Lesson of Yellowstone: Super rich worse investors than the rest of us

: May 19, 2009

Just because a person is a billionaire doesn't make them smart when it comes to buying a home in a golf community. Their mistakes are just magnified, and sometimes covered in the newspaper.
A Boston private equity firm purchased the ill-fated Yellowstone Club in Montana yesterday for $115 million, more than five times less than its estimated value just a few years ago. Left with devalued properties after years of wrangling with the profligate owners, Tim and Edra Blixseth, are

Four years ago, Executive Golfer ran a fawning article on Tim Blixseth, founder of Yellowstone. Blixseth and his wife, now divorced, have been accused of spending their customers' money on their personal luxuries.

billionaire Bill Gates, senior execs from News Corp. and Comcast, and Credit Suisse, which should be renamed Credit Riske for its penchant for bad loans to such troubled properties as Promontory (Utah) and some of the Ginn Resort holdings. The Blixseths, once ranked among the nation's richest couples, are accused of spending their customers' money to finance their ultra-expensive lifestyle. In one of life's enduring lessons, the life of luxury was not enough to keep the duo from each other's throats in a messy divorce that left Edra Blixseth owning Yellowstone after the proceedings but surfaced the deeper financial issues at the Club. Mrs. Blixseth recently filed for personal bankruptcy.
As a public service for Mr. Gates and his fellow billionaires, and for the rest of us considering a golf community property, here are some lessons learned from Yellowstone:

Research the developer's experience. In the case of Yellowstone, it was Tim Blixseth's first community, and it was a whopper. Like the game of golf or writing computer programs, it takes practice to get it right.
Don't fall for the hype. Developers with lots of money can pay for PR that makes them seem better than they are. Consider this ironic piece of fawning pabulum from Edward Pazdur, publisher of Executive Golfer, at the end of an interview about Yellowstone that he conducted with Tim Blixseth four years ago: "It seems to me, Mr. Blixseth, that your early days of gambling paid off big. And the best is yet to come."
Beware of highly leveraged properties. When Yellowstone sold yesterday for $115 million, it had an outstanding debt of $375 million to Credit Suisse. Come to think of it, if Credit Suisse is bankrolling the property you are interested in, reconsider. They have bet, and lost big, on such troubled assets as Ginn Resort properties and the deluxe Promontory Club in Utah, recently sold in bankruptcy.
Super-rich people are not as smart as the rest of us when it comes to buying stuff...because they don't have to be. Just because rich friends have bought into a deal (keyword search "Madoff") doesn't mean it is a good deal.
Finally, and this goes for any investment, if it sounds too good to be true, it is. Or, in the words of Bob Dylan, "Don't go mistakin' paradise for that home across the road."