The owner of the financially troubled Silver Creek ski resort in West Virginia filed for bankruptcy last week to head off an attempt by the Federal Savings and Loan Insurance Corp. to auction its 2,600-acre property near Slatyfork.
FSLIC, which holds $33.5 million in debt secured against the property, said it plans to ask the bankruptcy court to lift the automatic protections of the bankruptcy code so that it can go ahead with an auction in the near future.
American Resort Services Inc. filed with the U.S. Bankruptcy Court in Columbia, S.C., on May 26, just hours before FSLIC was scheduled to sell the property.
ARS President John J. Kruse said that the company "had no other choice" but to seek the protection of the bankruptcy court after the Federal Home Loan Bank Board rejected an agreement worked out between ARS and FSLIC staff on May 24.
According to Kruse, that agreement included bringing in outside financing to pay off the FSLIC debt and allow the company to complete sales on 350 housing units prospective buyers have been waiting for months to purchase. ARS said that the outside lenders were still committed to the project, despite FSLIC's attempted foreclosure.
A spokesman for the bank board, which governs FSLIC, said, however, that ARS "had never had an agreement if it had never been approved."
"We want to go ahead with the auction as soon as possible because we're convinced beyond a reasonable doubt that ARS has no equity interest in the property," said the spokesman. "The debt to FSLIC is significantly greater than the value of the property."
The spokesman said FSLIC needed to recover what it could from the project but would not say what it believed the property to be worth.
Kruse said that ARS has listed assets of $58.9 million and liabilities of $41.5 million, including the debt to FSLIC, with the bankruptcy court.
Other liabilities include $2.4 million in deposits from prospective buyers, $1 million in a second mortgage from a West Virginia lender and $1.8 million owed to McDevitt and Street of Charlotte, N.C., the general contractor for the project, as well as money owed other non-secured creditors.
Kruse said there were 300 creditors, not including the 350 people with deposits on units at the resort.
Kruse said that the company's assets include the partially built condominium-hotel, known as The Lodge at Silver Creek, the partially built ski facility, two swimming pools and the undeveloped land. The resort, when complete, was projected to cost $500 million and total 8,500 housing units, with a golf course and extensive base lodge, ice rink, shopping mall, pools and tennis and racketball courts.
FSLIC became involved in the development at Silver Creek last year when it closed down San Marino Savings and Loan of Orange, Calif., the primary lender for the resort.
Nearly 350 prospective purchasers, many from the Washington-Baltimore area, have paid deposits for condominium units at the lodge, deposits that Kruse said have been set aside in escrow accounts.
ARS has been unable to settle on any of the units at the complex because of FSLIC's lien against the property and $5 million in other liens filed against the project by contractors and mechanics.
All of the sales contracts for the units included a provision giving ARS two years to go to settlement. Kruse said people would be able to get their deposits back if ARS could not clear up the liens against the property in time to go to settlement before the two-year limit.
A number of people with contracts to purchase units at the resort have said they still think the resort can work. Some have said they were "dismayed" by the bankruptcy, and several complained they didn't really think about the consequences of the two-year settlement clause when they signed contracts.
Kruse said that ARS filed under Chapter 11 of the bankruptcy code and that the company would be submitting a reorganization plan to the court over the next several months.
"One of the things we want to accomplish in this bankruptcy is to force the FSLIC to lift its lien and let us go ahead with the settlements," said Kruse. "When San Marino was taken over by FSLIC, our pre-sales had more than justified ongoing loans if we were still with a private lender.
"But FSLIC is not in the business of making more loans, and that has been the problem."
Silver Creek was designed to function as a condominium-hotel, a new breed of resort development that is supposed to provide investors with a vacation home and a tax shelter. Owners can use their unit all year or limit family use to two weeks a year and derive tax benefits by renting it like a hotel room during the rest of the year.
The units were to be sold furnished, and the developer planned to provide a service to handle the rentals.
Keith Romney, a resort development consultant, said that lenders have become increasingly reluctant to put up the enormous equity required to build four-season resort communities laden with glamorous amenities.
He said that condo hotels can be a "very handy financing tool," especially if developers can sell units before constructing them.
Kruse said that ARS rented some of the completed units this winter and provided others free of charge to contract home buyers, but that he does not know how much the resort had made through the rentals. "It's always less than you hope it will be," he commented.