Back in the high life

The deliberately unoiled springs emit a drawn-out screech before the screen door slaps shut. The subliminal message is intended to romance prospective buyers visiting the sales office at Balsam Mountain Preserve with a sense of simpler times, and the rustic refrain does call to mind the bucolic existence of the families that settled this part of Appalachia. Of course, most of those clans were dirt poor, which is also a subtle similarity to the luxury-golf community near Sylva that was, until recently, about as broke as the Scotch-Irish pioneers that came before it.

Snowmass Village, Colo.-based Chaffin/Light Associates Co. purchased 4,400 acres of North Carolina mountains in 1999, started taking reservation orders two years later and put lots on public offer in 2004. But when Balsam Mountain was ready to kick into high gear, opening its Arnold Palmer-designed golf course in 2007, the recession delivered it a kick in the rear. Out of fear or their own financial plight, the buyers of high-end second homes disappeared, and the credit market contracted just as swiftly.

Until then, Chaffin/Light had been a prosperous, well-credentialed operation with a portfolio of successful developments in the Carolinas and Colorado. But in late 2009, it defaulted on debts of $19 million at Balsam Mountain. It didn’t help that construction costs on the golf course had soared from a budgeted $12 million to more than $20 million. Developer Jim Chaffin blames the downfall on a tsunami of devastating events.

Its largest lender, Greenwich, Conn.-based private-equity firm TriLyn LLC, foreclosed and called in receivers. For a couple of months, Balsam Mountain shut down everything except its security service and essential maintenance, which included the golf course. TriLyn and its parent company, Bahrain, India-based Investcorp Bank B.S.C., formed a new entity, Vestlyn BMP LLC, to assume ownership and operations, rejecting buyout overtures from several parties, including a group of existing property owners who raised $8 million. Chaffin/Light also attempted a settlement that one newspaper report claimed would have satisfied most lenders.

But Vestlyn refused to part ways with Balsam Mountain. “Our view is very different than a typical lender. A typical lender would not want this on the balance sheet,” Managing Partner Mark Antoncic told the Smoky Mountain News at the time. “If you bail today, you lose all that. We would turn over a good asset to someone else. … We can fix this. It is fixable, unlike so many other projects around the country.” But in November, with little more than the leaves on the trees moving at Balsam Mountain in a year and a half, it sold the development to Marshall, Texas-based The Challenge Golf Group Ltd. for $6 million.

Besides its acreage, elevations that eclipse 4,000 feet, award-winning golf course (it was the North Carolina Golf Panel’s best new course in 2009), equestrian center, swimming pool, tennis courts, restaurant, roads and other infrastructure already in place, 75% of the development is under a permanent-conservation easement, entitling Challenge Golf to state- and federal-tax deductions. All of those amenities combined with its price tag means it was a “pennies-on-the-dollar” purchase, Challenge Golf Senior Vice President Jimmy McDonnell says. Hilda Allen, a Georgia-based golf-course broker, calls it a “real sweet deal.”

That value has allowed Challenge Golf to lower its prices in an attempt to regain the interest of wealthy vacation-home shoppers. “We’re selling to exactly the same demographic as before. It’s just that those people who could afford $2 million for a second home five years ago are not doing that now,” McDonnell says. “That doesn’t mean they can’t afford it. It’s just that they choose not to.” That choice has hurt many Tar Heel developments, but Balsam Mountain shows that through the pain, the North Carolina golf industry might finally see some gain.

David Carlile, the principal of Challenge Golf, isn’t just co-owner of Balsam Mountain. Seeking an escape from the scorching summer of his native east Texas, where his family is in the oil business, he bought property in Balsam Mountain in 2008. A few months later, family friend Harry Avant, who owns a Shreveport, La.-based oil-and-gas company, also purchased land there. They became two of the largest property owners in the development.

Carlile is an accountant and lawyer by training, but he has invested in restaurants — owning about 180 Bonanza Steakhouses in the 1980s — and real estate. The year before buying property at Balsam Mountain, he started Challenge Golf and bought its first course. Back then, Carlile was simply passionate about the game, but as the golf and real-estate industries cratered, he discovered that he could buy premier courses and developments on the cheap. Over the next three years, Balsam Mountain Vice President Bruce Fine says, Challenge Golf acquired eight golf properties in Texas, and in 2010, it bought Cleghorn Plantation in Rutherfordton and Grand Harbor Golf & Yacht Club in Ninety Six, S.C.

So when Vestlyn decided to sell, Carlile had a vested interest, industry knowledge and the wherewithal to buy. He partnered with Avant, and the duo discovered the selling price was less than what they had already put into their Balsam Mountain property. And due to their wealth, they didn’t have to take on much debt. “Sure, it’s going to take a few years to overcome the downturn, but we’re going to nurture it and make it grow,” Carlile says. “But even from the aspect of the five-, 10- or 15-year view, it looks very good. We have the financial stability, and we have the operations experience in this type of community.”

Because Challenge Golf, unlike Chaffin/Light, has very little debt to service, it can focus on making the development profitable. To do that, it has tweaked the business model the developer left behind, which was to sell 354 sizable, well-spaced single-home lots priced from $425,000 to much, much more. Chaffin/Light had been unable to lower its prices, which would’ve diminished its collateral, but Challenge Golf is adding three new neighborhoods and marketing lots for as little as $225,000. “It comes down to having flexibility,” Fine says.

That elasticity seems to be paying off. Last year, Vestlyn sold one lot. In the first three months after buying the development, Challenge Golf sold three. “And this is in the middle of what would normally be our slow season,” McDonnell says. “If this carries into spring and summer, we’ll be very happy.” One lot, a 3.25-acre property with 360-degree mountain views, had been on the market for about $700,000 in 2007. Challenge Golf unloaded it for about $295,000.

Despite the decrease in prices, two homesite sales a year will cover Challenge Golf’s debt service. But it also needs to raise about $1 million a year for the property-owners association budget, which includes roads and community-grounds maintenance. The club amenities — including the restaurant and golf course — run closer to $2 million a year. Management plans to meet those costs through sales and membership dues. “We feel we can clear the existing debt within three or four years,” McDonnell says.

The changes mean that Balsam Mountain will increase its housing capacity to about 400. Previously, homes were expected to be in the $1.5 million to $3 million range, but the addition of smaller, cottage-style neighborhoods allows a buyer to move in for about $700,000. That’s a significant shift for a development that touted sparse housing and exclusivity to those that bought some 240 lots and built about 70 homes before the bottom fell out of the market.

“We have formed an advisory board of homeowners to ensure our future plans meet with everybody’s expectations,” Carlile says. “The response has been good overall. Change is always difficult for people though. There are still some questions, some level of anxiety, but we’ve only been here for about 90 days now. I think the vast majority of people are very glad to see where we’re going. We’re the third owner now and hopefully we’ll be the last.”

Balsam Mountain isn’t the only Tar Heel steal. Allen, the broker, closed sales on 13 courses last year — including the $2 million to $3 million sale of Falls Village Golf Club in Durham — which is on par with recent years. But she says selling prices have fallen about 50% since before the recession. “Obviously it’s a buyer’s market. Some properties are selling for as low as 30 cents on the dollar, and a few are going for as little as 10 cents on the dollar.”

For example, Salem Glen Golf & Country Club in Clemmons, which boasts a layout designed by Jack Nicklaus, is on the market for $2 million — about the same price as the Golden Bear’s fee. Sapphire National Golf Club in Sapphire, little more than 30 miles from Balsam Mountain, is available for less than $2 million even though it generates $1.8 million of revenue annually.

Buyers’ market, perhaps, but they’d better have their own cash, as lenders remain stingy. Providence, R.I.-based Textron Financial Corp., one of the industry’s largest financiers, is trying to get out of the business, announcing in 2009 that it would no longer originate new loans and would try to sell off those it had. In North Carolina, it foreclosed on Firethorne Country Club in Marvin but failed to sell the property at auction. It tried to foreclose on Taberna Country Club in New Bern, but a bankruptcy judge ruled in favor of the property owners, who argued they had kept up payments and maintained a viable operation that was valued by the community.

Of course, the paucity of financing narrows the field of buyers dramatically. It takes someone with access to capital such as Donald Trump, who in March was reportedly close to buying The Point Lake and Golf Club in Mooresville. Members took control of the property at the end of last year from Charlotte-based Crescent Communities LLC in exchange for a $5 million deed of trust. They have until May to pay it off, or they can strike a deal with Trump.

The roll call of golf-course transactions since the recession reaches across the state: Quarry Hills Country Club in Graham was sold out of bankruptcy in 2009. Irvine, Calif.-based Warrior Custom Golf Inc. bought two near Asheville: Reems Creek Golf Club for $1.9 million in 2009 and Broadmoor Golf Links for $3.8 million in 2010, respectively, then snapped up Asheboro Country Club for about $700,000 last year. There were more.

Such turnover, much of it forced, seems like a bad trend for Tar Heel golf. But many hope that new, more stable owners operating less-expensive courses and developments will be able to curtail the industry’s slide. At least that’s the hope at Balsam Mountain. “The original developers didn’t do anything wrong, they just got caught up in an unexpected market downturn,” Fine says. “They say the third or fourth guy in makes the money. It just turns out that we’re going to be that guy.”

View a full list of North Carolina’s top 100 golf courses and best courses by region here.