Just a year after the elite Caves Valley Golf Club opened to acclaim on 900 prime acres near Owings Mills, its directors -- members of Baltimore's corporate leadership -- are refinancing the club's debts, buying time to develop a long-term solution to its financial pressures.
The refinancing became necessary after the revenue assumptions behind the $40 million project, which was conceived as an economic-development "magnet" to attract businesses to Baltimore, were turned upside down by the recession and problems developed in selling luxury home lots priced at an average of $500,000.
Under the terms of the refinancing, the club will turn over 33 unsold lots totaling about 115 acres to a new partnership for development, removing from its books $14 million of its $27 million in debts. Club operations are expected to help repay much of the remaining $13 million. But with $10 million of that due in a lump sum in 1997, another round of refinancing may well be necessary.
The story of Caves Valley's financial stresses largely mirrors the economic shocks that have rocked Baltimore's corporate offices during the past few years.
Caves Valley took shape in the mid-1980s in the minds of a handful of area executives who wanted a world-class golf course here and believed a new club would improve Baltimore's ability to attract businesses to the region.
Surveys had shown that Baltimore was not well-stocked with golf club memberships. There also was concern that many clubs were either at capacity or viewed as practicing racial or religious discrimination, says Christian H. Poindexter, vice chairman of Baltimore Gas and Electric Co. and a member of the club's board. The Caves Valley founders wanted a club known for having a diverse membership, as compared with many other Baltimore clubs, he says, "where depending on your religion or your race, you could or couldn't get in."
Corporate leaders -- headed by Leslie B. Disharoon, former chairman of Monumental Life Insurance Co., and including Reg Murphy, then publisher of The Sun and The Evening Sun -- worked to make Caves Valley a reality. Top executives of such prominent Maryland companies as BG&E, USF&G Corp., Whiting-Turner Contracting Co., Mercantile Bankshares Corp. and the Rouse Co. were active in the effort.
Corporate support came principally from BG&E and USF&G, which provided large financial guarantees that helped Caves Valley move off the drawing boards. Many other companies, including The Baltimore Sun, provided start-up funds by buying $75,000 corporate memberships in advance.
With revenue from the advance memberships and guarantees of corporate support, Caves Valley went ahead with its ambitious plans in late 1989. Six banks, led by Maryland National Bank, provided a $17 million line of credit to help pay for creating the course.
USF&G was then led by Jack Moseley and BG&E by George V. McGowan -- two powerful chairmen active in civic affairs and able to back up their support with corporate money. (It was Mr. McGowan's predecessor, Bernard C. Trueschler, who first committed BG&E's support to Caves Valley.) Such support was not uncommon during the 1980s for sports projects nationally and for significant Baltimore civic endeavors.
Those times are gone. Today, USF&G has replaced much of its top management, including Mr. Moseley, slashed payrolls and aggressively reduced costs to regain profitability. BG&E, while financially strong, is trying to repair damage from its real estate subsidiary's exposure to a number of other, unrelated deals.
Despite these stresses, both companies increased their support Caves Valley during 1990, and each is now providing more than $10 million in loans and advance payments to the club.
And Maryland National, stung by its own losses on real estate loans, has been eager to refinance the Caves Valley agreement.
Back in 1989, the original assumption was that most of the club's debts would be paid by the sale of 34 exclusive homesites dotting the course's perimeter. The club had hoped it would be left with a manageable $3 million debt after it finished selling the lots in 1998.
But after three years, only one site has been sold. Now, BG&E and USF&G are each converting their original $4 million loan guarantees into ownership stakes in the $14 million partnership, called Caves Valley Limited Partnership, that will own the homesites. Caves Valley says it is well along in raising another $6 million to complete this portion of the refinancing.
The two companies also each hold a $5 million loan secured by the club's assets. That $10 million is due in 1997. The remaining debt of $3 million will be a bank loan carried over from the original $17 million line of bank credit.
'It's not a family club'
The Caves Valley golf course, which opened in July last year, has been billed as more than just a country club golf course. From the beginning, it was intended as an economic-development tool.