Snowmass Village, the ski town neighboring Aspen, got a lift in 2007 when Hypo Real Estate Holding AG agreed to arrange $520 million of loans to complete a $1 billion year-round resort.
Three years later, construction has halted on parts of the 19-acre Base Village in Snowmass, where some buildings are wrapped in plastic, and Hypo has been seized by the German government. When the lender, whose 2009 implosion was Germany’s biggest bank failure since World War II, tried to foreclose on the developers in July, it was met by a countersuit that accused it of a “shameful repudiation” of its obligations.
The resort’s fate is a microcosm of all that has gone wrong for the bank as it handed out more than $8 billion to finance U.S. real estate projects during the property bubble. They include the Landmark, a luxury condominium and retail development near Denver, and a stalled hotel-condominium project in Phoenix. Hypo has taken control of both properties in the past 18 months, according to Real Capital Analytics.
“Hypo Real Estate jumped on the biggest and most spectacular real estate projects in the U.S. because that was the easiest way to grow quickly,” said Wolfgang Gerke, president of the Bavarian Center of Finance in Munich, where Hypo is based. “Their megalomania was what brought them down in the end.”
U.S. loans are a fraction of the up to $265 billion of “nonstrategic assets” that Hypo will try to wind down, Gerke said. Yet they loom large for the bank and for German taxpayers because the debt is weighed down by defaults, foreclosures and litigation. About 67 percent of Hypo’s U.S. real estate loans were on a watchlist or nonperforming at the end of June, according to the company.
Under Evan Denner, who headed the bank’s U.S. real estate financing arm, Hypo Real Estate Capital Corp., the firm boosted U.S. commercial- property lending, which rose to about $8.3 billion at the end of June from $5.4 billion in 2004.
The projects included the W South Beach Hotel & Residences in Florida and the Trump International Hotel & Tower at Hawaii’s Waikiki Beach.
Denner, who holds a master’s degree from Columbia University in New York, left in 2009. He now works at Cantor Fitzgerald LP and said he couldn’t comment.
Foreign banks held $35 billion of U.S. commercial real estate loans as of last month, according to data on the Federal Reserve’s website. More than $15 billion is classified as troubled, meaning delinquent, defaulted, foreclosed or in bankruptcy, up from $10 billion a year ago, says RCA.
“European banks enthusiastically increased their U.S. commercial real estate lending during the boom,” said Ben Thypin, an analyst at RCA in New York. “Many of these banks are now being forced to dispose of noncore assets, and those loans would probably fall into that category.”
