Diablo Grande: It's settled
(Modesto Bee, The (CA) (KRT) Via Acquire Media NewsEdge) Sep. 13--Despite the drama of some last-minute negotiations and detail changes, a sale of the Diablo Grande resort and a settlement agreement spelling out how the sale proceeds will be distributed won the approval of a Sacramento bankruptcy court judge Friday.
The judge also approved an emergency loan of $148,630 to keep the resort operating for the next two weeks.
The assets of the 28,500-acre Diablo Grande resort in the hills of western Stanislaus County are being sold to World International, a corporation owned by Mexican nationals with experience in hotel and industrial development. The company reportedly has developments in Cancun, Cabo San Lucas and Mexico City.
The purchase price is $20 million, plus as much as $1 million to satisfy debts related to contracts, such as the one providing water service to the homes in Diablo Grande.
The partnership that owns Diablo Grande filed for Chapter 11 bankruptcy protection in March, after the housing market slump dried up cash flow for the development. Diablo Grande includes about 400 homes, two championship-level golf courses, vineyards and a winery.
The resort initially was listed with a property broker at $150 million, a price that was slashed to $85 million in April.
An auction was conducted to sell the property and World International was the high bidder, although the bid came in $6 million below the specified minimum. Creditors agreed to accept the lower amount rather than let the bankruptcy slip into a Chapter 7 liquidation proceeding.
Laurus Corp., a Los Angeles real estate development company that specializes in luxury hotels, resorts and residential property, is acting as a consultant for World International. Laurus acquires hotel and resort properties throughout the United States, the Caribbean and Latin America, according to its Web site.
Laurus has declined comment on World International, saying it will issue a statement once the Diablo Grande sale closes.
That closing is scheduled for Oct. 2.
Judge Robert Bardwil had approved the sale Sept. 9, pending final language approval by creditors. Bardwil had serious reservations about the settlement agreement, however, and without the agreement, creditors said they wouldn't agree to the sale.
Bardwil repeated his objections Friday, contending the agreement bypassed the regular bankruptcy process in distributing the sale money. In the agreement, the secured creditors set aside $850,000 for the unsecured creditors, money Bardwil said should be put in the bankruptcy estate.
Lawyers scrambled to make last-minute changes to the settlement agreement during a recess Friday morning, to satisfy Bardwil's concerns. The creditor and debtor lawyers agreed to put the $850,000 into the bankruptcy estate, with the stipulation that it could not be used to pay professional services such as attorney fees and marketing for the property.
The $850,000 to unsecured creditors is about 34 cents on the dollar, according to court documents. The settlement calls for the Bank of Scotland, which is owed more than $21 million, to get $16 million.
The loan Bardwil approved, to be borrowed from J. Morton Davis, one of the Diablo Grande partners, would be used for water district payments, workers compensation, health insurance and payroll costs for the next two weeks. A hearing on more financing to get the resort to the Oct. 2 closing will be held Sept. 23 in the Sacramento bankruptcy court.
The last remaining objector to the settlement agreement Friday was the West Stanislaus Fire District, which wanted assurances that agreements it had with the Diablo Grande partnership would be binding on the new owner.
The agreements include that the developer would build a permanent fire station by the time the 500th building permit was issued; that housing would be provided for firefighters stationed at Diablo Grande; and that the district would be paid $125,000 when the temporary fire station was no longer needed.
Michael Ahrens, an attorney for the Diablo Grande partnership, said the obligation to build the fire station was tied to the property and would be binding on the new owner. As to the other agreements, the new owner can choose to assume them or not, Ahrens said.
Bardwil said the fire district agreements are with the Diablo Grande partnership and not the new buyer. The settlement agreement leaves the district free to pursue reparations from the partnership, but it can't force the buyer to assume those obligations, Bardwil said.
Bee staff writer Tim Moran can be reached at [email protected] or 578-2349.
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