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

Skyline Forest timberland for sale: Priced well above current timber value

            The Asian-based owners of substantial timberland in Deschutes and Klamath counties have put up for sale a 33,000 acres portion of their holdings for a whopping $127 million, twice what they paid for that and other land acquired in a bulk sale of about 200,000 acres less than five years ago.

            The potential sale is listed on the website of ranch and land broker Mason & Morse of Colorado, which said the offering includes timberland, “providing high quality timber for harvest, great for logging industry development and liquidation.”

            Also noted is the possibility of large homebuilding sites, “private hunting and fishing, private parks and campgrounds,” as conditional uses on the property which is zoned F1 forestland. The minimum lot size is 240 acres as a conditional use, which would require county approval.

            “The property has significant long-term appreciation potential, with opportunity for sustainable timber management, conservation, abundant recreation, in combination with residential and mixed-use development,” the broker website noted.

            The listing information: https://www.ranchland.com/bull-springs-skyline-forest-bend-oregon-3431

            The announcement apparently caught the Deschutes Basin Land Trust by surprise, with the group quickly issuing a news release explaining its 15 year quest to have the property, which it has called Skyline Forest, preserved mostly for public recreational use and low impact sustainable timber harvest.

            In a news release Land Trust executive director Brad Chalfant said, “We remain fully committed to the permanent conservation of Skyline Forest for its wildlife, scenic views, and its recreational and educational potential,” adding that the group seeks to continue its efforts with the current owners.

            Although the name Skyline Forest took hold in the past decade, the property was originally known as the Bull Springs Tree Farm, an expansive intact acreage of numerous parcels stretching from Bend’s northwest border to the fringes of Sisters. The broker listing refers to the property as Bull Springs Skyline Forest.

            In the early 2000s Crown Pacific Timberland owned the land before losing it in bankruptcy to a subsidiary of John Hancock Insurance, which in turn sold it to Fidelity National Timberlands, then a subsidiary of publicly-traded Fidelity National Financial, which controls several of the nation’s largest title insurance companies..

            The Asian investment group, Shanda Asset Management, that now owns the property initially acquired it in 2015 through Whitefish Cascade Forest Resources LLC from the Fidelity timberland company. The Whitefish name apparently has its origin in the Whitefish, MT  business base of Bill Foley, chairman of Fidelity National Financial.

            A Securities and Exchange filing in 2015 by Fidelity noted the sale of the timberland to the Asian investors for $63 million. It is not clear from company annual reports and other documents how much Fidelity paid for the property. However, the 2013 annual report notes it recorded a "$6 million impairment" in 2012 related to “Cascade Timberlands.”

1: Boundary of Bull Springs Skyline - Mason & Morse

            The Shanda Asset principals at one time had addresses in Singapore, although online information indicates the bulk of the investors' wealth was derived from interactive internet and online gaming in the Chinese market. Other information shows that Shanda Group had a Hong Kong base.

            According to the broker’s estimate in the listing, the 33,000 acres is more than 93% Ponderosa pine, or 71,905 thousand board feet, with remaining stands of mostly White Fir. Ponderosa is a lower value species than others such as Douglas Fir and White Pine typically found in less arid locations of Oregon, Washington Idaho and Montana.

            Information posted online for the fall of 2019 by the University of Montana shows that the mill-delivered price of Ponderosa  for the western part of that state averaged $333 per board foot. Another online chart from an Idaho private broker estimated prices of $325 to $380 depending on the tree diameter.

            Assuming a higher price of $400 per thousand board foot, the 71,905 thousand board feet of Ponderosa estimated by the broker would currently be worth $28.774 million, or approximately $871 per acre.

            Current Deschutes County tax records list one of Skyline Forest/Bull Springs larger parcels of 12,543 acres at a “real market value of  $7,379,870, or $588 per acre. For the 2015-2016 year at the time it was purchased by the current owners the county estimated the real market value of that parcel at $4,865,730, or $387 per acre.

2:Deschutes Co. Destination Resort Map (dark)

            By most measures, the $3,848 per acre price for the 33,000 acres listed at $127 million is a staggering jump when considering the current price of standing timber, or "stumpage." It’s reasonable to consider much of the non-timber residual value in the listing price could be based on potential “highest and best use,” an appraisal term, which might include residential single family homes or cluster development as noted in the listing package, with additional value in long-term forestland growth.
            A more complex discounted cash flow calculation would factor in a laddered future value of long-term timberland management, including such points as periodic harvest thinning and reforestration as well as related expenses.

            Another more elusive value might be assigned to the potential of carbon sequestration, the process in which timberland absorbs atmospheric carbon and releases oxygen. With climate change has emerged a "cap and trade" market whereby business and industry can obtain credits created by timberland to offset operations that contribute to greenhouse gases. Or they might trade a permit that allows a defined amount of emissions.         
            There had been  discussions with previous owners that portions of the land might be developed as a destination resort. But current zoning and a 2017 state law requiring that destination resorts be more than 24 miles from an urban growth boundary of cities of more than 100,000 population could be impediments.  The state law also requires counties to develop a wildfire protection that “demonstrates the site can be developed without being at a high overall risk of fire."

           Two wildfires, the Two Bulls in 2014 and Rooster Rock in 2011, have burned more than 10,000 acres of the property before the 2015 acquisition by Shanda Asset Group.

            Bend’s growth is fast approaching the population threshold related to resorts. And the property is not currently designated on Deschutes County’s comprehensive plan for a potential destination resort. (See map 2 - resort map area is south of Skyline). 

 

 Previous posts

Scenic forest between Bend & Sisters spurs conservation effort

 Massive timberland sale raises questions for Deschutes and Klamath projects