It’s an odd twist of fate that the Blixseth who was sitting in the witness chair in a Missoula federal courthouse Wednesday was named Edra. Sure, Edra Blixseth is nominally the owner of the Yellowstone Club, the uber-exclusive resort near Big Sky that’s now mired in bankruptcy. She thus bears much of the responsibility for trying to sort out the mess, even though her equity in the club is almost certainly worthless and lender Credit Suisse effectively controls the property. She’s been involved with the venture from the beginning, and is certainly no business neophyte.
Yet as everyone familiar with the situation knows all too well, the Blixseth who built the Yellowstone Club, the person who persuaded the likes of Bill Gates to join up, the person whose non-stop, on-the-edge deal-making both made the club possible and created its current predicament, is named Tim. His sudden absence from the scene is strange; dozens of lawyers, thousands of pages of legal filings, a financial fiasco of major proportions — and hardly a word about Tim.
Tim Blixseth is out of the picture, at least for the moment, because he agreed to give up his stake in the club as part of the divorce settlement with his wife. Edra testified in court Wednesday that CrossHarbor Capital, a hedge fund that’s angling to get control of the property, actually lent her $35 million, in part to buy out Tim’s interest in the club. The couple had plenty of assets – a giant home in Palm Springs with a private 18-hole golf course, among other things, which Edra got and then put up as collateral for the CrossHarbor loan – but if Edra actually paid Tim cash for his stake in Yellowstone Club, it looks like the one-time timber trader once again came out very much on the long end of the deal.
Tim Blixseth assembled the property for the Yellowstone Club through a shrewd land swap with the U.S. government, and he built the concept in part by persuading some high-profile celebrities to sign on early. In the real estate boom times of the late 1990s and early 2000s, it all seemed to make sense: a private ski club for people who wanted privacy and could afford it, with the exclusivity — not just anyone can join! — adding to the allure. Once he got the ball rolling, bankers like Credit Suisse were all-to-eager to get behind it with hundreds of millions of dollars in loans.
But it turned out that even in the boom years, the number of people eager to plunk down millions of dollars for a big house on a small lot at 8,000 feet was limited; the club has sold only 360 of its 864 memberships. Construction costs in Big Sky at the peak of the mountain real estate bubble turned out to be astronomical. And Tim Blixseth, ever the trader, couldn’t resist two things that have played a huge part in the club’s undoing. One was playing it fast and loose with former cycling great Greg LeMond, an early buyer who felt he was conned and filed what turned out to be a highly damaging lawsuit. The club not only had to settle with LeMond for $38 million (the final installment was supposed to be paid this Friday), but the bad publicity came at the worst possible time. The second was developing the Yellowstone Club World concept, which involved buying hugely expensive properties around the world for a type of super-luxury time-share — properties that are now both unrentable and unsaleable.
Lurking behind the blizzard of bankruptcy documents is a basic question: where did all the money go? Surely the $375 million loan from Credit Suisse should have been enough to finish the clubhouse and the golf course and all the other infrastructure, and still leave some in the bank in the event of a real estate downturn. The club’s revenues, after all, depend mainly on the sale of lots and memberships, and you didn’t have to be a seer to understand that the real estate frenzy might not last forever. But the checking account was down to $40,000 by last week.
Tim Blixseth grew up dirt poor, and the only way you go from the bottom of the financial food chain to the top is to bet the house at every opportunity. He’s gone bankrupt once before, and taking big risks is not only not a crime, it earns you respect in some business circles. Man, that guy has a pair! And no one begrudges you all the hugely expensive toys — until, that is, the other peoples’ money that you were responsible for is suddenly all gone.
Even people who expected a real estate downturn weren’t ready for the financial tsunami that’s now sweeping the globe. No one — not Tim or Edra, not Credit Suisse, not CrossHarbor Capital, not the club’s billionaire members — expected to find themselves in a situation where there’s a serious risk that the club will simply go out of business.
That probably won’t happen. But once the dust settles, my bet is the many powerful parties involved will be turning their attention back to the question of how the club got itself into such a mess. And one way or another, Tim Blixseth will have his turn in the witness chair.
Editor’s Note: This story has been updated to correct the reference to the status of the Blixseth’s Palm Springs residence.