The Real Deal New York

Related faces $32M fraud suit from Hypo in NY court over Colorado ski resort

By David Jones | January 03, 2012 10:00AM

Related Cos. is facing a $32 million fraud lawsuit from German lender Hypo Real Estate, stemming from the collapse of a multi-million dollar ski resort in Snowmass Village, Colo.

According to the suit, filed last Wednesday in New York state Supreme Court, Hypo led a syndicate of banks on a $520 million loan to finance the Base Village project at Snowmass Village. Part of the financing included $32.55 million in municipal bonds.

The bonds were originally issued in June 2008, backed by a signed letter of credit from U.S. Bank National Association, which in turn was supported by a guarantee from Related Westpac. The guarantee by Related was backed by a separate letter of credit from one of Hypo’s German affiliate companies.

Meanwhile, in October 2008, the German affiliate of Hypo was hit by a downgrade in its credit rating, and Related was supposed to come up with $32.55 million in cash collateral to support the guarantee. Hypo alleges that Related got an advance from the lenders to pay for the cash collateral, but failed to put up any collateral in return for the advance.

In April 2009, Related Westpac, a venture of Related and San Luis Obispo, Calif.-based Westpac Investments, stopped making payments on the loans and by July 2010, Hypo launched a $194 million foreclosure suit against Related after the borrower defaulted on the Base Village loan.

The one million-square-foot project was slated to include 600 luxury residential units, restaurants, shops and other ski-related amenities.

The U.S. Bank letter of credit was extended twice after the default, but the day before the scheduled foreclosure sale Nov. 15, 2011, Related threatened to sue if the U.S. Bank letter of credit was extended beyond its Dec. 30, 2011 deadline.

Because of Related’s threat, court records show that U.S. Bank was forced to buy back the $32.55 million in bonds, using the proceeds from the letter of credit. After the purchase, it called on Related Westpac to honor its guarantee backing the letter of credit, but Related Westpac failed to honor the guarantee, according to Hypo’s complaint. Hypo says that if Related did not block the extension, the funds would have gone back to an account controlled by Hypo.

U.S. Bank took cash collateral to reimburse itself and reissued bonds to Related Westpac. But, Hypo claims this constitutes a fraudulent conveyance on the part of Related because the move was designed to hinder or delay the lenders and the borrower was rendered insolvent by the transfer.

Lawyers for Hypo declined to comment. A spokesperson for Related was not immediately available for comment.