Phase 3 Base Village suspended for now as developer’s financing ‘evaporates"
By Madeleine Osberger, Oct 22, 2008, Snowmass Sun Staff Writer, Snowmass Village,CO
SNOWMASS VILLAGE- The global financial crisis has hit home in Snowmass Village. Related WestPac is putting Phase 3 of Base Village on hold – which includes the arrival center and a pair of condominium buildings (Buildings 4 and 6). The developer is also laying off 25 percent of its Snowmass Village and Aspen-based staff, which in real terms is 15 employees in departments across the board, from marketing to construction, development, sales and accounting.
“Related WestPac is as vulnerable to the world market as other people,” company president Pat Smith said Tuesday. He went on to explain how “general economic conditions and the global crisis in the capital and financial markets have caused financing to evaporate.”
The first two phases of Base Village, which include the Viceroy hotel (buildings 13A and B) and the completion on 90 condominiums, five new restaurants and limited retail, will proceed as planned. And because of strong pre-sales, the Little Nell-Snowmass will also be built.
But the lead lender for phase 3, Hypo Real Estate Holding AG, has been nationalized by the German government. Another lender, Lehman Brothers, has declared bankruptcy.
Moreover, said Smith, “a secondary commitment from another group of lenders that are based around the world are unwilling to move forward.” Related WestPac had a commitment letter from this group but “not a full terms sheet.”
In essence, said Ken Wong, Vice Chairman of Related WestPac, “the world of real estate finance and capital markets within the world of global economics have changed dramatically.”
What does it mean?
The suspension of the Base Village arrival center will have negatively impact the project, according to Snowmass Village Town Manager Russ Forrest.
“They need a place to check people in,” said Forrest, adding that the developer is “kicking around a couple of interim ideas.” Ken Wong vowed that Related WestPac “would work closely with the town on that. We’re probably going to have to make some adjustments to make sure it flows well. There are other ways into Base Village.”
Mayor Pro-Tem John Wilkinson (Mayor Mercatoris is out of town) said the arrival center “was a critical component of the whole arrival experience. So much was built around that building.”
But he had another concern. “Quite frankly, the commercial (space) was built to be ‘just big enough’ based upon the number of wholly owned condos. With this new information – are there going to be enough units to create critical mass and be successful?”
Pat Smith said about the arrival center to Base Village, “Right now we’re trying to figure it out. We’re a little bit shell shocked (because) our cash is in that building.” He went on to explain that there are three levels of financing with this project, the first being that of the “sponsor” (Related WestPac), which is considered to be the cheapest financing. The next level is construction financing and the third level is called a “mezzanine loan” which derives from sources like hedge funds.
“There’s no construction financing available,” Wong said simply. Smith lamented that the $700 U.S. government bailout hadn’t loosened up the credit markets enough to make these moneys available. For now.
Pat Smith assured that the Viceroy hotel has been “funded” and will be completed. “We want to keep the momentum going in the community.” Yet he did note that sales this summer had slowed significantly for condominiums and that the market absorption rate needs to catch up with the introduction of new product.
“We remain completely committed to Base Village,” Smith said. “We’re excited about the five restaurants and retail” that will debut this winter. Wong added, “We are committed to the vision.”
With regard to the luxury Little Nell project, “We have been so happy and successful with the amount of pre-sales that we are going to make sure it gets built, even if we have to do it with our own money,” Smith said. Completion could be 16-18 months out, he said.
With regard to Phase 3, Smith said, a search for financing will continue.
For the 15 employees laid off Tuesday, their search will begin with the classified pages. The Snowmass Sun has opted to not list the names of any dismissed employees.
“I spoke with people one-on-one,” Smith said. “I told them it wasn’t anything they did wrong.”
Town Manager Russ Forrest said he sympathized with those who lost their jobs. “Any sort of downsizing or forced reductions, that’s difficult for the organization. But from a practical/physical point of view, they are still moving forward with the Viceroy, Nell and Building 8.
Town Councilman Arnie Mordkin advised the government and the community “to not push the panic button yet. They have funding to finish 13A-B and (the town) has security for a completion bond.” He also said it’s critical that the town not be hasty in its decision-making. “We don’t want to be stampeded into capitulating into something we don’t agree to. That’s the big issue,” Mordkin said.
With regard to the completion bond, Forrest said that financial security is related to public improvements, such as the future roundabout at Wood Road and Kearns Road. Related WestPac spokeswoman Joanna Rose assured that the roundabout will still be funded.
Forrest also said he didn’t expect the announcement to have much of an impact of sales tax revenues in the near future and noted that the town was already in a conservative budgeting mode (see story, page 2).
Rick Griffin, chair of the Snowmass Village Financial Advisory Board, said a larger concern looms and that is this season’s business.
“I’m as much concerned about having a good year for the rental condominiums as a whole as I am about Related WestPac. Sales tax is necessary for the general operating fund.” Griffin also said this announcement dispels, for good, the notion that Aspen/Snowmass is completely isolated from the ripples in the global economy.
“We all like to have the attitude that we’re insulated from the world. The fact is, we’re more of an international player. Our buyers, sellers and guests come from all of world. What’s happening in Europe, what could be happening in South America, are we going to have major impacts this winter? I would hope people who have the money to spend, continue to come here will continue but they may not bring as many guests with them.”