Brian McMahan and Johnny Nicholson can both remember boyhood days spent in the mountains, hunting the elusive ginseng plant.
Coveted for its myriad medicinal uses, ginseng root harvest is an Appalachian tradition stretching back through generations. McMahan and Nicholson were both taught to dig it in such a way that its numbers would stay strong for generations more — leaving small plants to grow and planting the seed-containing berries of harvested plants in the earth around the dig.
A nonprofit nature center ensnared in a foreclosure saga at Balsam Mountain Preserve is one step closer to being evicted.
“Hey buddy, you about ready to come out?” Michael Skinner asks the juvenile broadwing hawk standing in the back of a plastic carrying case.
Skinner, executive director of the Balsam Mountain Trust and jack of all environmental trades, slowly reaches his gloved hands inside and pulls the raptor out. The bird flaps its brown-and-white wings for a moment but quickly settles down. Skinner sets him atop the cage for a moment, where he sits untethered, surveying the small storage room where Skinner keeps supplies for the nature center’s diverse charges — everything from box turtles to an opossum to a bald eagle.
Homeowners in the high-end Balsam Mountain Preserve development are trying to strike a deal with an investment lender from New York to stop the foreclosure of their community nature center.
Enter Balsam Mountain Trust’s nature center and you’ll come face to face with bobcats, skunks, black bears, maybe even a sharp-taloned raptor poised for the kill. But, don’t worry — the animals don’t bite.
The taxidermy creatures are just a few of the educational tools used by the nonprofit to teach people — mostly school children — about wildlife in Western North Carolina.
“You have specimens that people are not going to get up close to,” said Michael Skinner, executive director of Balsam Mountain Trust. “It’s just a way to build a bridge for people into the natural world.”
Balsam Mountain Trust, which is celebrating its 10th year, is a nonprofit focused on preserving the natural environment in part of the Balsam Mountains about mid-way between Waynesville and Sylva.
The Trust’s programs allow kids to explore their outdoor surroundings, see animals they might not otherwise see and learn more about Western North Carolina’s native wildlife.
“We want to be able to fill that niche of getting kids outside,” said Blair Ogburn, the Trust’s senior naturalist. “People fear so many animals and bugs.”
The ideas is that if people understand more about the critters, they won’t be scared and will learn how to behave around them.
Skinner started educational programs nine years ago, talking to local fourth-grade classes — which remains the ideal age the Trust caters to.
Last year, the Trust hosted programs for about 6,000 students, Ogburn said.
“We can teach pretty much anything,” Ogburn said, but the birds of prey and reptile programs are by far the most popular.
This is partly because of the Trust’s impressive array of live birds and reptiles, from a bald eagle to a timber rattlesnake. When teaching about mammals, the trust draws on its collection of skulls and pelts, as it doesn’t keep live mammals.
“When you talk about mammals, you talk about a whole slew of permits,” Skinner said. And, mammals are “messier,” he said.
The trust has three naturalists who care for 18 live animals. There currently are no plans to add any new ones to the mix.
“As much as we all love animals, we have to be very, very careful about providing them with adequate care,” Skinner said. “We have kind of reached our saturation point with the number of animals we have.”
The animals cared for by Balsam Mountain Trust couldn’t survive on their own in the wild. They’re injured either psychologically or physically. Physical injuries can include a bum eye or wing, while emotional harm is the result of imprinting. If an animal imprints on a human, they lose their natural fear of humans and are outsiders when it comes to their own species.
Just because the nonprofit is permitted to own specific animals, however, does not mean they are allowed to rehabilitate them.
“We aren’t rehabilitators,” both Ogburn and Skinner emphasized.
The Trust only has permission to house recently injured animals for a brief period if a vet cannot be reached. For example, if an animal is injured during the weekend, the Trust will keep it until Monday when a veterinarian’s office opens. However, Trust employees encourage people to contact a vet or find a local animal rehabilitation center.
All three employees have distinguished backgrounds that led them to Balsam Mountain Trust.
Skinner has worked at several zoos and hosted an Emmy-nominated outdoors show “Georgia Outdoors” on public television. Ron Lance has a background in botany, forestry and horticulture has authored or co-authored 11 publications. Ogburn has worked as an environmental educator in Charlotte and a field biologist for the Smithsonian Conservation and Research Center.
“For me, just traveling around and exploring the natural world, I would go anywhere,” Ogburn said. “The reason why I love this job is because I (get to) share my passion (with others).”
The Trust’s wide variety of species draws a number of researchers, from forestry students at Western Carolina University to a survey of threatened and endangered species by the N.C. Department of Environment and Natural Resources. Researchers have conducted nearly 40 studies since 2000 — and many of them are ongoing.
While Trust employees coordinate with researchers, they also focus on inventorying various insect, bird and plant species. At last count, there are 800 species of vascular plants on the preserve’s 4,400 acres.
“We’ve got a remarkable plant diversity here,” Skinner said.
The nonprofit does not electronically track any animals. Rather they use visual and auditory tracking to identify creatures.
In addition to cataloging the wildlife and offering educational programming, the Trust maintains the biodiversity of its forest. One particular pest is the hemlock wooly adelgid, which infests and kills hemlock trees. The Trust is not trying to eradicate the insect but rather restrict how far it spreads. Both natural and manmade pesticides can be used to protect the trees.
“You are always looking to find what might potentially be a problem and then finding ways to deal with it,” Skinner said. “What you hope for is control, a balance.”
Balsam Mountain Preserve is unique in that it is an upscale development as well as a nature preserve.
“It’s a community within a park,” Skinner said. “That’s a big reason why people decide to buy and live here.”
When initially founded, the developers of Balsam Mountain Preserve decided to set aside more than 3,000 of its 4,400 acres were set aside as a nature preserve guaranteed to stay wild and development-free.
Balsam Mountain Trust was established to care for and oversee the land. It is independent of Balsam Mountain Preserve even though it is contained within the development.
“We are our own nonprofit,” Ogburn said.
The Trust held its first fundraiser last year with the Balsam Mountain Preserve homeowners and raised about $200,000, Skinner said.
This year, the nonprofit wants to open up its fundraiser to members of surrounding communities. And, of course, the animals would attend, Skinner said.
“For us, it’s just such an important part of our message,” he said.
The preserved land is roughly 3,000 acres total but may add another 550 acres. There is a contiguous section of land that the developers may decide to incorporate into the Trust’s lands because it would be difficult to turn into human living space.
“For me, that is nothing but exciting,” Skinner said.
The land would have no development on it other than a possible nature center, Skinner said. The nature center is currently near the neighborhood’s tennis courts and golf course, and the Trust would like it to move further into the undeveloped portion of the preserve.
In the future, the Trust also plans to expand its aviary beside the nature center to give the fowl more space and visitors a better look at the birds.
“Right now, it’s hard for people to do that,” Ogburn said.
The current cages are housed in a small wooden shed, which allows for only few people at a time.
Outside of its caged birds, the Trust also catalogs the types of birds found on the preserve and makes sure the bird populations are not threatened or overrunning the mountain ecosystem.
The Trust is applying to be named an Important Bird Area, or IBA, by the National Audubon Society, which focuses on restoring and conserving the natural ecosystem in the U.S. IBAs have habitats essential to the preservation of one or more species of bird and have greater access to resources to help maintain the habitat and species.
The Balsam Mountain Trust is a nonprofit dedicated to preserving and teaching about the mountain ecosystem. It was founded in conjunction with Balsam Mountain Preserve, an upscale, eco-development on more than 4,000 acres. More than 3,000 acres within Balsam Mountain Preserve were set aside as a nature preserve. The independently run Trust manages the nature preserve and does educational nature programs for children and groups. It has three staff naturalists.
The Balsam Mountain Trust offers a variety of programs for students based on state educational standards. The different programs focus on anything from birds to mammals to reptiles and amphibians.
The nonprofit also hosts programming for adults and non-school related groups, including scouts and civic organizations.
To find out more about the Trust’s program offerings, visit www.bmtrust.org and click on the education tab.
New owners of the high-end Balsam Mountain Preserve development aren’t daunted by the choppy waters of Western North Carolina’s real estate landscape.
Despite the still tepid demand for pricey second homes in the mountains, they say they have charted a course that will bring the beleaguered development out on the other side of the storm still raging across the rest of the region.
The 4,400-acre mega-development — one of the region’s few mountainside golf developments that can rightfully carry that tag line — has its share of battle scars. It’s been through foreclosure, repossessed by investors, hawked to the lowest bidder, babysat by an out-of-state caretaker, then put up for sale.
Now, a rescue of Balsam Mountain Preserve has come full circle. Two wealthy homeowners in the development teamed up to buy the development for $6 million — a fraction of what it was once worth.
If there’s ever a development where millionaire homeowners could emerge from the ranks to become the owners, it’s Balsam Mountain Preserve. Harry Avant of Louisiana and David Carlile of Texas knew each other previously from the oil and gas industry, even before buying their respective property in Balsam Mountain Preserve several years ago.
They have hired two former members of the Balsam sales team to come back and run the place. Jimmy McDonnell and Bruce Fine both worked together at Balsam Mountain Preserve under the original owners and developers.
“We know the owners, we know the property, we know the employees, we know the project, we know the market,” Fine said of their return, this time as president and vice president.
The hunt for solid ground in today’s new real estate landscape is more than just a financial deal for the new team.
“If there wasn’t a significant upside from a financial and business perspective we probably wouldn’t have done it. These guys are not a nonprofit entity,” Fine said. “But to save a place that you really have an emotional connection to, and it could be a good business decision at the same time, is a win-win overall.”
For the past 18 months, Balsam Mountain Preserve has been in limbo. The former owners defaulted on $19 million in debt and went into in foreclosure. The development landed in the hands of a private equity firm that immediately began looking to unload it.
So what, exactly, did Avant and Carlile get for their $6 million purchase of Balsam Mountain Preserve?
For starters, they own a really, really nice Arnold Palmer golf course. All the amenities, from the swimming pool to tennis courts to clubhouse to riding stables, are also included.
But as for what’s marketable — the pieces of the development that are worth something — there are about 130 to 150 home sites left to sell off.
Only one lot has sold in Balsam Mountain Preserve this year, however.
“2011 was kind of a lost year for Balsam. It was for sale and people knew it was for sale,” Fine said.
Despite the unimpressive showing, the new team isn’t fretting over whether Balsam Mountain Preserve will make it. Optimism over the new owners is already fueling sales, Fine said. There are two contracts pending — one on a new lot and one on an existing lot being resold by a property owner.
“We have more activity in the week we have owned this place than we’d had all year,” Fine said early last month. “People are moving forward now because it is stable. They like the story about the homeowners who have joined together and bought the place.”
Few golf course developments can claim to have that bumpy road behind them.
“Every other one has the loom of foreclosure and takeover,” McDonnell said.
Fine said few are going to emerge as intact as Balsam.
“There are so many communities in the mountains that have nothing there other than a front entrance and some renderings on paper. Those are the places that have fallen off the end of the earth,” Fine said.
At Balsam Mountain Preserve, there is enough “critical mass” already in play, Fine said. The golf course is finished, the swimming pool has water, a restaurant and clubhouse are functioning. Roads actually lead to the lots — a novelty compared to some subdivisions that lack even that bare essential.
Most importantly, though, are the 70 homes on the ground and another 110 property owners of lots. Too many subdivisions in the mountains are empty ghost towns, and just like no one wants to eat in an empty restaurant, no one wants to be the first to build — not when it’s such a buyer’s market. And that’s why homes on the ground are an important part of Balsam’s critical mass.
As the rest of the nation plunged into a recession in 2008, WNC seemed insulated from the real estate crash — its quality of life, desirable views and retirement reputation helped it hang on.
But by the end of that year, the economy finally caught up with the region — and with Balsam Mountain Preserve. Lot sales simply evaporated.
With no cash coming in, the former developers Chaffin and Light, a highly reputable company known for massive eco-developments from South Carolina’s coast to Colorado, defaulted on its $19 million loan.
Chaffin had bargained hard for a work out, hoping to get an extension or refinance on the outstanding debt. Meanwhile, property owners at Balsam made a bid to save their own development from foreclosure. They raised $8 million and explored forming their own LLC to bail out Balsam Mountain Preserve and own the development themselves.
But the private equity firm, TriLyn, was unwilling to negotiate for anything less than a full payoff of the $19 million owed.
Marc Antoncic, the managing partner of the firm, arguably was in a tough spot. He was supposed to be earning investors a return on their money — not losing their money. So he had a choice. Cut his losses, take what he could get and get out — even if it meant selling Balsam at a rather substantial loss.
His other choice was to step in to the developer’s shoes himself, hoping to turn it around.
“You can’t rescue everything, but you can’t just sit back and hope it goes away,” Antoncic said in an interview 18 months ago, shortly after his take over. “If you bail today, you lose all that. We would turn over a good asset to someone else.”
In hindsight, it now seems he made the wrong choice.
He didn’t turn it around, and only got $6 million for the development in the end.
“Literally every deal they had on the table, whether it was Jim Chaffin or the homeowners, everyone of those was better than what they ultimately got,” Fine said.
“They had some great opportunities in front of them they chose not to take,” McDonnell agreed.
Homeowners, for their part, are optimistic for the first time since 2009 when Balsam Mountains Preserve headed down the path to foreclosure.
“Ever since then Balsam has been in a real state of uncertainty,” Fine said.
What would happen to the golf course had been one of their biggest fears. Well-groomed fairways with that perfect phosphorescent green hue come at a steep price. The golf course had been losing $1 million a year. The original developers, Chaffin and Light, were underwriting the cost of the golf course operations. Picking up that price tag is part of what sunk the developers.
After foreclosure, homeowners had to pony up the money to operate the course.
There are only a handful of developments in WNC in the same league as Balsam Mountain Preserve: of a similar acreage, prestige, price range and quality. And they too are seeing a comeback, suggesting the market has at long last bottomed out, Fine said.
“Prices are lower compared to where they were at in 2006, but they are coming back,” Fine said. “It sounds cliché-ish, but for someone who wants to be here this is when people want to strike. We aren’t at the bottom anymore.”
That financial strategy is part of Fine’s sales pitch. But the other part is far more emotional.
“The person who is waiting for the bottom is putting off living their life,” Fine said.
Indeed, the pent-up demand is why Fine has such a rosy outlook for 2012.
“The dynamic is people have put their plans on hold for anywhere from three to four years,” Fine said. “I’ve been sitting on the sidelines, I’m not any younger, I’m not any healthier, my grandkids are getting older.”
And that reality could drastically change the real estate paradigm in WNC. Before, baby boomers looked for lots to build their dream home on. But building a house — from deciding on a layout for the master walk-in closet to choosing the color of granite for the kitchen counter — can take two to three years. These days, prospective buyers want to get on with it — and perhaps spare their marriage the strain of a custom-built house — even if it means they won’t be picking out their own light fixtures or tile floor design.
“People want something they can move into,” Fine said. “In conjunction with that dynamic, people are also no longer buying what they can afford, they are buying less than they can afford in a lot of cases.”
People used to buy at the upper end of their limit — assuming that real estate would always be worth more next year anyway. But with appreciation less of a sure bet these days, second-home buyers are rethinking.
“Seriously, do I need 6,000 square feet in retirement? That’s how affluent people are thinking today,” Fine said.
Which means Balsam Mountain Preserve must retool its model — as with the rest of WNC’s developers.
“It is not going to be all about 2-acre single family home sites,” Fine said. “If you sit around and wait for individual home site buyers to come visit you one at a time, it will be years and years and years before you sell through all your availability.”
What’s in Balsam Mountain Preserve’s cards now would have been borderline blasphemy several years ago: smaller lots, pre-built homes, and even perhaps townhomes.
“Balsam has never had that, ever,” Fine said.
There are about 35 lots in the current phase of the development already platted and ready to sell. Another 100 or so are in the works, and will like take the form of smaller, more closely spaced lots rather than larger, spread-out ones. And, they could be sold with homes already on them rather than empty lots.
As a development, Balsam Mountain Preserve doesn’t particularly want to get into the spec home business. Developers generally sell lots, builders build homes.
But that’s where Balsam Mountain Preserve once again hopes to tap its unique base of homeowners.
Homeowners, eager to see their own community succeed, may actually finance construction of model homes by a builder. The homeowner would theoretically be helping out the builder they used and liked when building their own home, make a little money and help land new neighbors to keep Balsam Mountain Preserve stable.
“The developers who can facilitate these alliances between people who can finance — i.e., non-banks — and the builders, those are the communities that are really going to thrive in this segment,” Fine said.
As one development after another began to bite the dust two years ago, lenders who had bankrolled the mountain building spree in its heyday fretted nervously. The demand for high-priced lots had evaporated into thin air.
Banks reluctantly foreclosed, resigned to the downturn and hoping to wait things out — wait for the financial markets to stabilize, baby boomers’ 401Ks to rebound, and the buying and building to resume.
But not Mark Antoncic. Unwilling to write off one of his hand-picked investments, Antoncic rolled up his sleeves and did what few lenders want to do.
Antoncic’s firm seized control of Balsam Mountain Preserve, a 4,500-acre mega development between Sylva and Waynesville.
While some foreclosures take a year or more to play out, this one moved at lightning speed. Antoncic forced Balsam Mountain Preserve into foreclosure last October and by March, he held the keys to the gates — a record five months. When asked how he did it, Antoncic smiled.
“We are very good,” he said.
With other mega developments spiraling into bankruptcy and foreclosure across the mountains, lenders and developers are taking notes as they watch the turnaround of Balsam Mountain Preserve. One key is a high-quality development to start with. The other is a savvy and well-leveraged lending firm behind the scenes, which, like TriLyn, was willing to take the reins when the developers floundered.
“The alternative could be horrible,” said Antoncic, a founder and managing partner of TriLyn. “You can imagine what this place would be like shut down. You would have to close the golf course, weeds would grow up on the tennis courts. You see a lot of that around the country and some of that you can’t reverse the damage for the property owners and the community. We made a conscious effort not to let that happen.”
Property owners who paid half a million for lots in the upscale development are breathing a sigh of relief after a rocky year.
“So far so good,” said Dave Sparks, a homeowner in Balsam. “It could have gone a lot of other directions.”
Instead, their Arnold Palmer golf course is open again, the security and maintenance staff is back to full force, and their private mountaintop dining room is back.
The quick timetable was critical.
“We have kept the wheels on the cart in doing that,” Antoncic said.
When in doubt, foreclose
Antoncic’s career in real estate investment and finance placed him in the realm of troubled and distressed assets before the term was a household world. He recently founded Carpathia, a third-party real estate adviser firm, named after a sea vessel that rescued 705 passengers from the Titanic, which the firm calls “one the greatest all-time distress-situation performances.”
Carpathia specializes in counseling lenders who don’t know what to do about the failing developers they loaned money to.
Lenders are typically eager to avoid foreclosure. They opt to cut their losses and accept whatever loan payoff they can get rather than assume ownership of a gated community with lot sales going nowhere.
But Antoncic’s advice? Err on the side of foreclosure.
“The sooner you do it, the better off you are going to be,” he said. “You have to be proactive, not reactive. You can’t rescue everything, but you can’t just sit back and hope it goes away.”
Antoncic does not recommend one-size-fits-all advice through the newspaper. The closest he came to such an edict, however, was to say that lenders should choose their investments more wisely upfront.
“We are real estate professionals,” he said. “We own real estate, we manage real estate, and we finance real estate all up and down the capital stack.”
The principals of TriLyn have managed $15 billion in investments over their careers.
“We don’t look at this as just a loan. When we make an investment, we make it based on the quality of the real estate with the expectation and capability to take over the asset and run it,” Antoncic said. “Where lenders sometimes fall down is they make loans on assets they don’t really understand.”
The question to ask is: “Could we own this and would we want to own this?” he said.
It’s the same reason Antoncic could pull the trigger on foreclosure without being bogged down in the courts for a year or more.
“It was structured properly on the front end to provide for that,” Antoncic said.
Foreclosures rarely end well for the banks these days. The lender is usually standing alone on the courthouse steps when the property gets auctioned to the highest bidder. The bank becomes the proud new owner, not quite sure what to do with its new real estate.
As a result, most lenders owed money by developers are willing to take what they can get. A partial payoff is better than none at all. If the developer shows promise, the lender may grant generous extensions or refinance the loan to avoid foreclosure.
Balsam developers tried to settle for less than the full amount owed. It was close enough that most lenders would have agreed.
“Our view is very different than a typical lender. A typical lender would not want this on the balance sheet,” Antoncic said.
Balsam Mountain Preserve borrowed $20 million from TriLyn in 2005 to finance infrastructure for the development, including the pricey golf course. The debt owed to TriLyn reached $22 million by the height of foreclosure. It included most of the original loan, plus months of interest at higher-than-normal default rate and attorneys fees. It also included money fronted by TriLyn to keep the lights on and the grass mowed as Balsam developers began to run out of cash to make payroll on their own.
TriLyn is not a sharky lender of last resort. It doesn’t make risky loans with astronomical interest rates. It doesn’t target naïve developers, waiting to gobble them up at the first sign of a stumble.
But Antoncic wasn’t going to settle.
“Should we have taken less and walked away with it?” Antoncic said. “We wouldn’t have gone into this project if we didn’t think it had a long-term prospect. We had planned the investment to be five years. The market is what the market is, so it is going to take longer.”
He hopes patience will pay off.
“If you bail today, you lose all that. We would turn over a good asset to someone else,” he said.
The key, however, is a “good” asset.
“We can fix this. It is fixable, unlike so many other projects around the country,” Antoncic said. “So many had no business being built to start with. There is a list around the country that will never get anywhere.”
Doing the math
Before the recession, lots in Balsam Mountain Preserve sold for an average of $500,000. Those days are over, at least for now, Antoncic said.
“The whole market is down 30 to 40 percent. If we did not react to that appropriately we would be as guilty as the next guy,” Antoncic said.
Of the 354 lots in the development, only 120 remain.
When asked how he plans to market them, Antoncic has no magic formula.
“Carefully and strategically,” he quipped, then turned serious. “I don’t know what an appropriate marketing campaign looks like today. I don’t think you can force feed the market anymore.”
The marketing campaigns of days past instilled prospective buyers with a “fear of loss,” said Ken Costanzo, the new president of Balsam. Buyers were convinced there was a limited pool of resort mountain real estate and they could miss out if they hesitated.
Now “there is lots of inventory out there and there aren’t buyers lining up for it, so it is a different world,” said Costanzo.
Antoncic has two options to profit from lot sales at Balsam Mountain Preserve.
He could slash lot prices and unload the inventory with minimal effort, luring buyers by the bargain alone. Lots would go more quickly, saving on overhead and operations that could otherwise drag on for years, and avoiding expensive marketing campaigns.
Or Antoncic can keep lot prices high enough that Balsam retains its image. He’ll be in the game longer, be stuck subsidizing the golf course and other operations for possibly years to come, as well as fund a marketing campaign.
But it’s the route Antoncic is choosing. Existing property owners are glad the new owners don’t subscribe to the fire sale mentality.
“I think it would tend to have a negative impact on the community,” said Dave Sparks, a homeowner in Balsam.
It would likely anger the 170 individual property owners who bought into what they presumed would remain an upscale development.
TriLyn has hiked both the fees paid by the property owners association and club dues for members who use the amenities, bringing revenue closer in line with expenses.
The former owners were taking a substantial hit on golf course operations and overhead for the amenities, including a horse stable, pool, tennis courts and clubhouse.
Antoncic also plans to cut costs, claiming the former owners weren’t very efficient. The move bring the operations “closer to break even,” Antoncic said, but they will still have to be subsidized.
Dave Sparks, a homeowner at Balsam, said property owners aren’t mad by the move.
“Quite honestly, they should be higher,” he said of the fees. “We expect that. That was in play before all this stuff crumbled.”
Of the 170 individual property owners, 120 are club members — about 30 fewer than last year. But Sparks said it is not because of the fees. Some simply don’t visit their property that often, and others bought lots only as investments and never visit.
Sparks is just glad the golf course has reopened after being closed abruptly during foreclosure last fall.
Not ‘just another’
Balsam Mountain Preserve has just 354 lots despite its massive size. Most of the 4,400 acres are protected in a conservation easement. It was the region’s first eco-development, and the lot prices and culture — top-notch amenities, an environmental ethos, strict covenants and a woodland estate setting — cater to affluent buyers.
Balsam Mountain was created and run by Chaffin Light Associates until the foreclosure. Unlike some developers who forayed into the mountain real estate world during the boom, Chaffin Light was no amateur. Massive developments touted as sustainable and set in striking landscapes — from Colorado’s snow-capped mountains to coastal South Carolina — are a Chaffin Light specialty.
But the firm failed to adjust to the new real estate reality brought on by the recession, Antoncic said.
A new president, Ken Costanzo, is now at the helm of Balsam Mountain Preserve. Costanzo was the chief operating officer of the Cliffs, the epic Tiger Woods golf resort with properties spanning from Western North Carolina to Upstate South Carolina.
Costanzo said Balsam doesn’t have the same uphill fight as other developments.
“It’s not just another beautiful mountain golf community,” Costanzo said. “Golf is important, but there is so much more to offer here.”
Unfortunately, Balsam’s presumed turnaround doesn’t offer a model for other faltering developments to follow. Many troubled developments are carrying far more debt than they’re worth and lack infrastructure to make lots sellable. Golf courses exist only in master plans not on the ground. Roads haven’t even been built yet.
But Balsam was nearly complete and had a realistic debt load.
“Unlike so many around the country, the assets were good. The infrastructure is here, it is built out,” Antoncic said of Balsam Mountain Preserve. “If there is a leader in the market, we have the ability to be that leader.”
Antoncic said there is still a lot of carnage to come in the real estate market. He estimates a turnaround is three to five years away.
“At one point, I was concerned we were just having warm-ups, but I think the game has started,” Antoncic said.
Boosters of the mountain real estate scene like to think the area was insulated from the downturn, that the spectacular scenery and lifestyle here was so desirable prices here didn’t fall. Not so, Antoncic said.
“It is better than other parts of the country, but it is not as though the region escaped the downturn,” he said.
Eventually, confidence of buyers will return. After all, there’s still 77 million baby boomers out there dreaming of their own golden retirement.
Balsam Mountain Preserve, a mega-development in Jackson County, was sold to the highest bidder on the courthouse steps Monday (Jan. 25) in a closely followed foreclosure proceeding.
TriLyn, a private equity investment firm which initiated the foreclosure, was the highest and only bidder for $15 million and is now the new owner for 120 unsold lots on the property and all the recreational amenities, including an Arnold Palmer designer golf course, dining room, swimming pool, horse stables and myriad other features.
TriLyn was owed $20 million on an outstanding loan made to Balsam Mountain Preserve by developers Chaffin and Light. But the total had grown to about $22 million due to legal costs and interest since defaulting.
Prospective buyers have 10 days to file an upset bid. Each time there is an upset bid, the 10-day clock is reset.
The fact that TriLyn bid only $15 million when it claims it is owed $22 million shows they may be willing to part with the property and take a loss on the investment in exchange for cold, hard cash.
The foreclosure moved at a relatively fast pace, with just five months passing since the lenders made their intent known and foreclosure took place. Balsam Mountain Preserve developers attempted to stall the process longer, hoping to find financing to bail themselves out, pay off the lender and retain ownership of the development, but were unable to do so in the amount of time they had.
Foreclosure against Balsam Mountain Preserve could happen by month’s end barring a last-ditch financing deal by developers in the next couple of weeks.
A court order gave lenders the go-ahead to move forward with foreclosure at a hearing last week. The now imminent foreclosure was successfully put off by developers for three months while they attempted to raise capital to satisfy their lender. They say there is still a chance that they can do so, although the window is closing.
The property will be sold to the highest bidder at a public auction on the steps of the Jackson County Justice Center in late January or early February. Once there is a starting bid, prospective buyers have 10 days to file an upset bid. Each time there is an upset bid, the 10-day clock is reset.
Typically, the starting bid belongs to the lender, which is out to protect its outstanding debt on the property, a total that now tops $22 million, according to the lenders.
The sum continues to grow larger with each passing day. Lenders are tacking on costs for legal fees, property management and interest at a higher-than-normal default rate — making it increasingly difficult for developers to rally the capital they need to bail themselves out.
Balsam Mountain Preserve initially took out a loan of $19.8 million from the private equity investment firm Trilyn in 2005 to help develop and market the property. Balsam Mountain Preserve had paid down some of the loan, but since defaulting has racked up $4.5 million in interest, giving rise to the substantial payoff now required.
Jay Coward, a Sylva attorney representing Balsam developers in foreclosure, challenged the lender’s claim of more than $1 million in legal fees and administrative costs associated with foreclosure proceedings in the hearing last week. Coward said Trilyn will need to provide documentation detailing the alleged costs.
Lenders wrested control of the property from Balsam Mountain Preserve and placed it in the hands of a third party in November. The outside company, called Radco, is charged with upkeep of the property, mainly security and maintenance.
Radco has tapped a profitable niche in the faltering real estate economy: reviving or at least stabilizing distressed property developments. Radco has repeatedly declined requests for an interview since assuming control of the property, but was featured in a November article in the New York Times profiling Norman Radow, Radco’s founder.
“Banks hire him to resurrect developments gone awry, particularly those half-empty condominium towers and gated communities that sprang up like weeds during the boom and are now in foreclosure,” according to the article.
The company is at the helm of $2 billion in real estate properties nationwide, Radow estimated in the article.
In some cases, the firm completely takes charge of the development in hopes of accomplishing what the ousted developer failed to do, namely making a profit.
The lender often puts Radco at the helm for the long haul, hoping to recoup their investment in the property. Radco makes tough decisions, like paring down luxury amenities initially promised to buyers by the developer or slashing prices to unload lots and raise cash rather than simply waiting for the market to turn around.
But property owners question how another company could do any better than the original developers, the well-capitalized firm Chaffin and Light with a strong national reputation for quality, high-end eco-developments.
“The only way out of this deal is you have to sell more dirt, and it isn’t going to happen until the economy recovers somewhat,” said Ron Hanlon, a homeowner in Balsam Mountain Preserve.
Property owners in Balsam Mountain Preserve don’t know how long Radco will remain in the shoes of the developer. For now, Radco has been mostly tasked with upkeep of the property, a move pushed by the lender to protect the property’s value while foreclosure proceeds. If maintenance was neglected, it could lead to decline in value, which would be bad for the lender. If no one bids on the property during foreclosure and the lender becomes the new owner, they may keep Radco on board.
Radco is currently involved in drafting an annual budget for the community association and the operation of the recreational amenities, including an Arnold Palmer designed golf course, dining room, swimming pool, horse stables and myriad other features.
The fate of recreational amenities is the top concern of property owners in Balsam Mountain Preserve these days.
“If we are paying dues, we need to have the amenities,” said Dave Sparks, a homeowner in Balsam Mountain.
The initiation fee for the amenities was $75,000, which is mandatory when buying a lot in the development. There is also an annual fee for the upkeep of amenities, which could rise this year.
Theoretically, annual dues by property owners will pay for the upkeep and operation of recreational amenities, but a balanced budget usually isn’t possible without a critical mass of individual homeowners. But until then, the developer often chips in to subsidize them.
Chaffin and Light has been heavily subsidizing the amenities within the development in recent years. It is, after all, in the best interest of the developer to ensure the amenities are functioning at full tilt, a calculated selling point when courting new lot buyers. But new owners likely won’t subsidize the costs to the extent the current developers are, according to property owners involved with the issue.
The Arnold Palmer designed golf course in particular carries a hefty annual operating cost. Opening up the golf course at Balsam Mountain Preserve to outside memberships is one of the many options on the table.
Property owners hold one trump card to ensure the amenities are maintained and kept open. They could stop paying their dues. The developer — whoever that may be post-foreclosure — would be stuck footing the entire bill to keep the recreational amenities presentable in order to fuel future lot sales.
“We hope Trilyn and Radco realize it is important to keep us happy,” said Sal Guerriero, a homeowner in Balsam who sits on the community association board.
Two-thirds of the 354 lots in the development have been sold already. There are 120 lots still to go, and those lots are largely where the profit margin lies.
“That’s why the amenities need to be taken care of,” Guerriero said.
While an annual membership for the recreational amenities is voluntary, homeowners pay mandatory dues as part of the community association, which is responsible for road maintenance and security. That, too, has been heavily subsidized by the developers, but the financial burden will be shifted almost entirely to property owners this year, according to Guerriero.
In the long run, homeowners are confident the groundwork has been laid for a one-of-a-kind mountain community.
“We don’t anticipate there will be any significant change in the format of the community. The only question is who is going to own it,” said Hanlon, a homeowner. “Two years from now, we’ll look back on this and say it was an unfortunate dip in the road.”
Balsam Mountain Preserve has been stripped of control and custody of its development as lenders continue their march toward foreclosure.
The 4,400-acre development in Jackson County owes nearly $21 million to its lender, a private equity investment firm called TriLyn. Balsam Mountain Preserve developers have been in default of the loan for more than a year.
Foreclosure could be a long way off, however, so lenders went to court last week asking that a third party be put in charge of the property in the meantime.
The third party will have full control of the development. It will take over the bank accounts, manage employees and keep up the property. It will even be able to sell lots, with revenue to be turned over to the lender.
The lender will put up the money the third party management company needs for upkeep and operations, although it will be tacked on to the running tally Balsam Mountain Preserve owes. The company selected by the lender, Radco Property Management of Atlanta, will get a fee of $25,000 a month for overseeing operations, known as a receivership.
The lender said the move was necessary to ensure the property is properly maintained, since its only hope of recouping its investment is the equity that remains in the development.
Two-thirds of the 354 lots in the development have been sold. Developers were banking on continued lot sales to pay off the loan, but the pace of sales plummeted due to the national economic downturn.
“There is no good guy, bad guy. It is just a case of the economy. The music stopped,” said George Hendon, the Asheville attorney representing the lender in court last week.
Also last week, Balsam Mountain Preserve got a 30-day extension on a foreclosure hearing. The hearing would decide whether the lender should be allowed to proceed with the actual foreclosure.
Balsam Mountain Preserve is trying to raise money to pay off the debt and needs more time, argued Sylva attorney Jay Coward, who is representing Balsam Mountain Preserve developers. Coward said there has been “substantial success” in raising the funds so far.
“Given more time the entire amount may be raised,” Coward wrote in his request for an extension.
The original loan dating to 2005 was for $19.8 million. While more than $3 million of the principal has been paid off, the total owed on the property has grown to $21 million, mostly due to mounting interest, which totals more than $4 million. Interest is accruing at a higher than normal default rate of roughly $100,000 a month, according to court documents.
Lenders are also tacking on their own legal expenses and costs associated with collecting the debt. And now, the fee paid to the third-party management company and operating costs to keep the development going will be tacked on as well.
Despite the loan being in arrears, lenders say they advanced Balsam Mountain Preserve more than $1 million over the past year to keep the property from decaying. Credit was extended for operating costs, items like payroll for workers grooming the golf course and for sales staff courting prospective lot buyers. The lender even had to pay leases on maintenance equipment to keep it from being repossessed.
“We did that on the assurance they were trying to find additional capital,” Hendon said.
Balsam Mountain Preserve has been in discussions with the lender for a year to refinance the loan, restructure it or arrive at a work-out, but the lender’s patience has been exhausted, Hendon said. The lender’s top concern now is to keep the property from deteriorating since that is the only collateral securing the debt.
“It is a critical time,” Hendon said. “They are down to a skeletal security force with no indications they are improving.”
If the foreclosure drags out, the property could be in jeopardy of losing value and, in turn, limiting the lender’s ability to recover its investment, Hendon said.
Balsam Mountain Preserve countered the suggestion that it wasn’t taking care of the property.
“When (the lender) tries to paint this bleak picture, I don’t think that is fair. We deny it,” said Coward.
The two top managers at Balsam Mountain Preserve filed affidavits in the court record stating their opposition to the lender’s representation that the property was being ill-managed and not taken care of.
If sales continued at the historical average of $500,000 per lot, there is $60 million in revenue yet to be made off unsold lots in the development — more than enough to pay off the loan. But if and when demand for lots in that price range will return is anyone’s guess. The lender is apparently not willing to take a wait-and-see approach.
Meanwhile, property owners are concerned that the third-party overseer won’t uphold the same values as Balsam Mountain Preserve developers.
“The homeowners association is very distressed about the situation,” Coward said. Coward said it has been difficult to “get a read” on the third-party overseer and its track record or experience with resort communities.
Balsam Mountain Preserve is a subsidiary of Chaffin Light, a national company with a reputation for high-end resort communities that cater to the environment and pay homage to the natural resources and scenery of the surrounds.
“The environmental ethic of this development is pretty incredible for Western North Carolina. In other words, they didn’t cut up 4,000 acres into 4,000 lots,” Coward said.
The third-party overseer has full control now, however. It even has the authority to edit marketing materials and the Balsam Mountain Preserve Web site to delete any reference to Chaffin Light.
The development has 354 lots on 1,400 acres, with the remaining 3,000 acres off limits to development under a conservation easement. The conservation easement is legally binding and protections will remain in place regardless of the outcome of the foreclosure. The number of lots is also capped, regardless of new ownership, thanks to covenants on the property.
The Balsam Mountain property owners association had an attorney of its own at last week’s court hearing on the third-party receivership to assert their interests. Property owners bought into the community under certain expectations, which should be upheld, said David Herrigel , the attorney on behalf of the property owner’s association.
“We want them to continue to operate the community the way it was represented to the members at the time that they bought,” Herrigel said.
Property owners hope to intervene by raising enough capital to pay off the loan and assume control of the property themselves, including the well-appointed amenities of an Arnold Palmer golf course, equestrian center, dining hall, swimming pool, tennis court, pavilion and backcountry camp.
“I am just hoping that it all works out for the best,” said Nancy Seidensticker, a homeowner in Balsam Mountain Preserve. “We all love this place. Most of the homeowners I know have committed to put in a certain amount to see what we can do, but I don’t know if it will be enough because I guess the lender is hanging pretty tough.”
Judge Brad Letts, the resident Superior Court judge for Jackson County, had to recuse himself from proceedings since he owns a lot in the development. Judge Dennis Winner presided instead and granted the receivership to Radco. Radco did not return phone calls seeking comment, but a representative of the company — which specializes in taking over distressed commercial properties — was on site at Balsam Mountain Preserve Monday.