Diablo Grande auction approved

Diablo Grande resort in western Stanislaus County got an interim financing agreement and permission to auction itself off next month from the U.S. Bankruptcy Court in Sacramento.

The 28,500-acre resort, including two championship golf courses, a vineyard and about 400 homes, is in the hills west of Patterson. Plans called for 2,300 homes, a hotel and convention center, and retail shops.

Developers began building homes at Diablo Grande in 2003, but the housing slump over the past year forced the partnership that owns the development into a Chapter 11 reorganization bankruptcy.

The partnership, headed by pharmaceutical entrepreneur Donald Panoz, has been trying to sell the property to resolve the financial problems.

The bankruptcy court Thursday approved a $1 million interim loan from the Bank of Scotland to keep the development operating through Aug. 17. The Bank of Scotland is a major creditor in the bankruptcy, and is owed $20.4 million, according to bankruptcy documents.

The court also approved a plan to sell the resort to a Pismo Beach-based real estate company that has offered $25 million in cash and assumption of more than $54 million in debts, or any higher bidder at an auction to be held in the second week of August.

The $25 million offer comes from Housing Source Partners, a company that specializes in condominium sales, according to its Web site.

If the Housing Source Partners offer falls through, the resort's owners may go ahead with the auction, setting a minimum bid, said Dwain Sanders, vice president of development for Diablo Grande.

Sanders said Housing Source Partners officials have indicated that they intend to move forward with the development of the resort if their offer prevails. They would look for a hotel operator and seek approval for subsequent phases of the development, Sanders said.

Western Hills Water District, the water agency that developers set up to supply water to Diablo Grande, is working on water quality problems at the resort, Sanders said.

The California Department of Public Health cited the water district recently for a continuing problem with trihalomethane contamination. Trihalomethanes, a byproduct of disinfectant processes, are believed to increase cancer risks. An interim treatment process will be in place in the next two weeks, Sanders said, and district engineers are working on a permanent solution.

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

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