There has been little in the news about the prestigious Pine Canyon development on the southern edge of Flagstaff since the developer, Lonetree Investments Inc., declared bankruptcy in September. Yet, security guards still staff the entrance gates and the adjacent realty office is still open for sales. A springtime drive around the development reveals beautifully crafted large mountain chalet-style rock-log mini-mansions. The golf course looks immaculate and a late spring snowfall has been cleared. But there is a whiff of exclusive ghost town in the air.
Don Colegrove, a local custom home building contractor and Pine Canyon resident, says the lack of people is purely seasonal. Because the development is aimed at the second home market, winter months tend to be quiet – something he enjoys. Apparently, it gets busier come late spring and summer. Colegrove says that as a resident, there have been no noticeable changes to amenities and services since Lonetree Investments filed for bankruptcy. Roads have been cleared of snow promptly and upkeep of the kids’ park, tennis courts, golf driving range, and security have not changed. And Colegrove says that compared to other premier developments in the area, Pine Canyon has the best situation in terms of attracting full-time residents because it is so conveniently located close to the city. Plus, the basic HOA fees are around $360 per quarter – not much different from other comparable developments in town. Around a third of current residents pay these basic fees – the rest pay quite a bit more for extra privileges, with golf course membership costing the most.
Pine Canyon was started in 2002, at a time when other high-end Flagstaff developments like Forest Highlands were running out of lots. The developers wanted to build the best and the grandest, down to details like the color of curbs and concrete around the manhole covers. This, combined with full-time security staff, 18-hole golf course, pool, fitness facility and clubhouse with restaurant, is something the developers think that wealthy buyers are willing to pay a premium for. Pine Canyon Realty, the separate company responsible for sales, got off to a good start for about five years, but has seen a significant slow down recently, with just six more properties sold since last fall’s bankruptcy filing.
Pine Canyon president Warren Smith came to Flagstaff five and a half years ago, hired to oversee all activities. He thinks that while some potential buyers have been put off by the bankruptcy, others are waiting to see what happens. With a maximum capacity of around 900 lots, about 400 properties are sold; of those, just 240 are currently built on. Smith estimates that around 10 to 15 percent of owners are full-time residents like himself, the remaining being second home owners, mainly from Phoenix and Las Vegas. Smith says that the development has made a big effort to maintain services since bankruptcy – facilities like the restaurant and pool will open as normal this year, with only the golf course opening a little later to save money. The golf course, which uses reclaimed water, is one of Pine Canyon’s flagship features; Golf Digest ranked it the fourth best Arizona course in 2007-8, presumably no easy feat in a state with so many from which to choose. And with membership capped at 400, it is designed to stay exclusive. The Clubhouse has also won two national design awards. Smith thinks Pine Canyon’s big selling point is the quality of these amenities, which, along with its location, will remain attractive to buyers, although a lot depends on the national economy, Smith concedes.
While hard financial times are deterring sales, they’re not encouraging existing Pine Canyon homeowners to rent out their properties. President Smith says that although renting is allowed by the HOA, there is not a lot of it – he thinks because the homes are expensive and most owners don’t want “just anybody” living there. Sensitive to the charge that developments like Pine Canyon don’t contribute much to the local community, Smith counters that it contributes via property taxes, as well as building taxes every time a new home is built. Also he says that residents buy a lot of goods and services from local vendors and that most owners don’t have children in school so they are making minimal use of public services. And the development provides employment for between 110 to 160 people, more in summer to staff the health club, spa and golf course.
When Lonetree Investments declared bankruptcy, it was given 100 days to get a formal debt restructuring plan approved. Time is up on May 25, when the U.S. bankruptcy court for the district of Arizona has a hearing on the case. The $25 million of outstanding debt to Johnson bank has been paid down by about $400,000 over the last few months. The remaining $24.5 million debt was bought by Salt Lake City-based Silverleaf Financial as part of a portfolio of loans from Johnson Bank in April, at a discounted price. Silverleaf CEO Shane Baldwin says that they’re evaluating the situation before deciding which direction to take. Silverleaf may continue to service the restructured loan – or take possession of the development. Baldwin says his company is looking for Lonetree to “shake things up a bit” to get sales moving with a more vigorous marketing strategy and more attractive pricing.
Baldwin says this is one of the more interesting properties in Silverleaf’s portfolio and that the developers have done an excellent job maintaining it, despite the bankruptcy. But if sales don’t improve then he says that Silverleaf will take over the property and bring on a partner with experience operating this type of collateral.
Just how much lower prices will have to go and how many homes need to be sold in next the 12 months to get the venture back into profitability, no one can say right now. Things should start to look a little clearer after the court hearing at the end of this month. FBN