Ski area sold; Muellers retain 40-year lease

“The bottom line is that the Muellers aren’t going anywhere”

Four years after purchasing Crested Butte Mountain Resort, owners Tim and Diane Mueller have sold the ski area to a Florida-based REIT (real estate investment trust). But the Muellers say they’re here for the long run, and have committed to a 40-year lease of the resort while they remain at the helm of Triple Peaks LLC.

On Friday, December 5, the Muellers closed on a sale of their three resorts to CNL Lifestyle Properties, Inc. The sale included many of the equitable assets at all three of the resorts, but did not include the sale of Triple Peaks LLC as a business.
The Muellers say nothing will change locally, and the sale should hardly be noticed by residents and visitors.
“Operationally, no one will see any difference,” says Tim Mueller. “All the decisions will be ours. There will be different reporting requirements but no change in personnel or decision making.”
“I feel great,” says Diane Mueller. “In these economic times this allows our three resorts to move forward. The bottom line is that the Muellers aren’t going anywhere. We’ve been in this industry 26 years and we’re passionate about it. We can now focus on ski operations.”
The investment by CNL will provide immediate financing for the proposed Red Lady Lodge at CBMR, as well as improvements at the Muellers’ resort operations at Okemo Resort in Vermont and Mt. Sunapee in New Hampshire.
As part of the sale to CNL, Triple Peaks will now lease back the properties and run the operations aspect of the resorts.
In the Crested Butte arena, the sale did not include projects such as Prospect or the proposed North Village.
In an economy where many resorts are simply trying to survive, CBMR officials say the investment by CNL is a positive thing for the ski area.  
CBMR chief operating officer Ken Stone says the Muellers have been looking to re-finance CBMR for a few years. Initial talks between the Muellers and CNL started about two years ago, Stone says. Serious conversations about purchasing the resort began more recently. “It’s safe to say this got started at the end of the last ski season in May,” Stone says.
“The timing was impeccable,” he adds.
Stone wouldn’t comment on what the financial situation of CBMR was prior to the sale, but said one doesn’t have to look too hard to see what other resorts are going through. “We’re facing some challenging times with visitations and the uncertainty of people being able to go skiing in the winter.
“Many resorts are having layoffs,” he said, citing a recent announcement by Vail Resorts of 50 layoffs and 89 open positions that were cut. “We’re trying to avoid that ourselves here and make sure we can run a nice operation,” Stone says.
He also says some ski areas had gotten in over their heads with real estate projects. “Most ski resorts planned to build major developments at their resorts four or five years ago. Most of those were just getting under way in the last year or two. Now some are stuck as holes in the ground.
“All the ski areas are struggling,” Stone continues. “They are asking, ‘How do we maintain a high quality of service while running the business lean and efficient?’ We are the envy of the rest of the ski areas… The downturn [in the] economy compounds the fact they’re all looking at ways to re-structure until the real estate recovers. Plus, the clock is ticking on loans. What they face is much more challenging.
“While other resorts are licking their wounds, we can adjust our plans for the future,” Stone says.

The only difference is on paper
Tim Mueller says he cannot comment on any of the numbers involved in the deal, but on Friday the Wall Street Journal reported the sale was worth $132 million.
“We feel good about the deal. This company has pursued us for a couple of years and the time seemed right. They seem like a good match,” Tim Mueller said. “It provides a place to go for stable capital. We have to make a lease payment instead of a loan payment, but it takes the pressure off of having to constantly go back and do short-term loans and deal with fluctuations in the banking industry. This offered a good alternative.”
Diane Mueller says the employees of Triple Peaks were told of the transaction ahead of time and she was pleasantly surprised by their level of understanding. “Nothing will change in their world,” she says. “Our plan will stay the same. No new people will be coming in. There won’t be another board that we’re accountable to. From Tim and my perspective, we can devote 100 percent of our efforts to operations and we feel really good about it. We like the ski business.”
According to a memo sent to company employees on December 4, the “sale-leaseback” arrangement “is similar to leasing a car, retail space or other capital. The net effect of it is that we will still be the owners of the operating company, while CNL owns the underlying assets… We will have total control over the operations, personnel, marketing, etc. Our employees will continue to be employed by us and operationally, everything will stay the same from the guest’s perspective and the employee’s perspective. They are strictly a landlord and financing entity.”
Diane Mueller says the agreement is beneficial for both CNL and Triple Peaks. “We make a lease payment to them and they have committed to help with the Red Lady Lodge… If we want to pursue Cimarron, we can go to them and see if they are interested in partnering.”
In an official press release, Byron Carlock, president and CEO of CNL Lifestyle Properties, said, “This transaction provides Triple Peaks the opportunity for immediate enhancement to these popular mountain destinations that will improve the overall skier experience and extend the resorts’ offerings for all four seasons.”
In addition to the Red Lady Lodge, CNL has also agreed to help finance a new conference center at Okemo and various mountain and base area improvements at Mount Sunapee.

Triple Peaks’ vision for the future of CBMR
The most direct effect of CNL’s purchase of CBMR will be the construction of the Red Lady Lodge, now anticipated to begin in the spring of 2009.
“They’ve committed to finance the Red Lady Lodge if we get a bid that makes sense to us. We anticipate construction prices and bids to be coming down, given the recent economic environment,” Tim Mueller says.
CBMR director of real estate and sales Michael Kraatz says, “We’ve actually been working on the plans and getting geared up for [Red Lady Lodge]. We’ll be pricing that out this month.”
But aside from the Red Lady Lodge, CNL’s acquisitions at the local ski area are not easy to categorize.
Diane Mueller said because CNL is a REIT, the company, by law, cannot own property that is not developed. So while CNL purchased all the property needed to run the resort, they did not buy undeveloped property owned by Triple Peaks, such as Mountaineer Square North.
“They own assets. In most cases the assets they own are ones that produce and spin off revenues,” Stone says.
Triple Peaks continues to own the Cimarron site where the Gothic Building used to be, the Treasury Center building, the Prospect development, the retail space in Mountaineer Square, the North Village property, the unsold units in Mountaineer Square, and the land for Mountaineer Square North.
Kraatz says developments like Mountaineer Square North and the North Village “are still on the same path they’ve been on for a while.”
Kraatz says North Village is on hold for the time being, but Mountaineer Square North may begin seeking final plan approval in the first quarter of 2009.
Tim Mueller says any new developments at the resort will be weighed carefully. “The real estate market isn’t doing that well right now,” he says. “We want to sell the inventory we have as opposed to bringing more inventory to the market.
We want the real estate aspect of the business to be able to stand on its own rather than be supported by ski operations, which is what is happening now, despite what everyone thinks.”
Mueller explains that if Triple Peaks wants to do a real estate project CNL would be the firm first approached for financing. “They wouldn’t get involved in building houses or residential real estate projects,” he says. “But they would consider and probably fund projects that improve and add value to the ski area like restaurants and retail developments. With Cimarron, they probably would not fund the residential development part of the project but probably would buy the retail and resort operations space within that building.”
As for the proposed terrain expansion onto nearby Snodgrass Mountain, CNL is the “new permittee on the expansion proposal but Triple Peaks is the sub-permittee,” says Tim Mueller. “They will fund the permitting process, but we will control it as we do the operations.”
Kraatz says CBMR still has not received word from the U.S. Forest Service about the approval of a geology report and the decision to enter into the National Environmental Policy Act (NEPA) planning process for Snodgrass approval. During a monthly meeting between the Forest Service and CBMR in November, Kraatz said a decision notice was expected as soon as this week, but it may not come until after the holidays.
As for general ski area improvements, Tim Mueller says the sale makes enhancements more likely. “But they will still have to make economic sense,” he says. “We still have to ensure the money we spend is spent efficiently and on projects that make economic sense.”
Stone says, “This is still the Muellers’. The vision remains the same for us since the day they arrived. This only gives us the opportunity to continue on the path they’ve laid out.”