Brent Gardner-Smith, Aspen Journalism
Wednesday, Feb. 15, 2012

SNOWMASS VILLAGE — A chapter in the ongoing saga of Base Village quietly ended on Jan. 28 when a local judge officially approved of the “winding up” of a court-appointed receivership.

The decision by Pitkin County District Court Judge Gail Nichols to accept a final report from the receiver marked the formal end to the foreclosure process for the ski-in, ski-out project at the base of the Snowmass Ski Area.

The receiver’s report detailed the work done by the receiver since July 2010, which included cash management, resolving disputes over contracts and claims, playing a role in litigation over the sale of condos in the Viceroy hotel, leasing and managing commercial space, and closing two expensive off-site sales centers.

“The court finds that all of the receiver’s action were right and proper and in the best interest of the receivership estate,” Judge Nichols wrote in her order.

She also ordered that a $50,000 bond posted by the receiver be released.

With the end of the receivership, it means that the entity that technically bought the project at a foreclosure sale last November — Snowmass BV HoldCo LLC — is now also in complete control of the project.

On the ground the change is slight, as the same organization that acted as the receiver, Lowe Enterprises Real Estate Services, has been retained by the new owners to keep managing the project.

“HoldCo,” as it is known, is a corporate entity controlled by Hypo Real Estate Capital Corp., and its banking parent, the German-based Hypo Real Estate Group.

In turn, “nonperforming assets” from both Hypo organizations, including Base Village, are under the control of FMS Wertmanagement, an agency of the Federal Republic of Germany known as Hypo’s “bad bank.”

Hypo Real Estate Capital Corp., or HRECC, initiated foreclosure proceedings on Base Village in 2010 after The Related Companies of New York defaulted on a $520 million acquisition and construction loan for Base Village in 2009.

The foreclosure sale for Base Village was held on Nov. 16, 2011 after being postponed six times from the originally scheduled sale date of Nov. 17, 2010.

The lenders — Hypo and three other European banks — submitted a credit bid of $138 million to take control of the property. There were no other bidders.

(The other lenders include Dekabank Deutsche Girozentrale of Frankfurt, Germany; KBC Bank N.V., of Belgium; and Danske Bank AS, of Denmark.)

Lenders still spending

During the receivership, the lenders spent $12.3 million on Base Village, according to the receiver’s final report. A good share of that was spent to operate the Viceroy hotel, which opened in November 2009.

When the receiver assumed control in July 2010, the condo-hotel was only renting 98 of its 173 rooms and was $3.6 million in the red.

But after a successful lawsuit brought by a group of condo owners in the Viceroy — who got their deposits back — all of the condos in the hotel were put into the short-term rental pool. That helped produce a 60 percent increase in revenue for the Viceroy, according to the receiver’s final report.

As of Dec. 1, 2011, the Viceroy was on track to generate $11.5 million in revenue and log a net operating loss of $3 million in 2011, according to the receiver’s report.

The receiver’s report also said that commercial tenants in Base Village, as of Jan. 7, owed $680,200 in back rent. Of that $560,400 was owed by current tenants and $119,800 was owed by the now closed Buchi Japanese Tavern and the Sweet Life restaurants.

During the receivership, Chaffin Light Real Estate sold five of 13 condos listed for sale in the Hayden and Capitol Peak lodges, which are in the core of the village below the Village Express lift, according to the receiver’s report.

The 152 condos in the Viceroy hotel, which can be rented as 173 hotel rooms, are not currently on the market.

The man from Lowe

Executives from HRECC, based in New York, have hired Lowe Enterprises Real Estate Services, Inc. as the asset manager for Base Village, and Michael Tande, a senior vice president with Lowe, has been appointed project manager to oversee day-to-day operations of the project.

Another entity controlled by Lowe Enterprises, Destination Snowmass Services, had been serving as the official receiver for the project.

Jim Pavisha, a Lowe executive at the head of Destination Snowmass Services, was officially the receiver, while Jim DeFrancia, also a Lowe executive, frequently served as the public face of the receiver.

DeFrancia is still involved with Base Village, as he is chair of two Base Village metro districts and the president of a management association called Base Village Company Inc., but Tande has taken over as the point person.

The make-up of the boards of the metro districts are not expected to change as a result of the receivership ending. In addition to managing the physical asset, Tande’s job is to help sell the project for the lending group by providing information and tours to prospective buyers.

Still on the market

A real estate marketing firm, EastDil Secured, is still soliciting bids for the project, which was once expected to generate $1.2 billion worth of residential sales, primarily from ski-in, ski-out condos.

“There continues to be a high level of interest,” said Tande, who added he could not disclose the identity of any prospective buyers.

Jim Light, of Chaffin Light Real Estate, said he’s talked recently with several prospective buyers about real estate values in Base Village.

“My impression is that there is one group that is very interested,” Light said.

Last fall, interested potential buyers included Aspen Skiing Co., East West Partners, Centurion Partners, and Real Capital Solutions of Louisville, Colo.

Executives at The Related Cos. were also thought to be interested in regaining control of the property they lost to foreclosure.

Tande said that HoldCo has no plans to submit any requests to the Town of Snowmass Village for changes to the existing approvals for the project, which is about one-third complete.

Snowmass Village Town Manager Russ Forrest, in a Jan. 31 town manager’s report to the Town Council, said about Base Village’s new owners, “They are continuing a bidding process with a number of potential developers.”

Litigation between Hypo and Related continues in a New York court as the banks pursue money from Related over its default on its $520 million loan, and Related seeks damages from the banks for an alleged failure to lend.

On Feb. 10, Hypo also filed a lawsuit against Base Village Owner LLC in Pitkin County District Court seeking $368 million. Hypo claims that is the amount owed to it by BVO after the foreclosure sales in late 2011.

Editor’s note: A version of this story was also published by the Snowmass Sun on Wednesday, Feb. 15, 2012.

Brent Gardner Smith, Aspen Journalism
Monday, Feb. 13, 2012

Two groups critical of the city of Aspen’s proposed hydropower plant along the banks of Castle Creek are now raising funds to install stream gauges on that stream, as well as Maroon Creek.

A stream gauge suitable for inclusion in the U.S. Geological Survey (USGS) system cost between $20,000 and $35,000 to install, depending on the site, and $16,000 a year to operate.

Saving Our Streams, a recently formed nonprofit that is challenging the city’s proposed hydro plant, wants at least one gauge on both Castle and Maroon creeks in order to keep an eye on how much water is left in the streams below the city’s diversion dams.

Maureen Hirsch of Saving of Streams has contacted federal officials with the USGS, who have agreed to make a site visit this winter to the Aspen area.

“If somebody is interested in a new stream gauge, we are certainly open to talking to them,” said David Brown, the director of western Colorado operations for USGS, who is based in Grand Junction.

Friends of Rivers and Renewables (FORR), a new initiative from the Aspen-based Public Counsel of the Rockies, also wants gauges on those two streams.

The group also is calling for new gauges on the Roaring Fork River in Aspen, on Hunter Creek and on the lower Crystal River.

“It’s time to get the Roaring Fork River basin properly gauged,” said Tim McFlynn of Public Counsel for the Rockies. “It’s shockingly overdue.”

But the expense of doing so can be shocking as well.

To install five streamflow gauges up to the standards of the USGS and to cover 10 years of operations and maintenance on them could cost $900,000.

There were operating gauges in place high on both Castle and Maroon creeks from 1969 to 1994, but they were taken off line due to the cost of operating them and the perceived value of the data they were producing.

However, when consultants for the city modeled how much water would be available to both the proposed hydro plant and the streams, they used the 25 years’ worth of data gathered from the now defunct stream gauges, along with data kept by the city at its diversions points.

City water officials are able to track — at their diversion dams lower on Castle and Maroon creeks — how much water they divert from the streams and how much water they leave in the streams.

But the city does not have gauges installed such as those used by USGS or the state’s Division of Water Resources.

Gauges are especially useful when trying to protect an instream flow regime, such as those set by the state to protect a river’s natural environment “to a reasonable degree.”

Lee Rozaklis, a consultant with AMEC Earth and Environmental Inc., was hired by Pitkin County’s Healthy Rivers and Streams board to review the city’s water use for the proposed hydro plant.

He concluded that “as part of the project, Aspen should provide real-time measurement and publicly accessible reporting of daily flow bypasses at the Castle Creek and Maroon Creek diversion structures and flows below the Castle Creek and Maroon Creek hydropower discharge points.”

Phil Overeynder, a utilities engineer with the city who once led the utility department, does not dispute the value of stream gauges.

“It would be a good thing,” Overeynder said. “It would be useful information for the city and for other water users.”

Indeed, a 2011 agreement between the city and the Colorado Division of Wildlife to monitor Castle and Maroon creeks calls for gauges to be installed on both creeks, although it’s not clear in the agreement what type of gauge is required.

Bill Blakeslee, the state water commissioner charged with managing local water diversions, said gauges are the best way to solve water disputes.

“Anybody can produce a study, but without a consistent measuring device in the stream, everybody is just kind of blowing smoke,” he said.

But Blakeslee warned that enthusiasm for new gauges tends to wane when it comes to paying for the ongoing maintenance and operational costs of them, which are prone to freezing up in the winter and need to be routinely checked.

Leaders from both Saving Our Streams and Friends of Rivers and Renewables say they are seeking funding for gauges from both private and public sources.

Saving Our Streams’ members include two billionaires and several other wealthy homeowners on Castle and Maroon creeks. Hirsch said one member already has agreed to fund one gauge.

Yasmine DePagter, another SOS member, said the group plans on conducting a broader grassroots funding effort.

“This should be a community effort,” DePagter said.

Chelsea Congdon, who chairs the water committee for the Snowmass-Capital Creek Caucus, has signed on to lead the efforts of the new group, Friends of Rivers and Renewables.

Congdon, who also worked on Western water issues for 12 years with the Environmental Defense Fund, wants to convene interested parties and discuss new developments in gauging technology, which could possibly cut the installation costs in half.

But she agrees that new gauges probably need to be up to the standards of either the USGS or the state’s Division of Water Resources, which also maintains a system of gauges.

“One of the things we need to make sure is that if we help facilitate a gauging system, that it is a system that people buy into,” Congdon said.

Other groups also see the need for more gauges.

In its draft 2011 “State of the Watershed” report, the Roaring Fork Conservancy called for new or additional gauges on Hunter Creek, Castle Creek, Maroon Creek, Snowmass Creek, the Crystal River and on the Roaring Fork River.

Pitkin County Attorney John Ely, who is the key adviser to the healthy streams and rivers board, said more gauges have been on its agenda since its inception in 2009. The board, which is funded by property taxes, now has a grant program to help fund river-health initiatives.

Ely has recommended mapping out the need for gauges throughout the Roaring Fork River basin.

On Thursday, the river board will hear a presentation from Rozaklis and another streamflow expert, Greg Espergren, on a proposed methodology to better protect the environmental health of local rivers.

Gathering accurate flow data is one of the keys to their proposal.

Brown, of the USGS, said gauges are typically a cooperative effort in the state.

“Here in Colorado, there are over 100 entities that provide funding to the streamflow gauging program,” he said.

Brown said taxing entities, such as a city, can apply for federal matching funds for gauges and private entities also can contract directly with USGS to finance a gauge.

Editor’s note: this story was also published in the Aspen Daily News on Feb. 13, 2012.

Public information from the Federal Election Commission shows that in 2011, Aspenites made 99 donations to Rep. Scott Tipton (R-Cortez), totaling $50,322. In the same year, they made 79 donations totaling $20,585 to Sal Pace, Tipton’s Democratic challenger.

Between September 1 and Dec. 31, 2011, Tipton had 14 donations from Aspenites totaling $8,375, while Pace had 69 donations from Aspenites worth $18,855.

Information such as this can be gleaned from the searchable database above.

Aspen Journalism and the Rocky Mountain Investigative News Network worked together to compile the 2011 campaign contributions made to Colorado’s congressional candidates from donors who call the Roaring Fork River valley home.

The resulting table is sorted alphabetically by congressional candidate. but it can be changed to display contributions to individual candidates by amount or by the communities in the Roaring Fork River valley, including Aspen and Glenwood Springs.

Below is a list of notable local donors to both Tipton and Pace in 2011.

Local donors to Scott Tipton in 2011

Frieda Wallison, chair of the Pitkin County Republicans, made two donations to Tipton in 2011, one for $1,200 and one for $319.

Melanie Sturm, vice chair of the Pitkin County Republicans and a columnist for The Aspen Times, donated $1,250 and $500 to Tipton and listed her employer as the ML Sturm Foundation.

Shellie Roy, a former Pitkin County commissioner and current real estate broker, gave $250 to Tipton.

Marc Holtzman, a former candidate for governor of Colorado, gave $1,500 and $1,000 to Tipton.

Political activist Marilyn Marks of Aspen has given three donations to Tipton, two for $100 and one for $250 for a total of $450.

Elizabeth Milias, who writes The Red Ant blog, gave $250 to Tipton.

Jerald Bovino, host of “The Jerry Bovino Show” on GrassrootsTV, gave donations of $500 and $250 to Tipton.

Larry and Lorrie Winnerman of Aspen, who are in the real estate business, each made two donations to Tipton. Larry, a real estate investor, made donations of $1,000 and $600 and Lorrie, a real estate broker, also made donations of $1,000 and $600.

Richard Orrison, president of Orrison Distributing LTD in Glenwood Springs, which distributes Budweiser, made two $500 donations to Tipton.

Lloyd and Betty Schermer of Aspen each gave $2,500 to Tipton. Lloyd is a retired executive, an artist and a supporter of the Anderson Ranch Arts Center and the namesake of the Schermer Meeting Hall.

Attorney Jerry Hosier of Aspen – namesake of the Doerr-Hosier building at the Aspen Institute and a member of the institute’s board of trustees – gave Tipton $2,500.

Attorney Scott Balcomb of Balcomb & Green in Glenwood Springs made two $2,400 donations to Tipton for a total of $4,800.

Nancy and Robert Magoon, movers behind the new Aspen art museum building, gave $1,250 each to Tipton. Robert Magoon also made another $100 donation to Tipton.

Local donors to Sal Pace in 2011

Blanca O’Leary, the chair of the Pitkin County Democratic Party, made three donations to Pace, two for $250 and one for $100.

Camilla Auger, the former chair of the Pitkin County Democrats, made two donations to Sal Pace, one for $100 and one for $250.

Gail Schwartz, a Colorado state senator from Snowmass Village, donated $500 to Pace.

Roger Wilson, a Colorado state representative from Glenwood Springs, donated $200 and $50 to Pace.

Rachel Richards, a Pitkin County commissioner, donated $100 to Pace.

Michael Owsley, a Pitkin County commissioner, donated $25 to Pace.

Dorothea Farris, a former Pitkin County commissioner and a member of the board of the Colorado Division of Wildlife commission, made donations to Pace of $200 and $20.

Mark Fuller, the executive director of the Ruedi Water and Power Authority, made two donations to Pace, one for $250 and one for $50.

Ruth Brown, a member of the Pitkin County Healthy Rivers and Streams board, made three $500 donations to Pace.

Georgia Hanson, president and CEO of the Aspen Historical Society, donated $50 to Pace.

John Bennett, a former mayor of Aspen, made a donation to Pace for $100.

William Stirling, a former mayor of Aspen, made a $100 donation to Pace.

Frank Peters, a former Aspen City Council member, donated $200 and $100 to Pace.

Patti Clapper, a former Pitkin County commissioner, donated $50 to Pace.

Gary Tennenbaum, a former member of the Basalt Town Council, and a land steward with Pitkin County, donated $10 to Pace.

Auden Schendler, vice president of sustainability for Aspen Skiing Co., donated $100 to Pace.

Matthew Hamilton, the sustainability manager for Aspen Skiing Co., donated $50 to Pace.

Sloan Shoemaker, the executive director of Wilderness Workshop in Carbondale, donated $100 to Pace.

Adam Lewis, a philanthropist in Aspen, made four donations to Pace, two for $1,000 and two for $500.

Tim McFlynn, a mediator with Public Counsel of the Rockies (and a board member of Aspen Journalism), gave $100 to Pace.

Michael McVoy, an Aspen-based investment adviser (and a board member of Aspen Journalism) gave $100 to Pace.

Editor’s note: Thanks to Laura Frank, Burt Hubbard, Joe Mahoney, and Sandra Fish at I-News for their work on the project.

- Brent Gardner-Smith

Brent Gardner-Smith, Aspen Journalism
Wednesday, Feb. 1, 2012

SNOWMASS VILLAGE — Attorneys for The Related Cos. have responded to charges in a lawsuit by its European lenders that it fraudulently moved $32.5 million tied to bonds issued by the Base Village metro districts from one corporate entity to another.

An attorney for Related, Mark Walfish, of Katskey Korins LLP, filed an answer on Jan. 18 to a Dec. 28 lawsuit filed by the banks over the $32.5 million, which was loaned to Related by the banks to use as collateral against bonds issued by two Base Village metro districts that effectively function as one district.

One of the banks is Hypo Real Estate Credit Corp., a subsidiary of Hypo Real Estate Group, a German bank that was nationalized by the German government after the 2008 financial crash.

“Hypo had full knowledge of, was a willing participant in, and in fact authorized in writing the very transactions about which it now complains,” Walfish wrote in his response to the court.

Hypo and other European banks had lent $520 million to entities controlled by Related, which was used to buy and develop Base Village in Snowmass Village.

Related defaulted on the Base Village loan in April 2009, leaving Hypo and three other banks to foreclose and assume ownership of the unfinished project, which they did last year.

Today, Hypo and Related are battling each other in court over the Base Village loan and various guarantees.

And recently added to the list of lawsuits is one brought by the banks against Related on Dec. 28 over $32.5 million used to guarantee the bonds, which were issued by the metro districts to construct portions of the project.

Fighting over $32.5M

Attorneys for Hypo claim that the $32.5 million was lent by the bank to Base Village Owner as part of the larger Base Village construction loan.

But the bank says Base Village Owner then improperly gave the money to Related WestPac, which then deposited it with U.S. Bank as collateral against the metro district bonds.

When the bonds were called last month — after Related declined to endorse a third extension on a required letter of credit — U.S. Bank paid off the investors in the bonds and laid claim to the $32.5 million deposited as collateral.

Now the bank is seeking the $32.5 million it loaned to Base Village Owner LLC.

“Related WestPac initiated the events … to try and prevent the lenders from recovering those funds,” Hypo’s lawsuit claims. It also says the money transfer was a “fraudulent conveyance.”

In an answer to the suit, Walfish calls Hypo’s allegations “utterly specious” and said they have a “complete lack of merit.”

“Hypo specifically agreed, in writing, to the transfer by BVO of legal ownership of $32.5 million to WestPac; Hypo further agreed in writing that those monies would be deposited with U.S. Bank; (and) Hypo further acknowledged in writing that … such monies were owned by WestPac lien free, with Hypo having no rights … ,” Walfish told the court.

“ … Hypo further understood … that in the event that U.S. Bank made a mandatory purchase of the metro bonds, U.S. Bank would issue guarantor bonds to WestPac – which is precisely what occurred. … Hypo was at all times represented by counsel in connection with entering into the various written agreements and with every facet of the transaction,” Walfish wrote.

Walfish further claims that because Hypo has foreclosed on the unfinished Base Village project, it has, in essence, gotten its money worth as the proceeds from the bonds were spent on infrastructure improvements at the project, such as the parking garage and internal streets.

“ … Hypo has received the benefit of the $32.5 million in infrastructure improvements paid for through the proceeds of the metro bonds,” Walfish stated.

He also asks the court to dismiss Hypo’s lawsuit with prejudice and award Related legal fees.

Related affirms its rights

Dwayne Romero, president of Related Colorado, which still owns substantial property in Snowmass Village, issued a statement regarding the lawsuit over the bond money.

“We have recently filed an answer to the metro bond complaint affirming our rights under agreements that were negotiated with the banks back in 2008 and under relevant agreements that have been signed by the banks since that time,” Romero said.

In addition to spurring the lawsuit from the banks, Related’s decision to not grant a third extension on a letter of credit backing the metro bonds brought sharp criticism from James DeFrancia, an executive with Lowe Enterprises who has been serving as the court-appointed receiver for Base Village while it has gone through a foreclosure process.

“They are causing the metro district and owners considerable harm,” DeFrancia said earlier this month about Related’s actions on the bonds. “I don’t think it is very ethical business behavior.”

DeFrancia said that Related’s recent response to Hypo’s lawsuit doesn’t change his opinion of the transaction and its negative effects on the metro districts, which are now looking at paying 10 percent interest on the $32.5 million in bonds instead of one percent.

“Their complaint with Hypo is between them,” DeFrancia said about the lawsuit over the $32.5 million. “My view is that of the district. (Related’s) disruption of a bond restructure plan in process, and an action contrary to the interests of the district and its taxpayers — without necessity — is my complaint.”

DeFrancia said that in his role as receiver, and as chair of the metro district boards, he was working on a comprehensive restricting of the bonds when Related surprisingly — at least to him — refused to grant an extension on the letter credit past Dec. 31, which kicked off to the series of events described by attorney Walfish above.

Romero, representing Related, has defended his company’s actions, and said it put forward a proposal last fall regarding the bonds that the metro district rejected.

Romero released a copy of the proposal on Jan. 30, which company officials have said is still on the table.

“We … remain very interested in helping the metro district renegotiate new terms (on the bonds),” Romero said in a statement. “And we have offered a proposal which would provide funding that would safeguard operations and maintenance in the future, a safeguard that the district does not currently have. Effectively, our proposal offers the district the ability to continue operations of the Base Village transit center, parking garage, and conference center into the future, absent any interference of debt repayments.”

DeFrancia said the proposal from Related and Romero was too complicated to deal with on a tight deadline last fall, and said this week that the proposal is still not in the district’s best interests.

“It does nothing for the district except increase its debt burden and effectively strip it of all its cash,” DeFrancia said.

DeFrancia added that the district is now searching for a way to comprehensively restructure its debt load and said that while core operations of the village — including the transit center, parking garage and conference center — are not currently in jeopardy, they could be in the future.

Editor’s note: This story was also published in The Aspen Times on Feb. 1, 2012

By Brent Gardner-Smith, Aspen Journalism
Monday, January 23, 2011

The city of Aspen’s request to the feds to use an expedited review process for its Castle Creek hydroelectric project has run into stiff opposition based on comments submitted to the agency that’s reviewing it.

Scott Fitzwilliams, the supervisor for the White River National Forest, sent a letter to the Federal Energy Regulatory Commission (FERC) on January 10 in response to the city’s request to use a “traditional licensing process” instead of an “integrated licensing process,” or ILP.

The Forest Service recommended that a more lengthy review process be employed for the Castle Creek hydroelectric project because it allows FERC staff to be involved from the beginning and a process similar to full-blown NEPA (National Environmental Policy Act) review will occur. There also is more opportunity for back-and-forth discussions regarding study designs, dispute resolution and public participation, Fitzwilliams wrote.

For Matt Rice, the director of conservation at the Colorado chapter of the nonprofit organization American Rivers, the letter from the Forest Service to FERC is a big deal. American Rivers opposes the city’s request for an expedited process and is questioning the project’s environmental impacts.

“It’s huge,” Rice said. “We have not had very much success requesting an alternate licensing process without a request from a federal agency as well.”

City officials in December filed a pre-application document and a request to use the “traditional licensing process,” or TLP, with the federal agency.

FERC, based in Washington, D.C., issues licenses for hydro projects.

The city told FERC officials that going the TLP route would save time, money and prevent unnecessary duplication of effort when reviewing the proposed Aspen hydro project, which would use water diverted from Castle and Maroon creeks to spin a turbine to make electricity.

A technician from the city of Aspen using a device to measure streamflow in Maroon Creek in summer 2010. Much of the debate over Aspen’s hydro proposal comes down to how much water will be left in Maroon and Castle creeks, and when. Photo: Brent Gardner-Smith

“The use of the TLP will allow the city of Aspen to continue to utilize the substantial activities and stream condition data it has already undertaken, and will result in [the application for a minor water] power project being filed in the most timely and efficient manner possible,” reads a letter to the FERC from attorney Karl Kumli of Dietze and Davis, a Boulder law firm hired by the city for the hydro project.

But opponents of the project told FERC officials a much different story in their comment letters.

“The city of Aspen is still trying to simply dismiss and sweep these very real and unanswered questions aside, hoping that FERC won’t notice,” wrote Ken Neubecker, director of Carbondale-based Western Rivers Institute.

The city first sought a complete exemption from FERC, saying that it was grandfathered in for a hydro facility because it operated one on the banks of Castle Creek from 1893 to 1958.

When the exemption effort didn’t pan out, the city then applied to FERC for a “small conduit” exemption, claiming that elements of the new project are part of the city’s existing municipal water system.

After the city was widely criticized for that approach, Aspen City Council agreed to go through the “front door” of FERC. But once inside the door, the city asked again to proceed down an expedited path, the so-called TLP.

And again, opponents are crying foul.

“We applauded Aspen’s decision to withdraw its small conduit exemption application, hoping such withdrawal marked the beginning of a commitment by Aspen to be more inclusive of the public in its process,” wrote Amelia Whiting, the legal counsel for Trout Unlimited in Colorado. “So far, our hopes appear to be unfounded.”

American Rivers and Rice also filed comments with the FERC in support of the more expansive licensing process, stating that “at every turn, Aspen has attempted to take procedural shortcuts that would limit its exposure to public scrutiny and meaningful environmental review.

“There are significant natural resource issues yet to be resolved and there is an extremely high level of controversy surrounding the proposed project,” Rice wrote to FERC. “Our experience has shown that the ILP’s structured approach to application development makes working out these difficult issues much easier and helps to ensure that the public has an opportunity to contribute meaningfully to the content of a license application.”

Other organizations and individuals who filed comments opposed to the city’s proposed process route are Rick Lafaro, the executive director of the Roaring Fork Conservancy, Tim McFlynn of Public Counsel of the Rockies, as well as Aspenites Connie Harvey, Tillie Walton and Tom and Maureen Hirsch.

Also filing comments in opposition to the city’s request was Paul Noto, a water attorney with Patrick, Miller & Kropf who represents a group of Aspen property owners who live along Castle and Maroon creeks, and are suing the city over its water rights for hydro.

“This project is extremely controversial and has a broad and diverse group of stakeholders which oppose the project as proposed,” Noto wrote. “FERC should deny the city’s request to use the TLP because it will result in a more contested, lengthy and costly licensing process, and is more likely to result in a contested licensing decision.

“The FERC-driven ILP will remove many or all concerns with the process from the list of controversies so that FERC, the applicant, and stakeholders can focus on the substantive issues of the project,” Noto wrote.

FERC officials have until Febuary 10 to make a decision about the city’s request for an expedited process. If the city’s request is denied, the municipal government could appeal the decision to the agency’s board of commissioners for review.

The comment period on the city’s proposed process ended last Thursday, according to FERC spokesman Craig Cano. The deadline was extended a week from the original deadline of January 11 due to a delay in publishing a public notice.

The agency also is still taking comments on the city’s “application for preliminary permit,” which was filed on November 1. The application serves as a placeholder for the city’s proposed location for its new hydro plant under the Castle Creek bridge.

The comment period for that application is open until Tuesday, according to Cano. He added that comments on that type of application typically have to do with the nature of the proposed location for a plant, not the process to review it.

Comments to FERC can be filed by citizens online at its website at FERC.gov in the “eComment” section under the heading “Documents and Filings.”

The docket number for the city’s application is P-13254 and it is called “Castle Creek Hydroelectric Project.” The sub-docket number for the process (ILP v TLP) application is P-13254-002. The sub-docket number for the site-related application is P-13254-001.

Editor’s Note: A version of this story was also published on Monday, Jan. 23, 2011 in the Aspen Daily News.

By Catherine Lutz, Aspen Business Journal
and Brent Gardner-Smith, Aspen Journalism
Monday, January 23, 2012

ASPEN – For many watching Aspen-area real estate, 2011 will be remembered for its large volume of high-end home sales.

Twenty-two residential properties in the upper Roaring Fork Valley changed hands for $10 million or more last year — equivalent to nearly two each month.

Those sales added up to more than $325 million, roughly one-quarter of Pitkin County’s $1.27 billion worth of property transfers — on less than 3 percent of the number of transactions.

Clearly, the buyers of these luxury properties have not been too badly hurt by the Great Recession — yet they are price savvy, as many of the estates changed hands for significant discounts.

Many of the properties had also been for sale for quite some time. Still, the new owners generally paid a higher price per square foot than other segments of the market.

The buyers vary. They are self-made businessmen, heirs to ongoing concerns or international billionaires. Some have strong ties to Aspen and already own property here, while others are new to the scene.

But what binds them all — a big league sports team owner, a major grocery store chain CEO, and an investor in Vail among them — is that they chose Aspen as a place to invest in both property and lifestyle.

Multimillion-dollar homes on lower Red Mountain, where at least one of the biggest sales of 2011 took place. Photo: Brent Gardner-Smith

And don’t expect such high-end sales to stop or slow down anytime soon, said Andrew Ernemann, a real estate broker with BJ Adams and Company who has analyzed the sales.

“I do expect the trend to continue; I don’t think it was just a quirk [last] year,” said Ernemann. “It’s definitely something that will continue as long as we have quality high-end homes and as long as we don’t have a significant macro issue.”

Aspen has always been an attractive place for the economic strata of society that has been doing particularly well in a given era, noted Ernemann. In the 1970s, a lot of Texas oil money was infused into Aspen real estate.

Then came the New York banking and investment firm executives. Hollywood has always had a place here, and dot-com millionaires once kept real estate brokers busy. These days, international billionaires are in the mix.

“There’s always a geographic area or industries doing well and those people tend to find Aspen one way or another,” he said. Going forward, “I think the clientele is absolutely there.”

Sales of homes over $10 million spike

Last year’s 22 property sales for north of $10 million was not a record — 2006 takes that honor with 30 in Pitkin County — but it’s a close second if you study the details. In 2006, at least five of the 30 sales were commercial properties or multiple lots, according to a search of the Pitkin County clerk’s database.

On the 2011 list, only one (the most expensive, at $20.75 million) was a double lot with two homes on it, and we excluded the sole commercial transaction in that price range (the Silvertree Hotel complex in Snowmass Village, which commanded $38.75 million in June) in our analysis.

2007 was the only other year that was close in high-end home sales, according to Ernemann, who found 19 residential sales of $10 million or more that year. During the years of the Great Recession, there were fewer: 11 in 2008, 10 in 2009, and 12 in 2010.

And prior to the boom years of the mid-2000s, less than 10 transactions each year hit $10 million, according to the county clerk’s database.

But, said Ernemann, the trend toward such high-end luxury homes has been building for some time, even through the downturn.

“The year 2009 was the first really tough year with price corrections, and we still had 10, $10 million-plus sales, where the year before we had 11,” he said. “So for three years in a row that end of the market was really consistent. And at the time it said to me that the real high-end people with significant wealth don’t seem to be deterred by the economic climate.”

This past year, said Ernemann, that sentiment was even more true. But there’s one significant thing he noticed about 2011’s high-end sales versus those of the past: there were a bigger proportion of them, even in a recovering market. Up until the last couple months of the year, around one in every four home sales in Aspen was for more than $10 million, while normally the ratio was one in 10, Ernemann said.

“That’s interesting and quite surprising to be that disproportionate,” he said. “To go from 10 percent to 25 percent is a huge jump.”

And sales activity had increased in other parts of the market, he explained, “so you can’t say the rest of the market is suffering.”

From Aspen to Basalt, 351 sales of condos, single-family homes, and vacant lots were listed in the MLS in 2011, compared to 260 in 2010. Every price range except the $7.5 million to $12.5 million range was at or above the previous year, he said.

Certainly the higher-end customer had a lot of properties to choose from, after the spec-building surge of 2005 to 2008, Ernemann noted. Now, with the flurry of sales and the lack of new construction, that seven- to 10-year supply has dwindled to a three- or four-year supply.

A larger-than-average inventory in an overvalued market likely made for some interesting negotiations over these high-end homes. The average discount between asking price (the price when it goes under contract) and sold price for the overall market was 11 percent, Ernemann found, but in the $10 million-plus range it was over 17 percent.

“That’s a pretty healthy chunk higher than the rest of the market,” Ernemann noted. “High-end sellers are not necessarily willing to reduce their list prices, but they are willing to negotiate more with serious buyers. The theme with higher-end properties is not to chase buyers, but to hold prices fairly firmly and get an offer, then negotiate to try to get it sold.”

The original listing price for four of the 22 properties over $10 million in 2011 was near or above $30 million, but none sold for much more than $20 million.

A $20 million sale on Smuggler Mountain near the trailhead parking lot, for example, had had an asking price of $29,995,000.

A Star Mesa home on 40 acres that was originally listed for $32 million sold for half that—$16 million.

A few of the transactions bucked the big discount trend.

A recently completed 11,000-square-foot home on four acres across from Aspen Highlands sold for its original list price—$14.5 million—after just 19 days on the market, according to the MLS.

The exclusive Starwood subdivision, Aspen’s only neighborhood with a staffed guardhouse at its entrance, as viewed from Ruthie’s Run on Aspen Mountain. A home in Starwood was sold in 2011 for $19.5 million. Photo: Brent Gardner-Smith

Time on market, prices per square foot

Time on the market varied from a couple months on the lower end to three-plus years, although sometimes a property is relisted, which may not be reflected in the MLS days-on-market number.

About half were on the market around one year, and half more. Some, much more.

An eight-bedroom home overlooking North Star Preserve east of Aspen spent 1,317 days on the market, more than three-and-a-half years.

On the flip side, buyers of $10 million and up homes were willing to pay quite a bit more per square foot than most people — about 50 percent more, Ernemann found.

The average price per square foot of the majority of the MLS-listed properties was close to $1,500, while in overall Aspen single-family sales it was $1,034; in Snowmass, $839.

Part of the reason for the discrepancy is that the area’s higher-end homes tend to be new construction or significantly upgraded, as opposed to the tear-downs in the lower price ranges.

“Buyers want really quality, well-located, investment-grade properties,” said Ernemann.

The highest price per square foot in 2011 was $1,818, for a 6,000-square-foot ski-in, ski-out home on almost two acres in Two Creeks in Snowmass Village. The home spent less than three months on the market and sold for $11 million, a slight discount from the $11.75 million asking price.

The lowest rate was $586 per square foot for a 17,000-square-foot home in Woody Creek, although that was for a 70-acre property.

More comparable with other sales was the $965 per square foot paid for an 11,600-square-foot home on two acres on the Maroon Creek Club golf course.

Buying in the upper end of the Aspen market

The buyers of Aspen’s highest-priced properties are naturally among the top tier of personal wealth, and several of them have rankings in Forbes’ various lists.

Aspen’s most expensive residential sale of 2011, for example, went to Stanley Kroenke, owner of a sports empire that includes the Denver Nuggets, Colorado Avalanche, St. Louis Rams, and the Colorado Rapids soccer team. The Missouri native amassed his wealth in real estate development, including building shopping centers around Wal-Marts.

Kroenke controls an entity called Top of Mill LLC, which purchased two adjacent properties on Red Mountain for $20.75 million in November.

Top of Mill LLC, registered in Missouri, also owns a $6.5 million townhome on South Mill Street, which was purchased in 2004.

And Kroenke controls a second corporate entity called Wheeler Block Building LLC, which owns a building on Galena Street in downtown Aspen.

Kroenke is estimated to be worth $3.2 billion by Forbes, where he is ranked #107 on the Forbes 400 richest Americans list and #440 among the world’s billionaires. He is also a majority shareholder in the English football club Arsenal and met his wife Ann Walton, a Wal-Mart heiress who is also ranked by Forbes, in Aspen in 1973.

Another reason Kroenke may appreciate having a gracious home in Aspen is that he is also on the governing board of the Global Sports Summit, a conference for owners of professional sports teams. The conference was held last year in Aspen and is slated to be held here again in August.

Aspen Kiwi properties

Topping Kroenke by more than 250 places on the Forbes Billionaires list is Graeme Hart, a packaging magnate from New Zealand who paid $16 million in February for a nearly 14,000-square-foot home on Star Mesa off of McLain Flats Road.

The sale was a first for that area at that price level, said Ernemann, and it jump-started some activity in the neighborhood.

Hart, who is ranked 185th on Forbes’ 2011 World’s Billionaires list, is worth $5.5 billion and is the wealthiest person in New Zealand.

The self-made billionaire, who apparently once drove a tow truck, amassed his wealth through investments. He purchased the Aspen home through Aspen Kiwi Properties LLC. Pat Imeson, a venture capital fund manager who co-founded the now defunct Aspen Mountain Air, was the seller.

According to a November story by New Zealand’s National Business Review entitled “NBR Rich Lister snaffles luxury Aspen estate,” Hart kept busy last year with major business deals and acquisitions.

He bought Honeywell’s automotive parts business for $950 million and merged his packaging business the Reynolds Group (makers of the aluminum foil) with another packaging company for $4.4 billion. He also owns two properties in New Zealand, a Fijian island, and a $100 million yacht, according to NBR.

Refining and fracking

Oil and gas wealth is well represented in last year’s most expensive real estate deals.

Natural gas magnate Farris Wilks of Cisco, Texas – worth $1.4 billion, according to Forbes, bought the most expensive ski-accessible home in Snowmass Village in June.

Wilks, who paid $16 million for the seven-bedroom home on five acres in the Pines, ranks #312 on the Forbes 400 list along with his brother Dan.

The Wilks brothers are featured by Forbes as the “newest undercover billionaires. They started their careers as professional masons and then founded and later sold their share of a hydraulic fracturing company for billions.

The founder and CEO of an oil refining company is also a new homeowner in the area.

An LLC called Franklin Mountain Aspen LLC controlled by Paul L. Foster, chairman of Western Refining, bought a 10,700-square-foot spec home on Red Mountain in November for $15 million. The home was originally listed for nearly $24 million.

Foster, whose net worth is $1.9 billion, ranked #261 on the Forbes 400 list in 2007, shortly after he took Western Refining public and saw its shares go up 190 percent.

In 2010, Forbes ranked Western Refining #12 on its Risk List, which, with help from an accounting consultant, identified companies of greatest concern for getting into financial trouble or going under.

Foster’s Aspen home purchase may have something to do with the fact that he, according to the El Paso Times, sold millions of dollars worth of shares in Western Refining throughout 2011 as a “part of a personal financial and estate planning process.”

One of the Aspen homes that sold in 2011 for over $10 million. Photo: Brent Gardner-Smith

Consumer goods

Bill Wrigley Jr., heir to the Wrigley chewing gum fortune and #188 on the Forbes 400 list with a net worth of $1.6 billion, bought a $10 million home overlooking the Rio Grande Trail in Aspen in October. It’s not the first Aspen purchase for the chairman of the world’s largest gum producer.

In 2004, Wrigley bought an $8.9 million home on Pitkin Way in his own name. Then an LLC he controls spent $11.5 million on the vacant lot next door in 2009. And now Wrigley’s Pitkin Way Enterprises LLC has purchased the house on the other side of the vacant lot, making for a large compound with a big view of Aspen Mountain.

A West End property across from the Yellow Brick is the new home of Kroger chairman and CEO David B. Dillon. Dillon’s wife, Dee E. Dillon, is listed as the buyer of the $12.3 million home, which made headlines in April for being one of the highest prices ever paid per square foot ($1,852) for a home in that neighborhood.

David Dillon’s great-grandfather started the grocery store chain that still bears the name and is part of the Kroger empire, which includes City Market stores. Dillon is 295th on Forbes’ Executive Pay list, having earned $10.3 million in salary in 2009.

Dillon, whose parents owned a home in Aspen for 40 years, has been a frequent visitor to the area since he was a boy, according to a source close to the family.

Finances

Two financiers who bought local property in 2011 have Forbes profiles but are not currently ranked on any Forbes’ lists.

Antony Peter Ressler is a founding partner of Ares Capital Corp. Ressler, who works in the firm’s Los Angeles office, owns a home in Beverly Hills and he bought a $20.5 million Owl Creek estate on 77 acres in May.

The property, which is now listed as being owned by Owl Creek Holdings LLC, is an apparent upgrade from his home in Snowmass’ exclusive Pines neighborhood, which Ressler paid $9.2 million for in 2008 and is currently worth less than $8 million, according to the county assessor.

Ressler was a co-founder of Apollo Management and was with the company when it bought Vail Resorts out of bankruptcy and took the company public.

And Paul B. Edgerley, the new owner of a $19.5 million corporate retreat in Starwood, is tied to a company that’s making quite a bit of news these days. Edgerley is a managing director of Bain Capital Partners, the Boston-based private equity firm co-founded by Republican presidential candidate Mitt Romney.

Edgerley and his wife Sandra, who are residents of Brookline, MA, donated $500,000 each to the super-PAC supporting Romney called Restore Our Future in May 2011. (Their new neighbor down on McLain Flats, John Paulson of Paulson and Co., also donated $1 million to Restore Our Future, in January 2011.)

The internationals

The rise of international wealth is making its mark on the Aspen area, both in terms of tourism and real estate sales, and besides New Zealand, at least one more of Aspen’s rising international markets are represented in 2011’s highest-end home sales.

Russian grocery store magnate Alexander Zanadvorov paid $13 million in February for a gated estate with a 1,700-bottle wine room and elevator to all four levels across from Aspen Highlands.

Zanadvorov co-founded Sedmoi Kontinent, Russia’s first food retailer since the dissolution of the Soviet Union, which grew to 125 supermarkets and saw $1.27 billion in revenues in 2007.

The company has been shaken up by the global financial crisis—it lost half its value in 2008 when Russian markets collapsed, according to news reports. Zanadvorov later bought most of Sedmoi Kontinent’s shares to become the sole owner, and last week reportedly sought to delist the company as its share price dropped the most it has in almost three years.

And former Israeli Air Force fighter pilot Ephraim Gildor, a hedge fund founder who summited Mount Everest last year with locals Chris Davenport and Neal Beidleman, paid $13.5 million in August for a new estate next to the Northstar Preserve.

The property, purchased via Warren Creek Mountain LLC, was previously owned by the late Aspen environmentalist Bob Lewis, whose eccentric old house – which had several aspen trees growing through the roof – was torn down and replaced by a spec home built by local developer Doug Throm.

Also on the list of buyers was Aspen homeowner Jonathan Lewis and his family, who made headlines last year when they emerged as the buyers of the University of Colorado’s Given Institute property, for $13.8.

After a failed negotiation with the city, which was trying to preserve the building for its architectural significance, the Lewises tore it down to make way for a single-family home.

Editor’s Note: A version of this story was published in collaboration with the Aspen Business Journal. Journalist Catherine Lutz is a freelance reporter for the Business Journal and also serves on the board of directors of Aspen Journalism, a 501c3 non-profit. Journalist Brent Gardner-Smith is the editor and executive director of Aspen Journalism.

By Madeleine Osberger, for Aspen Journalism
Monday, Jan. 16, 2011

PAONIA, Colo. — Billionaire Bill Koch, who has made his presence felt in Aspen by suing the city over hydropower water rights and proposing a million-dollar guardrail on Castle Creek Road, has also attracted the attention of residents over McClure Pass.

Koch, who is building a Western-style compound on his 4,500-acre Bear Ranch east of Paonia Reservoir and below Ragged Mountain, is proposing a federal land swap that would grant him control of a three-mile strip of BLM land separating his ranch.

In exchange, he would give the government private land he controls overlooking Blue Mesa Reservoir in Gunnison County and an in-holding he has under option in Dinosaur National Monument, along with other inducements to win local public support.

On Wednesday at a Paonia Town Council meeting, so many people showed up to comment on Koch’s proposed land swap that the meeting had to be moved from town hall to a theater across the street, where the crowd still filled the main floor, balcony and aisles.

The assembled crowd of ranchers, teachers, retirees, mine workers and other locals were intent upon speaking their piece about the proposed land exchange, as were representatives of Bear Ranch.

The crowd at the public hearing in Paonia on January 11 regarding the proposed Bear Ranch federal land swap. Paonia public radio station KVNF has audio of the hearing on its website. Photo: Madeleine Osberger.

The BLM land “makes it difficult for us to manage our herds, control noxious weeds and prevent trespassing and poaching,” said Rob Gill, the manager of Bear Ranch, where about 50 ranch hands are employed in the winter raising beef cattle and longhorns.

But artist Tara Miller said Wednesday night that the key issue was about giving up the current wilderness access that the BLM land provides.

A well-maintained road winds across the BLM land and leads to a trail along Deep Creek, which offers a short hike to the heart of the Raggeds Wilderness. This public access would go away if the swap is approved.

The BLM road also connects the two halves of Bear Ranch. One high curve in the road offers a glimpse of the fantasy town that 150 workers employed by Koch are erecting on a cluster of residential lots.

“Why should we give it up just so someone should have some privacy?” Miller said about the BLM land. “There’s no reason the ranch needs that for their grazing lands. It’s about our access to our public lands.”

But Tracy Tooker, whose family roots in Paonia stretch back more than a century, said “To my knowledge, none of them have ever stepped foot” on the BLM land that splits Bear Ranch.

This the Bear Ranch gate at the end of County Road 2. Just before the gate, a road heads up and across BLM land between two parcels of Koch’s private land. Photo: Brent Gardner-Smith

The land swap

The federal swap would create a new public easement to the Ragged Mountain area across the former Buck Creek Ranch, which is farther up Highway 133 toward McClure Pass. Koch currently has that land under contract. (See map at bottom of story.)

The new access is seen as an improvement for ATV users, but is a harder and less direct route for hikers heading for the wilderness than the Deep Creek trail, which would be closed under the swap.

Koch has also proposed to build a new mountain biking trail parallel to an existing Forest Service trail popular with ATV riders that runs alongside the section of Kebler Pass Road just east of the reservoir. Historically, the Forest Service has not favored parallel trails.

Bear Ranch manager Gill confirmed Wednesday that Colorado’s congressional delegation will be asked to introduce a federal land swap bill this year.

The BLM land splitting the ranch that Koch seeks measures 1,846 acres. In exchange, he would give the government private land he either owns or has an option to buy, including 911 acres in the Curecanti National Recreational Area in Gunnison County, 80 acres inside Dinosaur National Monument in Utah, and a 20-acre parcel adjacent to BLM lands near Paonia on Jumbo Mountain.

He’s also put under contract the 811-acre Buck Creek Ranch and said he will put a trailhead and a trail easement across it to connect with the Ragged Mountain Trail as part of the deal.

The Gunnison County commissioners and the Delta County commissioners have voted to support the bill, which is a revised version of one introduced two years ago that never made it out of committee. Pitkin County commissioners, whose jurisdiction is close to but does not include any of the areas affected by the swap, have not weighed in on the matter.

On January 3, elected officials in Crested Butte deferred a decision on endorsing the plan until they have more information. The board meets again on the matter Tuesday.

Bear Ranch is also seeking support from the seven-member Paonia Town Council, whose members did not vote on the issue Wednesday due to a lack of quorum. But the council members at the meeting got an earful.

Retired High Country News publisher Ed Marston, who has led a Paonia-based charge against the land swap, said “there is no doubt it is a very bad deal for the public and a very good deal for Mr. Koch.”

On the other hand, Vic Ullrey of the newly formed Western Slope Constitutional Patriots said his group supports the exchange as it’s a “win-win situation [that’s] good for the nation in general.”

“When all the hype settles down, there will only be a few people disadvantaged from this. On the contrary, tens of thousands will benefit from it,” Ullrey said.

This photo of a map shows the Paonia Reservoir, Gunnison County Road 2 that runs up to the east of the reservoir, and the road across the BLM land between the private land (shaded) owned by Bear Ranch. Just before the BLM road ends, there is a bend in the road right at the corner of U.S. Forest Service land. At that point, there is a rough trail that follows Deep Creek up the hill, where it eventually connects with a well-established wilderness trail leading into upper Deep Creek. Photo: Brent Gardner-Smith

Opponents criticize billionaire ranch owner’s “need” for privacy.

“When Mr. Koch bought that property, he knew about that trail,” said Celia Roberts, a local photographer. “I live near a railroad track. Would I expect the railroad company to change the railroad track?” she asked rhetorically.

Sarah Bishop said she has two things in common with Koch: Bishop owns a ranch near Paonia and a public road splits her property in two.

“I live with it. It’s part of the landscape,” Bishop said, noting that she is opposed to the proposed swap, calling it “bad public policy.”

In a community that prides itself on an egalitarian spirit, several speakers framed the debate in class war terms. Those responses came on the same day the Pew Research Center said conflict between the wealthy and poor is at its highest level in 25 years.

Though she’s never set foot on the strip of BLM land or on the Deep Creek trail, resident Caroline Metzler said, “It’s clear the wealth and power of the 1 percent is capable of acting in a way that threatens the access of the 99 percent.”

Hal Brill, a Paonia-area property owner opined, “I’m sorry there’s an overtone of ‘us’ versus ‘them.’ It doesn’t have to be that way.”

Anne Rickbaugh, an Aspen resident and a member of Pitkin County’s Open Space and Trails board, told the Paonia council that Carbondale had similar experiences on land issues with three billionaires, including Leslie Wexner.

Pitkin County commissioners declined to support Wexner’s proposal, similar in nature to Koch’s, that would privatize a strip of public land in the middle of a private ranch. Wexner has since opted to forgo a congressionally approved federal land swap and work directly with the BLM to achieve his goals administratively.

“I urge you to move slowly, ask questions, make demands and make it very hard for people to take public land away from people,” Rickbaugh said.

Following the nearly three-hour meeting, Tom Glass, a former mayor of Crested Butte who is working on the Bear Ranch land exchange through Western Land Group Inc., (also Wexner’s consultants on his land swap) emphasized that he and others are listening to the public.

“We still have a work in progress,” Glass said. “We need to pay attention to what we heard tonight.”

This is the view from public land a short distance away from the road on the BLM property that splits Bear Ranch. Photo: Brent Gardner-Smith

Also, see: Bear Ranch and the price of privacy from Aspen Journalism.

Notes for map below: The tan (private) parcels with the words “Deep Creek” and “Williams” on them are the two halves of Bear Ranch. The BLM land is between the two tan parcels and has slanted lines on it. The “CR 2″ in the white circle near Paonia Reservoir stands for “County Road 2.” The red dot on the reddish parcel is a new trailhead proposed for Buck Creek Ranch. From there, new trails would connect to the existing Ragged Mountain Trail, which is shown in black. The proposed parallel bike/hike trails are shown above and below the Ragged Mountain trail in dotted yellow lines. Source: Central Rockies Land Exchange

SNOWMASS VILLAGE — Interest rates on $32.6 million in bonds two Base Village metro districts issued in July 2008 have shot up to 10 percent from 1 percent as a result of actions taken recently by the Related Cos., the former owner and developer of the project at the base of the Snowmass Ski Area.

James DeFrancia, an executive at Destination Snowmass Services, which was appointed as receiver for the financially struggling project, said the increase in the bond interest rates could force Base Village property owners in 10 years to pay off about $65 million in debt, not $32.6 million.

“They are causing the metro district and owners considerable harm,” DeFrancia said of Related. “I don’t think it is very ethical business behavior.”

DeFrancia, who is also president of Lowe Enterprises Community Development, claimed that by forcing the bonds to be called last month under a tight deadline, Related was acting out of spite, likely as part of an ongoing legal and financial battle between Related and a consortium of European banks that now own the stalled project, where 611 residential units once were envisioned.

“There was no reason to do this,” DeFrancia said. “The Related people were shamefully uncooperative. They are obviously doing this to be obstructionist and intransigent.”

Dwayne Romero, president of Related WestPac, views the situation differently.

“Related WestPac is merely exercising its rights under the bond documents, which were negotiated back in 2008,” he said in a prepared statement.

New York silent but engaged

Executives from Related Cos. in New York declined to comment for this story.

Jeff Blau, the president of Related Cos., owns two properties in downtown Aspen, including a $1.4 million condo on Galena Street and another condo valued at $6 million on the Hyman Avenue mall in the name of Silver Slam Commercial LLC. Blau was once an enthusiastic promoter of the Snowmass project.

On November 15, Blau was copied on a letter from attorneys for Related WestPac that threatened legal action against U.S. Bank and the metro districts if a letter of credit tied to the bonds was extended by December 31.

The letter sparked steps that led to the hike in the interest rates, which DeFrancia said could financially hurt property owners in Base Village and the metro districts.

After Related sent its threat of litigation, DeFrancia said he appealed to Related executives to allow for another six-month extension so that the bonds could be restructured in what he called a “responsible” fashion.

“This was completely and absolutely unnecessary and has created a very unfortunate circumstance,” DeFrancia said. “I have no idea why Related is behaving in this fashion. They gain no current benefit.”

DeFrancia also said Related refused to even discuss the possibility of another extension.

“There was no condition under which they would agree to an extension of the letter of credit,” DeFrancia said. “They said, ‘Screw you, up yours, and give us the bonds.’”

But Romero, who is also president of Related Colorado and is based in Snowmass Village, said Related did put forward a proposal.

“As recently as last November, Related WestPac offered more favorable and flexible terms to the metro district in an attempt to help the district manage its obligations, but never received a response from the metro district board,” Romero said.

DeFrancia, however, said Related’s proposal was overly complicated and unrealistic given the tight time frames that Related’s actions created in the first place.

When Related declined to grant an extension on the letter of credit behind the bonds, it meant the bonds had to be called out — bought back from the bond investors — by December 23, which DeFrancia said created a lot of work over the Thanksgiving and Christmas holidays.

Minutes of a metro district board meeting on November 30 reflect that Romero did attend the meeting and “addressed certain proposals” concerning potential changes to the letter of credit.

And the meeting minutes show that “Mr. DeFrancia thanked Mr. Romero for his comments, and indicated that the boards would take the matter under advisement.”

(There are technically two Base Village metro districts, but they function as one entity with a joint board and joint meetings.)

Then the district board went into executive session to get legal advice concerning its bonds, which were soon to end up in Related WestPac’s hands with a 10 percent interest rate on them.

Meant to evoke the ranching heritage of the Brush Creek valley, the red “Sweet Life” building sits at the center of Base Village. Photo: Brent Gardner-Smith

Hypo sues over the bonds

Related’s actions concerning the metro district bonds has prompted a lawsuit from its lenders on the Base Village project, the Hypo Real Estate Capital Corp. It is a subsidiary of the Hypo Real Estate Group, which is now controlled by a German government workout agency called FMS Wertmanagement.

On December 28, Hypo filed a lawsuit against two entities controlled by Related — Related WestPac LLC and Base Village Owners LLC.

The two corporate entities served as the primary developers of Base Village, with Base Village Owner as the borrower of record for a now heavily contested $520 million development loan from Hypo and Related WestPac as the public face of the project under Blau and California developer Pat Smith.

The banks claim that the two entities controlled by Related fraudulently transferred $32.6 million from Base Village Owner LLC to Related WestPac. And the banks claim that the entities transferred the money in a such a manner as to deliberately defraud the banks.

Now the banks are seeking to reclaim both the $32.6 million in cash and the bonds.

The lawsuit joins three other ongoing suits in New York County civil court that Hypo has filed over the Base Village deal against Related and entities it controls.

Related also has sued the banks for $406 million, saying the banks stopped lending them money to build Base Village.

The scuffle over the metro bonds came to life on Nov. 15 when Related threatened to sue U.S. Bank if a key letter of credit that backed the metro bonds was extended past December 31 for a third six-month period.

November 15 happened to be the day before Hypo was set to foreclose on the stalled Base Village project and take it out of Related’s portfolio.

DeFrancia was incensed:

“They could have done exactly the same thing six months later,” DeFrancia said. “But you would have had responsible, sensible discussions about restructuring the bonds. They could have made a good faith attempt to deal responsibly with the bonds.”

Some of the condos and commercial property last fall in the Base Village metro district, which paid for infrastructure in the project such as sidewalks. Photo: Brent Gardner-Smith

The bonds

DeFrancia said Hypo, as the new owner of the project, had just reached a position to make reasonably accurate cash flow assumptions about Base Village, which the German government has been soliciting bids for.

DeFrancia says it is obvious the metro bonds need to be restructured, as the 241 condos built so far in Base Village do not generate enough revenue to pay off the $32.6 million in debt.

A group of condo owners in Base Village has also filed suit in Pitkin County against Related and other development entities, accusing them of not fully disclosing plans to potentially issue the metro bonds in order to pay for a portion of the project. (The case is called Bruce L. Smith, et al, v. The Related Companies, LP, et al. It’s case number 2011 CV 168 in Pitkin County District Court.)

There were two series of bonds, Series A, which were sold for $15.2 million, and Series B, which were sold for $32.6 million.

Both series of bonds — which represent debt — are to be paid off over 30 years through property taxes on the condos and retail stores in Base Village. The Series A bonds are to be paid off first.

In order for the bonds to find an initial market, they had to be secured by a bank through a letter of credit.

If the Base Village project were to fail, and no property taxes were forthcoming, the bank would have to pay off the investors who bought the bonds.

So U.S. Bank took an additional step to reduce its risk and required Related WestPac to sign a guarantee of $32.6 million against the Series B bonds.

All the bonds were then sold in 2008, and proceeds were spent to build parts of Base Village, which is about one-third complete.

“It is a way of passing on infrastructure costs to end users,” DeFrancia said of the use of metro district bond proceeds.

And he said the money “was used legitimately” to build public aspects of Base Village, including a bridge, utilities and other infrastructure. The bond proceeds were also slated to be used for amenities in the village, including the pools in an “aqua center.”

One of the bridges in Base Village that was built with proceeds from the sale of the metro district bonds. The green building in the background is the unfinished The Little Nell at Snowmass hotel. The gray flat building in the background is the Snowmass Center, which is still owned by the Related Cos. Photo: Brent Gardner-Smith

A crash, two extensions and an increase

After the financial crash of September 2008, Hypo Real Estate Group had its credit rating downgraded, which triggered a potential default in the bond agreements.

At that point, U.S. Bank called for more than a guarantee from Related WestPac to secure the bonds. It wanted $32.6 million in cash collateral.

To get the money, Base Village Owner drew it down from the $520 million loan and then apparently gave the money to Related WestPac, which then put it up as collateral with U.S. Bank.

It’s that transaction that Hypo’s attorneys now claim is fraudulent, as Related WestPac got the money “to use as the cash collateral without giving the borrower anything of value or fair consideration.”

Then, in July 2010, Hypo brought a foreclosure action against Related, saying that Related defaulted on the $520 million loan in April 2009.

In the past year, as the foreclosure process dragged on, the metro districts and U.S. Bank agreed to two six-month extensions of the letters of credit behind the bonds. And both times, Related WestPac was silent on the extensions.

But on November 15, Related objected to the third extension.

And if the letters of credit were to expire, as Related apparently desired, the bank would be required to quickly pay off the investors who bought the bonds back in 2008.

“Related WestPac had no bona fide business reason for objecting to an extension of the U.S. Bank letter of credit,” attorneys for Hypo stated in their December 28 lawsuit against Related WestPac. “Related WestPac initiated the events … to try and prevent the lender from recovering those funds …”

Again, Romero sees things differently. He says Hypo was fully aware of the terms in the bond agreements that gave Related the right to object to an extension and call the bonds.

“They were parties to several relevant agreements,” Romero said of Hypo.

On December 23, U.S. Bank used its own money to pay off the investors, including principal and interest. The bonds were then owned by the bank.

Then the bank asked Related WestPac to honor its guarantee of payment on the bonds. It declined to do so.

So U.S. Bank took the $32.6 million that Related WestPac earlier had been required to put up as collateral against the bonds.

At that point, the bonds became guarantor bonds, owned by Related WestPac.

And when that happened, the interest rate on the bonds increased from 1 percent to 10 percent, due to previous agreements about the bonds.

And now the Base Village metro districts still have to pay the $32.6 million in debt, plus the new 10 percent interest rate.

For the metro districts, the problem of paying 10 percent instead of 1 percent in interest is not an immediate prospect, but a looming financial disaster.

“So far it is not a burden,” DeFrancia said, as the Series A bonds have to be paid off first. “But ultimately it is going to hit. They are driving the districts deeper into debt day by day. And it causes us to revisit the overall structure of the metro district.”

Editor’s note: This story was published in collaboration with The Aspen Times on Sunday, Jan. 15, 2012.

Here is a copy of the lawsuit, NSAA v. USFS, filed in the Tenth Circuit in Denver on Jan. 9, 2012 by the National Ski Areas Association against the U.S. Forest Service over water rights tied to ski areas.

NSAA also named the U.S. Dept. of Agriculture, the parent organization of the Forest Service in the suit, as well as Harris Sherman, a former Denver lawyer who is now the Under Sec. for Natural Resources and Environment at the Dept. of Agriculture.

Here is a copy of the exhibits that were filed in the suit.

The USFS and other defendants have yet to file an answer to the suit.

Here is a position paper from NSAA on the lawsuit.

Here is testimony from an attorney for NSAA at a Congressional hearing on the issue on Nov. 15, 2011.

Here is a letter on the new regulations from Rep. Scott Tipton (R) of Colorado to Tom Tidwell, chief of the U.S. Forest Service.

Here is some recent news coverage of the lawsuit:

Denver Post – National ski group sues Forest Service to keep water rights

The Colorado Independent: National ski areas association sues U.S. Forest Service.

Vail Daily: Ski industry suing Forest Service over water

KDNK: Ski area battle Forest Service for water rights

Here’s the NSAA lawsuit embedded in a Document Cloud reader (which has a zoom function):

By Brent Gardner Smith, Aspen Journalism
Wednesday, January 4, 2012

ASPEN – The nine people behind a lawsuit against City Hall challenging its proposed hydro plant all own multimillion-dollar Aspen-area properties and some hold consumptive water rights on Castle and Maroon creeks.

The city of Aspen, through its Denver-based water attorney, filed a motion in to dismiss the lawsuit this past fall based on the notion that the plaintiffs don’t have standing to challenge the city’s water rights.

The plaintiffs recently submitted information to the court either detailing their water rights or giving other reasons why they should be allowed to sue the city over its water rights.

In the mix of property owners are two billionaires and two Aspen locals with a history of successfully taking on local governments.

The property owners sued the city in September 2011 in state water court (case number 2011CW130) in an effort to strip the city of its right to use water from the creeks for a new hydropower plant.

The city responded three weeks later by telling Judge James Boyd that the property owners don’t have the right to make their claims.

“The complaint does not identify which plaintiffs own water rights, what water rights they may own, or how those are or may be affected with respect to the alleged abandonment of the hydropower component of the subject water rights,” Cindy Covell, the city’s water attorney, told the court in a motion to dismiss the case.

The plaintiffs responded Oct. 24 with a 16-page brief and 139 pages of exhibits documenting their water rights and other interests.

The plaintiffs’ initial claim was that since the city has not used its hydropower water rights on the two creeks since 1961, it no longer has the right to divert 25 cubic-feet-per-second of water from Castle Creek and 27 cfs from Maroon Creek for hydropower use.

One of the most recognizable names in the lawsuit is that of Bill Koch, a billionaire who now owns one of the most scenic homesites in the Aspen area in the upper Castle Creek Valley.

The former Elk Mountain Lodge building with a pond in the foreground. Billionaire Bill Koch now owns the lodge building and the two ponds on the property. The ponds are filled with water diverted from a tributary to Castle Creek. A water attorney in a lawsuit against the city of Aspen claims Koch has standing to sue the city because his junior water rights could be injured if the city moves forward with a proposed hydropower plant on lower Castle Creek. Photo: Brent Gardner-Smith

Bill Koch

Koch owns four contiguous properties 10 miles up Castle Creek from Aspen that he paid $55 million to assemble in May 2007. Forbes estimates Koch’s net worth at $4 billion, putting him 81st on the Forbes 400 list.

An entity owned by Koch called Elk Mountain Lodge LLC controls the right to divert 1.3 cfs from Kaiser Creek, a tributary of Castle Creek. A cubic foot of water is equal to about 7.5 gallons of water.

The water can be used to fill two man-made ponds on the property that hold 1.58 and 3.05 acre-feet of water, respectively. An acre-foot of water is enough to flood an acre of land with a foot of water.

There is also a well on the property to provide water for domestic and household uses.

(Photo above: The site of the former Elk Mtn. Lodge. Source: Google Maps)

The well was once authorized to provide enough water to meet the needs of up to 46 guests at the former Elk Mountain Lodge, which is now Koch’s private residence.

The water rights on this property are junior to the city’s water rights on Castle Creek, which means that if the city needs the water, Koch might have to stop diverting water from Kaiser Creek.

Koch also has the right to divert 6.25 cfs from Devaney Creek, another tributary of Castle Creek. That water can be used to fill six small ponds, controlled by small dams, on property below the American Lake trailhead owned by Koch in the name of Crystal LLC.

In all, the six connected ponds on the Crystal LLC property can store 3.49 acre-feet of water.

This water right is also junior to the city’s hydropower rights, and it’s also junior to a state-mandated minimum stream flow level in Castle Creek, which is in place to help ensure that at least 12 cfs of water is always flowing down Castle Creek to its confluence with the Roaring Fork River.

Koch also has another small bundle of water rights tied to wells and ponds on two other adjoining properties he owns in the name of Ashcroft LLC and American Lake LLC.

These rights are also junior to the city’s rights and the state’s minimum stream flow rights.

Koch is not specifically named as a plaintiff in the lawsuit, but the four LLCs he owns that control his Ashcroft-area properties are named. (See related story).

And Koch’s role in the lawsuit against the city has caught the attention of Aspen Mayor Mick Ireland.

Mayor not pleased

At a City Council meeting on Oct. 24, Ireland was waving a copy of the lawsuit around and had a back-and-forth with Maureen Hirsch, who is another plaintiff in the lawsuit along with Koch.

(Online video of the Oct. 24 meeting is available. The relevant section of the meeting starts at 3:10:00).

Ireland, who is an attorney, called the litigation from Koch, Hirsch and others “very hostile.”

“It is very aggressive” he added. “And it’s very divisive. And I can’t say that I appreciate it.”

Ireland also characterized the lawsuit as an attempt to “take” city water.

“I think this litigation has made it very difficult to work with you and other opponents, because you are seeking to take city water,” Ireland said. “I don’t know who is paying for it — you aren’t disclosing that, I have my guesses — but I’m in a position of somebody in a bar who punches them and then says, ‘Let’s talk about our differences.’”

Hirsch responded by telling Ireland that the plaintiffs are not trying to take the city’s water.

“We are not taking your water, the water would go back to the stream, if in fact we are successful at the lawsuit,” Hirsch said. “But we are not taking it, we are not taking it anywhere, we are not putting it in a gunny sack and taking it away. It is going back to the stream.”

Ireland said he found that viewpoint “naive.”

“Because if the water goes back into the stream, that doesn’t mean that the other benevolent eminencies behind this litigation won’t appropriate it for their own uses,” Ireland said. “We don’t have any assurance of that.”

Hirsch repeated her assertion that it was not the intent of her nonprofit group, Saving Our Streams, which is the lead plaintiff in the suit, to do that.

“Yes, but you don’t speak on behalf of Elk Mountain Lodge LLC, Crystal LLC, American Lake LLC, Ashcroft LLC,” Ireland said, referring to the LLCs owned by Koch. “You don’t speak on behalf of them. You can’t bind them.”

Koch, however, did put his name to a full-page advertisement from Saving Our Streams in the Aspen Daily News that indicated their intention to leave the hydropower water in the stream.

“We will never divert or sell any water in Castle or Maroon creeks to the Front Range or any out-of-basin area,” stated the ad, which was also signed by the other plaintiffs in the case. “It is our fervent desire to keep the water in the streams.”

The ad also stated, “If another party seeks to transfer water from Castle and Maroon creeks, we will vigorously oppose any efforts to do so.”

Does Koch have standing?

The fact that Koch’s water rights are junior to the city’s gives him standing to sue the city and claim it has abandoned its hydro rights, according to attorney Paul Noto of the Aspen water law firm of Patrick, Miller and Kropf, which is representing the plaintiffs.

“ … Aspen’s proposed water use would in fact result in a classic form of injury — diminished water availability due to an impermissible expansion of use,” Noto told the court in a brief.

It is Noto’s contention that the city has abandoned its historical rights to use water from Castle and Maroon creeks for hydro. Therefore, if the city started to use water for hydro again, it would be an “impermissible expansion of use,” according to Noto.

Noto also tells the court how that extension of use would hurt his clients who have water rights along on Castle Creek.

“Plaintiffs with upstream water rights would be curtailed when they are not historically,” Noto wrote. “Plaintiffs with downstream water rights will suffer diminished water supplies.”

Koch’s properties are about eight miles above the city’s dam and diversion point on Castle Creek. He is the only plaintiff in the suit against the city who owns property above the city’s diversion dam on Castle Creek.

Dick Butera

Dick Butera, a longtime Aspenite who has been an outspoken critic of the city’s proposed hydro plant, is the first plaintiff downstream of the city’s diversion point.

In fact, he’s immediately downstream of the diversion structure and shares a driveway off of Castle Creek Road with the city, which is used by water department employees to reach the diversion facilities.

Butera, a developer who once helped renovate the Hotel Jerome during his tenure in town, owns a 30-acre parcel of land along Castle Creek. It’s located two-and-a-half miles upstream of the Highway 82 Castle Creek Bridge.

Butera built a house and garage with a caretaker unit next to the creek in 2003. Today, the county assessor values the estate at $12 million.

He has the right to divert up to one cfs of water from Castle Creek to feed a dam-controlled pond he spent $250,000 to build on the property, according to a document on file with Pitkin County. The pond holds three acre feet of water, and the water then flows back into the creek.

Butera can use the water for domestic purposes, to irrigate 15,000 square feet of land, and for other purposes.

He has installed a large, well-maintained lawn along the banks of the creek, and he’s also built a small bridge from his yard to a natural island in the creek.

(Photo above: Dick Butera’s estate on Castle Creek. Source: Google Maps)

Butera’s water rights are junior to both the city’s water rights and to the state’s minimum stream flow rights.

During the construction phase of his estate, Butera was “red-tagged” by the county and had to stop work due to alleged violations of county regulations related to the work near and in the creek.

A Pitkin County zoning technician sent Butera a letter in November 2001 informing him that the “stop work order” would not be lifted until he applied for the required county permits for the work that was being conducted on his property and along the creek.

The county said that Butera needed a floodplain permit, a “drainage and erosion control plan for the disturbed areas of the sides of the creek and the island,” and a revegetation plan.

The revegetation plan required remediation work to repair the damage done from the removal of natural vegetation along the banks of the creek.

The zoning technician also wrote that “the boulders placed in the creek river-right of the island must be removed as soon as possible with a county-approved plan.”

Butera, however, said the county stop-work order was a mistake on the county’s part and that he was in strict compliance with county regulations.

“I’ve never built an illegal anything in 50 years of developing,” Butera said, adding that he had a highly qualified consultant ensuring that his home was built in an environmentally sensitive manner.

“We played by all the rules and got all the permits,” Butera said.

Butera said he planted more willows along the stream bank than was required and that the project got consistently high marks from experts that came in subsequent years to inspect the property.

“I’ve been a good steward of anything I’ve ever touched,” Butera said.

In addition to being a plaintiff in the lawsuit against the city, Butera has also sued Pitkin County in an apparently successful effort to prevent the county from building a sidewalk along Castle Creek Road between the Aspen Music Festival and School campus and the Marolt housing complex.

At a City Council meeting last year, he called the city’s proposed hydro plant an “out of control, reckless, reckless project,” because of the increasing costs and the way the city has managed the project to date.

Yasmine dePagter

Yasmine dePagter of Aspen standing on the city’s diversion structure on Maroon Creek, just above the T-Lazy-7 Ranch, in 2010 during a demonstration of low water flows. Photo: Brent Gardner-Smith

The next plaintiff along Castle Creek is Yasmine dePagter, who owns property with her family just upstream of the proposed hydropower plant, which the city wants to build next to the existing city shops facility on Power Plant Road.

The road got its name from the fact that the city of Aspen operated a hydropower plant there from 1893 until 1958.

DePagter does not own the right to directly divert water from Castle Creek, but she does own a well on the property that dates back to 1963 and can draw 20 gallons of water per minute from the Castle Creek watershed.

The family’s property, which it has owned since 1962, is now valued by the county assessor at $2.6 million.

DePagter has been an outspoken critic of the city’s approach to re-establishing a hydro plant in the old location, citing the costs of the plant, the industrial nature of the facility, and the potential damage to the stream because of the increased diversions.

“Our intent is to keep the water in the stream,” dePagter told Ireland during the contentious council meeting on Oct. 24. “Your intent is to take the water out of the stream. It’s as simple as that.”

DePagter has experience fighting City Hall, as she has long been part of a coalition working to preserve the Marolt Open Space and prevent the construction of another highway bridge over Castle Creek as part of an entrance to Aspen plan.

The dePagter family owns an interest in a “undecreed exempt well” on their property, which is different than owning a right to divert water from a stream.

“Exempt” wells are not subject to being dried up if more senior water rights holders — such as the city — make a “call” for their water, and so the prospect for injury to a water right is not present.

Nonetheless, Noto, the water attorney for the plaintiffs, told the court that “an interest in an exempt well is a legally protected interest sufficient to establish standing in a water court proceeding.”

Noto said the same circumstance applies to plaintiffs Joe and Sheila Cosniac, who live on the banks of Castle Creek three houses downstream from the proposed power plant.

The Cosniacs, who live in San Antonio, Texas, also have an undecreed exempt well on their property, which they purchased in 2004 and now is valued by the county assessor at $5.1 million.

Water rights necessary?

In his brief to the court, Noto concedes that some of the plaintiffs do not own water rights or even a well, but he argues that doesn’t prevent them from suing the city.

He told the court that the plaintiffs who do not own water rights “did not bring this case to allege injury to water rights. They filed the complaint to hold (the city of) Aspen to a standard of strict proof on whether its hydropower water rights still stand.”

A key maxim under Colorado water law can be described as “use it or lose it.”

The plaintiffs are arguing that since the city shut down the original hydro plant in 1958, and has not used its hydro rights since 1961 — when it used the plant for a day during a power outage — it has lost its right to now use the water for hydropower.

Notably, the plaintiffs are not arguing that the city has abandoned its rights to use the water for municipal and other purposes — only for hydropower.

The city currently has the right to divert at least 225 cfs of water from Castle and Maroon creeks for “municipal” purposes.

And so even if the plaintiffs are successful in stripping the city of its right to divert 52 cfs of water from the two creeks for hydropower, the city could still, in theory, take that same amount of water out of the creek to meet the community’s broader water needs, according to Covell, the city’s water attorney.

In any event, water rights abandonment cases are rarely straightforward, as it’s up to a given water court judge to make a call.

“An abandonment case is always a crap shoot,” said Sarah Klahn of the Denver law firm of White & Jankowski, who has worked on water issues for Pitkin County.

Covell said earlier this year that someone has to prove that a water rights owner in fact intended to abandon a water right, and not just that they were not actually using the water.

“The city has not intended to abandon,” Covell said.

Looking downstream from the city’s diversion dam on Castle Creek, about 2.5 miles above the proposed hydro power plant. Photo: Brent Gardner-Smith

Maureen Hirsch and SOS

The next plaintiff downstream on Castle Creek is Maureen Hirsch, who owns a home next door to the Cosniacs on Sneaky Lane valued by the county assessor at $5.4 million.

Hirsch bought the property in 1993 and owns a “decreed exempt well” that dates back to 1972, but does not own other water rights on Castle Creek.

Hirsch is also the director of a nonprofit corporation formed in December 2010 called Saving Our Streams.

Her daughter, Jessica Hirsch, is an officer of the corporation, along with dePagter.

The organization does not yet have a board of directors, Hirsch said.

Saving Our Stream’s mission, according to its articles of incorporation filed with the Colorado Secretary of State, is “furthering and ensuring the preservation of the natural environment, riparian habitat and stream flows of Castle Creek and Maroon Creek …”

Saving Our Steams, or SOS, does not own any water rights, but Noto argues to the court that it still has standing because the city is preventing the organization from reaching its goals, thus causing injury.

“An organization that has been injured as an entity suffers an injury-in-fact where the defendant’s conduct has made it difficult or impossible for the organization to fulfill one of its essential goals,” Noto told the court.

Noto claims that if the city diverts 25 cfs from Castle Creek and 27 cfs from Maroon Creek for hydropower, SOS won’t be able to fulfill its goals of preserving the health of the streams.

“Additionally, SOS has already been forced to divert substantial resources away from its regular environmental stewardship efforts to put toward preventing Aspen from resuming its use of hydropower water rights as currently proposed,” Noto wrote.

SOS’s “regular environmental stewardship efforts” to date appear to be limited to fighting the city’s hydro project.

Hirsch said the group proposed and helped produce a public workshop on the hydro project last summer.

And she and dePagter both say they are committed to increasing local awareness of the ecology of the watersheds of Castle and Maroon creeks beyond the issue of the hydro plant.

“It is our interest to do programs within the community to make people aware of these beautiful streams and the impact that any development along the streams could have,” Hirsch said. “And it just so happens that the hydropower project is now in the forefront.”

Kit Goldsbury

The next, and last, plaintiff on Castle Creek is Christopher “Kit” Goldsbury, also of San Antonio, who owns an estate at the end of Sneaky Lane valued by the county assessor at $16 million. The property, which he’s owned since 1984, is creekside and just down the hill from the Aspen Meadows.

Goldsbury, who sold the Pace Picante Sauce operation to Campbell Soup for $1.1 billion in 1996, is ranked 329th on the Forbes 400 list with an estimated net worth of $1.35 billion.

In 1999, Goldsbury paid an estimated $20 million for six nearly complete townhomes under construction by the Aspen Institute on the bluff above his home, according to The Aspen Times.

He had the townhomes demolished to protect his privacy. Several years before that, he paid $3 million for a lot next to the townhomes in order to keep it empty.

Goldsbury’s water rights on his Aspen property are tied to what’s known as the Snobble spring and fish pond.

The spring, along the banks of Castle Creek, produces about one cfs of water that is channeled to a small pond on the property.

Goldsbury has the right to impound up to two acre feet of water in the pond.

The Maroon Creekers

There are two plaintiffs in the suit against the city who own property on Maroon Creek.

The first is B&C LLC, which is controlled by Kris Church, an interior designer and developer who built a home immediately on the banks of Maroon Creek in 2007 that is on the market for $29.5 million.

The home has direct views of the creek from virtually every room.

B&C LLC and Church do not own any water rights in Maroon Creek, but Noto said that should not preclude her from being able to sue the city.

“As a landowner whose property sits on the banks of Maroon Creek, and who regularly visits and recreates on Maroon Creek, B&C LLC should be allowed to participate in order to ensure that Aspen’s use of the public’s water resources comports with law,” Noto told the court.

Mayor Ireland, in the Oct. 24 City Council meeting, was also critical of property owners on the streams who remove riparian habitat and put in rocks along the stream bank.

While he didn’t specifically mention Church’s or Butera’s home in his statements, it does raise the question of whether residents who live right on a stream can do so without hurting the environment.

For her part, Church says it is indeed possible, noting that she built her home in strict compliance with county regulations.

“The stream hasn’t changed one bit since we’ve been down here,” she said. “I have not touched a stone in that river or touched the bank. And I wouldn’t want to hurt the environment in that way.”

Further up Maroon Creek, just below the T-Lazy-7 Ranch complex, Dr. Bruce E. Carlson has owned a parcel of land for 41 years that the county assessor now values at $4 million.

Carlson, a retired oral surgeon turned investor, owns 59 shares in the Willow Creek Ditch and Herrick Ditch Co.

The Willow Creek Ditch diverts water from Willow Creek, a tributary of Maroon Creek that flows in at the T-Lazy-7 Ranch. The Herrick Ditch diverts water directly out of Maroon Creek.

Together, the two ditches divert 97 cfs of water from the two creeks.

Carlson is one of the smallest shareholders in the ditch company, which has issued 3,720 shares.

Other large shareholders in the ditch company include the T-Lazy-7 Corp., the Maroon Creek Club and the city of Aspen, which has 107 shares that it leases to the Maroon Creek Club.

Carlson says he is concerned both about the environment of the streams and the cost of the proposed hydro project.

And he says that while he is a registered Republican, he has supported Ireland, a Democrat, for mayor and does not have an ax to grind with the city.

“I’m more concerned about the water flow in the stream,” he said.

A bad precedent?

The city’s motion to dismiss the lawsuit for lack of standing has caught the attention of Western Resource Advocates, which is based in Boulder.

The nonprofit organization filed a conditional “friend of the court” brief on behalf of the plaintiffs. The brief has not yet accepted by the court.

WRA says the city’s argument about certain plaintiffs lacking standing because they don’t own water rights could have “a chilling effect on organizations’ and individuals’ ability to participate in water court proceedings.”

Attorney Bart Miller of WRA says that the Water Right Determination and Administration Act passed by the Colorado Legislature provides for a broad interpretation of who has standing to file an action in water court.

Miller argues that under the law, “any person” has standing “to hold the holder of a water right or applicant for water rights” to “strict proof.”

“If the city of Aspen prevails on its motion, it will close off the water court system to many interested ‘persons’ in this case and others,” Miller wrote in his brief. “It could make water courts a private sanctum where entry is disallowed to all but a select few — the tiny portion of the state’s population that own water rights.”

He adds that “the city seeks a new precedent that would insulate it and other holders of vested water rights from complying with Colorado water law.”

Lawsuit not helping with mediation?

Ireland said at the Oct. 24 council meeting that the lawsuit is making it hard for the city to talk with opponents of the hydro project.

Ireland said that while some citizens were urging the city to continue a mediated discussion about the project, it could not because the city was now “under the gun.”

“Everything we say can be used against us in a court to prove that we abandoned our rights or admitted that we don’t have rights or something of that sort,” Ireland said. “And that puts us in a posture that makes a mediated solution very difficult.”

Ireland also said that another purpose of the lawsuit is to drive up the costs of the hydro project so that opponents can then claim it is too expensive to build.

“There are those who would use this to make it a losing proposition, and sue and then say ‘Gee, we litigated so much and now it doesn’t make money,’” Ireland said. “But that is a self-fulfilling prophecy, and that says that your economic decisions … will be made by who has the power to litigate you into a negative return on investment.

“ … if we accede to that argument,” Ireland concluded, “then we have conceded our autonomy, our sovereignty as a community to someone just because they have enough money to litigate. And I won’t do that.”

Water court next steps

Judge Boyd is presiding over the case of Saving Our Streams et al v. the City of Aspen, Colorado.

For now, the opening salvos of the case have been “fully briefed,” as the attorneys say.

Boyd is now faced with making a decision on the city’s motion to dismiss, based on its arguments that the plaintiffs lack standing.

If he rules against the city, the city will then need to try and convince the judge that it has not abandoned its water rights for hydropower, or at least convince the court that the plaintiffs have not effectively proven their abandonment case.

Editor’s notes: Aspen Journalism collaborated with the Aspen Daily News on this story. The Daily News published the article on Wednesday, Jan. 4, 2012. Two corrections were made in this online version of the story. One, the page count of the plaintiff’s response to the city’s motion is 16 pages, not 14, and there are 139 pages of exhibits, not 155. Two, Cindy Houben, the county’s director of development did not write a letter to plaintiff Dick Butera. Instead, the letter came from a county zoning technician.