 million, reducing the carrying value to its then estimated fair value of $218.8 million.

That value is not enough to pay off the $259 million the first lien lenders are owed on their $280-million loan, let alone the $195 million provided by the second lien lenders. The first lien lenders are Landesbank Baden-Wurttemberg, Deutsche Hypothekenbank and Munchener Hypothekenbank eG. The identities of the second-lien lenders was not immediately available.

FXRE took full ownership of the site in July 2007 , paying Africa-Israel Investments Ltd. $180 million for the 50% interest in the property it did not already own. In March 2008, FXRE detailed a $3-billion redevelopment plan for the site that included 3,047 hotel rooms, a 93,000-sf casino and 94,000 square feet of retail.

Subsequent to the acquisition, FX Real Estate and Entertainment Inc. chairman Robert F.X. Sillerman, the Huff Alternative Fund and the Huff Alternative Parallel Fund acquired 9.1 million shares of stock in the company at $10 per share. Including previously acquired stock, the purchases brought Sillerman’s stake to 27.7% (13.78 million shares) and the stake of Huff and its affiliates to 13.3% (6.61 million shares).

The development on the site was expected to have an Elvis Presley theme. FXRE had entered into license agreements with Elvis Presley Enterprises Inc., an 85%-owned subsidiary of publicly traded CKX Inc., and Muhammad Ali Enterprises LLC, an 80%-owned subsidiary of CKX, which allowed it to use the intellectual property and certain other assets associated with Elvis Presley and Muhammad Ali in the development of its real estate and other entertainment attraction-based projects. The license agreement with Elvis Presley Enterprises also granted FXRE the right to develop one or more hotels as part of the master plan of Elvis Presley Enterprises Inc. to redevelop the Graceland property and surrounding areas in Memphis.

At last check Sillerman owned 30% of CKX, which in May 2008 agreed to be acquired by 19X Inc., an affiliate of another Sillerman led company, 19 Entertainment Ltd., the UK-based company best known for creating the American Idol television program, and entered into a long-term agreement with Simon Fuller, the founder and the creative force behind the company.

In addition to the Strip property, as of last year FX Real Estate, directly and through subsidiaries, owned 1.4 million shares of Riviera Holdings Corp., owner and operator of the Riviera Hotel & Casino on the Strip and the Blackhawk Casino in Blackhawk, CO.

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