Diablo Grande's price tumbles

For sale! One golf resort. Includes two 18-hole championship courses, clubhouse, restaurant, winery and other swanky items. Price slashed! Was $150 million. Snap it up for $85 million.

Diablo Grande resort, a victim of the sluggish housing market, has taken a page from beleaguered homeowners and dramatically reduced its price, looking for a quick sale.

The resort, which filed a Chapter 11 reorganization bankruptcy last month, also won approval from the Bankruptcy Court in Modesto on Wednesday for $1.5 million in interim financing from Fountainhead Development Corp. Inc. The financing will allow the development to continue operating through June.

The Chapter 11 filing protects the resort from its creditors while it develops a plan to pay its debts. That plan, not yet filed with the court, appears to be to find a buyer to continue developing the property.

Nestled in the hills west of Patterson, Diablo Grande includes 33,000 acres of hilly rangeland. In addition to the golf courses and winery, more than 400 homes have been built. The financial problems surfaced when the housing market went south, according to Diablo Grande officials.

The resort's water system was financed with bonds that were to be paid off with assessments against homeowners, but not enough homes have been sold to pay the bonds. Plans for the resort call for 2,300 homes, along with a luxury hotel and convention center, spa, tennis club and retail shops.

Western Hills Water District was formed to operate the water system and is one of the creditors in the Chapter 11 filing.

$54.65 million in liabilities

Bankruptcy documents show $54.65 million in liabilities, including $20.4 million to the Bank of Scotland, more than $10 million to limited partners of the partnership that owns the development, $1.8 million in taxes to Stanislaus County and $900,000 to Oak Valley Community Bank.

Oak Valley bank has petitioned the court to lift the bankruptcy protection on its loan to Diablo Grande, citing deteriorating equity in residential lots the bank holds as collateral. The interest on the loan is building, and unpaid taxes on the property are eroding the equity, according to the Oak Valley bank filing. A hearing is scheduled May 28 on Oak Valley bank's request.

The interim financing deal is through Fountainhead Development, a company founded by Diablo Grande managing partner and pharmaceutical entrepreneur Donald Panoz, in which he serves as chairman of the board.

Creditor objects to loan

One of the creditors, Mountain Cascade, objected to the conditions of the loan in light of the insider nature of the lender. Diablo Grande attorneys argued in court documents that the terms of the loan are better than those negotiated with outside lenders.

The reduction in price is having the desired effect, said Craig Stewart, an agent with Marcus & Millichap, the firm marketing the property.

"Activity has ramped up quite a bit," Stewart said. "We are still interviewing buyers, trying to find the best fit."

The partnership that owns the resort, headed by Panoz, is trying to get "the strongest price possible," Stewart said, and would like to settle the matter quickly.

Diablo Grande's investors have poured more than $120 million into the project over 20 years, working through 21 lawsuits challenging the water supply and environmental issues, obtaining water rights from a Kern County water district and building a road to the remote site.

The development began building houses in 2003, but the housing market woes caught up with the resort in the past year.

Bee staff writer Tim Moran can be reached at tmoran@modbee.com or 578-2349.