Saturday, Aug. 16, 2008

Diablo Grande receives qualified bids

Resort will make winner known Tuesday in Sacramento court

The tribulations of Diablo Grande resort in western Stanislaus County could come to an end Tuesday in a Sacramento bankruptcy court.

The partnership that owns the resort has qualified bids in hand from buyers and will reveal the winning bid that day.

"We did receive enough bids to give us a lot of relief," said Dwain Sanders, vice president of development for the golf resort and housing development.

Diablo Grande Limited Partnership filed a Chapter 11 reorganization bankruptcy in March after slumping housing sales pushed the development into financial trouble. The 28,500-acre property in the hills west of Patterson includes two championship golf courses and about 400 homes. Development plans called for 2,300 homes, a hotel and convention center, retail shops and a wine tasting room.

The golf courses closed briefly last winter as cash flow withered, and ultimately the partnership sought bankruptcy protection. Diablo Grande has been for sale for more than a year -- first at $150 million, then at $85 million -- but hadn't drawn much interest.

With the bankruptcy and mounting debts, the partnership turned to an auction to sell the property and resolve the bankruptcy.

A "stalking horse" bid of $25 million plus assumption of debt was arranged from Housing Source Partners, a Pismo Beach real estate firm, with others invited to outbid that offer. But the Housing Source Partners bid didn't materialize, so an asset sale was arranged.

The auction sets a minimum bid of $26 million. Some of the largest creditors have indicated in bankruptcy court documents that they are willing to accept significantly less than they are owed if a bid of at least $26 million is received.

Sanders said the resort drew "more than one and less than 10" offers from pre-qualified bidders. Resort officials are sorting through conditions of the bids and any issues raised in them, he said.

The sale process has been approved by the largest creditors, including The Bank of Scotland, which is owed $20.6 million. But several smaller creditors have objected to the sale, fearing they won't be paid.

Objectors include:

Veolia Water North America West LLC, the company that runs the water treatment plant for Western Hills Water District. Veolia is owed $4.5 million, according to court documents.

West Stanislaus Fire District, which serves the resort. The fire district has an agreement with Diablo Grande that the resort will build a $3.5 million fire station when the 500th building permit is issued. The resort also owes the district $125,000 for a temporary station put up at the site, and an agreement that the resort will provide housing for firefighters.

Diablo Grande Homeowners Association Inc., which contends it is owed more than $300,000.

United Rentals, for construction equipment supplied at the site. No amount was given in court documents.

J.S. West & Co., which wants to make sure it retains access to propane tanks at Diablo Grande.

Stanislaus County initially objected to the sale out of concern about $4 million in liens for delinquent taxes and assessments. The county withdrew the objection after deciding the liens were adequately protected.

The objections also will be heard by the Bankruptcy Court on Tuesday.

Water quality addressed

Water quality problems persist at the resort, but Sanders said the development is working with state officials to resolve them. The water exceeds the state's standards for trihalo- methanes, a byproduct of the water disinfecting process. Tri- halomethanes are believed to increase the risk for cancer. Diablo Grande is working with engineers to install a temporary active carbon filter in the system, Sanders said.

"We are doing the best we can with the tools we have," he said.

The bankruptcy hearing is scheduled for 9 a.m. Tuesday in U.S. Bankruptcy Court, 501 I St., Sacramento, Courtroom 34.

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