Aspen Lakes facing a long winter with major financial challenges

            The Aspen Lakes Golf Course, and its Cyrus family ownership through several LLCs, again appear to be fighting for survival, weighed down by numerous creditors including a South Dakota private equity firm with a note secured by the golf facilities and other real estate and personal propoerty..

            Adding to the challenges, a recent letter from a homeowner’s board of directors reveals that two pumps providing domestic and landscaping water had failed, leaving the community to rely on a rented pump. The developer family’s Aspen Lakes Untility Company  LLC, “reports it does not have the money to replace either pump,” the letter noted.
            "Of greatest concern is the fact that Wildhorse Meadows (a family LLC) owns the land where the Water Company's wells are located, and the Water Company is a guarantor of some of all of this debt." the board wrote. 

            With fire hydrants inoperable for lack of the larger pressure landscaping pump, the HOA board letter said Cloverdale Fire District has agreed to provide, “additional resources” in the event of a fire, “and has made arrangements with sorrounding districts for use of their equpment if needed.”

            The board letter also said its legal advisors have notified the Oregon Public Utility Commisson staff of the community’s financial situation and water problems, with the objective of making them,”aware of the situation....in the event the HOA needs assistance in the future.”

            As outlined by the HOA board, the future of the community could hinge on several possiibilities – a foreclosure by the secured creditor; a deed in lieu of foreclosure and a potential auction of all assets.

            HOA attorneys are monitoring the situation, “so we can try to get out ahead” of anything that might jeopardize water delivery or increase costs. Although the HOA cannot direct the Cyruses and their LLCs or creditors to maintain the golf course, “it is in the interest of the debtor and creditors to maximize the value of this asset,” the letter concluded. 

Map at left showing Aspen Lakes Water Rights: gray area is domestic water and yellow irrigation. Red dots are wells.
 

            In late January, a federal bankruptcy judge approved a motion to dismiss a petition to reorganize under Chapter 11 of the federal bankruptcy code by the several Limited Liability Companies, or LLCs, conrolled by Cyrus family members. 

           The federal bankruptcy trustee had filed the dismissal motion in late 2019, “insofar as there is no reasonable likelihood of reorganization at this point,” noting that the, “Debtor is entering into its least profitable season of the year.”

            This Chapter 11 filing was the second for the Cyruses and their LLCs, the first coming in 2011 as the region was struggling to recover from the national recession driven in large part by questionable real estate loans and related investment derivatives.

            In that earlier bankruptcy petition, as now, the major unsecured creditor for Aspen Lakes LLCs is GT Capital LLC,  its agent listed in South Dakota Secretary of State records as Eugene McGowan Sr.

            In turn, McGowan is a leading principal in The McGowan Capital Group of Sioux Falls, whose mission, its website says, “...is to provide select investors with exceptional private equity and income opportunites and to bring creative financing solutions to business owners.”

            Deschutes County Clerk records show GT Capital LLC in September of 2019 held a deed of trust  for $4.085 million involving the Cyrus family LLCs, and essentially secured by the assets of individual family LLC members.

            GT Capital was also the beneficiary of an earlier trust deed, also for $4.085 million executed in May of 2006, and which was a factor in the Aspen Lakes and related LLCs Chapter 11 petition in 2011.

            In April of 2018 GT Capital filed a notice of foreclosure on the debt, which appeared to trigger  the latest Chapter 11 petition for protection under the bankruptcy code. As of February 14 there was not a notice of foreclosure filed with Deschutes County on the debt filed with the Cyrus' LLCs in September of 2019.  
            Also in April of 2018 the IRS refled a federal tax lien, originally filed in 2009, in the amount of $59,977.9, that amount approximately $30,000 less than the original lien..          

            Among the various creditors listed in the recently dismissed bankruptcy action are dozens of small businesses and suppliers.

An Auction but No Bidders

            After the June 2018 bankruptcy filing the Cyruses and their LLCs announced through attorneys that the golf course and other related properties would go to auction conducted by New York based Keen-Summit Properties and golf course broker Fairway Advisors. The auction was not successful according to bankruptcy documents.

            The auction properties included the 388 acre golf course parcel; a 339 acre block noted to be zoned for 10 home sites but with resort development potential and a

mining/mineral zoned site of 118 acres. Broker opinions at the time valued the properties at more than $8 million. As a point of comparison, in 2017 a Florida investor purchased all operating assets of Eagle Crest Resort in Redmond including two golf courses, main lodge and conference meeting facilities and more than 80 entitled lots for $12 million.

            Except for several unsold lots in the Aspen Lakes Community, most of the potential development property would require substantial infrastructure investment as well as permitting costs.

            The failed auction was structured without a minimum reserve, and was receptive in the announcement to a “stalking horse” bid in which an early bidder sets a price to start the process and perhaps attract others. The seller is not obligated to accept the stalking horse bid  or higher offers, but generally must pay a “breakup fee” to the stalking horse entity. There were no acceptable bids according to bankruptcy court documents.

            Perhaps a significant impediment to any buyer of the golf course has been the interlocking LLCs controlled by the Cyrus family. The golf course LLC relies on a lease from another Cyrus LLC, Wildhorse Meadows, which also owns the land and appurtenant water rights used for course irrigation. There are also LLCs for a construction related company and the utility company.

            That potentially creates a situation for a single well-capitalized investment entity to take over all assets of the LLCs. That possible scenario could occur if there is another default and subsequent action by the major secured creditor.

            Financial challenges to newer golf communities, including those also considered resorts with other amenities such as lodging, unlike Aspen Lakes, are were not unusual. The much larger Pronghorn, Tetherow and Brasada Ranch resorts all faced stiff economic headwinds in the real estate collapse of the early 2000s.

            But those resorts had significant advantages in that all were zoned for resort expansion and also had considerable real estate in the form of buildable lots to aid in their recovery. All three received an infusion of capital from new investors coming out of the recession and are benefitting from championship caliber golf courses and significant marketing efforts.

A Bright Future in the Beginning

            In its early days the future looked very promising for Aspen Lakes when the first drives blasted off the inaugural nine tees in 1999. Another nine holes were added in 2000.

            Just five minutes east of Sisters, OR, with views of the 10,000 foot plus peaks of the Cascades, the course garnered accolades from players and infuential golfing media.

           

An early master plan: no lodgings has been built

One golf publication named it one of America’s top new public play courses, and with the notoriety and pre-recession optimism of the mid-2000s came interest in having a home along the fairways.

            Lot sales were brisk. Custom homes rose along the fairways, some selling near to or above $1 million, at that time the higher end of regional prices. The course and real estate were competing favorably with such well-established golf communities and resorts as Black Butte Ranch eight miles west of Sisters and Eagle Crest 20 miles east near Redmond.

            The Aspen Lakes restaurant, known as Brand 33, to reflect the development family’s ranching heritage, gained a loyal clientele until the recent troubles. It is closed for the winter season now. The scenic location with banquet facility has also been a popular wedding venue.

            But today, even if the Cyruses/their LLCS and their secured creditor come to an agreement, there’s a cloud over potential home and lot sales. And its likely that careful brokers will exercise extra caution in crafting due diligence clauses to protect their potential buyer clients.

            As of February 10, the MLS of Central Oregon showed nine lot listings in a range of $189,000 to $380,000 and a single home offered at $1.85 million. In 2019 there were three lots sold in the range of $210,000 to $225,000 and 10 homes at $757,000 to $1.6 million. There were five lot sales at $185,000 to $325,000 in 2018, and eight homes from $660,000 to $1.77 million.

            With the various challenges facing Aspen Lakes and its developers, one veteran real estate professional recently offered a near disaster opinion – “game over.” Perhaps, but Aspen Lakes owners have been able to rise from near collapse in the past.

            The coming of the Spring golf season, with pending decisions by the major creditor and the necessity to provide irrigation water for common area and course landscaping, might give a clearer picture of the way forward for Aspen Lakes.

             

Earlier post:

Aspen Lakes goes to auction

https://bendisbetter.blogspot.com/2019/03/aspen-lakes-golf-course-in-bankruptcy.html

Snowpack, water and endangered species - A complicated calculus

            What a difference a month makes!

            The chatter among Mt. Bachelor ski area season pass holders at New Year’s Day celebrations mostly turned around dodging rocks and bare spots on the few runs that had opened this season.

            Then came the storms, which on the Northwest’s premier  9,000-foot plus favorite ski destination dumped more than 70 inches in seven days in a week ending January 13. By February 4, with periodic light and heavy snowstorms, the mid-mountain base topped 100 inches and the ski area's website noted January had seen the most snow on its slopes in 12 years.

            It wasn’t just the winter outdoor enthusiasts who were enjoying the bonanza. Deschutes basin irrigators and conservation groups were on board as the promise of a better snowpack portended an improved outlook for the coming year to improve reservoir levels for growing crops and stream flows for bull trout, steelhead trout and the spotted frog, species listed under the federal Endangered Species Act, or ESA. The potential for sockeye and Chinook salmon to be listed in the future is another factor in the discussion.

            On February 4, three largest reservoirs  in the Upper Deschutes River watershed that store water during the winter months were reporting levels ranging from 52% of  capacity in Crescent Lake; 57% Wickiup; and 82% Crane Prairie.

Oregon snowpack as of Feb 5 2020

            In the Crooked River basin, the largest reservoir, Prineville, which holds water above Bowman Dam, reported 60% of capacity, while Ochoco and Haystack Reservoirs on downstream tributaries in that basin were 47% and 79%, respectively.

            Another important metric is mountain snowpack and its water content in gauging and predicting the potential runoff as snows melt to recharge basin reservoir storage.

            As of February 5 the Natural Resources Conservation Service reported that the snowpack for Deschutes and connected stream basins ranged from 90%-99% of normal, and that readings from Snotel sites showed the snow water equivalent at near 15 inches, nudging the median for 1981 through 2010. And the SWE had jumped ahead of 2019 by more than four inches.           

              Habitat Conservation Plan               

            This “water year,” which began last fall for the Deschutes and Crooked watersheds, comes as irrigators are working to gain approval for a “habitat conservation plan,” ir HCP, an option of the ESA, presented in draft form at a series of public meetings with a comment period that concluded in early December.

            The HCP and a companion Federal Environmental Impact Statement, as required in the process, will now be released with any changes as final documents mapping Central Oregon water use for the next 30 years.

            The HCPs are frequently held out by federal agencies charged with enforcing the ESA  as a way for farmers, utilities, cities, and other stakeholders to obtain an “incidental take permit,” or ITP, as provided under the 1973 law.

         

 
   As an example, an irrigation district might agree to pipe open transmission ditches to conserve water that might be lost through leaking into the ground or evaporation. In return, the conserved water would show enforcement agencies thar the district was making an effort under the HCP to preserve habitat for bull trout , a species listed as threatened in the Deschutes and Crooked basins.

            The timing and volume of water releases from basin dams, in particular Wickiup Dam on the Upper Deschutes, would reflect needs of the spotted frog. Studies have shown the species requires less water to be released earlier in the growing season to protect eggs, and a steadier flow during other times of the water year.

            Also among options to address ESA requirements is the removal of acreage from irrigation, which under laws in Oregon and other states would make that “trust” water available instream for listed species. In most cases a farmer or irrigation district could recover the water in a later year if needed, and would not lose the water right.
                                 Irrigation for 244 square miles

            The regional effort to address ESA and water issues has coalesced through the Deschutes Basin Board of Control a coalition of eight irrigation districts, which together provide water to a total of just under 156,000 acres, an area equal to 244 square miles. Also participating is the City of Prineville, which relies groundwater withdrawal and surface diversions and treated effluent discharge involving the Crooked River basin. 
             An irony of the regional water situation is that the North Unit Irrigation District which potentially provides the resource for 59,000 acres and has the highest value of crops in Central Oregon holds "junior" water rights. As such other smaller districts including Central Oregon Irrigation District have "senior" rights and therefore first claim on all water in the basin in the "first in time, first in line" concept of centuries old western water law based on the "prior appropriation" doctriine.  
            The North Unit water rights are for storage in Wickiup Reservoir while COID's come from Crane Prairie upstream on the Deschutes. Nevertheless all water on the Deschutes including for districts with rights in other reservoirs must flow thorugh Wickiup. The result is a balancing act by dam managers for the districts and Bureau of Reclamation to insure, for example, that COID gets its water, initially held in Crane Prairie, out of Wickiup before North Unit, which suffers in low snowpack and storage years.
            By comparison as of Feb 10, Crane Prairie was 82% full, compared with Wickiup at 59%, putting the district in a much better position that the North Unit.
            Even with the improved snowpack in January and early February this year, North Unit water managers and farmers and ranchers in the district are already concerned at the low Wickiup storage. Several years of up and down runoff that have made it difficult to recharge the reservoir the following water year.

            Other entities involved in the ESA process, but not directly with the incidental take permit, have included the Confederate Tribes of Warm Springs, Trout Unlimited, the Deschutes River Conservancy and WaterWatch among others.

            Key federal agencies which must ultimately sign off on an HCP are the US Department of Fish and Wildlife and National Marine Fisheries Service. USFWS is responsible for actions involving the spotted frog and bull trout while NMFS directs efforts that would affect the ocean migrating steelhead trout.

            Section 7 ESA provisions provide that the federal agencies charged with species decision consult on strategies and actions affecting listed species. In the case of the Deschutes Basin, the federal Bureau of Reclamation, which operates Wickiup Dam, is also required to be a part of the process.

            In the final draft, the HCP and companion FEIS compare four options, one of those taking no action, which has been discounted.

            Among the other three options all would involve increasing fall and winter stream flows on the Deschutes. On the Crooked River the three choices would all boost water releases from Prineville Reservoir storage at increasing levels, similar to the Deschutes options.

            Other measures in the options would establish conservation funds and modify operation and maintenance of all “water facilities” involving flows into the Deschutes and Crooked basins.

            At the heart of the HCP process is regulation of releases from Wickiup, the region’s largest reservoir, through which stored water from Crane Prairie and Crescent reservoirs also flow.

Draft EIS/HCP water flow alternatives

            The “proposed action” as outlined in Alternative 2 would set a target of 100 cfs (cubic foot per second)  minimum fall/winter releases in years 1-5 of the plan; 200 cfs in years 6-10; 300 cfs in years 11-20 and 400 cfs in years 21-30.  

            Each cfs equals roughly 7.5 gallons a second; 450 gallons a minute and 27,000 gallons an hour. Extending that calculation, in 12 hours that flow rate would amount to one acre foot of water, or the amount to cover an acre of land with a foot of water.

Useful links for water and endangered species issues

Fact Sheet of Draft EIS for the Deschutes Basin HCP

https://www.fws.gov/oregonfwo/Documents/DeschutesHCP/deisFR/mtgs/Deschutes%20Fact%20Sheet%20-%20WEB.pdf

Complete DRAFT HCP as of August 2019

https://www.fws.gov/oregonfwo/Documents/DeschutesHCP/deisFR/DBHCP%20Entire%20Document%20August%202019.pdf

A Timeline of the Spotted Frog ESA listing in the Deschutes Basin

https://bendisbetter.blogspot.com/2016/02/spotted-frog-esa-listing-creates.html