HSBC Bank Canada’s attempt to recoup $250 million in loans by forcing the Bear Mountain Master Partnership into creditor protection was the largest real estate deal of 2010 that involved B.C. companies.
The legal manoeuvre was also a way for CareVest to try to get back $42 million in loans and for Romspen to attempt to recoup $12 million in loans.
“It’s hard to pin a dollar value on the property,” said Fasken Martineau LLP partner John Grieve. “Is it worth $250 million? I don’t know. Was it? A couple years ago it was. Will it be again? Yeah. Probably. Who knows, the market is strange.”
About a decade ago, former National Hockey League (NHL) player Len Barrie convinced several fellow hockey players including Ray Whitney, Ryan Smith and Rob Blake to buy stakes in his envisioned golf resort.
Barrie contracted Jack Nicklaus to design two golf courses for $1.2 million and then bought 1,100 acres of land near Victoria for about $9 million in 2001. Site development on 180 acres of that land started in early 2002.
By the time the first golfers teed off in August 2003, Barrie’s consortium was $52 million in the hole.
They installed infrastructure and helped the project receive necessary rezoning for 5,000 homes.
Development of 1,050 homes ensued after hundreds of millions of dollars’ worth of residential real estate was sold.
Costs mounted far faster than revenue poured in, however.
Other troubled golf resort developments in B.C. that were adversely affected by the global economic meltdown include:
- Vancouver Island’s Wyndansea, which had intended to have a Nicklaus-designed golf course and was plunged into receivership in the summer of 2008;
- the Cliffs Over Maple Bay, which anticipated having a Greg Norman-designed golf course but went into creditor protection and then into receivership in late 2008; and
- the Okanagan’s the Rise, which had developers who built a Fred Couples-designed golf course before the project plunged into creditor protection in late 2008.
Plans for a Nick Faldo-designed golf course at the Revelstoke Mountain Resort (RMR) never got off the ground and instead became mired in a lawsuit that Nick Faldo Designs filed against RMR for unpaid bills.
Creditor protection is different from receivership, explained Fasken Martineau LLP partner John Grieve, who acted for HSBC by filing for creditor protection on behalf of Bear Mountain.
Creditor protection essentially protects the debtor from being sued by its creditors but keeps the debtor in control of the project.
Plunging a project into receivership, as happened with the troubled former Olympic Village project in Vancouver, means that a receiver is appointed and the assets are sold as soon as possible.
The problem with receivership, Grieve said, is that companies can terminate contracts associated with a project.
HSBC preferred creditor protection because it was the best way for the bank to preserve the value of Bear Mountain’s assets.
The Westin Bear Mountain Victoria Golf Resort and Spa has been ranked as one of Canada’s 20 best resorts by Conde Nast Traveler.
However, if Bear Mountain had plunged into receivership, Westin Hotels and Resorts could have pulled its name from the project, Grieve said.
Similarly, Nicklaus Designs could pull the Jack Nicklaus name off the resort’s golf courses were the project to be in receivership.
Though the debtor tends to remain in control of a project that is in creditor protection, that was not the case with Bear Mountain.
“Frankly, HSBC filed for CCAA [the Companies’ Creditors Arrangement Act] because Len Barrie wouldn’t. I don’t know why he wouldn’t. It was the logical thing to do. But, he wouldn’t. So, the bank took it upon itself to do the filing,” Grieve said.
It may have been because it was the bank’s doing that the project was plunged into creditor protection that Barrie accepted that he would no longer run the show at Bear Mountain.
HSBC installed a chief restructuring officer, Gary Cowan, who became CEO of Bear Mountain Land Holdings Inc. (BMLH) on November 2, when the HSBC assets were removed from creditor protection and transferred to BMLH.
“BMLH operates as a independent, wholly owned subsidiary of HSBC and we’re running it as we would any private company,” Cowan said.
His job entails investigating where best to spend money to tie up loose ends, take advantage of previous infrastructure investments and make the project as valuable as possible.
As part of the creditor protection process, CareVest is to take title to some undeveloped land at Bear Mountain and Romspen is to have title to Jack’s Place restaurant and athletic club.
BC Supreme Court ruled that HSBC should pay each of the resort’s 88 unsecured creditors $500 each – a tiny sum to be sure, but that’s more than nothing, which they would have received had the project been liquidated.
If HSBC is able to eke out more than $195 million from the remaining Bear Mountain assets, any excess proceeds would be split with unsecured creditors, according to the court ruling.
What about the hockey players?
Despite Phoenix Coyotes goaltending coach and former NHL goaltending great Sean Burke grumbling that it was not fair for Barrie to be able to walk away from the development without facing any consequences, the NHL players will have no claim for compensation.
“How does a guy get away with being able to build something to that level, with everybody else’s money, and then not be accountable at the end of the day?” Burke has told media. “He’s walking away with a hell of a lot more than he ever walked in [with.]”
The players, however, invested in the company itself and, like a homeowner who can’t pay its bills and has its house seized, corporate owners get nothing.
“The amount of equity in this company that the hockey players had was miniscule,” Grieve said. “The whole group including Len Barrie, Mike Vernon and others might have put in $10 million. The bank put in $300 million. Out of the $10 million that the owners put in, a lot of that was paid back through the years. The amount of money that they had in this thing at the end was probably not more than a couple million bucks.”