Third party steps in to run Balsam Mountain PreserveWritten by Becky Johnson
- The bait battle: paw-lickin’ good
- With a little help from hunters, wildlife officials hope to curb the exploding bear population in the mountains
- Shining Rock leaders say transparency is goal
- Landscape shifts early in the game in Waynesville’s mayor race
- A spoonful of improv helps the glitches go down: Nimble feet are behind Folkmoot’s recipe for success
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.