Sheridan — In the past year, the west has watch with grim fascination as some of the Rocky Mountain’s poshest resorts have careened down the black-diamond slope.

The Yellowstone Club of Big Sky, Montana provides the most spectacular example.

Prospective members of the 13,400-acre ski and golf resort had to have a net worth of $3 million just to apply.

Then they had to plunk down a $250,000 initiation fee, keep up with annual dues of $16,000, and commit to buying property.

Microsoft founder Bill Gates, bicyclist Greg LeMonde, and former U.S. vice-president Dan Quayle were among the 340 who signed up.
It’s hard to figure out whether they were seduced by the luxury or the idea of such wholesome amplitude, you know, “we belong to the only resort in the world with its own ski area.” Indeed. Private powder, they called it, including a run called EBITDA (earnings before interest, taxes, depreciation and amortization) private golf course, private trout stream and the future home of the Pinnacle, plugged as the “world’s most expensive home,” ($155 million) which included a 30-car garage and a 8,000-bottle wine cellar.

It never got built.

The Yellowstone Club

In October, the club filed for Chapter 11 bankruptcy.

It’s still operating, sort of.

A federal bankruptcy judge has approved a $20 million interim loan – enough to keep the club running this winter – from the Boston-based investment firm CrossHarbor Capital Partners.

The Yellowstone Club is not alone is its struggle.

In October the Vail Plaza Hotel & Club, a new luxury resort in Vail, Colorado was forced to file for Chapter 11 bankruptcy protection. The Promontory Ranch Club, a high-end housing development in Park City Utah, filed for bankruptcy last April. In February, two companies that owned the Tamarack Resort of McCall, Idaho (Cross Atlantic Real Estate, LLC, and VPG, owned by Mexican businessman Alfredo Miguel Afif), filed for bankruptcy.
Like the Yellowstone Club, these places are still taking in money but fighting for survival.

View from the 12th hole at Snake River Sporting Club

Wyoming’s resorts, thus far, have been spared. Only the Snake River Sporting Club, a resort south of Hoback Junction in Teton County, has succumbed. The 359-acre golf course and housing development filed for Chapter 7 protection on November 24th 2008 in bankruptcy court in Cheyenne.

The current credit crisis has been hardest on resorts that own sports facilities, like a ski lift or a golf course, and rely on real estate sales to service their debt.

Dennis Hanlon, President of the Rocky Mountain Resort Alliance, says other luxury resorts, such as the Four Seasons in Jackson, are typically suffering a downturn of 25 – 40 percent in bookings, but will survive just fine.

While I lament the heartache caused on a local level by these bankruptcies (Yellowstone Club has 550 employees and uses many regional suppliers) these filings fill me with a sense of relief that reality has set in.

For awhile I felt like a dimwit. I could not pencil out Yellowstone Club’s long-term economic calculus. It had huge liabilities, fixed costs (like a chairlift and land), and a debt service that would deep-six most third-world nations. They owe $307 million to one institution alone, Credit Suisse.

The Associated Press quoted Credit Suisse spokesman Duncan King as saying the bank’s woes are not a result of poor loan decisions at the firm, but because of broader economic problems.

Again, please? When a bank forks out millions on an economic plan bordering on fantasy, that’s a poor loan decision.

That fantasy is a projected world that allows only one possible scenario: that the economy will boom indefinitely, or, more to the point, it will boom just long enough for the original developer of real estate to convince an investor that it will boom indefinitely.

In other words, the “bigger fool” theory.

Dr. Lawrence Yun

But this is an industry blinded by optimism, lead by Dr. Lawrence Yun, chief economist for the National Association of Realtors. With a string of regrettable predictions to his discredit (including that there would be no recession in 2008) — Yun has served as a sputtering beacon of advice.

And how about this 2006 statement from David Bansmer, managing director of The Registry Collection, a high-end time-share corporation? “We haven’t seen anything yet when it comes to the power of this market. We’re witnessing a truly scalable bull run of epic proportions. The cash-rich Baby Boomers are creating a bright future for the leisure resort business.”

But this collapse fooled smart people by the score, like Mr. DOS himself, Bill Gates, who bought a Yellowstone Club membership, not seeing any problems with the resort’s future. Cross Harbor Capital Partners of Boston gave serious consideration of investing $450 million in the place. In fact, Cross Harbor is still in negotiation for Yellowstone Club shares.

To a rustic math dunce such as myself, the Yellowstone Club constituted the ultimate in high-risk venture capital involving the one of the oldest forms of speculation: land. In order for the scheme to work, everything had to go your way: steady sales in a luxury housing market, availability of affordable capital, reinvention of image, the ability of people to pay a lot of money up front, then again on a monthly and annual basis. Plus you needed cheap labor and power.

As these critical elements failed to materialize, the money behind places like the Yellowstone Club and Tamaracks began to dry up. There was no give-and-take in the system. To use an electrical generating term, there was simply no surplus juice on the grid. One dinky fuse box blows and the whole system collapses.

Dr. Lawrence Yun

According to Resort Alliance president Hanlon, slower-paced growth and restrained ambition saved other resorts. Hanlon also said that a certain egalitarianism helped. Even places like Beaver Creek (Colorado) and Deer Valley (Utah), which project a luxury image and cater to wealthy families, allow the unwashed masses to ski at their areas. Yellowstone Club did not.

Larry Swanson, an economist at the O’Connor Center for the Rocky Mountain West at the University of Montana, said the region will recover from such bad judgment and sooner than we think.

“All of this will be a “burp” in the ultimately long-term development course of the region,” he said.


“These high amenity lands will continue to be heavily coveted. The boomers will want a piece of them. Housing values will stabilize. Land values will largely hold in our region and developers will be more careful about over-extending themselves. But the development course will continue and the home values will rise, including in the not to distant future when, at the other side of this recession, we experience a period of inflation and tangible asset values will rise. So most developers, including those in current difficulty, will try to figure out how to hang on.”

Samuel Western of Sheridan is a university lecturer, poet and U.S. regional correspondent for The Economist. He is the author of Pushed Off the Mountain Sold Down the River: Wyoming’s Search for Its...