When the 1,500 Utahns who committed $10,000 each to become "members" of East Canyon Resort were told in October 1987, that the resort was filing for Chapter 11 bankruptcy, they assumed the worst: Their investment in a "lifetime" of family recreation in unspoiled Morgan County was probably lost.
No one blamed them for their pessimism. Following on the heels of one real estate debacle after another in this decade, East Canyon Resort seemed destined to join the long unhappy list of bank foreclosures that have made buying the Brooklyn Bridge seem a safer bet than investing in Utah land developments.But not all real estate stories have unhappy endings, and this is one of them. The resort remains open (in fact, never closed even at its darkest hour), membership is mostly intact and new sales are now being generated.
East Canyon might be a textbook case of how a wipeout can be averted when owners, managers, creditors and the legal system stop calling names and seeking blame and, instead, sit down and work out a solution.
Although membership in East Canyon is similar to a timeshare plan in terms of the resort's condominium units, Carol Drake, vice president of marketing, says the complex offers much more than a typical timeshare.
"Our facilities are open to all owners 365 days a year, not just during their days in the lodge suites," she said. "And the fact that most of our owners live along the Wasatch Front, and can be here in less than an hour, makes that important. They can come up and play tennis, have dinner, go camping and fishing, horseback riding, snowmobiling . . . the list is endless."
Drake said East Canyon also belongs to RCI, an international organization in which members trade timeshares in resorts all over the world. "Our people have been able to trade their time for stays in Europe, Australia, all over," she said."
The main reason the timeshare trades have been successful, Drake said, is that out-of-state visitors use the resort as their headquarters for skiing in Park City. Although U-65 - the main access from Salt Lake City 20 miles to the southwest - is not kept open by the state in the winter (something the resort's owners would like to see changed), a county road is kept open between the resort and I-80 that comes out at the Jeremy Ranch. Visitors can also get to the resort in winter via Henefer from the north.
The resort is also affiliated with Camp Coast To Coast, a recreational Vehicle exchange in which members can stay at some 500 RV resorts across the United States for $1 a night. East Canyon has been rated a 5-star resort by the group, it's highest ranking.
Like most such "high concept" projects, East Canyon Resort seemed like a sure thing when the 10,000-acre complex was launched in the fall of 1980. The owners of the land, the Bertagnole family of Salt Lake City, had for years been seeking a profitable use for the land, part of a vast tract that Leo M. Bertagnole had acquired at the turn of the century for a ranching operation.
Their financial manager for some eight years had been Emanuel A. Floor who in 1980 was running the then successful (later bankrupt) Triad developments in Utah of Saudi Arabian wheeler-dealer Adnan Khashoggi. With Floor acting as managing general partner, Bertagnole Investment Co. worked out a plan they thought would turn their virgin acreage west of East Canyon Reservoir into a paying proposition while making a very light impact on the land.
It wasn't easy. Only 25 acres had been zoned for commercial development by a skittish Morgan County Commission, fearful of a growth boom that would quickly outstrip the county's ability to provide services. That meant that the traditional development path - lot sales for home sites - was out. Even the number of condominiums that could be built was severely limited.
What they came up with was this, explains Greg Lawson, East Canyon president: A business trust called East Canyon Resort Trust was formed and it sold beneficial interest in the trust that entitled the beneficiaries - for a fee of $10,000 - to lifetime rights and privileges to use the facilities. They believed they could sell 4,000 membership.
The facilities planned for the first phase were to be 200 condominium units - for which members would be accorded 14-17 days stays in residence, 200 recreational vehicle pads with water, power and TV hookups, and 40 improved tent camp sites located up two picturesque canyons on the property.
Amenities were to include a pool, tennis courts, a restaurant in the main lodge, parties and holiday activities, horseback riding, exclusive hunting and fishing rights, and private access to some of the most beautiful and unspoiled forest land in the state.
Most of that came to pass, although only 32 of the condominiums (called lodge suites by the resort) have been built.
The project suffered from insufficient cash flow from the very beginning as an expensive marketing program failed to generate the hoped-for level of sales. By 1989, recalls Lawson, there were 1,485 owners on the books, with 90 percent making monthly payments on their $10,000 debt, far short of the anticipated 4,000 owners.
By late 1984, said Lawson, it was becoming more difficult to raise financing to build the rest of the condos needed to satisfy new members and generate more sales. With high interest bank loans, rather than equity financing, footing the bill, the downhill slide picked up speed.
"The money wasn't there," said Lawson. "Floor launched an assault to find additional financing, but interest rates were high and a lot of recreation projects were having problems. It had gotten to the point of too much debt and too little resources.
Management voluntarily suspended sales in late 1985.
Negotiations for refinancing then began with lead lender First Security Corp. that, ultimately, were unsuccessful, said Lawson. In early 1986 the company's dire financial condition was disclosed and in October 1987, the first plan of reorganization was filed with the U.S. Bankruptcy Court under Chapter 11.
Many Chapter 11 filings eventually become Chapter 7 bankruptcies with operations closed down, assets sold off and virtually all involved emerging losers. That didn't happen with East Canyon.
With Salt Lake attorney Peter Billings Jr. leading the way, negotiations with creditors went on through '87 and most of '88 with agreements eventually worked out. Last September, the court approved an operating plan - based on the principal of "shared sacrifice" by all parties - that the resort is operating under today.
Most important to the survival of the resort, was the willingness of First Security and other lenders to discount East Canyon's obligations by some $10 million, reducing its liability to a more manageable $3 million. In turn, the owner-members agreed to take the number of days available in the existing units and they have agreed that the surplus from future sales will go into a building fund so that an additional 15 lodge units can be built.
Under the plan, they will eventualy receive ther full number of time-share days.
To help things along, many owners agreed to pay of their remaining balances to help the resort raise cash.
"We're estimating summer after next," for that work to get underway, said Lawson. "Although the way sales are going it could even be next summer."
The original trust under which the resort was established has now been converted into a new non-profit corporation, called East Canyon Resort, and all of the beneficiaries in the former trust are now shareholders in the new corporation. A board of directors composed of the stockholders makes all business decisions.
The Bertagnoles, said Lawson, received between $2 million and $2.5 million in land payments from the original sales and a settlement was later reached durng the reorganization in which they deeded the entire 10,000 acres over to the resort. They are no longer directly involved in the project, he said, and all liens and encumbrances have been removed and the corporation owns free and clear title to the land.
"Peter Billings did a heck of a job," said Lawson. "As did the wonderful people who are our owners. Some have been really supportive." Ownership has now been reduced to about 1,200 - the rock solid group that stayed with us through all the hard times."
Drake said the resort resumed marketing in january, having registered with the Sate Division of Real Estate which authorized resumption of sales. Currently, the resort is selling 7-day ownerships in the lodge suites for $9,450. Recreational ownerships - which provide all privileges except time share - sell for $4,950.
She said the resort is a prime deer hunting area for members and an additional 10,000 acres the resort leases nearby means "we have virtually the whole canyon as a private hunting preserve."
Since the reorganization, the resort has sold $475,000 in memberships with most sales coming through the owner referral program. At this point, advertising and promotion are being kept to a minimum.
"One of our goals is to perserve and protect this canyon for generations to cme," said Drake. "It is important to us that our owners join us because it is right for them. The camaraderie here is wonderful. We have a travel club and a golf club, lots of parties. This is a family resort in the real sense of the word."
Lawson said the growth goal is to double the ownership base to 2,500 owners. "While we could go on with expansion after that, it's the feeling of the current board and management that that is about the optimum number of owners for this project."