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more photosA house under construction in Tetherow this month. Of the 700-acre destination resort's 302 platted lots, only 59 have sold since November 2007, and only a handful of houses have been built.
Dean Guernsey / The Bulletin
Turning around Tetherow's troubles: ‘Not if ... just when'
Still largely undeveloped, the resort predicts success when the economic winds change
By Andrew Moore / The Bulletin
Last modified: November 10. 2009 5:26AM PSTWalk up to the giant picture window in the Tetherow clubhouse and you'll gaze over an expansive scene filled with golf greens, rolling sagebrush-covered hills and distant snowy peaks.
It's a marvelous view, but missing one crucial element envisioned by the resort's developers: houses.
Since single-family lot sales at the roughly 700-acre destination resort began two years ago, 59 of the development's 302 platted lots have sold, and only a handful of houses have been built.
Of course, the resort — which features a golf course designed by David McLay Kidd that was named Best New Course of 2008 by Golf Magazine — has faced horrendous economic headwinds since lot sales began, winds that have been national in scope and particularly hard on luxury real estate.
The fallout has been acute for Arrowood Tetherow LLC, the resort's master developer. It sold the hotel property it owned to generate cash, and then earlier this year had to relinquish most of the residential lots it owned.
And last month, one of the resort's four development partners, St. Louis-based Virtual Realty Enterprises LLC, filed a notice of default against Arrowood Tetherow for additional land Arrowood Tetherow owns.
Don Bauhofer, a principal of Bend-based Arrowood Tetherow, said his company plans to work with VRE to resolve the default situation. Additionally, Bauhofer said he's disappointed Arrowood Tetherow has lost some development opportunities but is confident the $60 million resort will weather the storm, a position mirrored by Eugene-based Spring Capital Group, the resort's largest residential developer.
“Tetherow is going to be a terrific community,” said Bill Bernards, spokesman for Spring Capital. “It can't help but be because the real estate is just too good, it has the number one golf course, its proximity to (Mt. Bachelor ski area), the town ... It's just that it will take more time than people originally envisioned. It's not if, it's just when.”
Tetherow had three development partners when lot sales began in November 2007. Spring Capital owned 188 of the platted lots; Proterra Bend I LLC — a Bend company controlled by Hayden Watson, the CEO of Redmond-based Hayden Homes — controlled 68 residential lots, and Arrowood Tetherow had 46 residential lots.
Arrowood Tetherow also owned the golf course, the 12-acre hotel property, the 12-acre overnight lodge home property and the 42-acre townhome property.
Initially, lot sales were brisk, with many selling for more than $600,000. But as the economy began to cool, sales fell off.
Residential lot sales were originally going to finance construction of the golf course and clubhouse, but Arrowood Tetherow had to explore other alternatives as the real estate market soured.
In 2008, it sold the course to Spring Capital, which completed the course and the clubhouse. In March, Spring Capital sold them for $10.5 million to Tetherow Golf Course LLC, a company headed by former European PGA Tour player and Sisters resident Chris Van der Velde, who now serves as the course's director.
“When Don (Bauhofer) started to have financial concerns 18 to 20 months ago, we could tell (the golf course) would be in trouble,” said Spring Capital's Bernards. “We approached him and said, ‘How about we take over the course now,' and he said, ‘Yeah, that's probably in everybody's interest.' No one could move as fast as we could to step in and get (the golf course) built.
“Our goal in this particular project was just to acquire and develop the 188 lots — that was our goal. We didn't intend to develop, own and manage the golf course,” Bernards said. “Then came a moment in time when we were the only party able to bring it across the line, so we stepped into those shoes. So when we finished it and Chris got set, we sold them the course.”
Spring Capital is no stranger to golf resorts, having acquired the Salishan Spa & Golf Resort near Lincoln City in 2003. It also has developed hotel, apartment and condominium projects in the Western U.S. and Portland for the past 25 years, according to the company.
Bauhofer said he wasn't happy Spring Capital had to step in, only to avoid having “too many cooks in the kitchen” with regard to the course's development, but he said Arrowood Tetherow never planned to operate the course and is happy with how it's turned out.
Along with slow lot sales in 2008, finding financing for a major hotel project was almost impossible, Bauhofer said.
Arrowood Tetherow subsequently sold the 12-acre hotel property to VRE for $2 million, hoping VRE's experience in hotel financing would benefit the resort, Bauhofer said. The company specializes in buying distressed commercial real estate loans from banks and other lenders, according to its Web site.
Slow lot sales also caused Arrowood Tetherow to default on 42 home lots it owned that bordered the Broken Top Club. The lots, which were to be developed under the subdivision name Crescent, were financed through Umpqua Bank. Earlier this year, Arrowood Tetherow deeded the lots to Umpqua in lieu of foreclosure. The lots were subsequently purchased by VRE.
Then, last month, VRE filed a notice of default against Arrowood Tetherow for failure to pay $12 million due on an $18 million line of credit secured by Arrowood Tetherow's two remaining single-family residential lots and roughly 12 acres at the resort reserved for the construction of overnight lodging units, referred to in Tetherow literature as the lodge homes.
The resort is approved to build 56 lodge homes that, when constructed, will help meet the resort's overnight lodging requirement mandated by Deschutes County.
Arrowood Tetherow posted a $16 million bond with the county to guarantee the lodge homes' construction. The bond has since been reduced to $8.7 million.
Bauhofer said he hopes to resolve the default situation with VRE but believes that if VRE were to assume control of the lodge home property, it wouldn't hurt the resort.
“We're working with VRE to remain in ownership of the lodge homes, but either we'll own them or a co-owner of the resort will own it ... (and) if VRE ends up owning both (the hotel and lodge home properties), that could end up being not a bad thing,” Bauhofer said. “Our goal is for all the folks involved in the resort to have enough patience (to) be able to realize the value of their investment.”
Calls to VRE's Missouri offices were not returned.
Bauhofer said Arrowood Tetherow also still owns the 42 acres of land approved for 210 townhouses, and that developing townhomes is the company's specialty.
“We're pretty disappointed we don't have control of the Crescent lots, but the reality is we couldn't keep up and we're pleased VRE has ownership, and we still have ownership of the townhome land,” Bauhofer said.
“As folks have said, this is one of the best conceived destination resort projects they have ever seen,” Bauhofer said. “The best location and the worst economic cycle. As the economic cycle changes, Tetherow will be successful.
“It's nice that the world-class golf course is done ... but financing a hotel and overnight lodging in this market is difficult — and financing single-family homes and townhomes, there's nothing easy about those either — so there's nothing easy about it, and as the market heals, those components will be better able to move it forward,” Bauhofer said.
Gwil Evans, a Bend businessman who owns a residential lot at Tetherow, said he has no regrets about buying land at the resort.
“Like any other property you bought two years ago, it's probably worth half now, but I think that location will be among the first to come back and will do better than any other (Central Oregon) golf course location,” Evans said. “They really created a quality environment out there, and I don't think they went overboard. It's really sensibly done and just really, really nice.”
Evans said he plans to build a home on the lot but is waiting to sell his current house.
Bernards said Spring Capital recently secured a five-year loan extension for its Tetherow investment and can wait out market turmoil while the economy recovers. He said the resort's ownership is strengthening, and that the property's uniqueness practically guarantees success.
“The real estate is moving into stronger hands; our group is well capitalized and that's what you need to keep this thing moving forward,” Bernards said.
Andrew Moore can be reached at 541-617-7820 or at amoore@bendbulletin.com.
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