It would appear that the on-going drama at the Yellowstone residence club is not over after all. Ex co-owners Edra and Tom Blixseth (now divorced) were back in court on Tuesday as Ms. Blixeth’s appealed against the judge’s decision to force her into chapter 7 bankruptcy, meaning the forced, immediate sale of all her personal assets. She argued for time to craft a business plan in the hope of retaining her substantial fortune.
But it was not to be. Amongst the many creditors and lawyers arguing to have her assets seized and sold immediately was her ex-husband Tom, who is claiming to be owed at least $18 million. Ms Blixeth listed $157 million in assets and admitted to debts of $357 million.
Several hundred million dollars “disappeared,” from the club and both Blixeths are pointing the finger at each other. Edra is arguing that false claims have been made against her, and that Tom misled her during the divorce. According to AP, after the hearing, Edra said:
“I’m disappointed, but we’re not going to just give up and roll under a rock. We’re going to try to regroup and figure out the best way to maximize the value of the assets.”
She also claimed that if she had been allowed to sell her 240-acre Californian estate in her own time, “It would not only go up in value substantially, but trying to do a sale where people know it’s in Chapter 7 could bring in — I don’t want to use the word but that’s what they are — bottom dwellers.”
Which is a bit rich considering the Yellowstone club has been sued by environmental organizations on numerous occasions, was fined $1.8 million by the Environmental Protection Agency back in 2004, she has already been through one personal bankruptcy and two hundred million dollars are missing.
We have followed the story for some time and it looks like providing more entertainment for the foreseeable future. I am waiting for Credit Suisse to start looking more aggressively for the money, because I think they will not be able to quickly sell the French Chateau the judge fobbed them off with. The story unfolded over the last few months – starting with Greg Lemond’s lawsuit. I suspect we will be seeing many happy lawyers around this for some time. The story so far:
Palmetto Bluff developer files Chapter 11
Another luxury real estate developer has announced it is filing chapter 11 bankruptcy protection. Crescent resources – jointly owned by Morgan Stanley and Duke energy – has announced it will file chapter 11. Duke has guaranteed $70 million worth of loans, and the company statement said there would be “minimal impact,” on existing projects, which include Palmetto Bluff, a luxury vacation home development in South Carolina. The current CEO will be replaced and the company is working on refinancing outstanding loans.
This is the latest in a long line of luxury developers unable to meet existing loan repayments and the number of loan defaults in the sector continues to rise. Palmetto is not quite so high profile as the recently bankrupt Yellowstone luxury residence club. Other high profile delinquencies recently include Trump entertainment, Magic Johnson’s “110Green St development,” John Laing homes, (owned by Emaar, the Dubai government-owned developer,) and of course, the Tamarack ski resort, which managed the dubious distinction of going broke in just one year. One does wonder just how many of the developers will be left standing by the time the Fed has stopped printing money.
Lake Las Vegas is the latest in a long line of disasters for Credit Suisse investors
The Mercury News reports in their breaking news section that “Santa Clara County luxury home sales pick up in April,” suggesting that this is a “notable occurrence.’ They then go on to detail the fact that sales are down 50% from last year; the median price is down 9% from last year, and sales in April almost always increase from March. I guess they have to report something. Mercury News
The Vancouver Sun takes a look at Credit Suisse’s “mountain of debt,” and wonders at the likely ROI on some of their dubious loans. Since a judge ruled their lending practices predatory and removed their lien on the Yellowstone club, poor old Credit Suisse are likely to be facing any number of lawsuits from the suckers investors they sold the notes to. The latest in a long line of disastrous (for Credit Suisse’ investors) US resorts in trouble is Lake Las Vegas, a luxury community based around an artificial lake in the Nevada desert. No comment. Vancouver Sun
Speaking of artificial lakes in the desert, the amount of “market recovery,” increased activity,” “exciting investment opportunities,” and “resilience,” in the UAE luxury property markets is quite staggering – desperate even, and somewhat outweighed by the continuing decline in sales volumes and prices. In fact, I do wonder just exactly how many press releases will eventually have come out of the UAE before any of them are true. The first ever property auction in Dubai was held last week. Not a single property sold. It is worth bearing in mind when reading anything from a “news,” source based in the UAE, that all the majors are government owned, and the notion of a free press is somewhat alien in that region.
The same issues affecting the luxury real estate markets do not seem to be impacting certain sectors though. According to the AP, a “supersuite” that could hold 300 people and luxury suites with kitchens, full bars and fireplaces will be offered to big spenders at the new Madison Square Garden. The renovation is somewhat behind schedule, and somewhat over the original $500 million budget, but the developers are happy to proceed regardless. Associated Press
The same can not be said in Dallas, where the Mandarin Oriental hotel group has scrapped it’s plans for yet another luxury hotel in the city. “We just walked away from our Dallas project,” Richard Baker, Mandarin Oriental executive vice president, said during a panel discussion at a New York University hotel-industry conference in Manhattan on Monday. “That city has been overdeveloped in luxury, both hotel and residential.” Wall street journal
The same article mentions a disturbing trend that I am seeing lately. Rather than foreclose on a property and sell it off, banks are getting more and more into the property development business. Barclays bank has just taken on a $40 million renovation project in Manhattan instead of foreclosing – 475 Fifth Avenue. The amount of debt for equity swaps going on around the world is staggering. The Spanish banks have been doing this for some time, and it is difficult to guess at just exactly how much real estate they are holding as “assets,” on their balance sheets. Even a non-economist such as myself is aware that owning an office building is not quite the same as having the cash. In fact, the European Central Bank was forced to buy 60 billion Euros in Spanish covered bonds last month. Oddly, this information went almost un-noticed by the news papers, but the money was “quantitatively eased,” i.e. conjured up from thin air.
The rest of the world’s banks are now beginning to do the same as the Spanish banks. Unfortunately, the banks are now effectively government-owned. Which means the real estate is now government owned. On top of the massive amount of government owned real estate already, and the stunning amount of government capital being poured into the system, it is difficult to see how this can turn out well.
Bradford & Bingley, one of several UK mortgage providers taken over by the British government has just defaulted on interest payments on £325 million of subordinated bonds – Bloomberg. The British government recently re-wrote the law to allow this, but B&B is already looking at more than 5% of their outstanding mortgages in default, with losses expected in the region of £600-700 million this year. One good thing to come of it is the government has had to employ double the number of people needed to hound borrowers into making payments from 200 to 400, which means 200 less unemployed.
Yellowstone Club sold at auction for $115 million
The saga of Yellowstone, the super-expensive luxury residence club in Montana is finally over. At an auction last week, the less-than-surprising winning bid of $115 million came from CrossHarbor Capital partners. $35 million will be in cash, $80 million a promissory note to Credit Suisse, the original lender.
Earlier this month, the Federal judge in charge of the case ruled the original loan to the Yellowstone was predatory, and was to be subordinated to other debts – despite the fact that Credit Suisse was the primary charge holder on the property. Seeing as Credit Suisse made in excess of $7 million in fees and apparently allowed one or both of the original owners, the Blixeths, to use the money outside the club, meaning less than $38 million of the original $375 million went into the club, this is perhaps not surprising, and part of the agreement reached is that this allegation will now be dropped.
Previous to that, the same judge had allowed an interim loan (coincidentally from CrossHarbor Capital) of $20 million to be given to the club on top of a $4.5 million loan given in November last year. Credit Suisse fought this loan and were instructed by the judge to move their lien to a French Chateau owned by Mrs. Blixeth. Said Chateau has been on the market for some time, and is still unsold.
Mrs. Blixeth, one of the previous owners said,”It’s bittersweet for me, but the goal of getting Yellowstone Club into a stable ownership and foundation for both the employees and the members has been met.”
I find that a little odd, considering Mrs. Blixeth was also loaned $35 million by CrossHarbor during a divorce battle for control of the club in 2008 when it was first put into bankruptcy. Mr. Blixeth was not available for comment, but I understand he is still under investigation for using $200 million of the original $375 million Credit Suisse loan to pay off personal debts. It is also worth noting that one of the principals of CrossHarbor, Sam Byrne, is also a member of the club and owner/developer of part of the property.
So perhaps the drama is not quite over? One wonders who exactly is going to pursue the missing $200 million, whether or not the judge happens to have any interests in CrossHarbor Capital and whether Credit Suisse have the stomach for any more in-fighting. Their losses on this one alone are in the order of $300 million; they have dropped another $250 million on Tamarack, and are looking at more losses on several other ski, golf and beach resorts around the U.S. Still – small potatoes compared to their overall losses of $5.2 billion Q4 2008, but I have a feeling they will be rethinking their involvement in luxury resorts in the future.
During the original bankcruptcy filing, the club claimed $778 million in assets, so this is also one of the bargains of the century. Yellowstone has, in the past, been sued numerous times for environmental destruction and has been forced to pay millions in fines for water pollution, failing to comply with DEQ permit requirements and building without a permit.
Well, this one tops the drama at Yellowstone resort off nicely. I had a feeling something along these lines was in the pipeline when Judge Ralph Kirscher decided he was an expert on valuing European Estates the last time this fiasco went to court, and allowed a $20 million interim loan from Crossharbor Capital, secured by a Chateau in France owned by Edra Blixeth, ex co-owner with her now ex-husband Timothy Blixeth. Crossharbour Capital had previously lent Ms. Blixeth the necessary funds to fight her divorce battle and win control of the club.
According to AP, said judge ruled on Tuesday that a $375 million loan Credit Suisse made to the Yellowstone club in Montana was predatory and should be subordinated to other debts.
Judge Ralph Kirscher wrote in a partial and interim order that the Swiss bank “lined its pockets” on the backs of the Yellowstone Club’s creditors, and that it devised a scheme to encourage developers of high-end residential resorts to borrow large sums without regard for their ability to repay.
Kirscher said Credit Suisse’s actions “were so far overreaching and self-serving that they shocked the conscience of the Court.”
Under the order, Credit Suisse’s lien for $232 million in repayment on the 2005 loan will be subordinated to the claims of other creditors. Kirscher did not say when he would issue a final decision.
Kirscher found that Credit Suisse authorized club owner Tim Blixseth to use $209 million of the loan to pay off existing debts on luxury estates, including Porcupine Creek, a huge estate near Palm Springs, Calif., with a 30,000-square-foot house and a private championship golf course. The resort filed for bankruptcy protection in November, after much shenanigans.
A Credit Suisse official testified last week that the loan was legitimate and there was no way the club’s financial demise could have been foreseen, especially considering it was valued at about $470 million even into 2008.
Credit Suisse received $7.5 million for arranging the loan.
“The only plausible explanation for Credit Suisse’s actions is that it was simply driven by the fees it was extracting from the loans it was selling, and letting the chips fall where they may,” Kirscher writes.
According to the ruling, Credit Suisse also made loans at least five other similar projects that have since failed or declared bankruptcy, including the Tamarack Resort in Idaho.
We have been following this one for some time now – Yellowstone club drama. It is all a little too tortuous to repeat, but well worth a read. The club, which has debts of more than $400 million, (most of which was spent on Bentleys and luxury jets apparently) is scheduled to be sold at auction today. Mr. Blixeth and Crossharbor Capital partners seem the only two interested parties, although it will be entertaining if Credit Suisse can come up with a third combatant.
Tom Maclay has a dream – a luxury destination ski resort on his 3,000-acre property south of Missoula, Montana. Enter financial crisis stage left and the very idea of yet another luxury ski destination funded by the sale of over-priced McMansions has to be very much in doubt.
The Ski runs are already cut
Ski resorts have been dropping like flies – Yellowstone luxury residence club has provided some extremely entertaining arguments and promises some entertaining lawsuits once the vultures have finished fighting over the carcass. Although these are the people that bought it down themselves, so perhaps vultures is an inappropriate analogy. Tamarack ski resort in Idaho is shuttered up and all but empty, with no interested buyers on the horizon. And the problem is by no means exclusively US based. Bansko ski resort in Bulgaria has just as many issues and add the problem of some very shady dealings by British real estate agents using hard sell techniques to sell off-plan properties that never got built and this is an entire town that is looking likely to fold up and wither away.
Maclay is lucky in that he has hardly got started on his dream vision. But – even though he purchased the land from his parents at a massive discount, he still managed to run up debts of more than $18 million. Local contractors are not getting paid and 400 acres of the 3,000 is now up for sale in an attempt to keep things rolling.
According to New West Development, Maclay remains optimistic: “The model we have – with Cat skiing, nordic skiing, mountain biking – will work well on any level,” he says. “We have one of the best sites in the world. It may take time – 20 years or 40 years or whatever – but we have done the homework and the due-diligence for it to work on any level. Everything we’ve done allows for phasing.”
Also according to New West, James Tuer, Bitterroot Resort’s erstwhile architect now questions the viability of a real estate-driven ski resort: “We’re going back to first principles in the ski industry. If the bottom line from the skiing operations doesn’t make sense, you’re in the wrong business.”
Maclay has already been sued by one local company for non-payment of bills, and has had liens placed on his property by several other contractors, and the Cat skiing operations have ceased. Maclay acknowledged that the financial meltdown had created some issues but added: “I’m confident we’ll be able to work through this just fine.” He said he “regretted” paying anyone late, but said lots of contractors had been paid large sums already and that he always paid his bills in full.
I must admit to wondering why Mr Maclay is so confident. Presumably he knows something the rest of us are not privvy to. With fairly well-established resorts falling by the way side, I am not so sure I would be rushing to build a new one. In any case – whether he can get out of his 18 million dollar hole is another question. Selling off bits and pieces to pay the bills is hardly encouraging.
Local opposition will be pleased about the current situation. Environmental campaigners have been trying to get the project stopped for some time, as the proposal includes use of 12,000 acres of public land making it one of the largest ski resorts in the world. According to their website:
Perhaps due to the sheer magnitude of the proposed resort, there are serious questions about the suitability of Lolo Peak for a ski area:
“The proposed layout of ski runs on the Carlton Ridge part of the proposed Bitterroot Resort pose serious technical and logistical problems in moving skiers the four miles or so from the Carlton Lake area to the base area because Carlton Ridge is nearly flat for that distance. A long traversing road across the north face of Carlton Ridge would be needed to provide enough slope so skiers could ski down, or a series of staggered lifts on the north face of the ridge would be needed. In any case, it would be a contrived situation that most skiers would spurn.” – Clint Carlson, 40 years a professional ski coach, ski instructor, snowboard instructor, and PSIA clinician/examiner, now retired. Friends of Lolo Peak.
