Mortgage crisis spooking high-end developments

As Promontory began showing signs of distress a few months ago, Francis Najafi, chief executive of Phoenix-based Pivotal Group, gathered members together in an opulent timber-and-stone clubhouse and said he was in default and pulling out.

"He was telling everybody he was sorry for our troubles and blaming events beyond his control--the nation's real estate," said Smith, who believes Promontory will bounce back in a year or two under new ownership. He still hopes to develop two lots with multimillion-dollar vacation homes for sale.

"The project is not in trouble other than Francis Najafi decided to pull money out of it," said Smith, holding his anger in check. "We can't wait until the court decides who's going to be in charge."

Promontory joins several other Western vacation spots facing financial uncertainty or worse, including Nevada's Lake Las Vegas golf resort, Idaho's Tamarack Resort and Montana's venerable Yellowstone Club. And sales are off at other resorts in the region, according to the Rocky Mountain Resort Alliance.

Overdevelopment is one of their major problems.

Around Las Vegas, a quarter of all housing sales on the market are listed as short sales, going for less than the loan taken out on them. On the Strip, plans for 24,700 condominiums are on hold or have been canceled, according to research firm Applied Analysis.

"Many of them were speculative projects to start," said Brian Gordon, principal of Applied Analysis, which tracks the market closely.

At the more exclusive resorts, the market had seemed recession proof, with buyers generally paying cash. They had nothing to do with the failing U.S. subprime loans that are causing market turmoil. But the turmoil is making banks less forgiving for resort developers who took out huge construction loans.

The Swiss investment bank Credit Suisse says Najafi defaulted on $275 million loan in December and told a loan officer he has no money to pay for anything at Promontory.