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Friday, January 13, 2012

Bluffton developer John Reed reaching for new heights at The Cliffs Communities

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        The Carolina coastal golf community development organization led by John Reed may be going up-country, according to a letter emailed to club members at The Cliffs Communities earlier this week. If negotiations are successful, Reed will manage the lush roster of amenities and own the unsold real estate in the multi-community development. Reed would engage Troon Golf to manage the golf clubs and is pledging to partner with local home builders and focus on constructing houses in the 2,500 to 4,000 square foot range, somewhat smaller than many Cliffs dwellers built before the recession.

        “The ClubCo Board has advised that they are now focused on attempting to reach agreement with Reed Development and its unnamed investment fund partner,” the letter indicated, adding that ClubCo had tabled negotiations with two other suitors.

        Cliffs founder Jim Anthony owes $64 million to club members and millions more on his real estate holdings. ClubCo, which operates the golf courses, and Cliffs Communities Inc., which controls the real estate, would

More than 500 members loaned The Cliffs founder $64 million; 1,500 did not.

declare bankruptcy before a Reed acquisition. Reed, with the backing of members, would present its proposal to the bankruptcy court. In golf community bankruptcy cases we have followed in recent years, courts have been inclined to accept reasonable, comprehensive proposals from new ownership supported by members and residents. One potentially thorny issue is that the 1,500 or so club members who declined to participate in the voluntary loan to Anthony are still owed a large percentage of their initiation deposits; at its height, membership initiation was $150,000 at The Cliffs. And those who loaned the $64 million to Anthony expected to be repaid within seven years (last payment to be five years from now).

        “Reed is currently proposing a vesting of old initiation fees over five years, with less than full repayment,” according to the letter, adding that “Noteholders would receive a higher percentage payout and faster vesting than non-Noteholders.”  Although vesting rules were not spelled out in the letter, the implication is that everyone will get back less than promised originally, and those who risked their capital in loaning Anthony the money will get it back at a faster rate than others.

        On its face, the Reed proposal is good news for Cliffs residents and club members. Developers, even the good ones, are often targets for criticism by residents of their communities. But Mr. Reed has managed to

John Reed has managed to stay above the fray in the world of golf course development. That's saying something.

operate above the fray for almost four decades, keeping his promises to homeowners, including the ones to turn over amenities. He appears to be attuned to the vagaries of the housing market, downscaling his newer developments at Hampton Hall and Hampton Lake just before the economy turned and upscale went out of fashion. Apparently, he has never done anything so rash as to hire and overpay an untested golf course designer, as Jim Anthony did when he engaged Tiger Woods to build his first American course at High Carolina. Mr. Reed seems to display the kind of level-headed stewardship The Cliffs sorely needs.

        Noteholders will meet on Wednesday at Furman University in Greenville, SC, to discuss the Reed proposal.  The following day, all members will meet for an update on the fast evolving situation at The Cliffs.  Stay tuned.

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Larry Gavrich

This blog was conceived and is published by me, Larry Gavrich, a former corporate communications executive who founded HomeOnTheCourse, LLC, in 2005.  Our firm advises baby boomers and others seeking a lifestyle in which golf is a major component.  My wife Connie and I own a home in Connecticut (not on a golf course) and a condo at Pawleys Plantation in Pawleys Island, SC, on a Jack Nicklaus layout.  We began our search for our home on the course more than 15 years ago, and the challenges of the search inspired me to research golf communities and write objective reviews of them.