Steamboat Springs The three principals who developed the vacant Ski Town Inn have been ordered by a judge to pay Vectra Bank at least $6.3 million for defaulting on a loan.
But before Vectra sees any of that money if at all the claims of a handful of other companies will have to be dealt with by the former owners of the failed hotel.
The 68-suite hotel on U.S. 40 between downtown and the ski area closed in 1998, less than a year after opening. It has been sitting vacant for almost two years waiting for a civil court case to clear the way for one entity to take control of the property.
District Judge Richard Doucette has ruled that Stephen Campbell, Patricia Strandberg and Richard Porreco, as well as their companies Richcam Adventures LLC and S&P Adventures must pay Vectra Bank $6.3 million and interest of approximately $1,500 a day until the amount is paid in full.
But the court order also requires that five other companies be paid the more than $1.8 million dollars they're owed, first.
Lien holders on the property have been cleared to proceed with foreclosures. Receiver certificates have top priority, followed by mechanics liens, then Phoenix Leasing and, finally, Vectra Bank.
The mechanics liens range from a $6,000 claim by Connell Resources to Steamboat Lumber Co.'s $48,606 lien to Commercial Design Engineering's $312,000 claim.
Phoenix Leasing has third priority, followed by Vectra Bank. Phoenix loaned Richcam $1.4 million for fixtures, furnishings and equipment, while Vectra's loans was for construction costs and permanent financing.
The Ski Town Inn operated under the ownership of Richcam Adventures from Dec. 24, 1997, to April 15, 1998. Court records indicate that Richcam defaulted on a U.S. Department of Agriculture loan with the first payment. A receiver, Property and Hotel Management, operated the inn from April 15, 1998 until Sept. 10 that year. PHM was relieved of the receivership on Oct. 6, 1998, when Moser and Associates took over. A court decision provided for Moser's payment to maintain the hotel but not operate it.
Court documents show that Vectra began the process of providing a permanent loan to Richcam after telling the partners in August 1997 they were prequalified for a $5 million USDA-guaranteed loan. The judge stated that Richcam approached Vectra one month later about a $1 million construction loan, while the bank was still in the process of underwriting the permanent loan.
Judge Doucette stated the original construction financing, a $3.3 million loan provided by Mountain Parks State Bank, was used up by April of 1997, although construction was not complete.
That fall, the need for funds was critical, according to court documents. In October, Porreco, Strandberg and Campbell executed, in connection with the construction loan, a $1 million promissory note. Doucette said Vectra identified, as the primary risk in extending the construction loan, that the hotel be completed within 30 to 45 days without going over budget. The bank's documents show that the hotel had not incurred any cost overruns, which Doucette said was unbelievable because the loan from Mountain Parks State Bank was exhausted before the hotel was anywhere near completion.
Doucette said Vectra Bank officials and the Richcam partners willingly and knowingly cooperated in the signing of a fraudulent document which would indicate to the USDA that $422,519 in working capital was available to Richcam.
"...[T]he parties who signed [the document] did so to ensure that the USDA would guaranty the permanent financing by Vectra Bank so that Vectra Bank would fund the loan and pay the defendants' debts," Doucette wrote.
The Vectra Bank officials involved in financing the hotel worked in Denver and had no connection with the First National Bank in Steamboat that later became Vectra.
Dave Pellegrino, who works in Vectra's Denver office, had no comment on Doucette's statement.
Doucette said Porreco knowingly misrepresented the working capital available when he closed the USDA loan in 1997, but the judge was even more harsh with Strandberg and Campbell.
"Of all the principals, they surely knew the status of the construction, the overruns, and the fact that there would be no working capital," Doucette wrote.
The judge went on to state that the bank's handling of the loan fell below the standards for the lending industry, but he ruled there were no negligent or fraudulent representations made by Vectra Bank's employees to Campbell, Strandberg or Porreco.
"Each of the principal owners owed a fiduciary duty to each other. The bank will not be required to assume responsibility for the damage caused by the breach of that duty by the defendants," Doucette stated.
The Richcam partners claimed breach of the implied covenant of good faith and fair dealing. Campbell, Strandberg and Porreco also alleged counterclaims against the bank for negligent misrepresentation and fraudulent misrepresentation or concealment. The judge ruled against Richcam on those claims.
Campbell and Strandberg have moved from Steamboat and could not be located for comment. The lawyer for Porreco, a doctor who works in Denver and owns a home in Steamboat, said she couldn't comment on the case because appeals and post trial motions are still pending.
Doucette said the Richcam members had no right to rely on the bank to detect their misrepresentations, but he critiqued the way Vectra disbursed the proceeds of the construction loan.
"The manner in which this loan was administered, in view of the testimony as to how they are supposed to be administered or ordinarily are administered in the lending business, is indeed a wonderment," Doucette stated.
Doucette wrote that Vectra knew the project was "grossly over budget" from the start.
Hotel was for sale
Campbell and Strandberg testified that they made numerous attempts in the spring of 1998 to sell the hotel to an outside investor but said that their efforts were frustrated by Vectra and the receiver, Property and Hotel Management.
Also that year, Porreco requested the court's approval to sell the hotel for $4.3 million to Gart Properties Inc. Vectra objected due to uncertainty about its lien position relative to Phoenix, according to the bank's special assets manager, Dave Pellegrino.
"We didn't know what we were going to net. If I ask to buy a car from you, but you can't tell me how much to pay, you're not going to do it," Pellegrino said. "There was a lack of definition on where the various players stood."
The issues that clouded the Ski Town Inn's title have been decided, clearing the way for one entity to take control of the property, possibly through the foreclosure process. Phoenix or Vectra could buy the hotel or a third party could buy it and the creditors could divide the money.
The primary lien holder on the title for the Ski Town Inn plans to file for foreclosure this week. According to Phoenix Leasing Inc. attorney Gary Appel, the company then hopes to see the hotel sold this summer.
"We're trying to liquidate the lien we have on the property," Appel said.
Appel said he expects the end result of a long and complicated matter will be that Vectra pays Phoenix so that the bank owns the hotel.
However, Pellegrino, Vectra Bank's special assets manager, said the bank hasn't made a final decision on buying the hotel.
"We're considering our options right now. The court documents provide for foreclosure and the property can be sold," Pellegrino said. "I'm not predicting anything."
The hotel's receiver, Bill Moser, recently applied to the city for an extension of Ski Town Inn's 12-month renewable permit, so that a future phase of the hotel can be completed. Phase II, which has already received the city's approval, calls for 40 units to be added to the existing 68 units.
"The completed common areas, reservation areas, restaurant and support areas are quite large for the Phase I configuration only," Moser stated in a Feb. 10 letter to the city. "In fact, the support spaces and common public areas are excessive for a hotel this size. They were built for a hotel of at least 108 units. An acquisition of the complex will be a more likely possibility with 40 additional units available than without this approval in place."
Phase III involved another piece of property, an adjacent 10,500-square-foot office building that was never purchased by the Richcam group. Moser indicated further development of that parcel is not likely to happen.
Moser stated that the renewed permit would allow time for the completion of legal proceedings, including a foreclosure hearing, possible auction and redemption period that will be necessary before a potential new owner could open the inn.
That permit could have been administratively approved by the city's Planning Department, but was called up by City Council members and adjacent property owners for a public hearing, according to city planner Tracy Hughes.
"There were concerns with access, developer performance and future development," Hughes said.
The dates have not been set for the Ski Town Inn permit to be reviewed by the Planning Commission and the City Council.
Meanwhile, the hotel faces an uncertain future. It could be sold this year or it could remain vacant while appeals filter their way through the court system.
To reach Michelle Bales call 871-4208 or e-mail email@example.com