Posted 2/3/2014 12:00 am
Updated 6 months ago
Eleventh-hour negotiations in January produced an agreement that derailed a court-ordered auction of Gaillardia Golf & Country Club in Oklahoma City.
The outcome formalized the exit of Little Rock developer Phil Herrington from the club’s ownership picture after 11 years and allowed him to shed more than $8.3 million of debt.
Along the way, Herrington was able to orchestrate the purchase of mortgages representing more than $5 million of debt on the Promenade, the last uncompleted neighborhood in the gated Gaillardia development.
Herrington transferred ownership of the 275-acre golfing spread, with its palatial 55,000-SF clubhouse and its 7,240-yard championship course, on Jan. 20 to GCC Lender LLC, an affiliate of Concert Golf Partners of Newport Beach, Calif.
The move followed Concert Golf consolidating its position by acquiring a $1.5 million second mortgage claim from First Liberty Bank of Oklahoma City.
Concert Golf entered Gaillardia in August by purchasing a $6.8 million first mortgage position from Little Rock’s Bank of the Ozarks. Herrington began talking with Concert Golf about facilitating a financial workout back in June.
“The frustrating thing for us is that this is essentially the same deal that we had been proposing for six months,” he said. “Why it wasn’t accepted until after six months, I honestly don’t know. We’re just thankful that it came together like it did.”
Officials at the banks and Concert Golf haven’t said how much of a discount, if any, Concert Golf paid for the two Gaillardia loans. Herrington defaulted on both loans, and foreclosure action was triggered by First Liberty in June.
What happened to cause the financial meltdown at Gaillardia? Herrington was short on details but conceded the obvious: that his management was accountable for unpaid lenders and vendors that included property taxes and water service.
“As I look back on it, we did not have the right kind of long-term capital structure for the last 18 months,” he said. “There were other things in play outside of our control, but at the end of the day, it is our responsibility.
“What we did was work really hard to get all of the issues with the club resolved regardless of how they came about.”
Gaillardia marks the sixth purchase of a financially distressed private golf club by Concert Golf. Earlier cash deals include Heathrow Country Club and Legacy Club at Alaqua Lakes, both in Orlando, Fla., Carrollwood Country Club in Tampa, Fla., Golf Club of Amelia Island (Fla.) and Country Club at Woodmore near Washington, D.C.
Peter Nanula, president of Concert Golf Partners, sent a message to Gaillardia members on Jan. 24 informing them of the change of ownership that included a reassuring line about the group’s deep financial pockets.
“Concert Golf Partners has a dedicated fund from wealthy family investors with a long time horizon, so we acquire clubs with no debt and we continuously invest in the clubs every year,” Nanula wrote.
Jeff McDougall, president of JMA Energy Co. of Oklahoma City, thought his group of Gaillardia members had a deal worked out to buy out Concert Golf’s position as late as Jan. 15.
“We had a letter of intent to buy the first [mortgage] from Concert when they did an about-face,” McDougall said.
Despite the disappointment of the membership not gaining ownership of the club, he is glad to see a change of management.
“We’re optimistic about it,” McDougall said. “Concert is a capable group, but they’re going to have to make the membership happy.”
Other Gaillardia Holdings
Herrington remains a player on at least two properties through Gaillardia Development Co. LLC: an undeveloped 5.17-acre tract bordering the grand Normandy-style clubhouse and 56 lots in the Promenade neighborhood in the southwest corner of Gaillardia.
Golfing great Tom Kite, who won 19 PGA Tour titles and the 1992 U.S. Open, is touted in promotional material as an investor in the Promenade project. Kite had a hand in helping renovate Gaillardia golf course in 2004.
Herrington declines to name other investors in the Promenade.
In early January, more than $5 million in outstanding debt associated with the Promenade was purchased from First Liberty Bank. Herrington said the borrowed money was spent on site work and infrastructure on the 19-acre property.
The First Liberty loans on Promenade were purchased by Gaillardia Investors LLC. Though formed in Oklahoma, the limited liability company has ties back to Little Rock: Dickson Flake, president of Walthour-Flake Co. and commercial broker at the Little Rock office of Colliers International, signed off as managing member of Gaillardia Investors.
Flake and Herrington were tight-lipped about who the investors were and the strategy behind purchasing the two Promenade loans from First Liberty.
“I’m really not at liberty to disclose that,” Herrington said. “We do consider it to be an interim solution.”
For more than two years, the Pro-menade property secured a $3 million loan from First Security Bank of Searcy. First Liberty provided replacement financing in December 2011.
According to real estate records, a dozen lot sales during the past couple of years have generated $2.5 million at Promenade. On the backside of the lot sales, Herrington’s Gaillardia Construction retains exclusive building rights in Promenade.
The other Gaillardia property retained by Herrington is more enigmatic.
The 5.17-acre tract on the west side of the Gaillardia clubhouse secures a $4 million mortgage held by First Commercial Bank of Edmond, Okla.
The terms of the loan make reference to lots on the property. However, development of the land is limited by current zoning, according to Oklahoma City Planning Department records.
The parcel is zoned for use as a golf course, golf-related structures and recreation, according to Oklahoma City planning staff.
Herrington received administrative approval in June 2008 to amend development plans to allow a nine-lot residential project called Cottages of Gaillardia.
However, the proposal drew vocal opposition from Gaillardia residents, who rallied to have that decision revoked on appeal to the board of adjustments later that year.
“It was quite a contentious fight,” said Art Swanson, chairman of Cardinal River Energy I LLC in Oklahoma City and a founding member of Gaillardia.
The would-be project has remained shelved ever since.
Before First Commercial entered the funding picture in June 2012, the property secured a $3 million loan from One Bank & Trust of Little Rock.
“It’s part of potential redevelopment of the club that will be done in conjunction with Concert Golf,” Herrington said of the property.
Swanson believes that’s wishful thinking given the Gaillardia membership’s opposition to Herrington’s plans.
“There are no options,” Swanson said. “You have what amounts to 5 acres of golf course rough. There’s no plausible scenario, unless [First Commercial] made the loan thinking it’s developable.”