Aspen Club seeks debtor financing to get through bankruptcy
Residential real estate as part of the redevelopment of The Aspen & Spa had generated $18 million in pre-sales before financing problems and other setbacks “cascaded” to force the construction project, much of it more than halfway complete, into a standstill and ultimately bankruptcy.
Those and other details of the financial collapse of The Aspen Club, which was founded in 1976 and now is trying to clear its debts through a Chapter 11 reorganization plan, are reflected in bankruptcy documents in Denver federal court.
On May 16, the health spa and fitness center declared bankruptcy after staving off a foreclosure sale in March. It also had been mired in litigation and liens initiated by lenders, as well as companies that weren’t paid for their construction work and materials related to a major redevelopment of the club, including the construction of new residences, on the east side of Aspen.
The project site has seen minimal progress ever since subcontractors bailed on the job in the fall of 2017 because they were owed money. The bankruptcy petition notes the club faces more than $100 million in claims. More than $67 million of those claims, from 13 lenders, are secured. As well, $25.5 million in mechanics’ liens have been filed against The Aspen Club, according to bankruptcy records.
The club’s more than 1,000 members also haven’t been able to use the facility because it has been dormant since construction started there in the spring of 2017. Some members have enjoyed reciprocal benefits at other Aspen-area fitness centers, while a number of health clubs no longer participate in the exchange program.
A motion introduced May 22 by Marcus Williams Young and Hunsicker LLC, the Denver law firm aiding The Aspen Club in its bankruptcy, sheds light on how the club fell into financial peril while making the argument for the club to secure $6.25 million in what’s called “debtor-in-possession financing,” or DIP financing, from EFO Financial Group LLC of Naples, Florida. The motion says the club could seek up to $110 million from EFO Financial as part of its exit from bankruptcy; however, for the time being it is “not seeking any approval” for the nine-figure sum.
The club’s bankruptcy is now combined with a related Chapter 11 filing on May 17 by Aspen Club Redevelopment Property LLC, a wholly owned subsidiary of The Aspen Club & Spa.
Last week’s motion notes that the $6.25 million the club is seeking would be used “to fund certain necessary expenses to preserve and protect the collateral, to safeguard the project, and advance these chapter 11 cases.”
So far, 80% of the work on the project’s five townhomes are complete and another five months of construction is needed to get them done; another four townhomes units are 70% finished with seven more months of construction needed; four more units are 60% complete with another eight months of work needed; and another six condos, as well as the project’s commercial component, are 30% finished with another 19 months needed to finish the job. Additionally, work on a “world-class club, spa, and amenity package encompassing 60,838 square feet of usable space” are “to be completed,” the motion says.
The club owns all of those properties, which are considered collateral and are “subject to multiple trances of secured debt,” the motion notes.
Should completion of the redevelopment happen, The Aspen Club will include “a private membership health and performance center, offering state-of-the-art fitness, sports medicine, and lifestyle education programming, along with a world-class club and spa,” according to the motion. The motion adds that the residences will be sold as monthly fractional deeded ownership interests, while the owners will have the right to participate in a rental pool that The Aspen Club would manage.
Financial setbacks stung the club starting in the summer of 2017, when lender FirstBank declined to fund the remaining $15 million of a $45 million construction loan, while the Aspen Club Redevelopment Co., funded just $13 million of a $32 million loan it had committed, the motion says.
Aspen Club Redevelopment had secured $18 million in pre-sales for the residences, “which would have helped facilitate the completion of the construction,” but that went south after FirstBank pulled the remaining $15 million, the motion states.
“As a result of these shortfalls, (the club) was materially impaired with respect to their ability to finance the construction of the project, pay vendors, contractors, and deliver completed units to those certain third-party bona fide purchasers in accordance with their contracts,” the motion states. “These events cascaded and by September 2017, construction had halted.”
Another lender, called GPIF Aspen Club, would purchase the $45 million loan from FirstBank in December 2017. The club currently owes $33.9 million on that note, according to its bankruptcy petition.
The Aspen Club for nearly two years negotiated with GPIF Aspen Club and other lenders over its debts “to no avail” before declaring bankruptcy. GPIF also is “a strategic lender and a potential direct competitor of (The Aspen Club) in the hospitality business with existing and competing luxury hospitality properties and nationally branded health and wellness facilities,” the motion states.
EFO Financial Group had also been negotiating with The Aspen Club and now has agreed to provided funding for what the motion says is “vital to preserve both the current and the future the enterprise value of (The Aspen Club’s) estates. Immediate and irreparable harm will be caused to (The Aspen Club) and their estates if such financing is not obtained …”
With the interim funding, the motion argues The Aspen Club will “have the best opportunity to preserve and maximize value by continuing their operations and paying the operating and restructuring costs and expenses projected to be incurred in the budget.”
Without the funding, the club would not be able to pay for the bankruptcy proceedings “or pay for services and expenses necessary to preserve and maximize the value of the collateral and the project,” the motion states, adding that the funding does not “unfairly leverage the bankruptcy process in favor of the DIP Lender or cede control of the reorganization to the DIP Lender.”
Terms of the loan include a commitment fee of 4%, as well what is called the “secured overnight financing rate” that is published by the Federal Reserve, among other fees. Total lender costs are $991,250 for the phase one loan of $6.25 million, according to loan documents on file with the bankruptcy. The lender also has set conditions that the bankruptcy court must approve the first loan by June 30 and the exit loan of $112 million by Oct. 31.
A hearing on the matter is set for June 19 in the U.S. Bankruptcy Court in Denver. A trustee has yet to be assigned to the case, which is before U.S. Bankruptcy Judge Joseph G. Rosania Jr.
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