The fallout from a bad economy that is wreaking havoc on the high end of the leisure residential market, as well as an unfortunate bet on Tiger Woods, may have caught up with upscale Cliffs Communities in North and South Carolina. According to a Cliffs property owner, developer Jim Anthony is testing residents' and club members’ appetite to commit $60 million in debt financing, or about 40% of what The Cliffs has reportedly invested in its High Carolina community, including land and Woods’ alleged $20 million design fee.
The $60 million would be raised in the form of bond notes that will pay a minimum of 12% interest
The Cliffs investigated outside debt financing but their payments would have exceeded 12%, according to the owner. Such interest rates imply great risk and, if anything, compromise The Cliffs' well worked public image of sophistication. That image, however, has taken a beating courtesy of the Woods scandal and the ill-timed placement of embarrassing billboards around Asheville.
By offering ownership of the debt to residents, The Cliffs avoids the potentially unpleasant publicity of a “junk” rating. It also avoids the potential that, in the case of a default on the loan, outside investors would likely rush to liquidate their investment, an especially unpleasant scenario for owners of Cliffs properties who could see their property values plummet along with the value of their club memberships (for which they paid as much as $150,000).
According to our owner contact, who says he is inclined at this point to buy into the bond note, The Cliffs has opened its books to residents, and Jim Anthony has put up his personal assets, along with The Cliffs amenities. Cliffs owners and club members, some of them lawyers and financial experts, are proceeding with due diligence, but no matter what they decide, they appear to be between a rock and a hard place. They can either support The Cliffs with the requested $60 million or risk outside investors carving up their communities in the event of default.
Give Jim Anthony and The Cliffs organization props for coming up with an offer owners can hardly refuse.