by John Waters
Publisher

Lajitas is Spanish for “little flat stones,” named for the Boquillas flagstone found in the area. Lajitas is a confluence of culture, commerce, and class. For centuries, it has served as a river crossing in the middle of the Chihuahuan Desert. It is part of an international border. It has been a cavalry post, trading post, a hotel, and now a luxury hotel.

Lajitas as Resort: The Mischer Years

Walter Mischer, a successful Houston realtor and oilman bought Lajitas in 1977 from longtime resident Rex Ivey. (Mischer began development of the resort in 1976 with one of his companies, Arrow Development.) Arrow later became part of Southern Investors Services, a publicly traded company whose stock (when it traded) was often about 6.25 to 32 cents per share.)

Mischer built the resort from scratch, creating a Wild West themed hotel, condominiums and a recreational vehicle park. It was a place where Willie Nelson once rode a horse through the lobby.

Lajitas under Mischer, attracted middle class people with $50 to $60 to spend on a room for the night. The place had a rapport with locals; so much so, many locals felt a proprietary sense about the place.

During the 1990’s, the holding company for Lajitas, Southern Investors Services, was plagued by debt, liquidity problems and a growing sentiment within the company that the resort was more of a liability than an asset.

Lajitas is about as hot of a place, in about as hot of a desert as you can find – certainly in North America, Desert critters are adapted to it. So are desert people. So are the desert tourists. The keys to desert survival are many. Avoidance to heat is tantamount. Tourists avoid the summer months and heat like a jackrabbit in June. Making a buck and making a business here a success is a very difficult task.

The desert is an unforgiving place. For the uninitiated, a wrong turn on a road, a sprained ankle, a forgotten water bottle, may mean that death is at your door. The science of ecology and economics are similar, in that both study the flow and allocation of resources. Desert ecology and economics share a tenet: one misstep and your dead.

In required annual filings with the U. S. Securities and Exchange Commission during most of the 1990’s Southern Investors Services used ominous phrases such as: “The Company was delinquent on notes payable;” “Cash flow from operations has not been sufficient to meet liquidity needs during the past several years;” and “The ability of the Company to continue as a going concern is dependent upon....”

The resort in the desert proved to be a drain on the balance sheet.

In 1999, Southern Investors decided to sell Lajitas; it was put up for sale by auction on February 24, 2000. While financial success was elusive to Mischer in Lajitas,his investments in Houston and elsewhere were strong. Mischer also served on the board of directors on Southwest Airlines for 19 years, overseeing its phenomenal growth and success.

The Smith Years

On the day of the sale in 2000, Steven Smith, of Austin, arrived minutes before an auction for the 24,000-acre spread was to begin. People familiar with the auction had expected a group of foreign investors to take the resort. Local lore describes the expected owners variously as Iranian, Indian, and Pakistani – in short, people not from here. Not from West Texas – and certainly not from South Brewster County, the most important defining characteristic of suitability to locals.

As one longtime resident present at the auction describes, “It was like Smith fell out of the sky. All those foreigners present – and Smith got it.” Smith would embark on a vision, and dream to tame the desert of dust and grime and create an oasis for the wealthy.

Smith began what would become a $100 million investment to build Lajitas into a world-class, five-star resort, where people would golf, buy condos, buy lakeside cottages, build second homes.

A place to which someone in Austin or Dallas could board a private jet and fly in 50 minutes.

Of Smith’s many investments in Lajitas, it boasts the region’s largest airport runway – at 7,500 feet, it is longer than Alpine’s, or Marfa’s, and about 1,500 feet shorter than Midland International Airport’s. According to promotional material from the current Lajitas Resort, the previous owner, Walter Mischer “purchased Lajitas with a Palm Springs venture in mind.” As Mischer would later realize, Palm Springs has a springboard called Los Angeles, with 10 million people just 90 miles away to help make a resort take that leap from dream to economic reality.

While Smith and his team were busy building his resort, the locals with fond memories and a proprietary sense of ownership stayed away. The new resort would cater to a different clientele, ones with private jets or the ability to rent one. Promotional materials were designed to sell the proposed lakeside cottages used such phrases as “Master of Our Destiny.”

In real estate it is said, “If you build it, they will come.” Apparently they did not.

On 2, June, 2006, Lajitas Resort, Lajitas Real Estate, Lajitas Airport and Lajitas Utility Co. bet the farm and collateralized almost everything of the 24,000 acre resort and borrowed $12.5 million from PA Funding GP, LLC, also known as Prime Asset Funding, based in Connecticut. As Prime Asset describes its services on its website: “PAF competes with commercial banks through speed and creative structuring rather than low interest.”

This May, The San Antonio Express-News reported that Lajitas was in default. To boot, the newspaper reported that “for the past four quarters, Lajitas generated $1.65 million in receipts, down from $1.8 million for the year before that, and from $2 million for the year earlier.”

Despite the total investment of about $100 million, the revenues at a Smith-owned Lajitas, are lower than the $2.1 and $2.0 million which the Mischer-owned resort reported to the SEC in 1993 and 1994. SEC records indicate revenues at a Mischer-owned resort topped out at $2.5 million in 1997.

A decade and $100 million later, revenues have declined to $1.65 million.

The note from Prime Asset is due as payable on June 2, 2007 – coincidentally six years to the day on which Steve Smith’s transaction to buy Lajitas closed.

Under the terms of the loan, a default will trigger a sale to the highest bidder at the county courthouse. “Any such sale shall be made at public outcry, between the hours of ten o’ clock (10:00) A.M. and four o’ clock (4:00) P.M. on the first (1st) Tuesday in any month” read the terms of the loan.

Robert Ladd, trustee for Prime Asset confirmed to The Gazette, Lajitas was indeed in default, adding that he understood Lajitas was working hard to secure funding to pay off the loan.

Daniel Hostettler, Chief Executive Officer at Lajitas Resort, said in an email, “We are in default on one small item and that is that we presented the lender a plan in which we would not loose more than a certain amount in any given month and back in November we missed that amount by approximately $15,000 and so the lender technically can issue a default and call the loan, which he has done.

‘We continue to work with both a lending source and a potential equity investor as we work to close a new deal before the June 5th foreclose deadline; and we will of course also use any and all legal remedies to forestall a foreclosure and allow us to complete new financing. In short we are dealing with a lender who has a small loan on a very lucrative piece of property and he is trying to get his hands on it in any way possible.”

In Late May, a second lender, Countrywide Home Loans, Inc., filed notice of sale against Steve Smith seeking the sale of property owned by Smith at 1 Lobo Drive in Lajitas. That sale is set for July 3.

The Economic Impact

Lajitas Resort is a pivotal player in the economy of Brewster County. Besides employing many people, the resort is a major contributor to the county’s tax base. The resort pays an annual $278,192 in county revenue, hospital, and school tax. It generates an additional $53,843 in hotel tax.

The resort’s $203,045 in school tax is a whopping 27.8% of the entire Terlingua CSD tax base and almost 28% of the revenue collected by the Brewster County Tourism Council.

While Smith and his enterprises are a major contributor to the tax base, Lajitas is delinquent to the county for a sum of $20,955. Last year Smith’s lenders paid his tax bill to the county, however they refused to pay the late fees and penalty. That amount is still due.

In the past, Steve Smith has played his hand up to the end. In 2005, General Electric Capital Corporation brought suite against Smith and began proceedings to repossess aircraft; that matter was settled in May 2006 and Smith kept his aircraft.

If Lajitas is auctioned, the lender has the right to bid up to the $12.5 million lent; to what extent, and by whom the biding will continue is unknown.

At presstime, CEO Hostettler’s comments (via email) on the resort’s seemingly tenuous status were, “[We are] working with the current lender to stay the foreclosure as we close on a new financing deal.”

A call to the front desk moments before press time was answered by a polite clerk who said the resort was “absolutely” open and “most certainly” accepting future reservations.

Perhaps as he has done in the past, Steve Smith will fly in at the last minute, keep his dream, and be a Master of His Own Destiny.

1972: Walter M. Mischer and others incorporate Southern Investors Services, a company that would later become the holding company for Lajitas under Mischer.

1976: Mischer begins to develop Lajitas into a resort. He buys the resort the following year from Rex Ivey.

1980’s: Mischer develops Lajitas into a western-themed destination resort geared to middle class families. Room rates average between $50-$60 per night.

1993 and 1994: Lajitas reports resort revenue of $2.1 million and a loss of $628,000. In U.S. Securities and Exchange Commission (SEC) filings, the company details settlements of debt with creditors for as little as 24 cents on the dollar. The company reports to the SEC it is in default on $732,000.

1995: Lajitas reports resort revenue of $2.3 million and a profit of $72,000. The company reports to the SEC that it “was delinquent on notes payable and other long-term debt of approximately $1,859,000 and interest payments of $760,000.”

1996: Lajitas Resort revenue declines to $2.0 million and a loss from resort operations of $808,000 The company warns in SEC filings, “Cash flow from operations has not been sufficient to meet liquidity needs during the past several years and the Company anticipates negative cash flow from operations during 1997.”

1998: In SEC filings Lajitas warns, “The ability of the Company to continue as a going concern is dependent upon its ability to settle or restructure its remaining debt and other obligations and generate positive cash flow to cover its operating expenses and other cash requirements.”

Late 1999: Lajitas owner Southern Investors Services and C.E.O. Walter Mischer determine the $4.78 million debt due on the property necessitates the sale of Lajitas.

February & April 2000: The National Auction Group is retained by Mischer and Lajitas to conduct an auction of the property. The property is sold for $3,950,000 to Steve Smith of Austin. Due to needed repairs to the Lajitas Utility Company, both parties agree to a reduction in the sales price down to $3,550,000

May 2000: The sale of Lajitas closes on May 2. Steve Smith is the new owner. Smith embarkes on an ambitious plan to create a high-end exclusive resort. Airstrip is paved and extended to attract private jet clientele. Room rates are in the range of $210 per night.

Late 2002: The Ocotillo Restaurant reopens after a fire in 2001. Memberships in the resort are priced between $50,000 to $100,000.

Spring 2003: Lajitas announces private jet service from anywhere in Texas to Lajitas for $3,600 per jet trip, or $600 per person.

Spring 2004: Lajitas announces Congressman Henry Bonilla has become a member of the resort. The construction and sales of new condominiums are unveiled.

Late 2004: Lajitas announces condominiums have nearly sold out. Plans for the construction and sales of Lakeside Cottages are announced.

September 2005: The Gazette breaks the story on the Lajitas Relief Route, pejoratively called “The Bonilla Bypass.” It is learned Congressman Henry Bonilla has secured $1.2 million in federal highway funds to reroute FM 170 around the Lajitas Resort despite an agreement between Lajitas owner Smith and the Texas Department of Transportation whereby Smith would cover most of the cost of the project.

October 2005: The San Antonio Express-News picks up on Gazette story on Bonilla bypass. The day after the news article is printed, in an editorial on the bypass, the Express-News calls on Congressman Bonilla to redirect the funds to more worthy issues.

Fall 2005: Governor Rick Perry appoints Lajitas Resort President Daniel Hostettler to the Governor’s Tourism Advisory Board. Lajitas announces a discounted “Last Chance Land Sale.”

June 2006: Lajitas Resort, Lajitas Real Estate, Lajitas Airport and Lajitas Utility Co., enter into an agreement to borrow $12.5 from PA Funding, LLC, a.k.a. Prime Asset Funding GP LLC of Greenwich, Conn. The note is due and payable June 2, 2007 (exactly six years after Steve Smith closed on Lajitas).

May 2007: Prime Asset Funding declares Lajitas in default and schedules a foreclosure sale on June 5. Countrywide Home Loans Inc. seeks sale of mortgaged Lajitas property owned by Steve Smith. Sale is scheduled for July 3.