The global financial crisis is hitting close to home these days, as the largest investor in the Snowmass Base Village had to be bailed out Monday.
Hypo Real Estate Holding AG is getting a more than $50 billion (35 billion euro) emergency credit line from the German government and a consortium of private banks to prevent it from collapsing. Hypo, Germany’s second-largest commercial property lender, extended Related WestPac a $520 million loan last March to acquire and develop Base Village.
A Related representative and an industry expert both said yesterday that Hypo’s near collapse and bailout should not affect Base Village, but that the ever-changing financial world bears watching.
“While we have received no specific communication from Hypo, we anticipate that the committed financing will remain intact,” wrote Related Companies Vice President of Corporate Communications Joanna Rose in an e-mail.
Rose said that the bailout is what leads Related officials to believe that Hypo will keep its commitment to Base Village, a point on which real estate expert Byron Koste of the University of Colorado agrees.
“Hypo has obligations, and if they don’t meet their obligations there are consequences,” meaning potential lawsuits for damages for not providing the funding, said Koste, director of the CU Real Estate Center and a consultant to the Lift One Task Force.
Koste said that providing the promised loans depends on how much Hypo actually has left in the bank, and what kind of rules are imposed under the bailout scheme. But the government has already chosen to support the company with $50 billion, and real estate is a much better investment than other industries at this point, he noted.
However unlikely, he added, Hypo could be looking for a legal way out of the Related WestPac loan, and executives are likely reviewing the fine print in their contracts these days. Hypo reneged on a loan for a residential project in Denver last year, he said, and that payback is still tied up in the courts.
“If anyone says they know the answer, hang up the phone,” he concluded.
The U.S.-sparked financial crisis that brought down Lehman Brothers and prompted the $700 billion bank rescue package proposal — which is still being debated by Congress — hit Europe hard over the weekend. Belgian-Dutch banking and insurance company Fortis was the recipient of an 11.2 billion euro government bailout Sunday and the British government seized Bradford & Bingley financial services Monday.
Hypo ran into trouble when one of its banks was unable to get short-term funding. Hypo’s stock fell up to 74 percent to 3.30 euro Monday from a high of 45.7 last fall, the biggest drop since its 2003 public offering. Some media sources also reported Monday that the company reported significant write-downs on its debt obligations in January, which prompted a 35 percent drop in its shares. The company won’t pay a year-end financial dividend.
The loan to Hypo is coming in two installments, with the Berlin-based federal government putting up the second allotment of 21 billion euro, according to media reports.
“The good news is Germany has said it’s not going to let Hypo fail,” said Koste, “unlike our government with Lehman Brothers which started this whole mess. I’m not a big fan of government getting involved in the marketplace but I like them to be decisive, and it’s going to get worse if there is no reasonable federal fix.”
Rose, of the Related Companies, said the Snowmass developments’ other lenders, which include Bank of America, CharterMac and JER, are secure. Related is in a multibillion-dollar joint venture partnership with Related WestPac to develop or redevelop all three commercial nodes in Snowmass, starting with the million-square-foot, 600-condo Base Village.
Asked whether it’s business as usual at Related WestPac given the most recent financial news, Rose replied, “How can you say ‘business as usual’ at this point in time? We’re closely watching the markets as these events continue to unfold.”
lutz@aspendailynews.com
