Laurelmor acquired at fire sale price; Ginn empire continues to unravel

    If the economy had continued to roar ahead, it might have been many more years before Bernard Madoff's horrifically damaging Ponzi scheme would have come to light.  His early investors would have been paid off, possibly many times over, and later investors would have continued to make nice returns.  A good economy would have helped Madoff keep his bogus promises.
    Bobby Ginn is no Bernie Madoff, and that is a compliment to Mr. Ginn, whose master plan was to create a golf community empire of elegant properties with high-class amenities.  Ginn borrowed tons of money from willing banks in order to build his golf courses early in the development of his lush communities, to act as lures to new purchasers.  That approach would have worked well for one or two properties, but Mr. Ginn, whose ego pushed him to add an ill-fated and distracting NASCAR racing team to his roster of businesses, started acquiring entire mountainsides and Caribbean beachfronts to develop more and more high-end properties.   To paraphrase the poet William Butler Yeats, "Things fell apart; the center would not hold."  
    The fire sale of Ginn's now bankrupt Carolina mountain properties reminds us that residential real estate development is something like a Ponzi scheme.  The first property owners take a risk by purchasing property before the amenities are built; their payments are used to promote the community and build the promised amenities in the hopes that will entice others to purchase.  The process works well as long as the buyers keep coming.   But when the economy went south, and the golf course, clubhouse and fitness centers at Ginn's later communities did not leave the drawing board, potential buyers became skeptical, existing property values decreased, and the fragile pyramid began to fall apart.  In short, Ginn expanded too far too fast.
    All that said, sometimes you have to burn down a forest to promote new growth, and that is what is happening, metaphorically speaking, with pieces of Ginn's empire of high-end golfing communities.  Faced with a nearly $700 million debt, most of it to Credit Suisse, Ginn Resorts has been forced to file Chapter 7 bankruptcy at some of its major properties and to sell pieces of other properties to the private equity firm Luther-Adler.  The family firm that runs Reynolds Plantation and Luther-Adler are working together at Briar Rose, another Ginn property, located at the opposite end of Lake Oconee from Reynolds Plantation in rural Georgia.  
    As 2008 ended, the owners of Reynolds Plantation announced they had secured Ginn's property at Laurelmor, near Boone, NC, for a reported $32 million transfer fee and payment of owed taxes.  This followed an agreement with Ginn in October to manage its Cobblestone Park property in the university town of Columbia, SC.  The Cobblestone web site makes no mention of Ginn and includes a copyright notice dated 2009 that references Linger Longer Development, a subsidiary of the Reynolds group.
    Briar Rose, Cobblestone and Laurelmor property owners should be rejoicing.  The Reynolds family has developed its property beside Lake Oconee with care and great taste.  The five golf courses at Reynolds Plantation, all by noted designers, have received great notices from reviewers and other visitors, and the on-site Ritz Carlton hotel has helped cushion the developers from the catastrophes of the current market collapse that has sunk Ginn and others.  
    In making the announcement about the Laurelmor acquisition, Reynolds subsidiary Linger Longer said it will take a few months to develop a plan for Laurelmor before an announcement of those plans at mid year.  The $32 million or so it paid for the property is a small fraction of the acquisition pool of money Linger Longer has at its disposal.  Almost assuredly, the mid-2009 announcement will include plans to finish the promised golf course, only a few holes of which have been roughed out.  The course, which was designed by Austin-based architects Kite, Russell & Bechtol, was originally slated for opening this summer.
    According to unconfirmed reports, only about 170 lots have been sold in two years at the 6,000-acre Laurelmor.  One to three acre lots were priced in 2007 in the $600,000+ range, a bit pricey in the current market.  It will be interesting to see if Reynolds modifies the pricing and, if it does, how it handles with the 170 owners the instant depreciation of their properties.  However, Reynolds is a first-class operation, and its takeover of Laurelmor (and Cobblestone) is a good sign for the North Carolina mountain golf community market and especially for property owners in the two former Ginn developments.  The sad saga of Ginn and how the developer has left many of his residents in the lurch are good reminders of what I have preached here repeatedly (and now again):  Proceed with caution if the amenities, especially the golf course, are not in place.  Promises do not have the same currency they once had.
    If you would like more information about Laurelmor, Briar Rose, Cobblestone or any other golf community properties in the southern U.S., please contact me.  There is never a cost or obligation for my services.
    For a comprehensive article on the Laurelmor acquisition, click here.