In the Central Valley these days, the bankruptcies and foreclosures don't just affect individual homeowners.
They swallow entire developments – and the people who conceive them.
Winchester Country Club in rural Placer County, which went into foreclosure and sent legendary Sacramento highway contractor C.C. Myers into bankruptcy protection, isn't the only lavish golf-course housing development to fall on hard times. Three massive high-end projects in the San Joaquin Valley have fallen into bankruptcy proceedings in the past two years.
The three insolvencies symbolize the California housing bubble at its most extreme. Combined, they have cost lenders and investors tens of millions of dollars – and offer clues about the roots of the financial crisis that has gripped Wall Street and the world's economies.
Each is striking in its own way:
• After Running Horse in Fresno collapsed, none other than Donald Trump jetted in with a possible rescue plan. He gave up months later. One of the original developers, accused of fraud, turned up dead in a Fresno motel last month.
• Bakersfield's McAllister Ranch defaulted on a $235 million loan from Lehman Bros., the investment giant whose Chapter 11 bankruptcy filing helped heat Wall Street's woes to their current boil. McAllister's only occupants are a herd of sheep grazing on a golf course designed by Greg Norman.
• Diablo Grande, in Patterson in Stanislaus County, is faring better. Like Myers' Winchester project, it's partly built out. But homeowners grumble about water-quality problems and plummeting values, and the project became a nightmare for original developer Donald Panoz, a pharmaceutical tycoon who made a fortune on the nicotine patch. He lost Diablo Grande after it filed for bankruptcy protection.
All three developments were designed to bring the luxury life to the Valley, and that's where the problem lies. Their struggles illustrate how hard it is to transplant $800,000 homes and designer golf courses to California's chronically depressed midsection.
Bakersfield boom turns to blues
While the housing boom brought money and diversification to a region too dependent on farming, the overall impact was somewhat hollow. The fundamentals of the economy didn't change. The Valley didn't generate nearly enough high-paying jobs needed to sustain such high-end developments as Running Horse.
"The markets were so overheated they were chasing any deal," said Fresno real estate consultant Robin Kane. "Part of the problem that always hurts us in the Valley, from Bakersfield to Stockton, is your employment and per capita income (are) not rising."
With the boom a faded memory, unemployment is creeping back up to the 10 percent range in much of the Valley. The real estate market is a disaster: Stockton had the nation's highest foreclosure rate in August, according to researcher RealtyTrac, followed by Merced and Modesto.
Developers of big projects are paying for what Kane and others said was a classic Valley mistake: They fell in love with the area's inexpensive land but ignored its troubling demographics. The Valley is still plagued by low incomes, a poorly educated work force and other ills.
"We're not another Silicon Valley," said Bakersfield real estate appraiser Gary Crabtree.
That didn't seem to matter when McAllister Ranch was taking shape in southwest Bakersfield. The city in 2005 had become the nation's single hottest housing market, as measured by price growth, thanks to a stampede of homebuyers from Los Angeles.
McAllister was going to be a big-time operation, with 6,000 homes and a host of amenities. Developer SunCal Cos. of Irvine borrowed $235 million from Lehman Bros. – part of a $2.2 billion war chest Lehman handed SunCal to develop properties throughout California and Nevada.
SunCal had a grand vision for Bakersfield. After buying out the original developer, it doubled the asking price for individual lots, to $115,000.
But once the market petered out, "those prices were no longer viable," said ex-project manager Darryl Tucker.
Call Dale Kasler at (916) 321-1066.
