‘Residences’ in Aspen counters disgruntled buyers
ASPEN ” The developer of The Residences at The Little Nell fired a counterpunch Friday against some disgruntled buyers at the luxury condominium project in a fight over at least $10 million in earnest money.
Residences at Little Nell Development LLC filed the first of what could be several arbitration requests against buyers who are trying to get out of their contracts, according to Brooke Peterson, the Aspen representative of the firm. Dozens of people who had contracts to buy interests in the fractional ownership property decided not to close on the purchases.
“They are in default. We’re entitled to their earnest money,” Peterson said.
The developer filed requests with the American Arbitration Association to hear eight cases of disputed contracts. If accepted, the developer will file a claim and defendants will file a response. The developer’s position is that provisions of the sales contracts made arbitration mandatory and binding in case of disputes.
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The idea behind arbitration is to get speedier ” and less costly ” decisions than through the court system. Peterson said decisions could be handed down in the cases as soon as six months.
While eight arbitration requests were filed Friday, the number of buyers who have indicated they don’t want to close on their contracts is much greater.
“We’re still pursuing alternatives with some of these people,” Peterson said.
In other cases, the disgruntled buyers have filed their own arbitration requests.
There are at least nine lawsuits filed in Pitkin County District Court with 17 plaintiffs who put 21 ownership interests under contract. The lawsuits hinge on the same general claim ” that the developer defaulted on the sales contracts by not fixing a construction problem in a timely manner. That problem ” unstable soils ” constituted a “casualty” in legal jargon and the sales contracts specified how casualties had to be addressed, the lawsuits said. Some of the lawsuits also contend that the developer missed the deadline for closing the sales contracts.
Peterson wouldn’t address the specific allegations, but said the developer will fight claims that it breached sales contracts.
“We feel that we have performed under these contracts,” he said. “The bottom line is, we don’t believe the allegations are correct.”
Not all the disgruntled buyers filed lawsuits. Some have filed termination notices or simply told the developer they don’t want to close on the deals. There is no public record on the number of termination notices. However, Neil Karbank, an Aspen attorney handling a lawsuit for six buyers, said his investigation shows there are at least 80 parties that aren’t going forward with purchases. There are 208 fractional interests available in the project.
“The developer wants you to believe that there are only a handful of terminations, but if 80 is a handful, it must be a mighty big hand,” Karbank said.
If Karbank’s numbers are accurate, the amount of earnest money involved in the dispute is probably closer to $24 million than $10 million.
The stakes in the fight are even higher. If the disgruntled buyers lose in arbitration, they surrender their earnest money and have nothing to show for it. The development firm isn’t trying to enforce their sales contracts.
If the development firm loses, it relinquishes millions in earnest money. And either way, the development firm ends up with fractional interests to sell ” which could be good or bad, depending on how fast it must sell and how the real estate market improves.
The interests in the three-bedroom units climbed to nearly $1.9 million. The interests in the four bedroom units peaked at $3 million. An interest entitles users to six weeks of use, and all but eight of them were under contract.
Peterson said the Residences have closed on nearly 50 fractional interests so far and several more transactions are scheduled. Dollar volume of sales has topped $64 million in January, according to R.J. Gallagher, managing director of sales and marketing for the project.
He said the Residences is one of the bright spots in the Aspen-area real estate market right now.
“The market’s pretty dead. This is a pretty good success story,” Gallagher said.
Peterson wouldn’t comment on whether he suspects the tight credit market has spurred some of the buyers to try to get out of their contracts.
“It’d be wrong for me to speculate,” he said.
But Gallagher noted that the development firm is offering buyers financing. “We’re working with every buyer who wants to get in there,” he said.
Peterson insisted that the dispute with the disgruntled buyers won’t affect the quality of the operation or the finances of the project. The developer views them as independent issues to work out.
The Residences will be operated by the Aspen Skiing Co.’s Little Nell hotel, which is the town’s only five-diamond, five-star property. The promotions for the Residences boast that the same luxurious service that the hotel is known for will be offered at the luxury condos.
The first owners are scheduled to occupy the Residences on Friday, Feb. 6. The property will be fully occupied on President’s Day weekend.
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