Steamboat Springs Tightening credit markets are set to bring public improvement projects at the base of Steamboat Ski Area to a halt, and some fear the same for private redevelopments in the area.
The city's finance staff is recommending that the city's urban renewal authority - created in 2005 to finance and build public improvements that would in turn encourage private redevelopment of the aging ski base - not seek a $20 million bond this year. Without the debt, 2009 financial projections for the URA show it having only $200,000, at best, to spend next year.
"Quite frankly, nothing will happen next year if we don't pass the bond issue," interim City Manager Wendy DuBord said. "And I can't imagine we would want to issue more debt right now, under these circumstances."
Steamboat Springs City Council President Loui Antonucci fears private redevelopment at the ski base might grind to a halt, as well. He pointed specifically to the Ski Time Square and Thunderhead Lodge properties being redeveloped by The Atira Group on behalf of Washington, D.C.-based Cafritz Interests. Atira demolished the properties this summer. Antonucci said Atira's initial plans to have the properties redeveloped in three to five years might be too optimistic given current economic conditions.
"It's almost like our worst nightmare came true," said Antonucci, referring to a scenario in which Ski Time Square's commercial activity is lost without timely replacement. "The fact is, we've got a wasteland up there.
"My big fear is that if this recession gets deeper than it is and consumer confidence continues to fall, there's not going to be any buyers in the next three to five years," Antonucci continued. "Everyone can have the best intentions in the world, but it really depends on there being buyers out there who are willing to buy a second home in Steamboat. : I have a concern that it won't get completed in a reasonable timeframe."
While acknowledging current economic challenges, Mark Matthews, a vice president of development with The Atira Group, had a more calming message.
"There's a lot of uncertainty," Matthews said. "We're definitely in a challenging time for the next few months. : That is a concern. But it's not as much of a concern with a higher-end project."
High-end sales strong
Deconstruction continues in Ski Time Square, Matthews said. The speed with which the two properties get rebuilt, Matthews said, will depend on presales of their units. Construction financing is dependent on presales, and Matthews said there is a threshold lenders require before they will finance a project. Matthews said that threshold has typically been 50 to 60 percent.
"With credit markets today, who knows what it is," said Matthews, who said Atira would not start construction without enough financing to finish it. "In nobody's world do you want to start a project and get it half-finished and your financing runs out."
Matthews said The Atira Group is encouraged by its other base area project, the luxury Edgemont development on the opposite side of the ski base. Matthews said the property has averaged one presale a month since a May sales event, when 22 of 42 condominiums in the first phase of the project went under contract for more than $40 million.
"It's still solid, and we're still having presales," Matthews said. "With Edgemont in the pipeline, we think we understand what the market is. The high-end market is still out there. This type of product is a lifestyle product."
Planned units in the future Ski Time Square and Thunderhead Lodge redevelopments are not yet being sold.
"I think a lot of people are concerned because we're not in the marketplace," said Matthews, who noted the city has yet to approve Atira's development plans for Ski Time Square and Thunderhead Lodge. "That's why we're somewhat quiet.
"By the time we get through our entitlements, we feel that the credit markets will be different," Matthews continued. "We're thinking that by the time we go to market, some of this uncertainty will be put to rest."
Bond market bust
No such optimism was present at a Friday meeting of the Urban Redevelopment Authority Advisory Committee, where some committee members came into the meeting wondering if it would be their last one. URAAC advises the Steamboat Springs City Council on public improvement projects in the URA.
"It's not an issue of we're not going to issue any more debt," Assistant Finance Director Bob Litzau told the group. "It's an issue of timing. I don't believe this month is the time to issue $20 million in debt. And I don't see the bond market rebounding by the end of the year."
According to Bloomberg, "the $2.66 trillion U.S. state and city bonds has been virtually frozen since Lehman Brothers Holdings Inc., weighed down by losses in mortgage-backed bonds, declared history's largest bankruptcy on Sept. 15. : More than $12 billion of municipal bond and note sales have been delayed since" then.
Litzau said the URA's current $10 million, variable interest rate bond has gone from a rate as low as 1.6 percent and as high 8.5 percent in the past four weeks. Litzau said Friday that the rate, reset weekly and capped at 10 percent, was at 4.7 percent.
Alan Matlosz, senior vice president at investment bankers George K. Baum & Co. in Denver and the city's bond consultant, said rates are increasing because money-market funds have been ditching municipal bonds because of a loss of confidence in bond insurers. Matlosz said Steamboat is in a better position, though, because it is trying to secure a letter of credit from Wells Fargo, a bank that has remained solid and that the city has a long history with.
Matlosz said Wells Fargo currently is reviewing whether to grant a letter of credit and has provided positive feedback. Litzau, however, said the bank may be wary because the URA relies on increasing property values and tax-increment financing to repay its debt.
"It's hard for a banker to look at a pile of rubble and say, 'That's a good thing,'" Litzau said Monday.
"A year off"
Matlosz said, if given the opportunity, he would seek another variable interest rate bond for the URA because short-term rates are "much, much lower" than long-term ones. But he said he would try to mitigate the fluctuations with other interest rate products.
"It's a policy decision," Matlosz said. "I can get the deal done, but it's up to them to decide. In the end, the city has to decide whether they want to borrow the money or not."
Despite Matlosz's confidence, Litzau is wary.
"To do it would be to engage in some creative financing that I believe got this country into this mess in the first place," he said.
Planning Services Manager John Eastman said it would be important to retain the institutional knowledge of the redevelopment team through the probable "hibernation" of the URA. But the authority's contracts with its construction contractor, design consultant and redevelopment coordinator Joe Kracum all expire by the end of the year.
"We're all looking" for other work, Kracum said Friday. "The bottom line is, I can't go two months without work."
The URA has completed public improvements on Ski Time Square Drive and at the intersection of AprÃs Ski Way and Mount Werner Circle. But it has yet to break ground on its flagship project and a core reason for its creation: an all-seasons promenade that would ring the immediate ski base.
At Friday's URAAC meeting, committee member and Steamboat Ski and Resort Corp. President Chris Diamond said that rather than hibernate, the URAAC should concentrate on its core mission, make headway in negotiations with property owners, and be ready to pull the trigger on the promenade as soon as funds are available.
"Everybody's just taking a year off," Diamond said. "I would hope we could see this as an opportunity to refocus."
Friday's meeting was not the URAAC's last. The group is scheduled to meet Oct. 24.