Fairmont Hotels and a New York investment firm pulled out of a $46 million deal to buy the Peaks Resort, leaving Telluride’s largest hotel in long-term limbo as it prepares to reopen for the ski season.

Two people with direct knowledge of the negotiations — one from each side of the table — said the hotel’s expensive infrastructure problems had torpedoed the deal.
After examining the Peaks, buyers Fairmont and Manhattan-based Thor Equities concluded that the hotel needed $6-7 million in repairs, on top of a planned $60 million renovation. They tried to shave that cost from their $46 million bid, but the hotel’s owners would not drop the price by that much.

The impasse didn’t break, and on Friday, Fairmont and Thor walked away from their contract to buy the Peaks. They even withdrew their deposit — a sign that the companies aren’t likely to return to the bargaining table.

The collapse of the deal will disappoint local brokers, government officials, Peaks condo owners and others who had pinned their hopes on Fairmont taking over and sprucing up the Peaks, a 170-room luxury hotel and a fulcrum of the local economy.
Weeks ago, if you asked people about Fairmont’s offer, or the rumors that it was poised to close on the deal, the most common response you’d hear was, “I sure hope so.”
Now, the Peaks will turn to its next-highest bidders, sources said. They are a few of the hotel brands and investment firms that placed bids on the Peaks this fall. The Telluride Ski Resort also bid on the hotel, but it wasn’t clear whether Telski would be jumping back into the mix.

No matter who is still bidding, those buyers could find similar — and equally expensive — problems with the hotel. It’s not clear what would happen if they tried to negotiate down from original bids that were lower than Fairmont’s $46 million.
A spokeswoman from the hotel’s owner, the Blackstone Group, could not confirm that the sale had sunk. But she indicated that, for Blackstone, the private-equity giant, there were other fish in the sea.

“My understanding is that there are a variety of parties interested in the property,” said the spokeswoman, Anne Hersley-Hankins. “But right now, our focus is getting the hotel ready for ski season. I understand all hands are on deck for that.”

The Peaks is still on schedule to open Dec. 15, as promised. But its future beyond this ski season is as opaque as a glass of milk.

The hotel still needs a $60 million renovation that had originally been scheduled for last spring. Work crews had just gotten started when Blackstone called off the massive remodel and announced that the hotel was up for sale.

All summer, buyers from big-name hotel chains like the Marriott Group, Hyatt Hotels, Loews Corporation and Fairmont toured the empty hotel, kicked its tires, contemplated a bid.

Fairmont and Thor Equities emerged on top. Thor would have owned most of the stake in the Peaks, and Fairmont would have owned a smaller share and provided the branding and management. Fairmont also operates the luxury Franz Klammer Lodge in Mountain Village.

After their bid was accepted, Fairmont and Thor signed contracts and began their due diligence work to learn every positive and negative aspect of buying the Peaks. Among the pitfalls was a lawsuit by the Peaks’ penthouse owners and the hotel building itself.
The buyers found major signs of physical distress, including leaky roofs and water seeping through the exterior wall, said an official connected to the deal. The official spoke on the condition of anonymity because he was not authorized to talk about the purchase.

Peaks management did not return a call to discuss the deal, and no one from Thor Equities or Fairmont’s acquisitions division returned phone messages last week.