Berkshire Hills Bancorp’s balance sheet looked pretty pristine at the end of the second quarter –non-performing assets made up a measly 0.2 percent of total assets. But beneath the surface, there was a black spot. 

The company in February foreclosed on a series of properties owned by The Hermitage in Dover and Wilmington, Vermont, including the company’s private ski resort at Haystack Mountain, golf course, various inns and a townhouse village, according to court documents obtained by Banker & Tradesman. 

The Hermitage failed to make payments on a $15 million construction loan and two bridge loans totaling $2.1 million. 

“It’s probably the largest foreclosure I’ve been involved with,” Elizabeth Glynn, a Rutland attorney who represented Berkshire Bank in the case, previously told The Brattleboro Reformer, a daily newspaper in Vermont. “It might be one of the biggest foreclosures in the state of Vermont.” 

Although the transaction was not specifically mentioned by name, Berkshire Bank’s President Richard Marotta said on a recent earnings conference call that there was a credit of $16 million that was in the 90 days past due loan bucket.  

Berkshire’s CEO Michael Daly also addressed the Hermitage in the earnings call, despite not specifically mentioning it by name.  

“There are unique situations where a loan is well secured and we are in control of the asset and cash flows, and the prospects of resolution are good [enough] that accounting principles suggest that the loan remain on accrual,” he said. “It should also be noted that the loan is reported as a delinquent loan. This company does not kick cans down the road, never will. And that’s all I want to say about that.” 

Bram Berkowitz

What’s The Hermitage? 

The Hermitage Club at Haystack Mountain is a 1,400-acre private residential community nestled in Vermont’s Green Mountains. 

Owner Jim Barnes acquired The Hermitage Inn in 2007 and then the Haystack Club in 2011. According to its website, the four-season mountain luxury retreat offers one-of-a-kind private ski access, a golf community and the benefits of membership in an exclusive club. 

The $15 million mortgage was executed at the end of December 2014, while the two bridge loans were executed in June 2016 and July 2017. 

There were also 35 other liens in the foreclosure complaint by various other parties claiming that The Hermitage owed them money. 

After Berkshire foreclosed on the properties in February, a Windham Superior Court judge granted the bank’s request to appoint a receiver to watch over the Hermitage’s properties in order to maintain the quality of the assets. 

Most recently, things took a positive turn for Berkshire when Barnes announced a restructuring deal with New York-based Oz Real Estate at the end of July. 

“After months-long negotiations, the club has signed a nonbinding term sheet with Berkshire Bank to buy out its debt as part of this overall transaction,” Barnes wrote in an email to club members, according to The Brattleboro Reformer. “The primary goal of the Hermitage Club is to close this restructuring and prepare for a successful 2018/2019 fall and winter season. The proceeds from the restructuring will provide the means to settle claims and disputes that have arisen due to the lack of cash flow from closed club operations.”  

Damage Contained 

Analysts initially expected a messy credit quarter from Berkshire because of The Hermitage loans. 

“I guess I’m a little surprised that with the troubled credit that is moving into foreclosure, that there wouldn’t be some sort of assumed write-down,” Collyn Gilbert, managing director of community and regional banks at the New York-based investment firm Keefe, Bruyette & Woods, said on the Berkshire earnings call. 

KBW before earnings were released predicted that Berkshire would report a loss provision of $6.6 million, about $1.6 million higher than the second quarter of 2017. While KBW’s prediction was almost dead on, the company noted in a research report following earnings that credit trends surprised them, improving overall for the bank in the quarter. 

KBW predicts that the loss on The Hermitage may be able to be contained to less than $5 million, given the value of the assets on the properties. If the restructuring deal goes through, the losses could be even less. 

“From a general standpoint, when we do a foreclosure and move down that path, that does not necessarily mean that there is a write-down,” said Marotta. “In certain situations, and not specifically this one, but in unique situations, you may have an abundance of collateral.”