Mortgage Crisis Reaches Resorts

Vacation Spots Face Financial Uncertainty

PARK CITY, Utah -- With the developer forced into bankruptcy court, Hugh Smith worries about the $1 million he and a partner sunk into bare lots at Promontory, a half-built, sprawling residence club in a town saturated with second homes for the wealthy.

As Promontory began showing signs of distress a few months ago, Francis Najafi, chief executive of Phoenix-based developer Pivotal Group, gathered members in an opulent timber-and-stone clubhouse and said he was in default and pulling out.

"He was telling everybody he was sorry for our troubles and blaming events beyond his control -- the nation's real estate," said Smith, who believes Promontory will bounce back in a year or two under new ownership. He still hopes to develop two lots with multimillion-dollar vacation homes for sale.

Promontory joins several other Western vacation spots facing financial uncertainty, including Nevada's Lake Las Vegas golf resort, Idaho's Tamarack Resort and Montana's venerable Yellowstone Club. Sales also are off at other resorts in the region, according to the Rocky Mountain Resort Alliance.

Overdevelopment is one of the major problems.

Around Las Vegas, a quarter of the houses on the market are listed as short sales, going for less than what's owed on them. On the Strip, plans for 24,700 condominiums are on hold or have been canceled, according to research firm Applied Analysis.

"Many of them were speculative projects to start," said Brian Gordon, principal of Applied Analysis, which tracks the market closely.

At more-exclusive resorts, the market had seemed recession-proof, with buyers generally paying cash. They had nothing to do with subprime loans. But financial market turmoil is making banks less forgiving toward resort developers who took out huge construction loans.

Najafi and other Pivotal executives declined repeated requests for interviews. The bank said it wouldn't comment beyond court papers.

Credit Suisse also is trying to call in a loan at Tamarack Resort, one of the nation's newest ski resorts, about 100 miles north of Boise. In Nevada, at Lake Las Vegas -- a golf community 17 miles from the Strip that defaulted on $540 million in loans -- a group of lenders led by Credit Suisse forced the development into new ownership at the start of the year.

The bank says Yellowstone Club is current on its loan, but that club faces other troubles.

A divorce of the owner and his wife has turned into a nasty battle for control of the Yellowstone Club. In another dispute, a group of charter members led by cycling legend Greg LeMond are fighting for their shares of equity.