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|Can a Millionaire Make Grand Plans for The Balsams a Reality?|
|Published Thursday, July 14, 2016|
Les Otten. Photo by Erika Cohen.
Editor’s Note: This story was reported in partnership with NH Public Radio (NHPR). You may find all of NHPR’s associated stories by clicking here. A more in-depth article will appear in the August issue of Business NH Magazine, including information about the workforce challenges in the North Country that could be problematic for the project.
Pairing a former North Country tourism jewel with a millionaire ski resort developer seems like a match made in heaven and an economic win for Coos County, which has lost residents, businesses, tax revenue, and some would say, hope, in recent decades. But like any marriage, this proposed union comes with a number of challenges.
Jeff Rose, commissioner of the NH Department of Resources and Economic Development has called the Balsams renewal project “the most significant business recruitment effort in the state. Not only today, but over the last few decades,” noting it could create up to 1,700 jobs (over 10 percent of the current total county employment) and potentially bring “$1 billion of economic opportunity over the next decade.”
That would be a boon for any county, not the least one with the poorest and oldest population in the state, but it’s also quite a wager. Despite critical legislation being ushered through last spring (Senate Bill 30) so the state can create a taxing district in unincorporated places like Dixville Notch, the NH Business Finance Authority (NH BFA) offering a potential $28 million loan guarantee (the largest of its kind if approved) and the state promising to line up an Integrated Response Team from key state agencies to support the project, developer Les Otten has been slow to put his own cards on the table.
Otten has acquired many of the necessary water, planning and zoning permits in the last year, but three years after first getting involved in the project, there is still much left to do. He still has not filed an application for the $28 million loan guarantee with the BFA, which he says is “critical” to moving the project forward, and has also not filed with the Attorney’s Generals’ office to sell condominiums, which is definitely critical as the state requires $25 million in presales before any state backing would be provided. Otten says achieving such sales is necessary for him to move forward with the project.
So while local officials have voted for the permits to move the project forward, the Balsams is still a shuttered resort with no furniture, peeling paint, and no firm date for the promised development to move forward.
Les Otten says big developments often hit speedbumps. A storied entrepreneur, Otten started in the 1970s at Killington Ski Area in Vermont and would ultimately go on to create and run the American Skiing Company as CEO until 2001, which at its height boasted nine resorts. He says he wants to create “a wilderness renaissance”, a new and improved Balsams at the site of the original grand hotel in Dixville Notch. He is proposing an initial $143 million project.
The Balsams Grand Resort Hotel is located in Dixville Notch 20 minutes outside Colebrook. Otten doesn’t own the Balsams. It is “to be contributed capital” into Otten’s new venture from current owners by Dan Hebert and Dan Digesse, the Colebrook businessmen that bought the resort in 2011 and asked Otten to get involved in 2013 when they failed to develop it.
The property includes a ski resort, a Donald Ross-designed 18-hole golf course, a manmade lake, miles of cross country ski trails and access to ATV and snowmobile trails connecting throughout the North Country. An anachronism of sorts, The Balsams was a playground for the well-heeled in its hey day to escape from everything. A suit and tie was required to get into the dining room, rooms had no TVs and the hotel provided a full array of activities on site to keep guests entertained.
The Balsams Resort in 2007, prior to its closing. Photo by Patrick/Flickr Creative Commons.
Otten says his Balsams would include condominiums, a spa, what he says will be the best skiing in the East, a culinary school, a conference center, summer concerts, any outdoor recreation experience imaginable, and multiple dining choices. He says the resort would likely employ 373 workers at the beginning. He also says the new Balsams would be a “destination resort,” providing visitors everything they want in one location. But pulling off this renaissance, and forming a bridge from a historic traditional resort to a modern world-class one, requires state assistance in the form of the $28 million loan guarantee.
Should the state back this project? That’s a question on a lot of people’s minds from Concord to Coos County. If the resort succeeds, the state is on the hook for nothing as it is providing a loan guarantee, and the payoff is a historic tourism hub is brought back to life, creating jobs and generating revenue in a county is desperate need of both. If the Balsams were to be built or partially built and then go into bankruptcy, there is a chance the state could be left with a defunct resort and a multimillion dollar bill.
Questions range from whether Otten is the right person to take on the project to the viability of reviving the Balsams at all to how he is coming up with the more than $25 million in required developer equity. Otten is praised by some as an iconic ski resort developer and entrepreneur, and faulted by others for overextending himself at American Skiing Company, where he took on too much debt, which led to the eventual dismantling of the ski empire he built.
Otten acknowledges the hurdles but at times talks like they don’t exist. “We’re an economic engine, okay, and it’s not just our real estate and our construction jobs. It’s everything that goes into running a resort,” he says of Dixville Capital, the company he formed to develop the resort. His vocabulary changes though, when asked about his personal investment. He would not give a specific figure, only saying that right now he has invested “millions” with more to come “if the project goes forward.”
Financing A Vision
In order to receive funding from by the state, an application for Otten’s project will eventually land on the desk of The NH Business Finance Authority (BFA). While the BFA has provided thousands of loan guarantees, none have reached the size and scope of the Balsams. Jack Donovan, executive director of the BFA, couldn’t talk about the details of the proposed project, in large part because he hasn’t seen an application.
Otten says a complete application that includes the operating appraisal for the resort, a value appraisal of the resort and a real estate absorption study will all be submitted “soon,” though he would not explain the delay. “All of those things have been completed and we are very pleased with the results,” he says.
The one thing Donovan says he knows, “It is not going to be a ‘Build it and they will come.’ That would be incredibly risky.”
Before the state approves guaranteeing even a penny, Otten and his team must line up both the financing and the aforementioned condo presales.
The first phase of the project includes renovations of the main building and a new Lake Gloriette house, together holding 400 hotel rooms and suites, for a total investment of $143 million. That includes both the real estate project and the resort project, divided about equally. Of the $73 million needed to complete the resort project, $25 million will come from developer equity, another $20 million would be a bank loan and the remaining $28 million will be in the form of state loan guarantee, which would only back resort infrastructure costs including buildings and ski resort needs, but excluding the real estate project.
But until the real estate project is off the ground, talking about financing is superfluous as those $25 million in condo sales are required by the state and Dixville Capital, the company formed to develop the Balsams, has not filed the required paperwork allowing them to sell condos. That means all 234 deposits of $1,200 each collected so far for condominiums are 100 percent refundable and do not count toward the $25 million bar. Otten would give no timeline for registering. “We have all the information and will register in short order,” he says while giving a tour of a room and a suite under renovation to serve as models for prospective buyers. Besides those rooms, no other work is underway and partially demolished buildings remain on the property. (Balsams website refundable down payments.)
Over a year ago, Otten estimated the Balsams property, based on the land and timber on it, was worth “a couple million dollars.” The 7,500-acre piece of land is currently owned by Balsams View. Otten has an option to purchase another 3,500 adjacent acres that will be needed for the ski resort buildout but has not yet done so.
To many people, including Coos County Commissioner Rick Samson, the funding issue is a conundrum. Samson voted in support of the project for needed permits along with the other two county commissioners. He supports the project, provided it meets his three requirements: it creates good jobs, spurs local economic development and it doesn’t put taxpayers at risk. He doubts number three can be met.
He fears Otten’s team will get partway through the project and stop if it’s not deemed viable. “If partial buildings go into foreclosure, the North Country is not better off,” Samson continues.
Donovan of the BFA says if there is a foreclosure situation, the state can place a lien on the property and continue taxing the assessment district, meaning both the resort owner and condominium unit owners.
A risk assessment of the BFA loan backing found risks include: construction costs exceeding budget, a contractor failing to deliver, and an operational risk that the completed resort can’t service its debt. All told, the state and BFA could be on the hook for $7 million to $13.5 million. The BFA currently has $21.5 million in equity and could safely come up with $6.5 million, or 30 percent of its equity, leaving the state on responsible for any loss beyond that, according to the risk assessment prepared for the BFA.
Rose of DRED says the Balsams is a solid investment. “This is one of the safest guarantees. This is a bond against a redevelopment district, which would collect its own fees and pay down its bond. This is not an unusual mechanism,” he says. “And, if for some reason it’s unsuccessful, you’d still have an asset the state is invested in that we could work to sell to someone else as well. Right now a property up there is actively decaying.”
That may be true, but the Balsams is not exactly a property people are fighting over. Neil Tillotson bought the Balsams Grand Resort Hotel in 1954 at a bankruptcy auction and his family ran it for decades. The Tillotsons, who had operated it at a loss for years, put it up for sale in 2011, but an initial deal to sell it to Ocean Properties Ltd., which owns Wentworth by the Sea, fell through. Dan Digesse and Dan Hebert of Balsam’s View then purchased it for $2.3 million but had trouble securing funding and ended up auctioning off most items from the property before bringing in Otten.
And Otten has always been clear: he has no Plan B. Without state backing, he would not be there. “I am an invited guest and I am going to be quite surprised if I get uninvited. I haven’t done anything to change what we said when I sat down with different agencies. If they change their mind about not wanting the Balsams, I would encourage them to speak up quickly,” he says.
The lack of a Plan B concerns people like Samson who worry Otten lacks skin in the game. Besides the importance of state backing, Otten was also offered and is working on securing a $12 million U.S. Department of Agriculture loan guarantee and received a $2 million loan from the Forward NH Fund, a $200 million fund that Northern Pass will dole out over the next 20 years if the transmission line project is approved. When asked if Northern Pass and USDA funding would also be critical, Otten said “it’s possible, it’s possible.”
Otten’s support of the Northern Pass project and the Balsams favorable reward if it goes through has challenged Otten’s popularity and some of his backing. “Some of the people I talked to that were supporting the Balsams are now against it because of Northern Pass,” Samson says. Ironically, the Tillotsons refused to sell some of the Balsams land to Northern Pass before selling it to Digesse and Hebert, according to NHPR reports.
Real Estate Realities
Real estate is all about location, and as far as scenic views go, the Balsams can’t be beat. Looking out the window fives stories up in the Hampshire House, you see Lake Gloriette below and tall imposing cliffs across the street. “They were selling a million different things but standing here you can see they were really selling the view,” Otten says. From the clubhouse at the Panorama Golf Course, mountains tower in all directions, including the one where Otten plans to develop a ski area right across the road from the resort.
It sounds like an enticing sales pitch to sell condos. The question is, will enough people buy them? Once Otten registers with the consumer and antitrust bureau at the attorney general’s office, which is required to sell real estate, the condos can be officially be sold. Until then, he can only accept nonbinding reservations. In this case, the condos for sale will be single hotel rooms and suites sold as timeshare units. The condos will sell for $100,000 to $280,000. At $200,000 each, he would need to sell 125 to meet the required $25 million in presales.
Therein lies the challenge. Since the beginning of 2012, 97 condos have sold in Coos County, most of them at Bretton Woods. The median sale price in 2015 was $419,000, mostly large multi-bedroom units with full kitchens that are very different from Otten’s timeshare offerings.
Andy Smith of Peabody and Smith, a real estate firm in Franconia, questions whether people will drive another hour and half beyond Bretton Woods to Dixville Notch. Smith sells the majority of the condominiums at Bretton Woods and says the current condo market there is healthy. “It’s healthy enough that we’d love to see some new condos on the market and we think the demand is there,” Smith says, adding that the owners of that resort have not added new condos yet. “I think [Bretton Woods] is being careful, which is good,” he says.
While there are just under 400 condos at Bretton Woods now, Smith says the resort has entitlements on paper to build a total of 900. Similarly, Loon Mountain recently opened the new RiverWalk Resort in Lincoln, a resort and fractional ownership hotel, with 79 suites. The full buildout will include 170 suites, though Smith says this is less than envisioned in the master plan.
Otten is not worried about the market. “It’s not about the extra hour drive. It’s about the complexity and completeness of the resort we are building … It’s just different,” he says when asked about condo sales volume at other resorts. “We don’t see them as competition.”
Condominiums at the Balsams will be timeshares, which means buyers who stay 20 nights or less annually will not have to pay resort fees or association assessments, while those who commit to more days must pay the association assessments. Other perks for all timeshare owners include a 10-year season pass for the ski mountain and free rounds of golf.
The problem with being different from other options in the NH North Country marketplace is you can’t be sure people will want it. The Fairbank Group knows that all too well. The Fairbank Group, based in Massachusetts, owns Cranmore in North Conway, a small ski mountain with a unique feature in Northern New England: It is located within walking distance of an active downtown that boasts nearly 50 restaurants and it’s a short drive from attractions, shopping and other ski areas. Brian Fairbank, chair of The Fairbank Group, hopes to break ground on the first stage of Kearsarge Brook, a condo complex that will eventually have 106 units owned outright by buyers.
The first phase will be an 18-unit building and he says he won’t break ground until 14 units are sold. So far, he has sold five. The condos range from $300,000 to $595,000, higher than the county median sale price in 2015 of about $150,000 but comparable to high-end mountainside units at Attitash up the road in Bartlett. To help with presales, the company is offering a $25,000 furniture credit. The Fairbank Group is partnering with investor Joe O’Donnell, who owns half of Settlers Green as well as a movie theatre in town. The first building is an $8 million project.
“I am relatively confident it is going to happen,” Brian Fairbank, chairman of The Fairbank Group, said in early spring. “Cranmore’s saving grace is it is close to North Conway, to other bigger mountains …They absolutely are going to take day trips. This is where their home is going to be, this will become their anchor. It was very important for us to be close to the community.”
By the end of June the sales situation had not changed. “We found helpful consultants to get immersed right now to determine the right options: build and they will come or stay with the pre-sales approach. Wish I had more to offer, but this is our honest predicament.”
Fairbank says an added challenge for Otten is getting people to drive further north, though if anyone can do it, he’d count on Otten. And he concedes, if Otten does do it, Cranmore will lose business. “Les is a tenacious guy. I have known him since 1982. He can sell ice to Eskimos. He is a talented guy that way. The ability to secure financing for the long term buildup of the property is essential … I think the test is going to be finding the private funding.”
Counting on Otten
Otten describes his proposal as a “world-class destination,” one where you bring your entire family and never have to leave.
“We have the ability to provide all those things in arguably the prettiest spot in the state of NH,” Otten says. “We’re looking for the destination traveler that wants to take a week of vacation and aren’t interested in leaving the property and going to Six Gun City and Storyland and the Cog Railway … We are completely vertically integrated, it’s like going to Disneyworld.”
In a letter to Otten in February 2015, Rose called his idea “bold, aggressive and complex” and reiterated that high level state agency representatives had “explicit instructions to dedicate every available resource toward moving the project forward in a timely, prudent and thoughtful manner.”
Opponents think too many resources are being dedicated before there are detailed plans and proof of viability. The NH Department of Transportation has promised to spend $2.8 million to repave Golf Links Road, a 1.8-mile road that connects the Balsams resort to the golf course, and then turn it over to the resort. That would happen once the project financing is finalized. This is a plan that Samson says was met by opposition from locals, including himself, who feel there are more important infrastructure issues in the area. At the same time, the NH Fish and Game Department told NHPR it supported a future plan for clearing up to 325 acres of rare high elevation forest for the ski resort. Yet the department had also expressed concerns over potential clearing of high elevation forests for Northern Pass transmission lines and had also raised concerns about clearing 58 acres of high elevation forest for the wind farm that now sits on the ridge across from the resort.
Otten stresses he is not building just another ski resort. He says the former Balsams was heavily weighted toward summer visitors and his plan is to redevelop the ski area across the street will enhance the resort’s year round appeal.
Donovan of the BFA says he cannot talk about the viability of the project until he gets an application, but is quick to point out it is not the ski area that interests his organization. Rather, it is a project that could create high paying jobs and echo through the community.
“The Tillotsons were lovely people. It sounds like they subsidized this thing to death. Its time has come. I think what is exciting is the scale. If he can pull it off, it will have an immediate impact. A lot of construction jobs, a lot of spending, it will really reverberate through the economy,” Donovan says. “There is a fairly high presell limit [for the condos]. That is going to be the real test.”
Rose believes Otten can do it. “We are trying to encourage an entrepreneur to take a risk, putting up his own money to try to facilitate a project that has extraordinary opportunity,” Rose says, adding Otten knows about attracting crowds to rural areas. “People were saying why are people going to drive all the way to Bethel, Maine? He knew how to make a better mousetrap. He knew how to make a better ski resort.”
Otten’s success at Sunday River isn’t without controversy. He bought the Maine ski resort in 1980 at age 31 and by 1997 turned it from a single-mountain failing ski area to a flourishing nine-mountain venture attracting about 4.9 million skier visits, and generating $261.9 million in annual revenue, according to NASDAQ filings.
A few years later financial trouble led Otten to bring on Oak Hill Partners in Texas as an investor to help the company climb out of debt after the real estate market crashed in the late 90s. Otten resigned in 2001 after the stock dropped from $18 at the time of the IPO to below, $1, leading the company to be delisted, and Oak Hill went on to sell the mountains off in pieces before dissolving the company. Otten did not lose cash as a result of that crash, but did lose $250 million in the stock value.
Otten says he succeeded at building up the resort and it was Oak Hill’s choice to sell it off in pieces. Detractors says he overextended himself, leading to the eventual demise of the company by Oak Hill.
So why will the Balsams, another big venture, not suffer the same fate? Otten says there are two big mistakes that he learned from that he would never repeat. “One, I’d never go public, and, two, I’d never bring in an investor who wasn’t in it for the long term. They were in business for 24 months when they decided the best exit for them was to break the company apart. This time I’m one of the major investors and I’m not interested in people looking for an exit strategy. I never had an exit strategy at Sunday River … I was livid. I am still livid to this day.”
As the main investor of the Balsams, Otten has invested millions though no one is sure of the exact amount. Rose of DRED says any successful entrepreneur has experienced some failures and notes Otten was part of the team that bid $700 million to buy the Red Sox and save Fenway Park, later selling his shares for an undisclosed amount. Otten currently owns Maine Energy Systems, a Maine company that builds and distributes wood pellet boilers. He had predicted when it started a decade ago it would now have $100 million in earnings, but Otten says “currently we are not near that goal as oil prices have declined sharply over the last year and the market for clean renewable power has softened.”
Rose believes Otten can make it work. “People want to be part of the grandeur of the natural resources we have here. It is part of who we are and we need to celebrate that. We need to encourage that. And the vitality of projects like this are going to draw people to our state,” Rose says.
If he is right, Otten will sell his vision and meet his $25 million presell limit, and the BFA, governor and executive council will likely get to decide if the Balsams is the right place to invest to anchor the North Country’s rebirth.
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