Broker: 3 bids in for Diablo Grande

As Diablo Grande officials have dealt with debt issues, they have been showing the 33,000-acre golf resort project in western Stanislaus County to potential buyers.

"We have done up to eight tours of the property in the last two weeks," said Craig Stewart, the listing broker for Marcus & Millichap Real Estate Investment Services of Southern California.

Among those who looked over the scenic resort were business people from Northern and Southern California, the East Coast, Europe and the Middle East, he said. They included representatives of development firms and investors who would bring in a developer as a partner or contractor.

The real estate firm has received three offers, which will be considered by the Diablo Grande partners, Stewart said.

The broker said he was bound by confidentiality deals not to identify the suitors or disclose details of the offers. Diablo Grande officials were not available Friday to confirm whether they were considering offers or to discuss the future of the development.

Marcus & Millichap has listed Diablo Grande for sale since early November at an asking price of $150 million. The three offers were in the neighborhood of the listing price, Stewart said.

Diablo Grande, set amid rolling hills southwest of Patterson, has plans for 2,300 homes, five golf courses, a hotel and conference center, a wine tasting room and commercial development. It's in the first phase of development with two golf courses and about 400 homes completed.

The project has suffered from the recent housing market doldrums. Management closed the Ranch golf course in December and shut the Legends course and clubhouse late last month, saying the closures were temporary while the owners tried to restructure the project.

Residents despaired when the company that operates the water treatment plant, supplying drinking water to the homes, threatened in a Feb. 4 letter to terminate its contract and cease operation of the plant March 1 over $3 million in unpaid debt on construction of the system.

The project has been in default on a $900,000 payment on a bank loan, and mechanics' liens worth $317,000 have been filed in recent months.

Diablo Grande apparently has made progress on the water issue. Veolia Water North America said this week it expected to keep operating the treatment plant after March 1 based on a pending agreement to extend the debt payment period.

"We got word from (Diablo Grande) Tuesday that they are going to sign the document by March 1 and we are going to be moving forward," said Charles Volz, a regional president for Veolia Water.

The Western Hills Water District, which provides water and sewer services for Diablo Grande, also owes the city of Patterson for waste-water treatment. Waste water from Diablo Grande is piped to a connection with Patterson's sewage system.

The district has accumulated an unpaid balance of $74,478 since March 2007, City Manager Cleve Morris said Friday. The city is trying to set a meeting with Diablo Grande to discuss the matter.

Stewart said the debts shouldn't be a stumbling block to selling the project. "My understanding is the debt is relatively minor compared to the value of property," he said. "It hasn't been an issue for anybody looking at it."

Despite the market doldrums, Diablo Grande is attractive to developers because it has cleared environmental review and has land-use approvals from the county, he said. Diablo Grande was beset with numerous lawsuits as it went through the approval process in the 1990s, but any buyers won't have to fight those battles, Stewart said.

He said the potential buyers expressed an interest in developing the remaining phases of the project as is. "It's just a matter of waiting for the housing market to firm up again," he said.

Donald Panoz, a pharmaceutical industry entrepreneur and a principal owner of Diablo Grande, hasn't publicly discussed his future role if a sale takes place.

County Supervisor Jim DeMartini said he has an appointment to meet with Panoz at the resort today to get an update.

DeMartini doubted the time is right for selling but believes the project could get a boost from building a planned four-star hotel at the resort. He added that Diablo Grande needs to resolve the debt issues.

"They need to get all of this settled," he said. "I believe Don Panoz should have plenty of (resources) to do this. I just don't know what his financial arrangements are with his partners."

Kay Gardali, a golf member from Turlock, said she was encouraged to hear the project has potential buyers.

"It's a beautiful project and we love the golf course," said Gardali, who owns a second home at Diablo Grande with her husband. "I just don't think it has come to its full potential."

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

This story was originally published February 16, 2008 at 4:49 AM with the headline "Broker: 3 bids in for Diablo Grande."