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Hard look / The real deal in Vegas By Eytan Avriel Tags: investing, israel  If you read the business pages, you had to gain the impression that matters in Las Vegas aren't going well, at least as far as real estate and the casino business are concerned. According to the news from Vegas, several building projects have encountered cash-flow problems and one casino, the Cosmopolitan Resort & Casino, has been taken over by Deutsche Bank, senior lender to the partially built complex. Deutsche began the foreclosure process in January, after developer 3700 Associates, led by Ian Bruce Eichner, defaulted on a $760-million construction loan for the condominium-hotel project, Reuters reported earlier this month. The bank is now seeking partners to operate the Cosmopolitan. Week in and week out we read that revenues at the gambling houses have been dropping. We see that share prices are plunging, and hear that a mood of recession has taken hold. Business confidence has plummeted. There's an objective criterion, too: The Case-Schiller Housing Index shows that in the 12 months ending in May (the latest figure available), home prices in Las Vegas fell by 28.4%. That was the steepest loss of value in any American city. Advertisement The Plaza Las Vegas is the biggest single real estate deal that Nochi Dankner and Yitzhak Tshuva have ever embarked upon. The two Israeli businessmen bought a plot of land on the Strip for $1.1 billion, for which they borrowed $625 million - more than half the sum, 57% to be precise - with the rest being financed from their own companies' equity. Dankner brought equity in equal parts for his 50% share of the deal from two companies listed in Tel Aviv: Property & Building, and IDB Development. Tshuva is carrying out his share of the deal through Elad, a privately owned company through which he invests in American real estate. Elad's shares are not publicly listed, but it has issued corporate bonds to institutional investors in Israel. There had been an old hotel on the plot of land that Tshuva and Dankner bought - the Frontier. It was demolished at a gala event garnished by fireworks: The two businessmen personally pushed the button. Right now the plot of land stands empty, and Dankner and Tshuva say that although they have all their building permits in place, they've postponed the start of construction - which had been intended to end in 2012 at an investment of $5 billion - to an undetermined date. Yet not one of these facts is evident in the financial statements that Property & Building filed for the second quarter of 2008. Property & Building, which spent $120 million on the purchase of the land, is a IDB group company. In its report for the first half of 2008, the company wrote only that the banks funding the project agreed to extend the duration of the $625 million loan by another six months. But has the value of that plot of land diminished? Is anybody even checking whether it has? Has the lot been reevaluated so as to reveal its present value? Does Property & Building owe shareholders more information? Good questions. To which the answers are: No, no, no and no. Sources at Property & Building say that not only hasn't the value of the land dropped, it's risen. No, the company hasn't reappraised the former Frontier site. That is because management doesn't have evidence that it has reason to be concerned about the value of the land, or evidence that would warrant hiring third-party appraisers. Property & Building declares that its management isn't a bunch of naifs and they read the news coming out of Las Vegas. They hear the assessments by realtors that see home values falling by tens of percent, but that isn't relevant to their particular, unique plot of land. The rules of accounting are on their side. The Vegas lot is defined as "land for investment." It is what's called a yield-generating property and the company has no duty to re-evaluate it or ascribe it fair value. What does need to happen to trigger Property & Building's duty to make a fresh report on its value? The management has to feel that enough material signals have accrued to warrant inspection, and has to have found that, indeed, the value of the land did drop. But that isn't the situation at present, say Property & Building's chiefs, and without blinking, they state that they feel "very comfortable" with the decision not to send out an assessor. The ones who don't feel comfortable are investors in Property & Building. During the last year, the company's stock has lost more than 60% of its value. Since the rest of the company's business centers on quality properties in Israel that haven't been hurt by the crisis, the main reason for the intensity of the fall is concern over the Las Vegas project. The market evidently has little faith in the value in which management believes. Property & Building is not alone. Doubts exist about property values in the reports of dozens of companies, mainly in the real estate sector. Are the evaluations in their books realistic? Do the people who hastened to reprice the properties upward when the good times rolled, now tarry? If the Israel Securities Authority is forcing small-cap companies to explain exactly how they mean to meet their liabilities, in great detail, perhaps it should require the large-cap firms to explain, in great detail, how they calculate the value of their assets. Bookmark to del.icio.us   Swing Jews Jewish Democrats go hi-tech to fight anti-Obama 'hate mail.' Where's Rose? Missing girl's mother allegedly told husband to 'get rid of her.'

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