Balsam Mountain Preserve property owners pull off grassroots fundraising on a colossal scale

Affluent property owners in Balsam Mountain Preserve have raised commitments of $16.3 million in an effort to stave off foreclosure of the development by lenders.

Balsam Mountain Preserve, a mega development on 4,400 acres in Jackson County, owes nearly $20 million to lenders, who initiated foreclosure proceedings earlier this month. A hearing on whether the foreclosure can proceed was scheduled for Wednesday, Oct. 28.

Dave Walters, one of the property owners leading the effort to raise capital, hopes they will get a seat at the table in the dialogue between the lender and Balsam Mountain Preserve.

“We hoped to raise enough capital that would create an environment the lender would want to have serious dialogue with us during this process,” Walters said. “We have a very active and very intelligent and very vested and worldly group of property owners who are engaged and will remain so.”

Ideally, property owners hope to step into the shoes of the lender and get in control of their own destiny, Walters said. Commitments have been raised from 65 property owners — more than a third of the total property owners within the development.

“I think that is indicative of the overwhelming love for the place and the desire to keep the lifestyle what we hoped it would be,” Walters said.

Property owners would rather keep Balsam Mountain Preserve’s parent company Chaffin Light on board as the developers rather than an unknown player, Walter said.

“The ultimate goal has always been to keep the Balsam in Balsam,” Walters said “Balsam Mountain Preserve is a very unique place.”

Lots in Balsam Mountain Preserve have averaged $500,000. The grounds are rife with multi-millionaires and corporate executives who bought into the culture the upscale development embodies: top-notch amenities, an environmental ethos, strict covenants and a woodland estate setting. The conservation ethic is particularly important to property owners, Walters said.

“Nobody knows what a new owner or someone who took over would do,” said Nancy Seidensticker, a homeowner in the development. “It is a little frightening. We don’t want it change. We like it the way it is.”

Balsam Mountain Preserve has been in default of a $19.8 million loan since January, trying the patience of TriLyn, a private equity real estate investment firm based in Connecticut. The property owners knew a foreclosure was in the cards since May and have been working on a plan since then.

They created an LLC, wrote an investment prospectus and solicited pledges from property owners. The deal is twofold, mirroring the two major pieces of equity within the development.

One fund, called the Balsam Mountain Sustainability Plan, would be collateralized with the unsold lots that are still in the developers’ hands — approximately 120 lots. The current developers would remain on board as operators and pay back the loan from property owners through lot sales. So far, $8 million has been raised through that fund.

A second fund, called the Amenity Purchase Plan, would be collateralized through the amenities, including an Arnold Palmer golf course, riding stables, dining hall, pool, tennis courts, pavilion and backcountry camp. The amenities have been shut down for now.

“The amenities are a very large part of keeping the Balsam in Balsam,” Walters said.

Property owners buying into the fund would own the amenities and make money back over time through memberships and any profits off their operation.

Property owners are not willing to take a second position to the current lenders, Walter said. The property owners have fallen a few million short of being able to pay the lender off in full, however. Whether the lenders are willing to take what they can get and walk away, or whether they would prefer to move forward with foreclosure in hopes of eventually making all their money back, is not known.

“In today’s market, it is all about the money,” Walters said. “That is the position the lender has taken since day one. They have a right, it is their money.”

Unfinished hotel mars Sylva landscape

The fate of an unfinished Clarion Inn in Sylva is up in the air after a bank foreclosed on the property earlier this month.

The developer burned through a $5.1 million construction loan for the hotel but ran out of money before finishing the job. Meanwhile, the developer filed for bankruptcy and still owes the contractor $1.9 million.

The boarded-up windows and a weed-engulfed sign of the abandoned hotel casts a cloud over the main commercial thoroughfare in Sylva. The four-story hotel seems doubly tall given its placement on a high, steep bank above the road, its bulk now a prominent feature against the mountain skyline.

Sylva Town Commissioner Maurice Moody hopes that someone will step in to finish the construction and open the hotel.

“There is too much money in it to sit there and do nothing. If it does sit there and do nothing it will become an eyesore,” said Moody, who is running unopposed for mayor this fall.

Its developers, the father-son team of Thomas and John Dowden, took out a $5 million loan in September 2007 from the Alpharetta Community Bank of Georgia.

The loan was due in full two years later. As September of this year approached, however, the Dowdens still owed nearly the full loan amount.

“It is a shame it had to stop in its tracks,” said Thomas Dowden, the father, who lives in Cashiers. “We were 80 percent done and we should be open and running by now. That’s what our plans were.”

Thomas said his son, John, was the principal manager of the project and questions should be directed to him. John Dowden, however, did not return calls seeking comment.

The Dowdens hired Cooper Construction to begin construction in September 2008. Cooper Construction of Asheville did $4.8 million in work before construction was halted. Cooper was only paid $2.9 million, however, leaving the company holding the bag on $1.9 million in labor and materials that it already expended but has been unable to recoup.

“It has been a terrible, terrible, terrible hit to this 42-year-old company,” said Larry Rocklin, the general manager.

Rocklin said the loss has been difficult for the company to absorb, despite being the third largest contractor in Western North Carolina. The family-owned business has 60 employees currently.

Initially, the Dowdens planned to build a three-story Sleep Inn, Rocklin said. But along the way, they decided to upgrade it to a four-story Clarion. Rocklin said they miscalculated the extra cost of the additional story, which requires significantly more structural support.

“That’s where he blew it,” Rocklin said.

The Dowdens’s plan was to seek additional financing from the same bank that made the original loan. When that fell through, they sought other investors to no avail.

“I’m afraid what happened is the bank wouldn’t provide any further monies to finish the project,” Thomas Dowden said. “With all the bank problems going on since last fall, we got caught up in all that. We went out and found some new investors but couldn’t get it structured properly.”

The construction contract with Cooper Construction was $6.33 million — $1 million more than the initial construction loan, not counting additional costs such as architecture fees, furnishings and water and sewer connections.

Rocklin said he didn’t realize until it was too late that the Dowdens didn’t have enough money for the upgraded design.

“The bank never had any intention of giving him additional money,” Rocklin said.

In late December 2008, just a few months into the construction, Cooper filed a lien against the property. By February 2009, however, John Dowden had filed for Chapter 7 bankruptcy.

The bank got permission from the bankruptcy court to proceed with foreclosure in July. A foreclosure sale was initially on tap for late August.

Cooper Construction managed to stave off the sale for a month. With the developer in bankruptcy protection, Cooper’s only recourse was a claim against the tangible property. Once it fell to a new owner or was repossessed by the bank, that claim would be harder to make.

Cooper has a lawsuit prepared to go after the bank for the outstanding balance on the construction work.

“It then becomes a decision of do we want to push forward with a lawsuit with a chance of winning or a chance of possibly losing,” Rocklin said.

In addition to the $2.9 million paid out to Cooper Construction, the Dowdens spent at least $1.4 million in additional costs related to the project: $480,000 on land, $270,000 on water and sewer hook-ups, $60,000 on a franchise fee to Clarion, $200,000 on architecture and $400,000 on furnishings and equipment, according to court documents.

The total — $4.3 million — leaves $800,000 of the initial construction loan unaccounted for in court documents. Rocklin said he has been unable to determine how the full balance of the construction loan was spent.

Clarion Hotel, which is one of several brands under Choice Hotels, has no interest in stepping in to take over the proerty, according to a spokesperson.

“We don’t own or operate any of our properties. They are all individually franchised,” said Heather Soule, spokesperson for Choice Hotels.

Soule said the company has seen a national slowdown in new hotels coming online over the past year.

“It is taking longer for new construction to get off the ground and find the financing to do so. People are having to wait to get that construction loan,” Soule said.

Exactly what Alpharetta Community Bank will do with the hotel now is anyone’s guess. As for what happens now, Rocklin doesn’t thinks they can sell it for enough to recoup the original $5.3 million loan. The bank will either have to sell it at a loss or hire someone to finish it then sell it, he said.

BMP’s problems not apparent

At first glance, it is hard to see why Balsam Mountain Preserve has been unable to satisfy the lenders behind a $19.8 million loan dating to 2005.

The exact amount of the payoff on the loan has not been revealed, but is the only debt Balsam Mountain Preserve is carrying, according to Chris Chaffin, managing partner of the development. Chaffin did say Balsam Mountain is current on the interest portion of the loan.

Since taking out the loan four years ago, Balsam Mountain Preserve has had $65 million in lot sales, according to real estate transactions and records. That’s enough to pay off the principle of the loan three times over.

However, the majority was spent constructing amenities. Chief among them is the Arnold Palmer golf course, a dream course that was no small feat to pull off given the mountainous terrain. The golf course likely ate up much of the revenue from lot sales, but Chaffin did not provide an exact price tag.

In addition, the development boasts an equestrian center, a sports center with tennis courts and a pool, a nature center, a dining room and lodge, guest cabins and a road network.

Of the 354 lots in the master plan for the development, two-thirds have been sold. There are 120 lots left, and with the infrastructure and amenities mostly in place, any profit to be realized would largely rest with the remaining parcels.

Lot sales have declined in 2009 over previous years, but are strong in comparison to what most developments have seen since the recession. Balsam Mountain Preserve sold 12 lots so far this year, bringing in $6.17 million at an average of $514,000 a lot. If the rate is sustained for the remaining 120 lots, the development would realize an additional $60 million in revenue.

That begs the question of why the lenders aren’t being more patient on the undisclosed balance of the $19.8 million loan.

At the 2009 pace of lot sales, it would take three years to pay off the principal, not taking into account the inevitable overhead expense of maintaining a sales presence or the construction of additional road infrastructure, which is still needed in new phases of the development.

Sustaining operations and the additional capital for more road construction would drag out the payoff much longer than basic calculations allow for, and thus make the lender uneasy. The question, it seems, is whether TriLyn is willing to keep waiting or will attempt to take matters into its own hands.

Of the 120 lots that remain, 40 are scattered through existing phases of the development, while 80 are in new phases. The 40 scattered through existing phases require no additional infrastructure in order to market, but are merely waiting for buyers. The other 80 lie in two future phases and would require a capital investment to upgrade old logging roads into development-caliber roads before aggressively marketing the lots.

In some developments, the last lots to sell are likely the least desirable and lowest in value — whether they’re too steep, lack a view or are otherwise unappealing. Some are so flawed they may never sell.

But given the sparse number of lots in Balsam Mountain Preserve — 354 sites on 4,400 acres — the layout and design was likely more thoughtfully considered on the front end, making it less likely that the remaining lots are of less value or won’t sell at all.

One of area’s first mega developments in trouble

Balsam Mountain Preserve, a mega development on 4,400 acres in Jackson County, has defaulted on the terms of a $19.8 million loan, prompting a notice of foreclosure by nervous lenders last week.

Owners of the development say they are hopeful a deal can be worked out with the lender to satisfy their debt and halt the foreclosure, however.

“We are optimistic we can reach an agreement,” said Chris Chaffin, the managing partner of Balsam Mountain Preserve.

Balsam Mountain Preserve has been in default of the loan since January, trying the patience of TriLyn, a private equity real estate investment firm based in Connecticut. The loan dates back to 2005. For now, neither TriLyn nor Balsam Mountain Preserve will say how much is still owed on the note, although it is believed to a substantial amount.

Balsam Mountain Preserve has continued to ask for more time and has searched for additional credit, but to no avail.

“It is a very challenging environment to find capital,” Chaffin said. “Unfortunately we got caught in the economic downturn. Even though we are the market leader for sales in Western North Carolina, it is not enough to satisfy the debt requirements.”

The answer now seems to lie with the uber-wealthy property owners within the development itself.

“They love the lifestyle of Balsam. It is a place where they have invested and they want to make sure the original vision of Balsam is completed,” Chaffin said.

Not your run-of-the-mill development, Balsam Mountain Preserve has attracted affluent and well-connected buyers, among them actress Andie MacDowell, an Asheville resident. The grounds are rife with multi-millionaires and corporate executives who bought into the culture the upscale development embodies: top-notch amenities (including an Arnold Palmer designed golf course), an environmental ethos, strict covenants and a woodland estate setting.

No one is sharing exactly what form a rescue by property owners may take, although the arrangement would likely involve property owners pooling capital. That could mean forming their own LLC and taking over the note in whole, becoming the new primary financial investors of the development.

Or they could merely raise enough money to get the loan out of arrears, taking a backseat position to the original note. How much would have to be raised to satisfy lenders is not being revealed.

“We are working through all of that right now,” Chaffin said.

Mark Antoncic, founder and managing principal of TriLyn, was reached in Connecticut but said he could not comment on the proceedings at this time.

Balsam Mountain Preserve’s development plan calls for only 354 lots on 4,400 acres, with most of the tract protected in a conservation easement. Roughly two-thirds of the lots have been sold.

With the amenities and infrastructure largely in place, the capital investment was largely behind the company. The profit margin for the development would primarily be realized through the sale of the remaining 120 lots, which are now the target of the foreclosure.

 

BMP joins a long list

Chaffin said Balsam Mountain Preserve is a temporary victim of the recession, but the business model still holds long-term promise.

“It is a timing issue,” Chaffin said. “The fundamentals of Western North Carolina as a second-home market are sound. It is just a matter of working through the downturn.”

Balsam Mountain Preserve is certainly not alone, however. Mountain developments both large and small have been facing foreclosure and even bankruptcy in recent months. As lot sales have dropped off, so did cash flow. Developers no longer had a revenue stream to make loan payments or finance infrastructure like roads and golf courses.

Unable to sustain operations, they hunted for additional sources of credit. But everywhere they turned, credit had dried up, even among the most notorious hard-money lenders, forcing some developers to fold. Another mega developer in Jackson County called Legasus saw a sizeable portion of its development foreclosed on by Macon Bank this summer.

Jackson County Sheriff Jimmy Ashe has had a bird’s eye view of the rash of foreclosures in the region. His office serves foreclosure papers, including the ones to Balsam Mountain Preserve last week. The foreclosures aren’t just among developers, but also among investors who snatched up blocks of individual lots. Rather than continuing to appreciate, there is a glut of mountain lots on the market. Some lot owners are simply choosing to not make payments and watching the property revert to the banks.

“There were more properties out there than people wanted,” Ashe said. “As far as it being swooped up because it is there, it didn’t happen. The mountain property they thought was so valuable, they are finding out what the local people have known for hundreds of years: if you can’t farm on it or build on it and cattle can’t stand up on it, it’s not that valuable.”

Balsam Mountain Preserve was arguably in a better position than most. While lot sales aren’t what they used to be, they are still strong compared to other developments in the region. Balsam Mountain Preserve sold 12 lots so far in 2009, averaging more than $500,000 each. Some developers sold zero.

Balsam Mountain Preserve was one of the first mega developments in the mountains, with the initial land purchase dating back to 1999. The property was part of the vast timber holdings of Champion Paper, which logged the tract over the decades to fuel its paper mill in Canton.

Amenities and infrastructure have largely been completed, unlike relative newcomers that had barely gotten started when the recession hit.

“Balsam is in the fortunate situation that the amenities are mostly completed. The fabric of Balsam has been defined,” Chaffin said.

Legasus, for example, didn’t even have its golf course permitted, much less constructed, when it faced foreclosure.

Balsam Mountain Preserve’s $20 million note with TriLyn is the only debt the company is carrying, while some over-leveraged developers are grappling with a half dozen loans with various lenders.

Balsam Mountain Preserve is one of several large-scale resort developments under the umbrella of the national company Chaffin/Light Associates. Developments span from Snowmass in Colorado to coastal South Carolina, but the model is the same: a recreation-based resort set on expansive acreage in beautiful surrounds and catering to high-end clientele.

Chaffin is the son of Chaffin/Light founding partner Jim Chaffin and took over as managing partner of Balsam Mountain Preserve in January of this year, in the thick of the economic downturn and credit crisis.

 

Jobs disappear, lights stay on

In an effort to preserve capital and as a result of foreclosure proceedings by TriLyn, Balsam Mountain Preserve has been forced to lay off half the 80 workers — including a security force, golf caddies, stable hands, maintenance workers, dining room staff and sales managers — who had been on the payroll.

“It was a very sad day when we had to reduce operations,” Chaffin said.

A crew of critical security personnel, maintenance workers and office staff remain employed, Chaffin said.

“Our operations are focused on protecting the physical integrity of the community,” he said.

The golf course is closed for the remainder of the year due since there’s no staff to run it. Property owners no doubt aren’t pleased, since the Arnold Palmer designer course was a main selling point to some who bought into the development. But Chaffin said they have been resilient.

“We had a fireside chat or town hall meeting this weekend to address the situation with the members,” Chaffin said. “The members are behind us working toward a solution. There is always the toxic 2 percent, but in large part the members have been very supportive.”

 

Defining eco-development

Balsam Mountain Preserve is also one of the first self-described eco-developments in the Western North Carolina mountains. While many developers have since made the claim as a marketing strategy, Balsam Mountain Preserve continues to lead the pack in its conservation approach. Despite its giant size, the master plan for the development calls for a mere 354 lots.

“The idea is for the ecosystem to stay intact through the community. The homes are islands within the sea of the preserve,” Chaffin said.

More than half the acreage was placed into a conservation easement to be permanently protected, which also reaped substantial tax benefits for the company. No matter how the foreclosure turns out, the conservation easement will remain intact. It is tied to the land deed, and applies in perpetuity no matter who owns it.

To oversee the large natural areas, the non-profit Balsam Mountain Trust was formed as an independent entity. It has a staff of three naturalists, who care for the ecosystem and operate a nature center. Nature programs are provided for members of the community and the public at large, from guided hikes to school fieldtrips. The naturalists are still on staff and the nature center is still open.

“We’ve got more naturalists than golf pros. The environmental ethic is fundamental to Chaffin/Light Associates,” Chaffin said.

The Balsam Mountain Trust is funded by a portion of every lot sale, including the resale of homes and property. The arrangement that will continue no matter who is the eventual owner of the development, Chaffin said.

The eco-philosophy behind the development has been embedded in covenants that will persist even if the foreclosure proceeds. A new owner of the development could not add more lots, for example, which are capped under the development’s master plan, Chaffin said. Strict covenants that apply to individual property owners, such as limits on cutting trees and stipulations reducing the glare of windows, would also carry over.

Ghost Town still in the red despite $1.53 million in revenue

Ghost Town in the Sky did not bring in enough revenue from its amusement park operations during the months of May, June and July to cover its overhead and operating expenses.

Ghost Town recently filed financial statements with the U.S. Bankruptcy Court for May, June and July that show how much it made off ticket sales, concessions and souvenirs. For the three-month period, Ghost Town made $1.531 million in revenue off the park.

Meanwhile, the Maggie Valley amusement park paid out $1.845 million in operating costs, including salaries, utilities, insurance, taxes, advertising and equipment.

The operating loss was offset thanks to contributions from investors to the tune of $322,000. The financial statements do not say where or who the cash infusion came from. The cash infusion mostly came in May, when the park bore significant expenses to get the doors open for the season. Once open, the park began to break even and during the month of July, the park even made money.

Ghost Town CEO Steve Shiver made a modest salary of $5,426 over the three-month period. However, a company Shiver is president of, Global Management Services, was paid $27,000 by Ghost Town for the period. Shiver’s company is billed as a professional services company and dates to Shiver’s former life in the Miami area. The services Shiver’s company provided were not spelled out in the financial filings, but the fee was listed under a section for payments to insiders.

The theme park has suffered a setback this summer by failing to get the Cliffhanger Roller Coaster open.

The Maggie Valley theme park filed for Chapter 11 bankruptcy in March in hopes of holding off bill collectors long enough to get back on its feet. In addition to a $9.5 million mortgage, the park has a trail of unpaid bills with more than 215 companies totaling $2.5 million.

Ghost Town has been granted an extension to file its reorganization plan under bankruptcy protection. In early July, days before the plan was due, Ghost Town asked the court for an extension. The bankruptcy court granted a three-month extension, making the plan now due in early October. The plan is supposed to spell out how the company plans to make money to pay back its myriad creditors.

Those owed money get to vote on whether to accept Ghost Town’s reorganization plan. The plan is supposed to be voted on by creditors within two months of being filed.

The bankruptcy court turned down a request by Ghost Town that would have paved the way for another $250,000 loan from a private investor, Alaska Pressley. The loan would have been used to help get the incline railway working. Ghost Town wanted to pay back the loan by dipping into proceeds from ticket sales, but the bankruptcy court ruled that this in effect would allow Pressley to jump in line ahead of others already owed money by Ghost Town.

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