Updated 1:37 p.m., July 31
What’s next for Diablo Grande
The process for Diablo Grande’s sale changed when the $25 million offer from Housing Source Partners fell through. Here’s the timeline for the new sealed bid auction process.
- Friday: Any potential buyer must submit notice of intent to bid.
- Aug. 13: Deadline for sealed bids to be submitted to Diablo Grande.
- Aug. 15: Diablo Grande selects and notifies the two highest bidders.
- Aug. 18: The two highest bidders must submit their final and best offers.
- Aug. 19: Hearing at U.S. Bankruptcy Court in Sacramento at 9 a.m. to approve sale to winning bidder and approve backup bidder.
A $25 million offer by Pismo Beach-based developer Housing Source
Partners to buy Diablo Grande has fallen through, and the bankrupt golf
resort and residential community will now use a sealed bid process to
find a buyer, according to a motion filed last week with the U.S.
Bankruptcy Court in Modesto.
 Photo by Elias Funez / Patterson Irrigator
Diablo Grande’s assets — which include 28,500 acres of land, housing
developments, two golf courses and a winery — were initially set to be
sold off no later than Aug. 17 in an auction with a “stalking horse”
bidder, a low bidder chosen by the debtor in bankruptcy proceedings.
Housing Source Partners was chosen to fill that role after it offered
$25 million to buy the entire project. But Diablo Grande lost its
stalking horse when its negotiations with the condominium and
commercial property developer did not result in a signed purchase
agreement.
The reason for the Housing Source Partners deal falling through were
not immediately apparent. Dwain Sanders, Diablo Grande vice president
of development, did not return phone calls seeking comment this week,
nor did Diablo Grande attorney Michael Ahrens. Messages to Housing
Source Partners also were not returned.
Efforts to find another stalking horse were not fruitless, according to
the motion, but there wasn’t enough time for potential buyers to put
offers together.
Faced with the possibility of an open auction with no low bid in place,
Diablo Grande opted for a sealed bid process in hopes of ensuring that
all potential buyers will put forth their best offers rather than bid
incrementally against each other.
The bid process agreed upon by the court on July 24 requires all
interested buyers to submit a notice of intent to bid by noon on Aug.
8. Sealed bids must then be turned in by Aug. 13, and on Aug. 15 Diablo
Grande will select the two highest bidders and request them to submit
their best and final offers by Aug. 18.
At 9 a.m. Aug. 19, a hearing will be held in the U.S. Bankruptcy Court
in Sacramento to approve the sale to the winning bidder and approve the
other as a backup bidder.
Once a buyer is determined, that buyer will gain control over all of
Diablo Grande’s assets except for five residential lots in Phase 1 of
the development, food and beverage inventory and winemaking equipment,
all of which are listed as exclusions in the asset purchase agreement.
According to the motion, Diablo Grande believes that it needs a
purchase price of at least $26 million to settle certain secured debts
such as those with Bank of Scotland and Fountainhead Development Corp.,
Inc., which loaned the project money to keep operating during the sale
process.
In addition to the sale price, the buyer will be required to pay a
“cure amount” of about $1.5 million to resolve debts and assume
contracts with the Western Hills Water District — which provides water
to the project — and others.
The buyer also must take on some $57 million still owed in Mello-Roos bonds.
A price lower than $26 million would require the consent of
Fountainhead and the Bank of Scotland and might not receive consent
from other creditors. If the sale does not go through and another loan
is not approved, Diablo Grande’s operational funds could run dry.
That would be the worst-case scenario, but even if the project is sold,
many questions would remain regarding what will happen to the
development. A buyer could follow through with the original plans for
housing at Diablo Grande, or it could attempt to modify the development
agreement with the county.
Gary Chase, CEO of Jonathan Homes and a member of Diablo Grande’s
homeowners association, said such an attempt would not be easy and
could bring protest from the 400 or so current homeowners. But the
possibility still exists.
Even with all that uncertainty and with all the water problems Diablo
Grande has been dealing with, though, people are still buying homes
there — most at well below their original value, thanks to the downturn
in the market.
“I can’t tell you whether or not someone should or should not buy
here,” said Chase, who lives in Diablo Grande and whose company has
built 19 custom homes there. “But I can tell you sales here have been
stronger in the last three months than they have been in the last
year.”
Diablo Grande has been for sale since at least November, when
Encinco-based Marcus & Millichap listed the project for $150
million. It later dropped that price to $85 million, but no sale was
ever completed. The developer filed for Chapter 11 bankruptcy on March
10.
To contact James Leonard at the Irrigator, call 892-6187 or e-mail him at
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