News analysis: mountain resort sale just latest development at Fortress’ Intrawest

A highly leveraged deal in 2006 by Fortress Investment Group is still generating headlines three years later.

News yesterday that Fortress Investment Group-owned ski resort firm Intrawest had agreed to sell interests in Copper Mountain in Colorado is just the latest development in a troubled investment.

The company said it had a definitive agreement to sell Intrawest’s interests in Copper Mountain to Powdr Corp, another operator of mountain resorts. It didn’t reveal a sale price.

Fortress, as we have previously reported, has not enjoyed tremendous luck since buying Intrawest in 2006.

It was one of the highest-profile (and most highly leveraged) real estate-related buyouts of the credit bubble.

The atmosphere in the immediate aftermath of the $2.8 billion buyout couldn’t have been more different, though, to the emotions Fortress went through when the credit crunch arrived a little over a year later.

Shortly after concluding the deal, Fortress co-founder Wes Edens – who stepped down as chief executive earlier this year – handpicked a team of senior Fortress executives to travel to Opus, a small boutique hotel in downtown Vancouver, to meet Intrawest’s development and sales force.

Edens and colleagues “swaggered in”, according to one person present, and confidently proclaimed: “We have only ever had two deals not perform.”

However, this so nearly became not just a sub-performer, but a disaster.

Edens and bullish Fortress executives had seen what they thought was an angle. They would work the real estate side of the business very hard. The plan was that Intrawest’s development group would produce and sell in the order of 1,000 condominiums each year, but this turned out to be wildly optimistic.

But even as Edens and fellow suited Fortress bigwigs explained their vision to the people meant to be selling, some people present were already doubting the plan's credibility.

They knew that very recent sales numbers had been inflated by property speculators, not because demand for property from real mountain resort lovers was growing that fast. Sure, enough, the numbers proved hard to reach. 

That was only part of the problem, though. The other issue was the amount of debt Fortress had put into the company – $1.7 billion – to finance the acquisition.

Things came to a head last October when Fortress only narrowly refinanced that debt on the day of a deadline.

At the same time, a collapse in the share price of Fortress shares in New York was troubling the firm. It was also being distracted by problems with other investments, some of them real estate-related firms in Europe.

With all this going on, Fortress could be forgiven for struggling to get to grips with Intrawest.

The good thing was that Intrawest owned an array of prominent resorts, the famous Whistler Blackcomb being among them.

But the company also turned out to be more complex than had been apparent before Fortress made the investment. The previous owners had made it so. One thing Fortress did do to its credit, though, was strip out some of the over-the-top costs, such as the lavish corporate hospitality and parties regularly thrown.

Since it refinanced the debt in Intrawest, there have been two announced sales apparently to reduce debt, though the company did not confirm that in a press release.

In August this year it said it had agreed to sell the lodging and commercial operations at Arc 1950 Resort in Savoie and the Flaine Montsoleil Resort in the Haute-Savoie region of the French Alps.

Yesterday came another sale. Intrawest said the transaction is due to close in December.

Fortress has told its investors that the value of Intrawest has fallen 71 per cent, according to a Bloomberg report in October. It has not been helped by the recession, of course. 

Also according to Bloomberg, Fortress has called Intrawest the most challenging investment in the portfolio of its Fund IV in a letter to investors.

A PERE source who was there at that bullish sales presentation at the Opus in 2006 said: “At the end of the day, the real estate part of Intrawest was a small niche market that was always going to be subject to market cycles. But they saw value there. The mountains, the resorts, they connected with it.”