David Zatz explains where the money went
September 8, 2009
On Friday, David Holland Zatz, founder and CEO of David Holland Resort Lodging (DHRL), called The Park Record to apologize for being unresponsive to requests for interviews in past months.
The day before, Sept. 3, Zatz sent out emails announcing the business had ceased operations.
Lack of communication explained
He said that his financial situation and plans over the past six months were changing so fast that anything he said about his circumstances would likely be untrue within a short period.
"I didn’t want to give illusions," he said. "Some days I was with lawyers and accountants in meetings all day trying to resolve the issue."
He acknowledged that he lost supporters over the summer by not being responsive to requests for communication. Sending out semi-weekly emails was the best he could do, he said.
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"If I (talked to someone and) said, ‘Gee, this is what we talked about today.’ I thought it’d do more harm than good. There were 100 issues that needed to be dealt with," he said.
Some of Zatz’s initial supporters said they were upset that he didn’t notify of them of his worries at the beginning of winter. With all his friends in the community, they were sure a solution could have been concocted early on.
Zatz said Friday that when Lehman Brothers filed for bankruptcy one year ago, he sensed there would be a ripple effect that would likely affect the winter seasons. He began contacting lenders he’d worked with in the past last October and talked with them about getting financial help to cover shortfalls in the winter.
He thought his old ways of covering a five or six percent dip in revenue would be sufficient. Not only was the old way unavailable, but it turned out to be a 32 percent dip, he said.
"12 options I had in October turned into five, then to two. As the winter wore on, I ran out of options," he explained.
The deal with Phoenix Realty Group
When it became clear that he didn’t have the money to both continue operations and pay condominium owners, it was also clear the financial markets were too frozen to come to his rescue.
Michael Fried, founder of the New York-based Phoenix Realty Group (PRG), is a condo owner in Park City and knew Zatz. Together the two presented a deal to condominium owners that Zatz thought would save the day. PRG would invest the $1 million needed to repay owners, who would receive their missing money over three years in exchange for signing a three-year contract with the new entity.
For Zatz, it was a godsend. PRG was willing to forego any return on their investment for three full years and all the condo owners would get their money.
"Rather than leave them with nothing, I thought owners would take that option. The owners didn’t see it that way," he said.
All the way through the beginning of August Zatz said he thought this plan would solve everything.
"At that point, I thought we were 90 percent there I don’t know what shifted," he said.
He said he thinks the problem was timing.
"It just went on too long," he said. "Two months ago it would have been a slam dunk, but these decisions couldn’t be made two months ago."
He acknowledged that there were a lot of pressures owners and homeowner associations were under when they chose different routes in August.
"I feel the same frustrations as them," he said. For 25 years he called all his own shots, and then suddenly he lost that ability.
"Nothing could be done, PRG was the only game in town," he said.
Zatz said he feels like he did all he could. In the end, the solution he came up with was unacceptable to owners.
"It’s all I could come up with. There weren’t any other options," he said.
Zatz said his attorneys don’t believe bankruptcy procedures are necessary. All of the company’s assets were sold to PRG as part of that strategy. There isn’t enough left to engage a trustee.
Zatz still has a residence and part ownership in The Lowell Condominiums next to Marriott Mountainside, but he cautioned against anyone thinking it was his saving grace.
"My future is not all that attractive in the next six months," he said. "I don’t see (The Lowell) as a viable future operation."
There’s a large loan on the building and it entered the real estate market about the same time the financial collapse started.
"The property is well received, but people want large discounts in purchasing units, so it cannot be sold for substantially over what the loans are for," he explained.
Unless the real estate market turns around this winter, which is highly unlikely, he may need to rent out the unsold units.
People have speculated over the past year that Zatz invested profits from Crossways Corporation, which owned DHRL, into The Lowell. On Friday, Zatz said the opposite was true.
"No funds from Crossways went into The Lowell," he said. "The first thing I tried to do to save DHRL was to sell my interest in The Lowell that was my first interest: to sell or borrow on my interest."
He said if people scour his financial records they’ll find Crossways spent the same money on the same expenses for the past ten to 15 years.
"There was no anomaly except that I relied on $8 million of gross revenue," he said.
Where the money went
Zatz said his business plan required DHRL to front the cost of the following winter during the slow seasons from April through November. He said his financial records will show major losses every off season, and then it made up in the winter.
The high fuel prices in the summer of 2008 had slowed leisure travel and forced him even deeper into the red then usual. As the summer season waned, the recession began.
Zatz has been criticized for not downsizing his budget as he began to recognize revenues would be down. People have speculated that if the winter was down 30 percent, only 30 percent of the owners’ money should be missing.
But Zatz said that accounting doesn’t take into account the level of service his brand provided 24 hours a day, 365 days a year. He said in many cases he was contractually obligated to maintain the same level of service.
"I think people would be surprised by the expenses people have to deal with in this business," he said. "It’s not a dollar for dollar type of business."
End of an era
In response to this reasoning, critics have that aside from Deer Valley Lodging and DHRL, all the other nightly-rental and property-management businesses have survived thus far.
But these businesses have, or are switching to, a leaner type of operation that passes more costs onto condominium owners.
The business model he relied on for years may have failed him this year, but he thinks condo owners will begin to notice a major difference in the level of service they receive going forward.
He ate expenses like maintenance and travel-agent commissions. The companies that have survived are passing those on.
"I had a housekeeping staff of 100. Now they’re subbing that out to a third party," he said.
The survivors run a company with 15 or fewer year-round employees. Everything they can’t do is contracted out and the extra expense is charged to clients.
"You’re going to see a lot of cottage industries coming up (to provide these services)," he predicted.
Zatz said the past year has been a painful one for him and that he’s now going down a path he would not have chosen:
"I started in Park City in 1980 as a bellman and grew my own business for 25 years. I wanted to save something I grew up with. I thought I’d done it, but it didn’t work out that way."