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.
"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.
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..
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.
 |
| An early master plan: no lodgings has been built |
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
