Resort Developers
April 17, 2009 - Pivotal Group & Promontory, Salt Lake City UT
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Bankrupt luxury community sold to same developer In a highly unusual bankruptcy outcome, the developer of a luxury golf community near Park City bought it back for pennies on the dollar Friday because the leading creditor was unable to scrape together a bid and nobody else was interested. |
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Bankrupt luxury community sold to same developer
In a highly unusual bankruptcy outcome, the developer of a luxury golf community near Park City bought it back for pennies on the dollar Friday because the leading creditor was unable to scrap together a bid and nobody else was interested. Promontory, valued at $560 million before the recession took hold a year ago, was sold for just $30 million to a developer who walked away from $350 million in loans packaged by Credit Suisse and sold to hedge funds and other investors. A Credit Suisse spokesman didn't dispute the loss but wouldn't comment. Dallas-based Highland Capital Management, a hedge fund that owns about 40 percent of the loans, didn't return calls from The Associated Press. Francis Najafi (Na-JAF-ee), chief executive of Phoenix-based Pivotal Group, emerged triumphantly from a courtroom Friday as the same owner of Promontory, where more than 350 multimillion-dollar homes have already been built. Members pay hefty fees for golf and other amenities, including opulent lodges and a warehouse-sized horse stable. Najafi kept operations going during a yearlong bankruptcy. Another 1,500 building lots are available across a sprawling sagebrush-covered hill overlooking the ski town of Park City. Najafi said he believes sales will pick up in a year or two, making Promontory viable again. Najafi insisted the bankruptcy was not his doing. A group of creditors who forced the bankruptcy said he stopped paying loans in December 2007. Najafi countered that Credit Suisse agreed to loan money he says he didn't even need and that the bank was a victim of its own excess. "Ultimately, I believe in the magic of America," said Najafi, an Iranian-born, self-made real-estate tycoon who believes the market for expensive second homes will come back. "There is no question in my mind that the economy will recover." Credit Suisse had matched Najafi's $30 million bid at an auction on Wednesday but, unable to raise even that amount, it withdrew the bid a day later. The takeover required a buyer to raise millions more to keep operations at Promontory going. The project was shopped to 80 potential investors, none of whom ventured a bid. Najafi said he'll have to spend about $70 million before Promontory recovers. "He feels a sense of obligation to the community and a desire to protect the reputation of a development he's so closely associated with," said David Jordan, one of the lawyers for the Pivotal Group subsidiaries that operate Promontory. In court on Friday, Credit Suisse didn't support or oppose Najafi's bid, surrendering the battle. Homeowners and a group of other creditors expressed confidence in Najafi's continued management and his $30 million bid, which pays off some debts, but not the Credit Suisse loan holders. The sale was approved by U.S. Bankruptcy Judge Judith Boulden. The fact that Najafi was able to buy his own project back so cheaply is a reflection of the turbulence in credit markets. "It was a most unusual agreement," said Richard Aaron, a retired University of Utah bankruptcy-law professor and Promontory's auctioneer. Original Story - Associated Press Additional Story April 16 Utah bankruptcy auction closes without sale A bankruptcy auction for a luxury golf community near Park City ended in chaos Wednesday with a bank and the developer accusing each other of acting in bad faith. Credit Suisse and shareholders for Phoenix-based Pivotal Group submitted the only bids, but neither side's offer was revealed even to auctioneer Richard Aaron. "Everyone is confused," said Aaron, a retired University of Utah bankruptcy-law professor who ended up calling off the auction. Without revealing any specifics, lawyers for both sides spent the day objecting that the other's bid wasn't enough or failed to satisfy terms of a court-approved reorganization. The attorneys refused to comment on the dispute, which goes to U.S. Bankruptcy Judge Judith Boulden in Salt Lake City on Friday. Promontory, valued at $560 million before the recession took hold, was forced into bankruptcy in March 2008. It continues to operate on financing from Pivotal, which says community of multimillion-dollar homes, opulent clubhouses, golf courses and horse stables remains viable. Only half-built, the 10-square-mile development occupies a sagebrush-covered ridge overlooking Park City. Until recently, it appeared Promontory would become the first of several Western vacation communities to emerge from bankruptcy. In court papers, Credit Suisse says Pivotal Group subsidiaries defaulted on $275 million in loans in December 2007. The bank doesn't hold the loans, which were sold to hedge funds and other investors, but it acts as agent for the loan holders. Credit Suisse was involved in several other resort communities that remain in bankruptcy. It packaged loans of $375 million to the Yellowstone Club, a private ski and golf resort in Montana; $540 million to Lake Las Vegas resort, a golf community 17 miles from the Strip; $400 million to Turtle Bay Resort, a beach development in Hawaii; and $675 million to Ginn Resorts in Celebration, Fla. At first, the lawyers refused to let the AP cover the auction, which was held at a Salt Lake City law firm. It took a court order from the bankruptcy judge to open the auction.
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