One of Western Canada’s highest-profile resort owners has crumpled under the weight of its debt, another victim of a devastating industry slump that has derailedprojects across the country.
Victoria-based Aviawest Resorts Inc. is seeking protection from creditors to deal with problems that are common to many of the struggling resorts that have been sold this year.
While the broader Canadian real estate market has prospered since the recession, the resort industry has been unable to match the brisk pace of recovery. A high Canadian dollar has discouraged American buyers, and lenders who were quick to support speculative builders largely bailed on the industry through the recession and have not returned.
Prices for new units have been cut by as much as 50 per cent across much of British Columbia, as developers enrage current unit holders by offering previously unimaginable deals to new buyers in a desperate bid to generate the cash flow needed to pay bills and undertake further development. There have also been distressed sales of large resorts in Ontario, as deeply indebted owners sell at a loss to get out from under their debts.
Aviawest owns several high-end properties across British Columbia. In a statement on Wednesday, chief executive officer Jim Pearson emphasized that the company, which the Pearson family began building in the 1960s, was trying to solve its issues through the courts and eventually pay back its creditors.
“We sincerely regret any hardship that individuals and businesses may experience due to these proceedings,” he said. “Over the coming weeks and months, Aviawest will work to emerge from this process in a manner that maximizes the value returned to all stakeholders.”
In a filing to the Supreme Court of British Columbia, chief financial officer Rob DiCastri said the company has been in default with some lenders for “several years.” Its financial statements indicate the company has $88-million in assets, but most of the line items are real estate that would need to be sold to be of any practical use. It has about $2.5-million in cash, equity and “other hard assets.”
The filings indicate the company owes about $90-million to its creditors.
“The present situation has now become untenable,” Mr. DiCastri said.
The resort market has been the Canadian real estate sector hit hardest since the downturn.
“Many were built on a platform of development and sales, and when the market slowed in 2009 a lot of these projects just came to a crashing halt,” said Bill Stone, executive vice-president at property development consultant CBRE Hotels.
According to the filing, Aviawest had relied on a $14-million credit line prior to the recession, but its lender decided to get out of the resort business in 2008 and left it without the working capital it needed to push expansion plans forward.
Meanwhile, construction-cost overruns at its flagship Parkside Resort in downtown Victoria became a “significant burden,” and the market was tanking just as it needed to sell units.
Owners have also resorted to renting out vacant units as they wait for the market to turn. Even so, more than 8,000 families are vacation unit owners or fractional owners in Aviawest’s resorts, and they would continue to own their properties despite the money trouble at the broader resort company.
“What you often see here is great anxiety as they wait to see how the ownership difficulties will resolve,” Mr. Stone said.
The company said entering that creditor protection would give it time to consider its options, which could include a sale to a new owner. That would be positive news for unit owners worried about the uncertainty – two recent Ontario sales have shown that once a new owner takes possession, a new focus is brought to the resorts.
Hunstville, Ont., resort Deerhurst was recently sold, and its new owners quickly adjusted its pricing structure and found demand was strong for aggressively priced units. It was a similar situation just down the road at The Rosseau at Red Leaves, which was sold under similar conditions to those facing Aviawest.
“Without the debt burden, new owners can be more flexible,” Mr. Stone said. “That may be a sign that things have hit their bottom and may start to come back.”