The German-based bank that made a $520 million loan to the developer of Base Village in 2007 only recouped $90 million after the project stalled and went into foreclosure, according to a May 9 court filing.
Hypo Real Estate Capital Corp., Related Cos. and other entities are seeking to have a lawsuit filed by Base Village Metropolitan District No. 2 tossed out of court, and their motions to dismiss detail the fallout caused by the Great Recession’s impact on the development in Snowmass Village. The metro district sued Hypo, Related and other companies in December, accusing the defendants of racketeering and fraud in the handling of $32 million in district funds and millions more that were allegedly spent improperly on private construction.
The districts imposed property taxes to pay for public infrastructure and services for residents of the development. It was anticipated that Metro District 1 would own and operate revenue-generating properties, such as an aqua center, parking facilities, a performing arts center and a conference center, and the second district would handle financing, including bond obligations and other debt.
The motions to dismiss spell out the $520 million loan agreement to Base Village Owner, a subsidiary of Related; its reasons for making the advance; and what the expectations were for what was once envisioned as a 1-million-square-foot, mixed-use development that officials hoped would turn Snowmass into a year-round resort.
At the time Hypo made the loan, Base Village Owner had secured town approvals for Base Village, which the bank says was valued at nearly $1 billion. The two metro districts had been established, and district voters approved of issuing bonds totaling $48.7 million.
The lawsuit alleges that Related and other defendants hired an accounting firm that inflated Base Village’s worth from an initial estimate in 2004 of $654 million to $1.2 billion by 2008, when the real estate market was crashing amid the recession. This allowed the district’s board members, “all of whom were affiliated with the developers,” to issue the bond debt to help pay off the $520 million loan, the lawsuit says.
But with the real estate market in free fall, the true motive of the bond issuance “was for Related and its affiliates to obtain cash in an environment where credit was drying up, and to salvage what they could from a project that they knew was headed for failure,” wrote the plaintiff’s attorneys. “Related and its accomplices knew that the project was not viable at the time the bonds were issued because the real estate market was in the midst of collapse.”
The bank, which the German government subsequently rescued and nationalized, says it believed the various financial machinations were simply “legitimate and routine components of a construction project of this nature,” wrote Hypo’s attorneys, Laurin Quiat and Matthew Baisley of Denver.
Hypo “entered into the loan agreement only after the project had received the imprimatur of numerous and varied respected professionals, each with its own interest in seeing the project succeed, and some with a professional and/or ethical responsibility to ensure due diligence,” the filing says.
The loan was to be used to acquire land, construct improvements and create a phased, multi-use development, and the developer was to provide to the bank construction budgets, schedules and agreements, and various other financials.
“Also and significantly [Base Village Owner] committed to Hypo that it would ‘comply in all material respects with all applicable [laws],’” Quiat and Baisley wrote. “There are no facts alleged that Hypo became aware of — or should have become aware of — any fraudulent representations made to it by the borrower or any other party at any time.”
The loan default occurred in March 2009. The next year, Hypo and other lenders foreclosed on the development. In 2012, amid what the filing calls “the most dramatic global economic crisis in a generation,” Hypo reluctantly accepted a $90 million payment against the original loan amount in the settlement of a separate lawsuit.
“Hypo’s staggering losses do not include the millions in interest fees and costs it also paid in the process,” the attorneys wrote.
The bank from that point on had no further involvement with Base Village, the motion says (Related reacquired the development out of bankruptcy in 2012 for $89 million and sold it to the Aspen Skiing Co. and two partners in 2016 for $56.5 million).
Among the arguments for why the lawsuit should be dismissed, both Related and Hypo cite the statute of limitations, saying too much time has passed for the lawsuit’s claims to be legitimate.
Related’s motion to dismiss says the suit’s allegations, including that this was a “decade-long conspiracy encompassing the Related entities and almost any other actor that interacted with the district,” are doubtful.
“The complaint asks the court to accept that these numerous well-respected institutions and professionals agreed to engage in an extended pattern of criminal conduct with, in most cases, nothing to gain from the supposed fraud other than their standard fees,” the filing says. “This alleged conspiracy is plagued by contradictions and [is] implausible on its face.”
Related also blasts the metro district lawsuit “for its lack of specific factual allegations,” saying accusations are leveled at the defendants generally. This skirts the district’s “duty to inform each defendant how that defendant specifically is alleged to have participated in fraud,” the dismissal motion says. “These pleading tactics are disfavored in any case, but they are particularly objectionable here, where each individual defendant is accused of fraud and participating in organized crime.”
All of the motions to dismiss have yet to be ruled on.