Bankruptcy judge deals big blow to Aspen Club
A bankruptcy judge Wednesday denied the Aspen Club and Spa ownership’s proposal for a $140 million loan intended to save their redevelopment project and get them out over $100 million in debt to contractors, loan-note holders and other creditors.
Delivered over a Zoom call, Judge Joseph Rosania Jr.’s ruling was a decision eagerly awaited by Aspen Club president and owner Michael Fox and his project team, whose attorneys argued the construction loan would allow them to satisfy their debts, which includes $26 million to contractors, and finish the project within two years. Work stopped on the project in September 2017 when contractors left the job site at 1450 Ute Ave., on the east side of Aspen, because they hadn’t been paid.
The proposed loan, which would have been provided by Florida-based lender EFO Financial, had been key to the club’s emerging from Chapter 11 bankruptcy protection and restarting the project.
“We’re going to take a step back and talk to the creditors,” Fox said after Rosania delivered his decision, “and the judge has given us an opportunity to come up with an alternate plan and take some time to figure out what the best next step is.”
The club’s ownership has until Aug. 21 to produce a new plan that would require approval from creditors and the judge. Fox said they will not challenge Rosania’s decision rejecting the loan.
“I don’t think we’re going to appeal,” he said. “We’re going to work with the creditors and figure out the best path moving forward.”
Fox and his group have had the project site preserved, with 15 of its townhomes between 60% and 80% complete, six condominiums 30% complete, and the commercial component 30% complete, according to its reorganization plan.
That includes the remodel of the 40,000-square-foot Aspen Club & Spa building, the construction of a 54,000-square-foot lodge with 20 timeshares, and 12 multi-family affordable-housing units.
Rosania, during the course of a near 90-minute ruling, said he found Fox and other Aspen Club associates credible during their testimony last week regarding the proposed exit loan and business plan.
Even so, Rosania suggested the proposed loan put secured creditors such as GPIF Aspen, owed between $35 million and $40 million, and Revere High Yield Fund, owed $12.2 million, at a greater risk of not being reimbursed.
Along with the contractors that hold $26 million in mechanics’ liens on the Aspen Club property, GPIF Aspen and Revere are the top priorities under the reorganization plan.
The judge said he couldn’t bless a loan where the new lender would hurdle the old creditors through what’s referred to as “priming liens” in legal talk.
“I wish I could, but I just can’t make the leap to find adequate protection under the debtor’s particular business plan before the court will be provided,” Rosania said.
The coronavirus pandemic also influenced the judge’s decision. During last week’s testimony, witnesses for The Aspen Club appeared bullish on the local real estate market because of well-heeled people leaving the big cities for Aspen during the pandemic.
Rosania said their arguments were persuasive, but the exit plan remained too risky for him to approve in such an uncertain economic climate. He said “whether the (real estate) frenzy will withstand the test of time” was another question.
One of the primary opponents of the Aspen Club’s reorganization plan has been GPIF Aspen, a limited liability corporation that formed in December 2017. That same month FirstBank, the provider of a $30 million construction loan to The Aspen Club in May 2016, conveyed the deed of trust on the property to GPIF Aspen after the club defaulted on the loan.
“GPIF Aspen has fought tooth and nail,” the judge remarked.
Aspen Club’s attorneys had argued that GPIF Aspen was making a play on the Aspen Club property because of its association with companies that own the Canyon Ranch luxury resorts in Tucson, Arizona, and Lenox, Massachusetts, and the Brown Palace hotel in Denver.
Houston attorney Jason Cohen, who led GPIF Aspen’s objections, said in a statement that the creditor has no designs to take the property.
“GPIF is pleased that the Court has denied the extraordinary and unprecedented relief sought by Michael Fox in the name of the Aspen Club & Spa,” Cohen said. “We are hopeful that the case can be quickly concluded and that GPIF, as well as the M&M lien claimants, can be paid in full. That is all GPIF has ever wanted.”
The Aspen Club once had as many as 1,500 members and 250 employees. It stopped its operations in April 2016 to make way for construction, which came after some seven years of negotiating with the city.
Aspen Club & Spa and The Aspen Club Redevelopment Co. declared bankruptcy in May 2019. Since then, the cases have been jointly administered.
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More than 1,800 Holy Cross Energy customers in the Aspen area are without power Wednesday afternoon, according to an outage map on the HCE website.