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Wednesday, 14 October 2009 15:59

BMP’s problems not apparent

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At first glance, it is hard to see why Balsam Mountain Preserve has been unable to satisfy the lenders behind a $19.8 million loan dating to 2005.

The exact amount of the payoff on the loan has not been revealed, but is the only debt Balsam Mountain Preserve is carrying, according to Chris Chaffin, managing partner of the development. Chaffin did say Balsam Mountain is current on the interest portion of the loan.

Since taking out the loan four years ago, Balsam Mountain Preserve has had $65 million in lot sales, according to real estate transactions and records. That’s enough to pay off the principle of the loan three times over.

However, the majority was spent constructing amenities. Chief among them is the Arnold Palmer golf course, a dream course that was no small feat to pull off given the mountainous terrain. The golf course likely ate up much of the revenue from lot sales, but Chaffin did not provide an exact price tag.

In addition, the development boasts an equestrian center, a sports center with tennis courts and a pool, a nature center, a dining room and lodge, guest cabins and a road network.

Of the 354 lots in the master plan for the development, two-thirds have been sold. There are 120 lots left, and with the infrastructure and amenities mostly in place, any profit to be realized would largely rest with the remaining parcels.

Lot sales have declined in 2009 over previous years, but are strong in comparison to what most developments have seen since the recession. Balsam Mountain Preserve sold 12 lots so far this year, bringing in $6.17 million at an average of $514,000 a lot. If the rate is sustained for the remaining 120 lots, the development would realize an additional $60 million in revenue.

That begs the question of why the lenders aren’t being more patient on the undisclosed balance of the $19.8 million loan.

At the 2009 pace of lot sales, it would take three years to pay off the principal, not taking into account the inevitable overhead expense of maintaining a sales presence or the construction of additional road infrastructure, which is still needed in new phases of the development.

Sustaining operations and the additional capital for more road construction would drag out the payoff much longer than basic calculations allow for, and thus make the lender uneasy. The question, it seems, is whether TriLyn is willing to keep waiting or will attempt to take matters into its own hands.

Of the 120 lots that remain, 40 are scattered through existing phases of the development, while 80 are in new phases. The 40 scattered through existing phases require no additional infrastructure in order to market, but are merely waiting for buyers. The other 80 lie in two future phases and would require a capital investment to upgrade old logging roads into development-caliber roads before aggressively marketing the lots.

In some developments, the last lots to sell are likely the least desirable and lowest in value — whether they’re too steep, lack a view or are otherwise unappealing. Some are so flawed they may never sell.

But given the sparse number of lots in Balsam Mountain Preserve — 354 sites on 4,400 acres — the layout and design was likely more thoughtfully considered on the front end, making it less likely that the remaining lots are of less value or won’t sell at all.

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