Resort Developers
| December 16, 2008 - Residences at the Little Nell, Aspen CO | |
No residents yet at Little Nell project in Aspen - Some owners not pleased with project and have sued to get their millions back |
 |
Full Story - Below
Additional Updates 12/23/08 1/07/09, 1/31/09, 6/16/09 |
|
Everything looked golden for the Residences at the Little Nell when the fractional ownership project started coming together at the base of Aspen Mountain earlier this decade. If real estate boils down to location, location, location, then RLN, as the project is known, has Aspen’s most commanding address. The luxury condominiums are located next to the Silver Queen Gondola at the base of Aspen Mountain. The management arrangement for the condominium-hotel was the icing on the cake. The 26 condos and eight hotel suites will be managed by the Aspen Skiing Co.’s Little Nell Hotel, Aspen’s only Mobil five star and AAA five diamond property. So RLN’s well-heeled buyers could rest assured they would be pampered in their luxury digs. CWA Development LLC earned approval relatively easily in Aspen’s usually contentious land use review process. After an initial proposal was rejected, the current plan was approved by the Aspen City Council 4-1 in October 2004. A perfect time for salesTiming of the sales of the six-week ownership interests in the three- and four-bedroom units couldn’t have been better than when they started in July 2005. Aspen’s real estate prices were surging and RLN had little competition in the ski-in, ski-out niche. Sales went so well, in fact, that RLN’s marketing firm referred to the prevailing market conditions as “a perfect storm.” And sales prices reflected that. The prices for shares in 19 three-bedroom units started at $1 million and reached $1.9 million. Of the 152 interests available in those condos, only eight were unsold as of November. The seven four-bedroom units sold out. Prices started at $1.25 million and soared to $3 million. But the golden project has been somewhat tarnished between the approval and now. As it nears completion, there are construction delays, litigation with neighbors and objections from a handful of angry buyers. Problems arose with unstable soils right after ground breaking. The owners of three large homes adjacent to the project on the lower slopes of Aspen Mountain claim work on the condominium-hotel’s foundation shifted soils around their houses, making two of them uninhabitable. The developers are facing three lawsuits over that issue. The soil instability also threw the construction schedule out of whack. The project was initially going to be completed in summer 2008. Swinerton, the general contractor on the job, scrambled to accelerate work this fall and make up lost time. A handful of buyers filed a lawsuit last month to try to get out of their contracts for reasons related to the construction delay. Initially, four buyers claimed RLN defaulted on a key provision of the contract because the developers declared a “casualty” which could affect the closing of contracts and opening of the project. That casualty was the unstable slope and the retaining walls required to allow work to progress on the foundation. The four buyers want their earnest money refunded and their purchase agreements nullified. Two more buyers joined that lawsuit this month. Those six buyers have contracts on eight interests in the project. The developers contend they didn’t default on the contracts, said Brooke Peterson, a representative of the ownership group. R.J. Gallagher, whose firm is the managing director of marketing and sales for RLN, said it is important to keep the lawsuit in perspective. There are 166 buyers of 200 fractional interests in the project, he noted. So the parties in the lawsuit represent only a small portion of the buyers. City inspection under scrutinyThe latest lawsuit by disgruntled buyers also raises questions about the project’s recent ability to obtain a conditional certificate of occupancy (CO) from the city of Aspen. The building department granted that conditional CO after a series of inspections over the long Thanksgiving weekend. The CO was issued on Sunday, Nov. 30 — right at a critical deadline for RLN’s developer. RLN’s contract with the buyers said the sales would be closed by Dec. 31, 2008. The closings cannot occur until 30 days after RLN received its CO from the city. If the CO was delayed further into December, the developer couldn’t close on the sales by the end of the year and buyers could have exercised their right to terminate the deals. The lawsuit by the six buyers who want out of their deals claims that the CO was granted even though there is substantial work still underway on the building. Building department officials specifically said that all areas of egress and ingress should be usable and free of construction debris. “On December 1, 2008, all of such areas were littered with construction materials, scaffolding, plastic sheeting, ladders, cement mixers, wheel barrows, tool sheds, half-built walls, piles of cut and uncut stone, piles of lumber, masonry saws, wet concrete, debris, pallets of mortar, overflowing dumpsters, portable restrooms for construction workers, plastic lean-to work stations, loose wiring, electrical supplies ...,” said a lawsuit filed by the prospective buyers’ attorney, Neil Karbank. He included pictures of the work site as exhibits to document what he described. The lawsuit claims that the developer “hurried dangerously” and with questionable workmanship so that it could obtain the temporary CO and prevent buyers from exercising their right to terminate the contracts. The developer “exerted enormous and undue pressure on the city of Aspen building department over a period of weeks to issue a certificate of occupancy,” the lawsuit said. City says no special treatmentPeterson credited the city building department for working with the contractor and developer on the inspections but he denied there was any favoritism. Stephen Kanipe, the city’s chief building official, said inspectors follow “an established process” for issuing COs and conditional ones as well. He said he’s been honing that process for the nearly 20 years he has been with the department. It isn’t unusual for building inspectors to work on weekends or during holidays at the start of ski season to help businesses open, Kanipe said. He listed the Little Nell Hotel, Grand Hyatt Hotel, Ritz-Carlton (now the St. Regis) and Highlands development as examples. That same process was applied to the RLN project, he said. “Our track record over the last two decades shows we take a posture of cooperation and a posture of public service,” Kanipe said. He said the city’s inspectors made a “litany of inspections,” and the contractor had to correct some shortcomings before passing some of the tests. Kanipe added that the scrutiny would show no slack was given to the project. Kanipe explained that COs were issued for the individual residential units at RLN. That signifies that, in the building department’s judgment, they can be occupied and accessed safely. The building was given a conditional CO. Among the many conditions is a requirement for safe entry and exit. No CO of any type has been issued yet for the eight hotel units, eight employee housing units, or the restaurant and retail space that will be part of the Residences at the Little Nell. The lawsuit filed by Karbank argues that since the project as a whole didn’t receive the CO by Nov. 30, the developers didn’t live up to their contractual obligations. What’s next?Millions of dollars are at stake in the litigation with the six buyers. In theory, the outcome of the lawsuit could affect the contracts of other buyers who don’t proceed to closing on their fractional interests. The total sales exceed $200 million. If some buyers are allowed out of their contracts, it’s uncertain if the developer could get as much for those fractional ownership interests in today’s market. However, satisfied buyers are preparing to close. “We have presently scheduled to close in excess of 70 percent of our contracts before the end of January,” Gallagher said. “The vast majority of are owners are excited about closing and have already reserved their vacation weeks beginning in February of 2009.” The remaining work on the building won’t interfere with the owners’ experiences, Peterson said. The restaurant is scheduled to open later this ski season. When the retail spaces will open is unknown. Meanwhile, the Little Nell staff is undertaking “sleep tests” to make sure the units are ready for owners, Peterson said. Most of the management of RLN is transferring from the Little Nell Hotel, including general manager Barbara Piper, who is an 18-year veteran at the hotel, according to Jeff Hanle, Aspen Skiing Co. director of public relations. The 19 three-bedroom units range in size from 2,500 to 3,100 square feet. The seven four-bedroom units go from 3,600 to about 4,000 square feet. Owners’ privileges include 24 hour in-residence dining and room service; 24-hour maid service, on-demand transportation to the airport; private, underground, heated parking when occupying; and furnished units with gourmet kitchens and grand fireplaces. Update 12/23/08Two more buyers at The Residences at The Little Nell filed lawsuits Friday to try to get out of their contracts. The new complaints mean that a total of eight buyers with contracts for 10 fractional ownership interests in the luxury condominium project are trying to scuttle their deals and get their earnest money refunded. Six buyers filed a previous lawsuit that is pending. The Residences at The Little Nell, known as RLN, is being developed at the base of Aspen Mountain. It is one of the most luxurious of the fractional-ownership projects to sprout up in Aspen and Snowmass Village this decade. It will be managed by the Aspen Skiing Co.’s acclaimed Little Nell Hotel. The latest lawsuits were filed by PFW Inc., a Fort Worth, Texas, corporation, and Retreat Properties Inc., an Alaskan limited liability company, against The Residences at Little Nell Development LLC. Both new lawsuits were filed by the Aspen firm of Klein, Coté and Edwards. Like the earlier lawsuit, the latest complaints allege that the developer didn’t meet contractual obligations. The developer’s representatives have repeatedly said they will not discuss the litigation. The PFW lawsuit said the corporation’s president and sole shareholder, Ivan Jack Miller, entered a contract in December 2006 to purchase a one-eighth interest in a four-bedroom condo. He deposited $450,000 earnest money. PFW claimed, among several allegations, that the developers didn’t obtain a full certificate of occupancy in time to comply with the contract and that the developer failed to close on the purchase agreement as required by Dec. 31. The city of Aspen’s issuance of a conditional certificate of occupancy (CO) for the luxury condos is at the heart of the controversy. The city’s building department issued the certificates on Sunday, Nov. 30, after a flurry of inspections on Thanksgiving weekend. The certificates deemed that the condos could be safely occupied and accessed. They didn’t allow use of areas like a roof-top pool and spa, courtyard spaces, patios or a restaurant and dining terrace. Those amenities aren’t complete yet. As a result, the project as a whole was “uninhabitable,” the PFW lawsuit claims. The Texas corporation claims that the standard contract drawn up by the developer says that the entire project — not just the condos — must have a certificate of occupancy 30 days before the closing on Dec. 31. In addition, PFW claimed the developer missed the required closing date. A closing notice was mailed by the developer Dec. 1 and received by PFW Dec. 3. The closing couldn’t occur until 30 days after the notice was “given,” which legally was the date it was received, the suit says. Therefore, closing cannot be until Jan. 2, which allegedly violates the contract. RLN got into a bind almost immediately after breaking ground in 2005. Efforts to stabilize the lower slopes of Aspen Mountain, so that the foundation could be built, initially failed. “In short, the shoring wall had subsided: It was falling over and taking the neighboring homes with it,” the PFW lawsuit alleges. Resulting construction delays forced RLN to miss a targeted opening in summer 2008 and race to get a conditional CO on Nov. 30. PFW wants a judge to terminate its contract and order RLN to refund its earnest money. The lawsuit by Retreat Properties presses many of the same points. It is seeking to terminate a contract on a three-bedroom condo and refund of $270,000 in earnest money. RLN spokesman R.J. Gallagher previously said the development firm is working with several satisfied buyers to close their deals as soon as the buyers want after New Year’s Day. As of early December, closings were scheduled on 70 percent of the interests and more were being scheduled, he said. RLN has eight fractional ownership interests in each of the 26 condos for a total of 208 interests. The interests in the 19 three-bedroom condos started at $1 million and peaked at $1.9 million. They are nearly sold out. The seven four-bedroom condos ranged in price from $1.25 million to $3 million. They are sold out. It’s uncertain what an interest would sell for now, in the depressed market. Another mystery is the motivation of the eight purchasers who want to terminate their contracts. It’s possible that real estate deals that looked good just a few months ago have lost their bloom. The first owners will be able to stay in the RLN units in February. The restaurant and retail areas are scheduled to open later in the year. The building also includes eight luxury hotel rooms and eight employee housing units. Update 1/07/2009 City might face lawsuit for issuing occupancy permit to Little Nell projectThe Aspen city government might be dragged into the controversy over The Residences at the Little Nell luxury condominium project. The law firm of Garfield & Hecht notified the city attorney’s office Monday that the city might be named as a defendant in a lawsuit, according to assistant city attorney Jim True. “They are questioning whether we should have issued the [conditional certificate of occupancy],” he said. “Our position is it was appropriately issued.” Garfield & Hecht attorney Matt Ferguson represents Preston and Betty Henn, who own a second home uphill from The Residences at the Little Nell, also known as RLN. The Henns claim the ground around their house became unstable after work started on the massive condominium project. Doors and windows don’t shut. An elevator has been declared unsafe. Gas and water lines must be constantly monitored to make sure they don’t break. And structural damage allegedly occurred because of work on the condo project. The city “red tagged” the Henn house in 2005, declaring it uninhabitable, according to the lawsuit. The owners of two other houses adjacent to the Henn house have filed lawsuits with similar claims. The Henns are seeking unspecified damages for the damage and loss of use of the home, and they are trying to force the development firm to live up to alleged contractual obligations. Ferguson couldn’t be reached for comment Tuesday because he was in an unrelated court hearing. It is uncertain how issuance of the conditional certificate of occupancy fits in his case. It appears that the Henns will lose leverage if the luxury condo project is allowed to open without addressing some of their complaints. The Residences at the Little Nell is a fractional ownership project at the base of Aspen Mountain that is setting a new standard for luxury in Aspen and Snowmass Village. It’s location is unbeatable — right on the slope of Little Nell. It will be managed by the Aspen Skiing Co.’s highly regarded staff at The Little Nell hotel. The first owners will occupy their units in February. Construction delays ruined the developer’s chance to open the condos in June 2008 as originally contemplated, but a flurry of activity in the fall got the project back on track. Inspectors with the city building department checked the project over the long Thanksgiving weekend and issued a conditional certificate for the condo units. No occupancy has been approved yet for other parts of the building, like a restaurant, retail space, employee housing units or high-end hotel units. The issuance of any certificate of occupancy came as a surprise to some observers in the legal community because the project appeared to be far from complete. At the time the permit was issued, there was still a great deal of activity around the main entrance of the project, for example. The city’s chief building official, Stephen Kanipe, said last month that RLN didn’t receive any favoritism. He said the department regularly works with property owners and builders who are in a time crunch to get buildings completed by the start of ski season. Builders can pay extra fees to secure inspections on weekends and holidays, according to the department’s website. Kanipe said the process applied to RLN is the same process that has been in place for about 20 years. Other high-profile projects such as The Little Nell hotel, the Hyatt Grand Aspen and Ritz-Carlton Hotel (now the St. Regis) also received weekend and holiday inspections so they could open for ski season, he said. Along with putting the city on notice that it could be named in a lawsuit, Ferguson requested all city staff records regarding the certificate of occupancy for RLN. The request under the Colorado Open Records Act seeks all documents and communications, including e-mails, between city staff and council members and representatives of the development firm. True said he didn’t know how much it would cost in money and time to comply with the request. “It can be hefty, depending on what they want,” he said. The cost of copying documents and retrieving other information will be passed on to the law firm. Update 1/31/09 ‘Residences’ in Aspen counters disgruntled buyersDeveloper takes action to obtain millions of dollars in earnest moneyThe developer of The Residences at The Little Nell fired a counterpunch Friday against some disgruntled buyers at the luxury condominium project in a fight over at least $10 million in earnest money. Residences at Little Nell Development LLC filed the first of what could be several arbitration requests against buyers who are trying to get out of their contracts, according to Brooke Peterson, the Aspen representative of the firm. Dozens of people who had contracts to buy interests in the fractional ownership property decided not to close on the purchases. “They are in default. We’re entitled to their earnest money,” Peterson said. The developer filed requests with the American Arbitration Association to hear eight cases of disputed contracts. If accepted, the developer will file a claim and defendants will file a response. The developer’s position is that provisions of the sales contracts made arbitration mandatory and binding in case of disputes. The idea behind arbitration is to get speedier — and less costly — decisions than through the court system. Peterson said decisions could be handed down in the cases as soon as six months. While eight arbitration requests were filed Friday, the number of buyers who have indicated they don’t want to close on their contracts is much greater. “We’re still pursuing alternatives with some of these people,” Peterson said. In other cases, the disgruntled buyers have filed their own arbitration requests. Some buyers file lawsuits There are at least nine lawsuits filed in Pitkin County District Court with 17 plaintiffs who put 21 ownership interests under contract. The lawsuits hinge on the same general claim — that the developer defaulted on the sales contracts by not fixing a construction problem in a timely manner. That problem — unstable soils — constituted a “casualty” in legal jargon and the sales contracts specified how casualties had to be addressed, the lawsuits said. Some of the lawsuits also contend that the developer missed the deadline for closing the sales contracts. Peterson wouldn’t address the specific allegations, but said the developer will fight claims that it breached sales contracts. “We feel that we have performed under these contracts,” he said. “The bottom line is, we don’t believe the allegations are correct.” Not all the disgruntled buyers filed lawsuits. Some have filed termination notices or simply told the developer they don’t want to close on the deals. There is no public record on the number of termination notices. However, Neil Karbank, an Aspen attorney handling a lawsuit for six buyers, said his investigation shows there are at least 80 parties that aren’t going forward with purchases. There are 208 fractional interests available in the project. “The developer wants you to believe that there are only a handful of terminations, but if 80 is a handful, it must be a mighty big hand,” Karbank said. If Karbank’s numbers are accurate, the amount of earnest money involved in the dispute is probably closer to $24 million than $10 million. The stakes in the fight are even higher. If the disgruntled buyers lose in arbitration, they surrender their earnest money and have nothing to show for it. The development firm isn’t trying to enforce their sales contracts. If the development firm loses, it relinquishes millions in earnest money. And either way, the development firm ends up with fractional interests to sell — which could be good or bad, depending on how fast it must sell and how the real estate market improves. The interests in the three-bedroom units climbed to nearly $1.9 million. The interests in the four bedroom units peaked at $3 million. An interest entitles users to six weeks of use, and all but eight of them were under contract. Some deals completed Peterson said the Residences have closed on nearly 50 fractional interests so far and several more transactions are scheduled. Dollar volume of sales has topped $64 million in January, according to R.J. Gallagher, managing director of sales and marketing for the project. He said the Residences is one of the bright spots in the Aspen-area real estate market right now. “The market’s pretty dead. This is a pretty good success story,” Gallagher said. Peterson wouldn’t comment on whether he suspects the tight credit market has spurred some of the buyers to try to get out of their contracts. “It’d be wrong for me to speculate,” he said. But Gallagher noted that the development firm is offering buyers financing. “We’re working with every buyer who wants to get in there,” he said. Peterson insisted that the dispute with the disgruntled buyers won’t affect the quality of the operation or the finances of the project. The developer views them as independent issues to work out. The Residences will be operated by the Aspen Skiing Co.’s Little Nell hotel, which is the town’s only five-diamond, five-star property. The promotions for the Residences boast that the same luxurious service that the hotel is known for will be offered at the luxury condos. The first owners are scheduled to occupy the Residences on Friday, Feb. 6. The property will be fully occupied on President’s Day weekend. Update 6/16/2009 Aspen's Residences at Little Nell approach critical point Developer aims to settle large share of contested sales contractsOne of the few bright spots in the Aspen real estate market — The Residences at The Little Nell — is seeing its sales activity slow and its prices drop as it deals with the recession and a legal fight with some disgruntled buyers. After starting the year with the sale of about 70 fractional ownership interests, seven have sold since May 1, according to deeds filed with the Pitkin County Clerk and Recorder's Office. In addition, sales prices at the Residences, as in a lot of neighborhoods, are falling. The project's developer remains upbeat about sales prospects this summer and said “numerous” closings are scheduled during the next 45 days. The three-bedroom luxury units initially were placed under contract for $1 million when reservations were first accepted in 2005, and they peaked at $1.9 million. One of the latest sales of an ownership interest in a three-bedroom unit was for $900,000, according to the clerk's office. The most recent sale of an interest in a three-bedroom unit was $1.2 million. R.J. Gallagher, managing director of marketing and sales at RLN, said the $900,000 sale was an anomaly. The buyer had previously purchased two three-bedroom units at $1.9 million each. He was offered the $900,000 interest from a defaulted contract. “So sales have not dipped to the $900,000 price point,” Gallagher said. In a different transaction this spring, the first resale of a RLN unit turned sour for the seller. Records show that Andrew Harris bought a one-eighth interest in a three-bedroom unit for $1,575,000 on Dec. 30. He sold that interest to Brian Sharples for $1 million on June 1. Harris apparently didn't shed the unit in a distress sale. Records show he liked the project well enough to spend $1.75 million for an ownership interest in a four-bedroom unit at RLN on May 11. Gallagher downplayed the significance of Harris selling his three-bedroom interest for $1 million. The lowest-priced three-bedroom unit listed at $1.45 million in the Multiple Listing Service used by members of the Aspen Board of Realtors, he said. RLN was the latest and greatest project in a flurry of fractional development in Aspen and Snowmass Village. The luxury condominium project has a prime location at the base of Aspen Mountain. It is managed by the Aspen Skiing Co.'s highly acclaimed Little Nell hotel. The project has 26 slope-side condos; 19 of them have three bedrooms, and seven have four bedrooms. There were 208 ownership interests available, and the development firm said it had contracts for about 200 of them. However, legal disputes cloud the fate of scores of contracts. Several lawsuits were filed by parties who didn't want to close on their contracts. Lawsuits involving contracts on roughly 55 interests have been filed in Pitkin County District Court. Those cases are headed to arbitration, as is spelled out in the contracts. Other parties with contracts decided not to close on their deals and instead asked for arbitration hearings. No arbitration hearings have been held yet. Since 80 ownership interests have closed, that indicates the fate of 120 contracts are yet to be settled. Sources familiar with the disputes said the RLN developer offered to settle the disputes in May by selling the three-bedroom ownership interests for $1.2 million and the four-bedroom units for $1.75 million, or at the original contract price, whichever was less. Disgruntled buyers also had the option of walking away from contracts with a refund of 35 percent of the earnest money. Gallagher declined to discuss the “settlement conversations.” Other sources said the parties with contracts had until May 29 to accept the offers. While Gallagher said RLN has “numerous closings scheduled over the next 45 days,” the other sources said they are aware of only a few parties that accepted the deals. If some people accept the 35 percent of their earnest money and walk away from the units, RLN faces a challenge attracting new buyers in this market. Veteran real estate agents in Aspen said the fractional market has been hit particularly hard by the credit crunch. Gallagher was confident that RLN is poised for a strong summer. About 70 closings during the first four months of this year buoyed sales in the slow Aspen market. “All in all, we feel fortunate, based on what is taking place in the economy both locally and nationally, to be in the sales position we are in, and we look forward to a strong summer sales period,” he said.
|