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Las Vegas Hilton Investor, Thomas Barrack, Fighting Partner,
Goldman Sachs, in Foreclosure Effort

By Steve Green, Las Vegas SunMcClatchy-Tribune Regional News

Oct. 06, 2011--Billionaire casino investor Thomas Barrack is fighting efforts by Goldman Sachs to foreclose on the Las Vegas Hilton, claiming Goldman Sachs is hopelessly conflicted on the matter.

Barrack's company Colony Capital LLC of Los Angeles in 2004 bought the Hilton for $280 million, and Goldman Sachs later picked up a 40 percent stake in the property through its Whitehall Street Real Estate Funds.

After the 2,950-room Hilton suffered hard times during the recession and defaulted on its $252 million term loan, Goldman Sachs filed a foreclosure notice against the property on Sept. 2 as the holder of the loan.

The Hilton had disclosed on Aug. 10 it was in default after skipping three monthly loan payments this summer totaling $3.5 million in order to conserve cash for operating purposes.

The Goldman Sachs lending unit, Goldman Sachs Mortgage Co., then followed up with a Sept. 14 lawsuit in Clark County District Court asking that a receiver be appointed to run the property.

The Barrack-controlled owner of the Hilton, Colony Resorts LVH Acquisitions LLC, filed papers in court Wednesday hitting back at Goldman Sachs and opposing the appointment of a receiver.

In the filing Wednesday, Las Vegas Hilton attorneys accused Goldman Sachs of having multiple unresolved conflicts not only as a lender and investor, but because of an alleged plan by Goldman Sachs to acquire the Hilton and then coordinate its management with a competing gaming company. Hilton's attorneys claim Goldman Sachs' entities hold 100 percent of the equity in the competing business -- American Casino & Entertainment Properties LLC, owner of the Stratosphere casino resort near the Hilton as well as four other gaming properties in Southern Nevada.

"The Nevada Gaming Board and Commission have shown concern about (non-gaming-licensed) Goldman exercising influence over WH Equity (Whitehall) in the past," said the Hilton's filing by attorneys with the Las Vegas law firm Gordon Silver.

"WH Equity was even required to adopt a plan to ensure there were no inappropriate communications between Goldman and WH Equity. After all, the WH Equity managers have been Goldman employees," the court filing said. "Despite this concern over undue influence in the past, Goldman's application seeks to appoint its own agent (executive Ronald Johnson) without any indication of how Johnson's historically active representation of Goldman's interests could suddenly become neutral."

Hilton attorneys claimed Goldman Sachs' receivership application "is void of any disclosure of its multiple conflicts of interests that are at issue with regard to this financing arrangement or how those conflicts may have impacted Las Vegas Hilton operations and performance of debt obligations."

The attorneys said they wanted to conduct discovery and "upon any discovery of evidence showing that Goldman has developed a plan to maximize its interests in American Casino & Entertainment Properties at the expense of Las Vegas Hilton and is contributing to the breach of fiduciary duties while exercising its rights as secured lender, the doctrines of unclean hands and in pari dilecto (equal fault) should effectively bar Goldman from equitable remedies."

"Goldman's application fails to seek any limits on Johnson to prevent any harm to the Las Vegas Hilton that could result upon Johnson sharing information he has learned or will learn while operating the Las Vegas Hilton with Goldman or its affiliates operating the Stratosphere," the filing said.

"Goldman appears to have structured its equity in American Casino & Entertainment Properties so that following their takeover, management of American Casino & Entertainment Properties and the Las Vegas Hilton could be coordinated," the Hilton's filing said.

Hilton's attorneys contend there is no need for a receiver to be appointed as there is no evidence of any mismanagement, waste or malfeasance by Las Vegas Hilton management.

The filing read, "2,315 Southern Nevadans are currently employed by the Las Vegas Hilton, many of whom are subject to collective bargaining, pension and other contracts.''

"In addition to a deep concern for how a receivership could affect the Las Vegas Hilton employees and their families in the already-devastated Southern Nevada economy, there are WARN Act (mass layoff) implications," the filing said. "Goldman's receiver would be able to terminate employees and the collective bargaining, pension and other contracts with employees without further order of the court and without regard to the damage that termination would cause to the Las Vegas Hilton, the Hilton's employees and their families and the Southern Nevada community as a while."

A request for comment on the conflict of interest allegations was placed with the Las Vegas law firm representing Goldman Sachs in the foreclosure effort.


(c)2011 the Las Vegas Sun (Las Vegas, Nev.)

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