DENVER - In the resort town of Vail, Colo., there are two classes of people: the affluent who come there to ski and those who serve them.

With so many wealthy people buying property there, the cost of real estate has escalated to the point where even the middle class can't afford to live in Vail, let alone the ski bums, waiters, cooks, and counterpersons. Rents are increasing by a steady 10% to 13% per year, making Vail Valley rents similar those in New York City.

"We have taken the position in the past this was a private sector problem," said Eagle County manager Jack Lewis. "With the private market as lucrative and productive as it is, it's not a reality to build truly affordable housing."

But in an effort to remedy the problem, Eagle County, with the help of its bankers, Kirkpatrick, Pettis, Smith, Polian Inc., created a nonprofit housing agency and last month sold $25 million in municipal bonds to build the Lake Creek Apartments.

Construction on the apartments has begun and is expected to be completed in 16 months.

The 270-unit, garden-style apartments are not in Vail itself. That would be too expensive. Rather, they are located past the town of Edwards on the far end of the Vail Valley, about 15 miles west of Vail. About half of the units are two-bedroom, two-bath units, with the rest one- and three-bedroom. Average rent for these "affordable" apartments is $1,000 per month. The lowest rent is $860 per month.

"That is affordable in Vail. We base it on an average $60,000 annual income - at five times annual rent," Lewis said, adding that Lake Creek is considered affordable because the county controls the rents.

As for seasonal workers, "It doesn't address the problem of dormitory space for [them]. It's for year-round residents," said Andrew Kane, a banker at Kirkpatrick Pettis who handled the financing.

It is not the first housing project for Eagle County. In 1991, the county built the 240-unit Eagle Bend complex also using tax-exempt bonds. Because it is 95% leased, the board of directors of Eagle Bend increased rents this year by 5%.

Kirkpatrick underwrote the new deal alone. About $22.7 million in unrated Series A bonds were sold in late July to two unnamed institutional investors at an 8.25% yield.

Two other series of subordinated bonds, totaling $2.6 million and yielding 8.75%, were sold to various investors. They included the Corum real estate group, which acts as both developer and manager of the project. Vail Associates, which owns and operates the Vail Ski Resort, took $1 million of the subordinate bonds. The company also holds $1.35 million of Eagle Bend bonds.

In return for its investment, Vail Associates has two representatives on the five-person board that will run the new development. Corum, which is also being paid a fee to develop the project, has one representative. The others are county manager Lewis, and the county commissioner, Johnnette Phillips.

The key to this and similar financings was to create a nonprofit organization formed by and on behalf of Eagle County to issue the debt. Kane said an Internal Revenue Service ruling that treats the non-profit organization as an entity acting "on behalf of issuer" allows the bonds to be tax-free.

Kane was rewarded for his creativity. Kirkpatrick collected a $457,350 fee, which amounted to 2.25% of the total amount of bonds.

Kane is so confident that the bonds will be paid that he accepted $54,750 in bonds as part of his fee. The bond certificate is framed and hangs on the wall of his Denver office.

Kane, who spent six months organizing the deal, said it would not have worked without the commitments of Corum and Vail Associates. "This is as close to herding cats as I've ever had to do," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.