Vail Valley: Who controls Battle Mtn. resort? |

Vail Valley: Who controls Battle Mtn. resort?

Vail Daily file photoA plan to build a private ski and golf resort, which includes the old Gilman mining town, was recently taken over by a Philadelphia-based private equity firm

VAIL VALLEY, Colorado –When developers need money banks are unwilling or unable to loan, they often turn to “private equity” companies. But those companies can ask for a lot.

Florida-based developer Bobby Ginn recently lost control of a proposed private ski resort on Battle Mountain to his primary lender. Lubert Adler Real Estate Funds of Philadelphia took control of the project and gave it to Crave Real Estate, a company it partially owns.

Harry Frampton of East West Partners hasn’t worked with Lubert Adler, but said the sort of thing seen at Battle Mountain can happen in the world of private equity lenders.

“Private equity companies will take ownership positions in projects,” Frampton said. “They provide capital, and that allows small developers like us to do bigger projects.”

In exchange for cash and an ownership stake, private equity companies will also get positions on a project’s board of directors.

“They can be good board members, with good ideas,” Frampton said.

But Gary Miller, of Vail Capital Partners, a Vail-based private equity company, said private equity companies will also demand that the rest of the board be willing to go along with their ideas.

“They can keep a tight control over management that way,” Miller said.

Banks make loans, of course. So why do developers use private equity companies if there’s a risk they could lose control of a project?

“A development like Battle Mountain needs large sums of money on the debt side, and most banks don’t have that capacity,” Miller said. “In the past, developers would go to investment banks, but we don’t have those any more.”

Miller said big commercial banks these days do have some lending capacity for big projects, but there are still roles for private equity firms to play, even when they aren’t the primary lender on a project.

Private equity companies such as Vail Capital Partners and Lubert Adler – which didn’t respond to requests for comment on this story – are in business to make money for their investors. Those investors are willing to take on higher risk in a real estate development deal in return for greater rewards.

That’s why private equity companies will sometimes provide something called “mezzanine” funding for projects that still need cash even after arranging bank loans. But those loans are usually made a high interest rates – 12 to 15 percent, Miller said.

That makes up for the additional risk of not being the primary lender on a project, he said.

Miller, whose company owns projects including the River Run apartments, said the way Vail Capital Partners works is pretty standard in the industry.

“A good private equity firm will have a book of investors,” Miller said. “You continue to build and refresh that book over time.”

On the other side of the business, the company also always looks for places to invest money.

The result is “generally significantly better returns than you’ll see in traditional investment vehicles,” Miller said.

Looking for those returns, the people running private equity companies tend to specialize, Miller said. Some specialize in industrial turnarounds – such as Cerberus Holdings is trying to do with Chrysler. Other companies buy struggling companies, then sell the parts. Miller said investor Carl Icahn made a name for himself in the 1980s when he did just that to Trans World Airlines.

Icahn sold most of the airline’s holdings, including Hilton Hotels and, ironically, the company’s own airplanes. The airline then leased the planes back from the company that bought them, but when an economic downturn hit, that and other costs took airline down.

In Vail Capital Partners’ case, Miller and his partners look for resort real estate investments.

Lubert Adler is more diversified. The company’s Web site lists holdings including Battle Mountain, and a handful of resorts in Florida and California. But the company also owns hotels, warehouses, apartment buildings, and even a few grocery stores.

“They were big enough to take over (Battle Mountain),” Miller said. “They have other holdings that are doing well, too. They do a good job for their investors.”

Business Editor Scott N. Miller can be reached at 970-748-2930 or

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