Diablo Grande's money woes escalate

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

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.

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.

"They don't really tell anybody anything," said Doug Stephens of Newman, who was one of the first members. Stevens said he is not worried about losing his $25,000 membership fee, because he feels members would be paid back even in the event of a bankruptcy.

"I am upset that they don't tell us," he said. "I'm member No. 3. I was a member when it was a cow pasture. We deserve a little better treatment than that."

Sam Gardali, who along with his wife, Kay, bought a second home in the resort to take advantage of the golf courses, said he wasn't happy with how the course closures will affect property values at Diablo Grande.

"Those are two beautiful golf courses; we love to play them," he said. "That's one of the reasons we decided to purchase a second home up there."

The closure of the Ranch course came with one day's notice, Gardali said. At the time, members were told the closure stemmed from a water shortage and the economic downturn, he said. When Balfour, the golf pro, was let go a month later, members were told it was part of a series of cutbacks to keep the Legends course open, Gardali said.

Gary DeSantis, president of Legends West board of governors, the group representing the founding members of the golf club, remains optimistic about the resort, but feels an ownership change is necessary.

"Diablo Grande is a great facil- ity with tremendous potential," he said. "The current ownership group, headed by Don Panoz, has done a tremendous amount of work to get it where it is.

"It's clear to me it's time for new ownership, new investment and new enthusiasm to take it to the next level. There's no way it can miss if it is developed prop- erly."

Sanders echoed the optimism.

"We are still bullish on the development. It is a great development and a great piece of prop- erty. It's like nothing else you can get in the valley," he said.

The Marcus & Millichap news release about Diablo Grande says the resort will generate an estimated $495 million in profits when all five phases are completed. The news release lists plans for six golf courses, 5,000 to 10,000 homes and a high-tech research park, as well as an equestrian center. About 1,000 lots have been sold or developed, according to the news release.

Maintenance to continue

Water and sewer service for the homes in the development will continue, Sanders said, and maintenance of the landscaping will continue, paid for by the homeowner association.

Panoz, who made a fortune with the nicotine patch, has developed resorts in Georgia and Scotland and had ambitious plans for Diablo Grande. He and his partners invested huge amounts of money in the project, paying for all the infrastructure, including the $14 million to $17 million road that winds from Patterson to the resort.

The development was to be the first new town to move housing projects off the prime farmland in the valley and onto the poorer soils of the hills.

Panoz battled through two dozen lawsuits from environmentalists before home construction began in 2003. The development seemed on the verge of finally turning a profit 18 months ago, when the housing slump occurred.

The sales office of D.R. Horton, one of the home builders at Diablo Grande, remains open and is still selling residential properties, a saleswoman said.

Debra Millar, a recent home buyer who was unloading boxes at her Diablo Grande residence Wednesday, said the agents who sold the home said the Ranch course, designed by Denis Griffiths and opened in 1996, would be closed from December to March because of a winter downturn in play, but "we understood the Legends course would stay open."

The Legends course was designed by Jack Nicklaus and Gene Sarazen and opened in 1998.

She said they purchased the home because her husband is a golfer and they thought it was a lovely setting.

"I think it is a tough time in the housing market, and sometimes you have to take measures to cut back," she said. "It would be a concern to us if the golf courses were closed permanently."

Bee staff writer Adam Ashton contributed to this report.

Bee staff writer Tim Moran can be reached at tmoran@modbee.com or 578-2349. Bee staff writer Ken Carlson can be reached at kcarlson@modbee.com or 578-2321.