Low bids might sink Diablo Grande resort sale

Diablo Grande officials are hoping to receive higher bids on the 33,000-acre resort project in the hills of western Stanislaus County after three offers fell short of the $150 million asking price, a broker said.

"We think we will get better offers," said Craig Stewart, an agent for Marcus & Millichap Real Estate Investment Services of Southern California. "We continue to market the property and talk to interested parties."

In another development, Diablo Grande said it will make an announcement next week regarding its two golf courses, which have been closed as the owners try to restructure the project. Golf members said they expect the courses will open again the second weekend of March and will be operated by a management firm. Diablo Grande officials would not confirm that Wednesday.

Also, the Western Hills Water District is dealing with a state order to clean up the drinking water supplied to the homes.

Diablo Grande has plans for 2,300 homes, golf amenities, a hotel and conference center, an upscale winery, and commercial development. But the sluggish housing market has stalled the project, leaving the owners with mounting debt.

To date, two acclaimed golf courses and about 400 homes have been built. Potential buyers have looked at Diablo Grande over the past year, including a national and international list of business people who recently toured the site.

Stanislaus County Supervisor Jim DeMartini said that principal owner Donald Panoz hasn't given up on developing the project. According to DeMartini, who met with Panoz on Feb. 16, Panoz said the three offers were too low to be seriously considered. Panoz is trying to bring in new partners to continue with construction, he said.

Panoz talked of building a hotel, developing 10-acre estates for horse owners and building a retirement village, the supervisor said, adding that he also is working to settle outstanding debts.

"He said he would have it all straightened out in a month or so," DeMartini said.

Diablo Grande officials declined requests for interviews this week. Panoz's Fountainhead Development Corp. referred media queries to the Diablo Grande management office.

Panoz made a fortune in pharmaceuticals and later developed motorsport ventures and resort projects, such as the Chateau Elan Winery & Resort in Georgia. In 1990, he and Wall Street investment banker J. Morton Davis unveiled Diablo Grande, a project that fought through environmental lawsuits and water-supply challenges before construction began on the first homes in 2003.

Over time, Davis apparently lost interest. A spokesman for Davis' D.H. Blair Investment Banking firm said Wednesday that Davis is no longer a major partner in Diablo Grande LTD. Martin Bell, counsel for the firm, said he didn't know exactly when Davis left the partnership.

Panoz and his partners invested huge amounts of money in Diablo Grande, paying for all the infrastructure, including the $14 million to $17 million road that winds from Patterson to the resort.

Resort needs 'polishing touches'

In 2006, Diablo Grande, with a bill of $3.8 million, paid more in property tax than any other business in Stanislaus County.

According to records, the owners lately have fallen behind on paying bills to contractors, a lender, the company that runs the Diablo Grande water treatment plant, and the city of Patterson for sewer service.

Diablo Grande closed the Ranch golf course in December and shut the clubhouse and Legends course in January, saying the closures were temporary while the project was being restructured.

Vince Bogetti, a Diablo Grande resident, said Tuesday that crews were working to keep the fairways and greens in shape. He expects the courses will be open again next month, but said he hopes a new owner will come in to refine the resort.

"It doesn't have a country club look to it," Bogetti said. "They ran out of money and didn't follow through with beautification and putting the polishing touches on it."

The Western Hills Water District is under pressure from the state to improve the quality of the drinking water supplied to the Diablo Grande homes. As of this month, the district was delivering water to about 200 homes with an estimated 600 residents.

A Feb. 7 order from the Department of Public Health says the water has failed to meet standards for trihalomethanes, a byproduct of disinfecting the water. Prolonged exposure to the compounds is believed to raise the risk of cancer.

The order cites customer complaints that the water has a brown to orange color and smells bad. The color could result from "excessive levels of water treatment chemicals passing through the treatment plant and into the distribution system," the order says.

The state ordered Western Hills to adjust the treatment process. If the water doesn't meet standards by March 7, the district is supposed to try a more aggressive treatment.

Western Hills diverts water from the California Aqueduct through an exchange agreement with the Kern County Water Agency and then treats it for residential use.

Bee staff writer Ken Carlson can be reached at kcarlson@modbee.com or 578-2321.

This story was originally published February 28, 2008 at 3:11 AM with the headline "Low bids might sink Diablo Grande resort sale."