Luxury Real Estate

Credit Suisse’s Troubled Rocky Mountain Empire

By Jonathan Weber , 4-01-08

	Tamarack Resort, under construction.

Tamarack Resort in Idaho, the Promontory Club in Utah, and the Yellowstone Club in Montana have more than a little in common. All three are new, high-end residential resort developments that feature expensive houses, fancy golf courses, and very good skiing. All three have sought to capitalize on the dual trend of the rich getting richer, and aging baby boomers seeking a private piece of paradise. All three have run into difficulties of late. And all three count international banking giant Credit Suisse as their primary financier.

At Tamarack, which opened in 2004 as the nation’s newest full-service ski resort, the primary owners are now in bankruptcy after failing to make payments on a $250 million construction loan from Credit Suisse. The bank is now trying to foreclose on the property.

At Promontory, a similar scenario is playing out, with the club last week forced into bankruptcy after a negotiated sale to Credit Suisse fell through. Promontory owes the bank $275 million.

At the Yellowstone Club the situation is a bit more convoluted, with owner Tim Blixseth in the midst of a contentious divorce and multiple legal battles with some early member-partners. The Club was supposed to be sold to a Boston-based hedge fund manager, but after many months of public negotiations in the pages of the Wall Street Journal and Fortune magazine, the deal fell apart last week.

Blixseth says its business as usual at the club, but you’ve got to wonder about that $300 million-plus Credit Suisse loan. Blixseth recently sold one of the club’s prime parcels, a 160-acre spread where he had planned to build a $155 million spec house, for a reported $10 million. That looks like the kind of thing you do when you have a big loan payment coming due.

It’s impossible to know whether Credit Suisse was a foolish lender that’s about to lose its shirt, or a shrewd deal-maker that’s about to pick up some very valuable properties for a song. And the reason it’s impossible to know is simple: there is no real way to value the properties in question (just as there is no way to value the mortgage-backed securities that are now rattling credit markets everywhere). A sold-out Yellowstone Club with a cadre of celebrity members would be worth plenty; a buildable acre might easily sell for millions. A half-finished Yellowstone Club with members quitting in frustration, well, you might not be able to give away that same acre.

The inherent value of hard-to-access rural land in a cold, dry climate is actually quite low. To create value in a place like Donnelly, Idaho, where Tamarack is located, you need a lot of salesmanship and razzle-dazzle, which Tamarack founder Jean-Pierre Boespflug provided in spades. But the cool factor can be fleeting - and when it flees a highly leveraged project that’s been suffering the double-whammy of higher-than-expect construction costs and a slumping real estate market, it’s not going to be pretty for anyone involved, at least in the short term.

The events at these three properties have already answered one question that’s been on the mind of many real estate watchers in the New West: Will the very high end of the market be immune from the real estate pullback, since potential buyers in this niche have vast resources and don’t need mortgages? The answer, we now know, is a resounding no. On a related question - are there really enough ultra-rich aficionados of the West to buy all these new multi-million-dollar lots? - the answer is less categorical, perhaps, but probably the same.

And on the question of whether Credit Suisse is smarter than the rest of us, or dumber, well, we’ll be keeping a close eye on those bankruptcy proceedings.

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