During the thick of Jackson County’s real estate boom, two business partners out of Georgia and South Carolina began laying plans for a colossal mountain resort — a high-dollar, second-home retreat they envision as a legacy project to crown their careers as developers.

Tony Corliss and Theodore Morlok spent $56 million amassing 3,500 acres between Tuckasegee and Glenville from 2004 to 2006. Called River Rock, the development consists of five parcels, the largest being 1,800 acres rising from the Tuckasegee River up the flank of Cullowhee Mountain.

Like most developers, they counted on the sale of lots to subsidize the project. Building golf courses and club houses, putting in roads and water systems, making loan payments and marketing was all to be fueled in part by the ongoing sale of lots.

But the economic downturn has taken its toll on developers across the mountains, and Legasus is no exception. Lot sales have fallen short of expectations, according to Gabe Quesinberry, director of the project. The 3,500-acre development calls for 1,700 lots. So far, 240 have been sold.

To keep the project going, they sold 850 acres of the development to a private investor for $16 million last year. And in June, they took out a $20.5 million loan. Meanwhile, one of the five development tracts is on hold.

Todd Baucom, co-owner of Western Carolina Properties in Cullowhee, called the market “slow, very slow” right now.

“Pretty much the only interest you are seeing in lot sales are from folks that are really truly looking to build a home on that property within the next 12 to 24 months,” Baucom said. “The investment type deal on land right now is just gone. They have left the building.”

There’s plenty of competition as well. There are more than 3,000 lots for sale in Jackson County at the moment. The exact number isn’t known since some developments do their own sales and their lots don’t show up in the countywide database kept by Realtors.

Despite the cooling market, Legasus is in a strong position, Quesinberry said. Land has continued to appreciate in value, he said.

“We did not buy high. It has since gone a lot higher,” Quesinberry said. “It would cost us more today that it would have then.”

Corliss, one of the two partners behind Legasus, died from a sudden and unexpected heart attack three weeks ago at the age of only 54. While the company is grieving his loss, it will not affect the development of River Rock, said Quesinberry, citing a succession plan the company had in place.

Thomas Crowe, a resident of Tuckasegee, is concerned what will happen if Legasus gets on partially through the development and runs out of money. He asked Legasus president Jim Pitts about the company’s financial plan at a roundtable meeting between the developers and neighbors last month, specifically whether the company would share its financial picture. But Pitts said the company’s finances aren’t public. Crowe said the community deserves to know.

“Why can’t we know who it is that is backing them and what their financial situation is? It is a huge project. Can they afford to do it?” Crowe asked.

Loans keeps Legasus going

Quesinberry said Legasus had always planned on needing more capital than lot sales alone would provide.

“Most larger scale projects can’t self-fund off sales alone,” Quesinberry said. The 15-year timeline for the development means it will span the ups and downs of at least two economic cycles, he said.

“In the development business, you are constantly changing and moving with the market,” Quesinberry said. “In a development of this scale, capitalization is a constant process.”

Nonetheless, Legasus was banking on lot sales to help make loan payments, according to documents Legasus filed with the county planning office in spring of 2007. Legasus was making its case to the county for vested rights, which would exempt the development from a moratorium on new subdivisions and from pending regulations being written at the time (see related article).

The application shared basic elements of Legasus’ financial plan.

“Consistent and progressive lot sales” was integral to the financial strategy, according to the application. If “the revenue stream created by sales momentum” was interrupted, it could jeopardize the developers’ ability to make loan payments, the application said.

But Legasus developers also knew they would need the large upfront cash only loans could provide, namely to get things like the golf course, club house, boat docks, water system and roads up and running, since some buyers won’t bite until those are in place.

“Legasus is working on many new banking relationships to assist in the short-term financing of roads, infrastructure and amenities,” Legasus stated in its application over a year ago.

But with the banking and real estate industry in crisis, loans were hard to get.

“Funding has become extremely hard to get your hands on,” Baucom said.

Legasus recently landed a $20.5 million loan from Kennedy Funding, however. Kennedy touts its willingness to make development loans with only raw land as collateral, something “virtually shunned by other lenders” in the current environment, according to a press release from Kennedy Funding. The same press release said Legasus was unable to get a traditional loan before it came to Kennedy.

Specifically, the loan was for a 677-acre section of River Rock called Tuckasegee — the furthest along in development plans and lot sales of the five tracts that comprise River Rock. Part of the loan will be used to pay off debt. The rest will be used to construct roads, an entrance feature and utilities, according to the press release. The developers’ reputation, combined with the region’s draw, made the loan a good risk despite the real estate climate, Kennedy’s press release said.

“As a long-time permanent or vacation home destination for affluent buyers, this area holds promise for success despite the oft-reported housing market downturn,” the press release states. “With wooded hiking trails, a planned entertainment and fitness complex, and accoutrements consistent with high-country living, Tuckasegee will present buyers with scenic settings and desirable lifestyle elements.”

Quesinberry said Legasus got good terms on the loan.

“It is not a last resort type of loan,” Quesinberry said.

Bringing investors on board

In another quest for cash, Legasus partnered with a private investor to capitalize a portion of the development last year. Patrick Kennedy, the owner of a software company in California, paid $16 million for an 850-acre tract of River Rock called Trout Creek. Kennedy holds other land in Jackson County as well (he has no connection to Kennedy Funding.).

Trout Creek still appears in Legasus’ master plan for River Rock, showing up on their maps, in their marketing plan and in their public presentations. While Kennedy is technically the owner, Legasus will continue to act as the developer of the tract, Quesinberry said. Legasus has retained first rights to the property and kept 67 lots that are among the most easily accessible.

But Legasus has put Trout Creek on hold for the moment.

“Trout Creek has pretty much been put on hold because of market conditions,” Quesinberry said.

The 3,500-acre River Rock is not Legasus’ only interest in Jackson County. Legasus has three parcels of land in the Cashiers and Tuckasegee area under purchase option totaling $49 million, the largest parcel being at Bear Lake. The land has been under option for more than 18 months. Legasus had put down $1.6 million on the options as of last summer. Quesinberry said the land is still under option, but did not say if Legasus has put down additional money to keep the options renewed.

Legasus has a 500-acre development in Whittier called High Grove Estates, which calls for 91 lots. Legasus got a $9.5 million loan from Kennedy for that development as well. It will be used to refinance other debt and build roads and other features, such as a pavilion.

Legasus owns other land in Jackson County as well, but is listed under different corporate names in the property books.