Whistler foreclosure fails to curtail Olympic rental rates

WHISTLER, B.C. – Talk about timing, and a captive audience.

If you are going to schedule a foreclosure sale, you might as well do it when the world is coming to your door.

Three weeks before the start of the 2010 Winter Olympic Games in Vancouver, lenders announced they had seized the assets of Vancouver-based Intrawest ULC, which operates the Whistler mountain ski resort that is hosting a majority of the key alpine events.

New York-based Davidson Kempner Capital Management, which heads the lender group, said it plans to hold a public auction Friday, smack in the middle of the games. Ironically, part of the package also includes the resort at Squaw Valley, Calif., site of the 1960 Winter Olympics, plus Colorado’s Steamboat and Winter Park, and Mont Tremblant in Quebec.

Vancouver-based Intrawest reportedly has missed payments on a $1.4 billion loan on the resort group. The company is owned by Fortress Investment Group LLC, a private equity firm that purchased Intrawest for $2.8 billion in cash and debt in 2006.

Public notices have appeared in Northwest newspapers stating “each qualified bidder must be a financial institution or other entity that has the financial wherewithal to purchase the membership interests in immediately available funds on the closing date.”

While the Whistler Village and ski mountain may have hit difficult financial times, don’t tell the individual property owners in the area who are gratefully accepting $2,500 a night for their slope-side condos and single-family chalets during these games.

Many U.S. residents invested in second homes here years ago in anticipation of the Olympics. The potential of year-round income generated by the world-famous resort was also a lure. Skiers have access to the mountain-top glacier even in late summer, and the region is a popular playground for mountain bikers, kayakers, fishermen, hikers, rock climbers and golfers.

Ironically, one of the biggest financial decisions owners here have had to make is whether to accept the premium rental paid by Olympic renters, or stay put and enjoy the games with family and friends. As with previous Olympics, some of the world’s largest corporations sought blocks of homes to accommodate their executives and guests and were willing to pay astonishing dollars to do so.

The basic rules of supply and demand clearly are in play here. With only one main arterial into Whistler Village, the supply is low and the demand high. For those with homes here who do choose the short-term rental road, the cash from the two-week extravaganza could come tax free. According to the IRS, owners can pocket any fair-market rent as long as the term is 15 days or fewer and they don’t claim any of the tax deductions typically allowed on rental property, such as for depreciation or maintenance. This option can come in handy for folks who do not want to be in the rental game, yet occasionally find they could rent their place. It happens all the time for annual golf tournaments, arts fairs, theatre festivals, university graduation, auto races and jazz carnivals.

The tax rules change, however, if the house becomes a full-time rental or investment property. Under federal tax laws, you can still use the home for 14 days or 10 percent of the amount of time the house is rented, whichever is greater, without jeopardizing its status as a rental property and tax shelter.

For example, a Whistler home with great access to the slopes, lakes and town might be rented for 250 days a year, allowing the owner to use it for 25 days. If the home had more personal use, its status as an investment property would be in jeopardy and some of the expenses and depreciation could be disallowed.

Personal use does come at a cost. Depreciation is limited only to the percentage of time that a house is rented.

The house also must be rented at fair market value, even though “fair” is in the stratosphere for at least two weeks. If you rent to relatives at discount rates, the IRS may rule that the house is not actual rental property and disallow many of your deductions. Even though the home is outside U.S. borders, Uncle Sam still wants to know the income it produces.

I’m sorry, but if I could get $2,500 a night to rent my home, my family would have to wait until the crowds go home to use the place.