Ownership has its rewards


Perhaps the most important point of the $2.8 billion deal that will see Fortress Investment Group acquire Whistler-Blackcomb’s parent is that Intrawest will become a private company.

What that means for Intrawest is that it no longer has to deal with hedge fund investors like Pirate Capital and stock markets that can’t figure out whether the company is in the real estate business or the tourism business. Intrawest, which will still exist in some form within Fortress, will be free to service its needs rather than shareholders’ demands, and it will be able to do that with its $950 million debt wiped out.

Of course, Intrawest will have to answer to Fortress. As a private equity firm Fortress exists to manage investments, i.e. make money for investors. Fortress will want to see growth from Intrawest and it will likely want to recoup some of its $2.8 billion investment in the company. But this appears to be a friendly takeover, so presumably Fortress has studied Intrawest and has some faith in the operating model.

Some aspect of Intrawest is expected to be sold to cover at least part of the $2.8 billion expenditure – a few golf courses have been for sale for some time, some of the company’s 10 North American mountain resorts have not produced profits and some parts of the company, such as its European holdings or CMH heli-ski operations, may not fit the business model. But Fortress’s record suggests it holds on to most of what it buys, as long as it’s producing sufficient revenues, and leaves the operations to local managers.

And there are some indications Fortress makes investments for the long haul. According to a New York Times report, in March Fortress bought 48,000 social housing units from the city of Dresden, in eastern Germany. That $1.2 billion deal wiped out Dresden’s debt in an instant, but it also included a number of clauses that limit Fortress’s ability to raise rents, including those that are below market rates, and protect tenants from being evicted. The apartments cannot be renovated into luxury condos and Fortress has to hang on to 34,000 of the units for at least 10 years. Fortress expects to recover the Dresden investment by reducing the vacancy rate and selling some of the units back to the occupants.

So what does Fortress’s acquisition of Intrawest mean for Whistler? Despite the fact Intrawest has little real estate left to develop in Whistler, Whistler-Blackcomb is still, in the words of a financial analyst, a gem in the Intrawest portfolio. In other words, Whistler-Blackcomb produces the kinds of returns that Fortress is looking for. And that’s one reason people are saying there won’t be any noticeable changes at Whistler-Blackcomb, at least in the short term.

Whistler-Blackcomb has always held a special status within the Intrawest hierarchy, as the first mountain resort that Intrawest got involved in; as the inspiration for the "Intrawest model" of village development at mountain resorts; as one of the most profitable and high-profile of Intrawest’s resorts; and, importantly, as the home or second home of some of Intrawest’s most senior managers. Joe Houssian learned to ski on Blackcomb. Hugh Smythe has been part of Whistler since Whistler Mountain’s first year of operation. When these men were at the top of the Intrawest pyramid Whistler was always going to receive special status.

And they may remain at the top of the pyramid and be given free reign by Fortress to continue on. But some insiders caution that Fortress is seen as a lean company and Intrawest as one that’s top heavy, so some changes at the top level are expected.

It will be some time before the full impact of Fortress’s ownership of Intrawest is determined – assuming, of course, the deal is approved in October. Meanwhile, some may lament the swallowing of another Canadian company by a larger American firm, but the reality is that approximately 80 per cent of Intrawest stock is currently owned by U.S. investors.

And some may see Whistler-Blackcomb’s new parent company as a faceless group of investors based in New York with little understanding of the ski industry or this town. It’s a fair comment, but the reality is that Whistler, the community, is in the big business of tourism. We live with and deal with major corporations all the time. If it’s a local face we want to put on Whistler-Blackcomb then Whistler should look at the possibility of becoming a financial partner with Fortress.

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