Resorts suffer during mortgage crisis

Developers that cater to the superrich are landing on hard times.

PARK CITY, Utah (AP) — With the developer forced into bankruptcy, Hugh Smith worries about the $1 million he and a partner sunk into bare lots at Promontory, a half-built, sprawling residence club in a post-Olympic town saturated with second homes for wealthy Boomers.

As Promontory began showing signs of distress a few months ago, Francis Najafi, chief executive of Phoenix-based Pivotal Group, gathered members together in an opulent timber-and-stone clubhouse and said he was in default and pulling out.

“He was telling everybody he was sorry for our troubles and blaming events beyond his control — the nation’s real estate,” said Smith, who believes Promontory will bounce back in a year or two under new ownership. He still hopes to develop two lots with multimillion-dollar vacation homes for sale.

“The project is not in trouble other than Francis Najafi decided to pull money out of it,” said Smith, holding his anger in check. “We can’t wait until the court decides who’s going to be in charge.”

Promontory joins several other Western vacation spots facing financial uncertainty or worse, including Nevada’s Lake Las Vegas golf resort, Idaho’s Tamarack Resort and Montana’s venerable Yellowstone Club. And sales are off at other resorts in the region, according to the Rocky Mountain Resort Alliance.

Overdevelopment is one of their major problems.

Around Las Vegas, a quarter of all housing sales on the market are listed as short sales, going for less than the loan taken out on them. On the Strip, plans for 24,700 condominiums are on hold or have been canceled, according to research firm Applied Analysis.

“Many of them were speculative projects to start,” said Brian Gordon, principal of Applied Analysis, which tracks the market closely.

At the more exclusive resorts, the market had seemed recession proof, with buyers generally paying cash. They had nothing to do with the failing U.S. subprime loans that are causing market turmoil. But the turmoil is making banks less forgiving for resort developers who took out huge construction loans.

The Swiss investment bank Credit Suisse says Najafi defaulted on a $275 million loan in December and told a loan officer he has no money to pay for anything at Promontory.

Najafi and other Pivotal executives refused repeated requests for interviews. The bank said it wouldn’t comment beyond court papers.

Credit Suisse also is trying to call in a loan at Tamarack Resort, one of the nation’s newest ski resorts, about 100 miles north of Boise. In Nevada, at Lake Las Vegas — a golf community 17 miles from the Strip that defaulted on $540 million in loans — a group of lenders led by Credit Suisse forced the development into new ownership at the start of the year.

The bank says Yellowstone Club is current on its loan, but that club faces other troubles.

A divorce of the owner and his wife has turned into a nasty battle for control of the Yellowstone Club. In another dispute, a group of charter members led by cycling legend Greg LeMond are fighting for their shares of equity.

The Yellowstone Club received a $375 million Credit Suisse loan in 2005, but members say little of the money was spent on the resort — a $100 million Warren Miller Lodge, named after the celebrated and folksy ski filmmaker, now 83, is still unfinished. The resort didn’t respond to questions from The Associated Press.

The Yellowstone Club opened in 1997 with a private ski area for members including Bill Gates near Big Sky, Mont.

Some vacation-home buyers seem to be becoming skittish. Accustomed to depressed Southeast and West coast markets, they are looking for bargains, but equally well-heeled owners are refusing to cut their prices.

“This is really upsetting to the buyers, so they’re just not buying,” said Dennis Hanlon, president of the Rocky Mountain Resort Alliance. “Both parties are upset.”

The standoff has thrown off sales at major resort towns in Colorado, Idaho, Utah, Wyoming and British Columbia. Sales at 11 resorts that belong to the alliance in those locations plunged by nearly half in the first quarter from a year ago, Hanlon said.

“There’s no doubt about it. Our volume and number of transactions are down,” said Tyler Richardson, president of Park City Board of Realtors. “But if you look at median sales prices, they’re stable.”

Park City is still considered something of a bargain by the superrich, and real-estate agents believe it will rebound after some casualties. Michael Jordan has a house in Glenwild, Utah, which is financially sound. Tiger Woods is a regular and low-key visitor to Deer Valley Resort, which launched Park City’s transition in the 1980s from a tired old mining town.

The area’s transformation into vacation-home hotspot, which picked up after the 2002 Winter Olympics, has clearly chilled.

“We’re chugging along. It’s not like we’re knocking them dead,” said Jake Doilney, owner of Glenwild Realty, who said 10 homes averaging nearly $4 million apiece were for sale, then had to update the count to 11 in the middle of a conversation.

Glenwild members pay hefty one-time and annual fees — $115,000 for a golf membership plus $9,600 a year.

“They’re buying a lifestyle, and the subprime fallout and gas prices have very little impact on a buyer like that,” Doilney said.