Dancing Bear developers take aim at German bank
ASPEN – The developers of the financially-saddled Dancing Bear Aspen lodge have accused a German lender of causing the fractional-ownership project to go bankrupt and lose millions of dollars, while its future remains in jeopardy.
The 73-page complaint against WestLB – filed by DB Capital Holdings LLC, Dancing Bear Development LP and Dancing Bear Land LLC – is the latest development in the legal battle that’s playing out in the U.S. Bankruptcy Court in Denver.
All three DB entities are in Chapter 11 bankruptcy. DB Capital Holdings was pushed into Chapter 11 by five of its creditors last June; DB Development sought bankruptcy protection in October, DB Land in November.
The complaint against WestLB, filed April 18, is a supplement to the DB Capital Holdings bankruptcy. It seeks at least $30 million from WestLB, which is accused of defrauding the trio of DB concerns through a so-called loan-to-own scheme that resulted in the lender taking steps to foreclose on the project. The foreclosure, launched by WestLB last July, is pending.
The complaint says that publicity about the Dancing Bear project’s struggles have spooked away potential buyers and “it will cost millions of dollars to re-establish this position locally and in the industry through a focused and concentrated marketing and public relations campaign.”
The suit seeks an injunction to stop WestLB from foreclosing on the downtown project, which includes the Parkside phase of the development, which was completed two years ago and is currently operational. It’s located at the corner of Monarch Street and Durant Avenue. Construction on the second phase, called “Mountainside” and located at the old Chart House location, stopped in 2009 when financing dried up for DB Capital.
WestLB has until May 18 to address the complaint, which alleges that the lender knew well before the property went into foreclosure and receivership last year that the project was struggling financially, but did little to help.
Since 2007, repeated efforts were made by Tom DiVenere, managing partner with Dancing Bear Management, which is a member of DB Capital, to extend the $53 million credit line WestLB granted to developers in June 2006, the complaint says. Rising construction costs, combined with a revised plan to upgrade the quality of the project, resulted in a shortfall. The credit line was insufficient to cover the projects’ costs leading to mounting mechanics’ liens that DiVenere ultimately paid off, but WestLB was slow to address DiVenere’s concerns, the suit says.
The German lender also misled DiVenere that financial solutions were possible by not acting on them, the suit says. In essence, WestLB, after extending the entire line of credit to the DB entities, knew the project was on the verge of insolvency, and that it could ultimately take possession of the property, the suit alleges.
“Since at least February 2007, WestLB willfully ignored the fact that the project was out of budget from its start. WestLB also repeatedly led DB to believe that a ‘solution’ was possible and would be achieved. Now that DB had drawn the full amount of the loans, the project was ripe for a foreclosure or receivership action.”
Additionally, WestLB was having struggles of its own, the suit says. Owned by the state of North Rhine-Westphalia and a regional group of savings banks in Germany, WestLB suffered significant losses as a result of the global recession. In 2009, the European Commission (EC) ordered that WestLB “slash” its balance sheet in half and find a new owner by the end of this year, the suit says.
“Unfortunately for DB, WestLB’s demise and constant internal restructuring, reassignment, firing and reallocations of its personnel, and incessant redirection of its efforts coincided with the development of the [Dancing Bear] project,” the complaint says. “WestLB acted recklessly, arbitrarily and ultimately in bad faith without regard for the interest of DB and other valid stakeholders.”
The suit makes eight claims for relief; among them are breach of loan agreements, negligent misrepresentation and fraud.
Support Local Journalism
Support Local Journalism
Readers around Aspen and Snowmass Village make the Aspen Times’ work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.
Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.
Each donation will be used exclusively for the development and creation of increased news coverage.
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User
Aspen councilman gets tongue lashing from colleagues for email suggesting answers for housing survey
A survey asking for public outreach on the city of Aspen’s Lumberyard affordable housing project is the subject of controversy among the city’s elected officials.