Developer sues Lehman, bank for breach of contract

By Caroline Salls

Pittsburgh, March 2 - Lehman Brothers Holdings, Inc. was named as a defendant in a breach of contract and wrongful conduct lawsuit filed Friday by Turnberry/Centra Sub, LLC, Turnberry/Centra Office Sub, LLC, Turnberry Retail Holding, LP, Jacquelyn Soffer and Jeffrey Soffer in connection with an alleged Lehman commitment to fund development of a Las Vegas mixed-use lifestyle center.

The lawsuit also names Lehman Brothers Bank, FSB as a defendant.

According to the complaint filed in the U.S. Bankruptcy Court for the Southern District of New York, the Lehman holding company and bank committed to provide financing for the development of Town Square, a 93-acre mixed-use lifestyle center that includes retail, restaurants, entertainment, commercial facilities, parking and office space.

Town Square is owned, operated and developed by Turnberry Associates, and development of the project began in 2004.

The plaintiffs said Turnberry secured initial financing for the development stage of the project, with the expectation that when construction and development was complete, Turnberry would replace that debt with new, long-term "take out" financing.

The Turnberry entities said the initial construction financing was provided principally by Deutsche Bank Trust Company Americas and consisted of a $470 million construction loan and $50 million in mezzanine financing.

As construction proceeded, in late 2006 and early 2007, Turnberry said it sought long-term financing for replacement of the initial construction financing and additional development, as well as roughly $100 million in short-term financing, which was ultimately expected to be replaced by the long-term financing.

Lehman commitment

The plaintiffs said Lehman proposed a $1.5 billion multi-property financing package at the best market rates available for three Turnberry properties, including the Town Square project, and Turnberry accepted Lehman's proposal.

Relying on Lehman's commitment to provide long-term financing for Town Square, as well as a $95 million interim advance until the long-term financing closed, Turnberry ceased negotiations with the other financial institutions that were competing to provide long-term financing for Town Square, according to the complaint.

In addition, the Turnberry entities said they agreed, at Lehman's insistence, that Jacquelyn and Jeffrey Soffer, rather than a Turnberry entity, would be the technical borrower for the $95 million interim advance.

However, the Turnberry entities said Lehman has now made it clear that it is refusing to honor its commitment to provide the permanent financing, and it has even refused to honor further draw requests on the interim advance.

The plaintiffs said they only accepted the interim financing amid alleged assurances from Lehman that it would be replaced with permanent financing.

While it allegedly continued to assure the plaintiffs throughout 2007 and 2008 that it would provide permanent financing, the Turnberry entities said Lehman insisted that Turnberry unwind and then enter successive rate lock agreements, "demanding each time that Turnberry provide Lehman with a portion of the profits."

"As a result of Lehman's extended stringing-along," the plaintiffs said they were forced to arrange extensions of the Deutsche Bank construction financing as well as the interim advance.

Other financing matures

According to the complaint, the interim advance and the underlying Deutsche Bank construction financing were scheduled to mature on March 1, leaving the plaintiffs to pay off $592 million in financing.

However, the plaintiffs said they have been unable to secure the long-term financing needed to refinance those obligations as a result of Lehman's alleged breaches.

Additionally, Turnberry needs access to the remaining interim advance funds to complete the Town Square project and to develop its Crossroads Property which is in danger of forfeiture, according to the lawsuit.

Under the lawsuit, the plaintiffs are seeking payment of damages to the extent necessary to offset any liability associated with the interim advance, with any balance to be treated by Lehman as a general unsecured claim.

New York-based Lehman Brothers Holdings is the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15. Its Chapter 11 case number is 08-13555.

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