Related loses appeal in suit against Hypo

The Viceroy hotel in Base Village. In the foreground is the platform for what was to be the second condo tower at the Viceroy. It was the focus of an appeal by The Related Cos. that was recently denied.

Brent Gardner-Smith

The Viceroy hotel in Base Village. In the foreground is the platform for what was to be the second condo tower at the Viceroy. It was the focus of an appeal by The Related Cos. that was recently denied.

A panel of judges in a New York state appeals court Feb. 16 unanimously dismissed $406 million in damage claims from an entity controlled by The Related Cos. against Hypo Real Estate Capital Corp. and three other Base Village lenders.

The appeals court found in a three-page decision that the loan agreement between Related and the banks for Base Village “explicitly and unambiguously” barred Related from making claims against the lenders for monetary damages, regardless of the banks' actions.

The court also dismissed Related's claims for declaratory judgment and injunctive relief, finding that Related had defaulted on its loan payments in April 2009 — a fact that Hypo's lawyers did not fail to point out — and that the banks have successfully foreclosed on the project, making injunctive relief moot.

Related claimed that the banks' failure to keep lending it money as part of a $520 million loan package prevented its entity, Base Village Owner LLC, from continuing to build, and sell, the second phase of the Viceroy condo-hotel project in Base Village at the foot of Snowmass Ski Area.

“The defendants intentionally and in bad faith breached their contractual obligations to fund this Snowmass project,” attorney Mark Walfish, of Katsky Lornis LLP, told the court in oral arguments in January 2011 on behalf of Related and Base Village Owner LLC. “And they purposefully chose to abandon their contractual obligations to shore up their own finances in light of the credit crisis that began in 2008.”

Related, one of the largest private real estate development firms in the country, claimed that the banks' decisions eventually cost it $213 million in investment money and further deprived it of making $193 million in profit on Base Village.

The profit projection for Base Village was based on Related selling $1.2 billion worth of ski-in, ski-out condos.

Hypo Real Estate Capital Corp. is a subsidiary of Hypo Real Estate, which was nationalized by the German government.

Its assets, including Base Village, are now managed by FMS Wertmanagement, an agency secured by the Federal Republic of Germany.

Base Village is now for sale by the banks and is being held by Snowmass BV HoldCo LLC. That entity is primarily managed by executives in New York with Hypo Real Estate Credit Corp., who have in turn contracted with Lowe Enterprises to handle local management duties.

The other three Base Village lenders are Danske Bank A/S, KBC Bank and DekaBank Deutsche Girozentrale.

Related filed its initial lawsuit against the Base Village lenders after the banks filed lawsuits of their own against Related, seeking $307 million in loan guarantees from Related executives and California developer Pat Smith.

A lower court judge, Judge Charles Ramos, dismissed Related's claims for monetary damages in its initial lawsuit during oral arguments in January 2011, but he did not rule on Related's motions for declaratory or injunctive relief.

Related then appealed the judge's dismissal of monetary claims. Oral arguments in the appeals case took place Jan. 26.

With its decision last week, the appeals court dismissed all of Related's claims against the banks and leaves the company on the defensive in the loan-guarantee lawsuits, which are being heard by Ramos, as well as several other ongoing lawsuits from Hypo.

Officials from Related declined to comment on the court's decision or other ongoing litigation, as did Michael Tande, an executive with Lowe Enterprises, which is now managing Base Village on behalf of the banks.

Editor's notes:

For more information on the appeals court decision, see Supreme Court of New York, Appellate Division, First Judical Department, "Base Village Owner LLC v Hypo Real Estate Capital Corp., et al," case number 651222/2010.

Also see "Related not faring well in Base Village lawsuits" and "Related on Base Village: It's the banks' fault" from Aspen Journalism.

This article was also published in The Aspen Times on Wednesday, Feb. 23, 2012.

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