Aspen development firm cuts ties with embattled CEO
October 13, 2009
ASPEN – An Aspen development company associated with the Minneapolis man accused of bilking billions of dollars out of investors in a Ponzi scheme is asking the City Council for a year extension on its approvals to build condos and affordable housing units in an east end neighborhood.
PFG Aspen Walk LLC, once controlled by Tom Petters’ global company, Petters Group Worldwide and its subsidiary, Petters Real Estate Group, gained conceptual approval by the Aspen City Council last October to build a multi-family complex with 18 affordable housing units and 14 free-market condos.
PFG Aspen Walk LLC owns 404 Park Ave. and is a partner with the Aspen/Pitkin County Housing Authority, which owns 414 Park Circle. The proposal involves demolishing two buildings, one owned by APCHA and the other by the Petters firm.
Petters has been in jail since September 2008 for his alleged involvement in the Ponzi scheme and is under investigation by the FBI, the U.S. Attorney’s Office, the IRS criminal investigative division and the U.S. Postal Inspection Service.
Shortly after Petters’ arrest, a federal judge froze the assets of Petters Group Worldwide and placed the company in receivership, a form of bankruptcy in which a firm can avoid liquidation by reorganizing with the help of a court-appointed trustee.
In a Sept. 28, 2009 letter to the council, Tom Klassen, managing partner for Petters Real Estate Group, said Petters and his alleged partner in crime, James Wehmhoff, have been eliminated from the Aspen project. As a result, the project is free from any risks associated with Petters’ legal and criminal situations – which was a major concern of local elected officials when they conceptually approved the plan last year.
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At the time, the council made conditions before final approval would be granted: Petters’ interest and involvement had to be removed from the project, adequate financing needed to be in place to assure the completion of the project, and adequate affordable housing – both on and off-site – be provided.
According to Klassen, all of those conditions are being worked on.
“The receiver required us to demonstrate through a dialogue in the marketplace and other independent verification that Petters’ and Wehmhoff’s interest were worthless,” Klassen wrote. “As the real estate markets have declined into 2009, we have been able to satisfy the receiver of this and are now finalizing the procedure for the disposition of each of their interests.”
Ever since Petters was arrested and his assets were placed under receivership, Klassen has been looking for new funding sources for the Aspen project because the lender at the time backed off on its financial commitment.
“Due to the credit crunch that started in October 2008, we have spent a great deal of time over the past 11 months seeking debt and equity capital willing to invest in the project,” Klassen wrote in his letter to council. “We have successfully found capital sources that are willing to invest in the project now to fund costs required to obtain [final approval] and also sources that are willing to invest in the project after it has obtained [final approval] and fund construction.”
The council’s Oct. 27, 2008 conceptual approval expires in less than two weeks and will become void unless an extension is granted. PFG Aspen Walk LLC and the housing authority are asking the council at Tuesday’s meeting to grant that extension.
Klassen said in his letter that he and his associates were delayed until April in starting a dialogue with the company’s current lender on a restructuring and resolution to its loans because of the receivership and the severe recession. He added that since August, conversations with the lender indicate that a satisfactory resolution can be reached.
PFG Aspen Walk LLC has engaged a real estate broker to find off-site affordable housing locations as mitigation for the development at Park Circle and Park Avenue. The Minnesota-based company is considering a partnership with the local government in a joint venture to produce affordable housing at 1230 E. Cooper Ave., a property that has recently been acquired by the housing authority.
Klassen and his associates have toured the site with Housing Director Tom McCabe, and have hired an architect who has prepared conceptual plans to redevelop the property. Klassen also has gone before the housing board to state the company’s intentions and its financial situation.
“At this point, we have gone as far as we can on this issue until the financial matters are resolved and we are in a position to put a property under contract,” Klassen wrote to the council. “We believe that these activities represent a good faith effort on our part to address the conditions of approval in what must surely be acknowledged as a difficult economic environment.”