The Rosseau has everything you'd expect from a high-end resort perched on some of the most desirable vacation property in Canada – glitzy condo units featuring flat-panel televisions and rustic fireplaces, a glamorous spa for massages and pedicures and a huge conference centre available for weddings and board meetings.
The only thing the palatial Muskoka, Ont., resort is missing is strong financial commitment from its commercial bankers, who decided to stop funding the project last May amid cost overruns and concerns over declining real estate values.
Now the Rosseau is up for sale, having been pushed into receivership. The resort was put on the auction block Wednesday with no minimum price. Initial bids are due by Jan. 22.
The cost to complete the 221-room resort – including about $15-million lenders provided to finish the facility after it was pushed into receivership – was estimated at $170-million, and construction was completed last summer.
The sale is a stark reminder of looming problems in the commercial real estate sector, where loans taken out in better times are expiring and companies are finding themselves unable to make payments that were based on cash flow thought to be never-ending and asset prices that would always go up.
"There's no denying the viability of these types of resorts, but the financing used to build them just stopped making sense," said Chris Fair, president of Vancouver-based Resonance Consultancy and a specialist in recreational property ownership.
"It's a shame that so many resort companies have had trouble, but the properties themselves are still highly desirable despite the financial troubles."
Debt problems have already forced restructurings at some of North America's largest resort builders, such as Florida's Ginn Company, whose subsidiaries couldn't pay their bankers after the value of its real estate portfolios deteriorated through the recession.
Intrawest, which operates four iconic Canadian resorts such as Olympic-skiing venue Whistler Blackcomb, as well as six resorts in the United States, defaulted on a $524-million debt payment in late December and has been trying to work out a deal with lenders.
The company is owned by private equity firm Fortress Investment Group LLC, which acquired Intrawest in 2006 for $1.8-billion. Fortress also assumed $950-million in debt in the deal. Fortress paid a 20-per-cent premium over Intrawest's share price to get its hands on the company, but said in a letter to shareholders in August that it had marked down the value of the investment to 29 cents on the dollar.
Vacation resorts are largely based on the premise of rising property values – build a fancy building in a desirable location, and sell condos to the well-heeled who can sit and watch as their investment appreciates. When they aren't using the suite, they are rented out to help pay the mortgage.
Prior to the receivership of the Rosseau, two-bedroom units with a view of Lake Rosseau were being sold for as much as $1.2-million – giving the owner the right to use the condo nine weeks each year and tap into a share of the overall rental income for the rest of the year.
In August, the receivers cut prices almost in half for one day in a bid to unload as many units as possible. It isn't clear how many sold at the time. According to auction documents, about half of the resort's units are unsold.
While the Canadian resort market has held up relatively well – resale values are down about 10 per cent, Mr. Fair said – the United States market has been devastated by drops of more than 50 per cent. Add to that a dearth of available credit, and some companies have been left with few options aside from liquidation or bankruptcy.
"The problem in all of those cases is liquidity for the companies, not the properties themselves," said Ross Perlmutter of the Canadian Resort Developers Association. "They aren't building any more mountains – people do and will continue to want to buy these units."
Bill Stone, an executive at Colliers International Hotels who is handling the Rosseau auction for receivers Alvarez & Marsal, said he's spoken to a variety of potential buyers, including private equity funds, who are keen to restructure the property.
Their interest could ensure bidding prices close above what a private sale would have garnered, he said.
"We've seen a good response, and there just doesn't seem to be a sense of desperation out there," he said. "This is a good development, financing aside, and there is a shortage of these types of properties in North America. I don't think we're going to see a fire sale."