Diablo Grande's money woes escalate

Resort in default on loan, closes second golf course

By TIM MORAN and KEN CARLSON
tmoran@modbee.com

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and kcarlson@modbee.com

DIABLO GRANDE -- Diablo Grande, the luxury golf resort in the hills of western Stanislaus County, is in financial trouble and has closed its two golf courses.

The 33,000-acre project is in default on a $900,000 payment on a loan from Oak Valley Community Bank, according to records in the Stanislaus County assessor's office. Several mechanics' liens totaling about $317,000 have been filed in recent months, and members report that several employees, including golf pro Shane Balfour, have been laid off.

Modesto Bee - Aerial view of the Diablo Grande resort, west of Patterson, taken in June 2006. (Adrian Mendoza/ The Modesto Bee)

PDF Graphic: Diablo Grande Facts
THE LIENS

Several contractors have filed liens against Diablo Grande, seeking to recover unpaid bills, according to Stanislaus County records.

Chrisp Co. of Fremont
DATE: April 9
BILL: $97,455 for stop and street signs

Horn Electric of Lodi
DATE: Nov. 5
BILL: $176,696

RSC Equipment of Gilbert, Ariz.
DATE: Nov. 16
BILL: $2,889

Thorsens Inc. of Turlock
DATE: Jan. 18
BILL: $22,201 for plumbing

Oak Valley Community Bank
DATE: Jan. 24
BILL: $898,684, defaulting on a loan payment

Mountain Cascade of Livermore
DATE: Jan. 25
BILL: $17,363 for installing a water line
Source: Stanislaus County clerk-recorder
CHRONOLOGY
- 1993: Stanislaus County officials approve a plan to create a 33,000-acre resort in the Diablo Range nine miles southwest of Patterson. The county approves environmental studies, including those dealing with unidentified water sources. Three environmental organizations sue the developer, Diablo Grande, and the county, saying the studies don't comply with state environmental law, charging that the project's full impacts couldn't be measured because developers hadn't identified where the project was going to get water. The studies address only the first five years of what could be a 25-year project, the groups contend.
- 1994: A Stanislaus County Superior Court judge rejects the lawsuit. The environmental groups appeal.
- 1996: The appeals court agrees with the environmental groups, reversing the lower court's ruling and ordering more studies. The California Supreme Court agrees with the decision.
- JUNE 1996: The Ranch course, designed by Denis Griffiths, opens. Golf legend Gene Sarazen hits the first shot.
- JAN. 1998: The county publishes a supplement to the environmental report, identifying eight potential water sources.
- MAY 1998: The Legends course, the only one in the world designed by Nicklaus and Sarazen, opens. Sarazen, 96, again hits the first drive.
- JULY 1998: The county publishes an additional report addressing impacts of drawing water from the eight sources. Officials decline, however to recirculate their environmental studies for additional public comment, and the county Board of Supervisors unanimously reapproves the development, meaning that home construction can begin.
- AUG. 1998: An environmental group called Protect Our Water files a lawsuit against Diablo Grande and the county. The California and Stanislaus County farm bureaus also sue, and the lawsuits are merged.
- JULY 1999: Stanislaus County Superior Court Judge Donald E. Shaver sides with the farm bureaus and Protect Our Water and orders Diablo Grande not only to come up with valid water sources, but also to halt construction on a hotel and winery for which the resort already had secured a water source.
- OCT. 1999: The judge revises his ruling, allowing development of 2,300 acres based on water secured through a deal with the Berrenda-Mesa Water District in Kern County.
- MARCH 2001: Work takes place on diverting the Kern water allotment from the California Aqueduct.
- JAN. 2002: A lawsuit filed in Stanislaus County seeks to delay the development, arguing that its water supply still has not had enough study. County Planning Director Ron Freitas said the environmental study is incomplete for the full project, but sufficient for the initial 2,300-acre portion.
- MAY 2003: Earthjustice files a federal lawsuit, citing potential harm to the endangered San Joaquin kit fox and the threatened California red-legged frog.
- MAY 2003: Stanislaus County supervisors give final approval for the first housing subdivision at Diablo Grande.
- DECEMBER 2003: California's 5th District Court of Appeal in Fresno rules that county supervisors erred in December 2001 when they approved a water source for the resort without fully studying it.
- FEB. 2004: The first residents move into the Villas at Diablo Grande. The environmental group Protect Our Water asks Stanislaus County Superior Court to halt further construction until officials comply with a state court's December decision.
- MARCH 2004: A Sacramento federal judge approves the project, tossing out the environmentalists' lawsuit. County supervisors reapprove the environmental report regarding Diablo Grande's water source.
- SPRING 2004: Home construction accelerates.
- MARCH 2006: A Canadian Tour pro golf tournament is held at Diablo Grande.
- FEB. 2007: Diablo Grande officials confirm that the sprawling development is for sale.
- DECEMBER 2007: It is announced that the Ranch course will close until at least March.
- JAN. 2008: It is announced that the Legends course will close Feb. 2. Diablo Grande officials confirm that the golf operation is in a "temporary suspension mode" because of the downturn in the housing market. They say they don't know how long it will last.

The resort has been for sale for more than a year. A Southern California firm that specializes in selling real estate developments has it listed for $150 million on its Web site.

Diablo Grande, proposed in 1993, fought through environmental and water-supply challenges, including two dozen lawsuits, for a decade before the first house was built. Pharmaceutical industry entrepreneur Donald Panoz's vision for the project included up to five golf courses, 2,300 homes, a hotel and conference center, an upscale winery and tasting room, and commercial development to serve the residents.

To date, the two acclaimed golf courses, about 400 homes and a production winery have been built. The rest remains on paper.

The Ranch course closed last month, and a top Diablo Grande official said the Legends course and clubhouse were closed Wednesday for an indefinite pe-riod. Golf members were told the Legends course would reopen in March, although Diablo Grande officials would not confirm it.

The clubhouse doors were locked Wednesday, and signs were posted saying the golf courses were off-limits.

Dwain Sanders, vice president of development at the resort, said the golf courses and clubhouse closed because of the downturn in the housing market.

Banquets, weddings and golf tournaments that have been scheduled will be honored, Sanders said, adding that the resort continues to book special events.

"We are in a temporary suspension mode. We don't know how long it will last," he said. "We are feeling the effect of the housing market, just like everyone else. We aren't getting enough revenue to keep them open during the downturn."

Marcus & Millichap Real Estate Investment Services, based in Encino, is listing Diablo Grande for $150 million. The firm bills itself as the largest commercial real estate brokerage in the nation.

Oak Valley Community Bank Chief Executive Officer Ron Martin confirmed that the resort, owned by a partnership headed by Panoz, is in default. Martin said he was aware of the Ranch course closing, but not the Legends course.

"I know it's been a tough project from the get-go," he said. "They've done an impressive job out there. The (housing) market downturn was the last thing they needed."

The bank loans are secured with five home lots at the resort, Martin said. "If there is a problem, we will hang onto them and deal with them when the market turns."

Lack of communication cited

Diablo Grande has about 400 houses completed and permits for 70 more, according to county Assistant Planning Director Kirk Ford. The county approved architectural plans for the resort hotel, conference center and spa at Diablo Grande about two years ago, and the resort had plans to build a winery building and tasting room at the entrance on Diablo Grande Parkway. No further plans have been submitted, Ford said.

Golf club members contacted by The Bee said they have been frustrated with the lack of communication from Diablo Grande's management. Many had been hearing of the impending closure of the Legends course by e-mail from other members.