Borrego Springs – a town left dry

Borrego Ranch Resort & Spa and adjoining Montesoro Golf & Social Club closed

People need money and water. Just ask Borrego Springs, the San Diego County desert town of only 2600 year-round residents. Through the years, it has endured failures of its major businesses, as entrepreneurs have run out of capital. Meanwhile, citizens have vehemently disagreed over a critical question: is the water supply adequate for Borrego’s long-term survival? If not, will new investors try to rescue the crown jewel real estate assets that were recently padlocked?

Early this year, two Borrego landmarks closed down for lack of capital and, many say, lack of business acumen. The Borrego Ranch Resort & Spa and its adjoining Montesoro Golf & Social Club basically closed up shop in the height of the tourist season, after warning for several months that the end was near if more investors wouldn’t step forward. Montesoro had been through bankruptcy twice under different ownership and the name Rams Hill. The ranch had been owned by Copley Press under the name Casa del Zorro. “It was losing $5 million a year; it was a charity case for David Copley,” says Gregory Perlman of Sherman Oaks–based GH Capital, who managed both operations for a group of investors. David Copley and his mother Helen wanted to keep it open for sentimental reasons; management wanted to dump it.

Montesoro is a planned community with 800 homes built or on the drawing boards and a championship golf course. The ranch has 44 rooms, 19 villas, a restaurant, and pool. The golf course is still open but will certainly be closed for five months in the summer, says Perlman. The clubhouse is locked up. The ranch is essentially shuttered. Seventy people have lost their jobs — a lot for a town the size of Borrego Springs. Montesoro defaulted on water-bond payments, and an affiliate of the Borrego Water District has initiated foreclosure proceedings.

Beginning in 2004, Perlman began recruiting speculators to buy and resuscitate the facility that was renamed Montesoro. One of the major early investors was Iranian Jewish immigrant Ezri Namvar, a Los Angeles real estate swinger who several years ago was said to be worth $2.43 billion. But in December of 2008, he and his Namco Capital were forced into bankruptcy. According to the Los Angeles Business Journal, civil suits charge Namvar with running a Ponzi scheme, and federal investigators are probing the matter.

The Borrego Springs spread is listed as a creditor in both Namvar’s and Namco’s bankruptcies, and Perlman is named as the primary investor. In 2006, Perlman boasted to the Union-Tribune that Namco was a partner in Montesoro. “Namco is a family-owned opportunity fund with $4 billion in assets. Between the two of us, there’s a ton of capital,” said Perlman.

About three years ago, Namco’s interest in Borrego was bought by Philadelphia’s Lubert-Adler. It pulled the plug this year. The various partners had paid $10 million for Montesoro and pumped $15 million into it and in 2007 had bought the ranch for $4.5 million and put $10 million into it. “Lubert-Adler lost $30 million, Namco lost $15 million, and I lost $5 or $6 million,” says Perlman. Banks and other entities lost the rest. At the end, the ranch was losing $200,000 and Montesoro $250,000 a month.

Many Borrego citizens blame Perlman. “He acts like a rich kid with attention deficit disorder,” says Mark Jorgensen, retired superintendent of the Anza-Borrego Desert State Park, which surrounds the town. “He jumped on one thing after another and never finished it.”

For example, the partners bought a grocery store downtown with the idea of making it into a modern market “but let it go to ruin,” says Jorgensen. The investors bulldozed a 12-foot-wide, nearly two-mile road through the park to be used for off-road vehicles. The state sued and negotiations are ongoing.

The new owners “raised the rate on golf membership” and didn’t honor previous memberships, says Tom Gorton, former columnist for the Borrego Sun. Therefore, many residents quit and joined a nearby country club. Residents formerly could use the restaurant at any time; the new owners required reservations. “Taco Tuesdays” and jazz festivals that welcomed the locals were canceled.

“Shutting out the local community was a huge mistake,” says Lane Sharman, a member of one of the town’s founding families. “They created a lot of bad will” and couldn’t replace locals they drove away with affluent outsiders who could afford the prices they were charging.

Perlman and colleagues built a $3 million home with a guesthouse and plane hangar on 80 acres. “They bought properties willy-nilly,” says Dennis Dickinson, a retiree. “Most people assumed that sooner or later they would go broke.” Perlman knows he has critics but says most of the townspeople appreciated his group’s efforts.

Now the existing facilities, plus vast acreage set aside for future development, are all for sale as “an unpriced offering,” according to material distributed by Marcus & Millichap, which has the exclusive listing. But there are problems: the market for resort hotels and golf courses is miserable, and water woes could scare off buyers. Last year, 139.5 golf courses closed in the U.S. and only 49.5 opened, according to the National Golf Foundation.

Chris Karamitsos, cofounder of the National Golf and Resort Properties Group within Marcus & Millichap, hopes that somebody will buy both Montesoro and the ranch as a package. “There is over $120 million of infrastructure between the two,” he says. GH Capital and its partners “didn’t market well to an upscale audience,” he says. “They ended up not having the resources to do that. You can create an aura of exclusivity for the property, but that has to be combined with driving traffic to the place.” But the capital pulled out. Any buyer will need patience. “You won’t turn it around and have a huge profit the first year.”

A golf course needs water. The water and electric bill for the Montesoro course is close to a million dollars a year, says Perlman. There are two opposing camps in Borrego, as there are in other locales: real estate people say there is lots of water, and environmentalists say there isn’t. Mesquite shrubs, which have extremely deep roots, are dying, notes Jorgensen. One cause is the drop in the water table. Another is the drought.

The water table is dropping between two and three feet a year, says Dickinson. Water is being drawn at almost five times the rate it is recharged. He suggests that a court appoint a water master who would apportion usage. Now, most of the water is used by growers and golf courses.

Sharman thinks water could be apportioned equitably through an ordinance, and the water district should look for outside sources, such as piping water in.

Rich Williamson, head of the water district, says there are 50 to 100 years of water left in the aquifer. He gets that number from a staff person of the U.S. Geological Survey, which is doing a study. “Pessimism about water is extremely premature,” he says. But Dickinson thinks there will be trouble in 30 years.

“The basin is severely overdrafted,” says John Peterson, who was the county’s groundwater geologist for 22 years and now has his own firm. Some wells are going dry. “For the most part, we have not been able to identify any additional sources of water as the ground level continues to fall.”

“Water in Borrego is an economic issue,” says Peterson. “If your water bill went up to $1000 a month, you would use less water.” As the price of water rises, “It won’t be economical for fruit growers. That changes the economic dynamics of the valley.”

And as the price goes up, maintaining a golf course might get quite expensive. Somebody buying Montesoro and the ranch will have to ponder that, he says.

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The water doesn't pencil out and the financials don't pencil out.

The Borrego Valley and Borrego Springs (laughable) are excellent examples of a Giant Sucking Sound mentality. (Aquifers and pockets)

It hardly matters, but the place lacks viability as a viable community, even on the most cynical of money-grubbing foundations.

The water in the aquifer took unknown centuries or perhaps millennia to accumulate, but certainly a helluva lot longer than it has taken to pump it out and piss it away on golf courses, alfalfa fields, and citrus and palm plantations. When a water table keeps going down, the outflow exceeds the inflow—it doesn’t take a mystery “employee” from the USGS to figure that out. Most of the precipitation evaporates; very little “perks” into the aquifer; most of what does flows beneath the surface from the surrounding mountains, including Coyote Canyon.

A simple sequence of historical aerial photographs would show the rise and fall of irrigated acreage. Let’s hope that the USGS study includes this, but whether or not it is worth the expense to the taxpayers of doing a complete hydrological study, complete with observation wells and stream hydrographs is questionable. The water-quality data (from existing wells) should be “cheap” enough, and even with such a small population, probably justified, but in the absence of baseline studies for comparison and some pretty sophisticated componential analysis of both naturally occurring and human-introduced compounds, its results (in isolation) could be greatly misleading.

Borrego Springs is fundamentally a ghost town that lives off the external subsidies of 2600 people who can afford it and like the climate in the winter (and perhaps some governmental subsidy?). That is, its mix of production and services are not well-integrated and do not interact with sufficient synergistic effect to be viable without pretty heavy external subsidies. What’s the difference between the summer and winter population? What’s the estimated tourist impact on water use? How does tax income compare with governmental service inputs? How much water is applied per acre to golf courses and the various agricultural enterprises? My guess would be in the vicinity of 15 acre-feet, give or take 5 acre feet—IF they are irrigating EFFICIENTLY (200% of ET).

Response to post #1: I got widely varying estimates for winter population -- all the way up to 15,000. Overwhelmingly, the water use is concentrated on the growers and golf courses. The latter relies partially on tourism, but the former doesn't. The Montesoro course spends almost a million a year on electricity and water. But if any course owner stopped watering, the grass would quickly become toast, according to sources I talked with. It would help Borrego if the price of water went so high that the growers could no longer make money, and quit. That's a harsh reality, but it's true. Shutdown of the growers would also change the economics of the valley, just as shutdown of the Montesoro clubhouse and the resort has. Best, Don Bauder

If the situation gets any better in Borrego I may drive down from Oregon with my dogs and mountain bike and camp in the dessert for the winter like I used to.

Response to post #3: I'm sure Borrego would welcome you. It needs tourists. Best, Don Bauder

Economy used to be efficiency. The Borrego Valley is a model for the whole state, the world, San Diego, or any other subset. It is profit based on waste and other flim-flamming, not long-term survival or a level of quality of life which is (I hesitate to use the word) SUSTAINABLE. It's robbing Peter to pay Paul. But once the parasites have milked Paul--or the resource (e.g. water) upon which they depend, they will crash too. In the real world, parasites "know" better; their populations adjust their consumption as their resource-base declines. In the "virtual" world of a cash economy that moves farther and farther into greater and greater fantasies, even the biggest snow-job they can imagine will not change the reality that you can't spend more than you take in, and if your lessees don't pay their rent, your gravy-train has got to start burning its cargo and do so until it runs out of steam.

Response to post #15: Economics used to focus on efficiency -- just as home economics focuses on peeling an orange and getting maximum use of it. But in the Great Depression, economics turned its attention to creating economic growth and employment. In fact, the efficient way of doing things is often scorned these days. One example is consumer saving. Economists once said that a penny saved is a penny earned. But in the Depression, the mantra became, "private virtue (saving) is public folly." Best, Don Bauder

"Hustling" is an old idea, but once was scorned by decent people. For some time now, "decent" is a synonym for damned fool. In business, "Boy Scout" is a derisive term of the nth order.

In order to "save," one has to "invest" in the hopes you can stem the tide of ever lower value and ever-increasing inflation. In this lies the seeds of not just crashing, but being buried. That's what Nikita really meant.

Response to post #7: For more than a decade now, the stock market has gone nowhere. So it really was a speculation, not an investment. Khrushchev said, "We will bury you." It caused a big stink at the time, but intelligent people debated the nuances, parsing his words. I think the Kremlin finally said he meant that the USSR would be around at the. U.S.'s burial. The USSR is now buried. Russia has one foot in the grave. We're not doing so well, either. Best, Don Bauder

Response to post No. 2:

Let them eat toast!

Response to post #9: Parched brown grass doesn't taste as good as toast -- except, of course, to cows and horses. Best, Don Bauder

The comment on the story "Perlman and colleagues built a $3 million home with a guesthouse and plane hangar on 80 acres" is wrong. They built nothing – they bought the new home and hangar/guesthouse on 1,400 acres from someone who was a good neighbor and could actually afford it, at a fire sale price.

Response to post #11: According to the current real estate listing, the house was built in 2006, which was several years after Perlman and his investors started their spree. It's certainly possible that somebody else built it and they bought it. Best, Don Bauder

Response to post 12.

Hi Don,

Charles Brandes bought the land from the Fletchers and spent several years having the desert playhouse home built. It was finished long before Pearlman and associates bought it. No one has actually lived at the main house since it was built. A employee lives in the guest house. No improvements have been made. In fact they striped large sections of the 1,400 acres of Cacti and Ocotillo, it left by the truckloads.
As for what Pearlman and associates has listed via his real estate company - Caveat emptor - buyer beware.

Thanks for your article!

Response to post #13: Goodness! Charles Brandes. He constructed the most expensive house ever built in San Diego County in Rancho Santa Fe. I have written about that several times. I had no idea that he had built this one, too. I have done a bunch of columns and blog items -- almost entirely blog items -- on the collapse of his investment empire. I don't know how I blew this one. I have looked at my notes, and it appears to be a misunderstanding with one of my sources. I certainly would have put Brandes in the column had I known. Best, Don Bauder

Response to post No. 10:

I stand corrected--let the SOB's eat toasted grass.

But the implied point is that the aquifer has a set, definable, sustainable, capacity for the size of the Giant Sucking that it can tolerate. Very generally speaking (picture a lot of qualifiers), the sustainable use of an aquifer (e.g. the Ogallala) is based on maintaining a minimal level of drawdown based on the recharge rate. This is always surrounded by a large enough fudge-factor for the sake of practical reality; for example, once the seasonal amount of recharge is determined, one can suck the water table below a theoretical minimum in "drought" years, then pay it back (without interest) during "normal" and/or seasons of higher-than-normal recharge. Of course this is Boy Scout stuff, Pollyannish, frugal, stewardship, because everybody wants it all--all the time. It won't happen, but there will be a Judgment Day, or decade. Sooner or later, there won't be any more water.

Let's not even get into the implications of water quality from the dilution effects in relation to the size of the aquifer (e.g. the concentration of natural minerals like, say, arsenic, selenium, fluoride, etc.), subsidence, earthquake effects, and other unpondered ponderables . . . They'll just keep irrigating until it's all gone.

Response to post #15: There doesn't seem to be much controversy on one point: the water table is dropping 2 to 3 feet a year. Even the optimists seem to accept that. Best, Don Bauder

Lessee, the areal extent of the aquifer might be approximated by dividing the acre-feet of water pumped by, say, 2.5, and if the depth to refusal is known, that depth could be divided by 2.5 (plus the added rate of pumping due to new or increased uses)to get the number of years to a dry-hole condition--but I'm sure USGS has more sophisticated means of determining the approximate year when the Borrego Valley will be "reclaimed" as desert, or the dusty, weed-choked wasteland that it is now. Come to think of it, maybe that's not all bad.

It's not a matter of pessimism and optimism, it's a matter of fact--with a certain amount of estimating fudge around it. If, however, the "optimists" accept that, what is their plan--other than to keep pumping or asking people to flush less, and feel less flushed at their bone-headed stupidity?

The fact that the powers-that-be don't want to hear discouraging words goes far beyond the Borrego Valley; it is an epidemic of denial that makes ostriches look brilliant. "Water conservation" is just a euphemism for "You use less so we can "develop" more. It's a California mantra.

As Ronnie Regan liked to say, "There's no free lunch!" Drinking and irrigating and being flush with recycled excrement and septic-tank solutes is, of course, a "solution," but one that makes today's inflated water prices look like chump change. Maybe plastic grass and palm trees will save the day . . .

Response to post #17: One "solution" -- a short range one -- would be to raise the price of water so high that the growers could no longer make any money. Once they went out of business, the town might have some wiggle room. Ditto for golf courses, although their grass would die quickly. Best, Don Bauder

Are you saying that the poorest should be edged out by the richest?

Response to post #19: That's one way of looking at a solution, although I don't know that either the golf course owners or growers can be called the poorest. I didn't advocate it. I just said it was a possibility. Best, Don Bauder

What would be the optimal allocation strategy that would be both effective at maintaining the water resource at stable levels and equitable in terms of priority uses?

Response to post #21: I interviewed four experts on Borrego water. Each had different ideas -- such as a court-appointed monitor making the allocations, or a vote among the people. There is no consensus on optimal allocation strategy. I wouldn't expect there to be one. Best, Don Bauder

Response to #22:

That's EXPERTS for you! My post was not about OPINION, it was about REALITY, which never will line up perfectly with any expert or any opinion. That's what separates intellectual honesty from self-serving flim-flammery.

Might a reasonable person conclude that since water is essential for life, and thus is as close to a basic "right" as we are likely to think of, it would seem that the first "x" gallons should be free or cheap (incentive to conservation, thus to higher populations and development), but that the price structure should penalize waste, according to an expansion of that basic logic?

Since grapefruits are food, would their irrigation rank higher or lower than golf greens?

Response to post #23: All would agree that since grapefruits are sustenance, they should rank higher than a game played only for pleasure. But economics makes no such ethical judgments. Best, Don Bauder

Don, I'm tryin' t' cogitate--I'm tryin,' I'm tryin'!

So let me get this straight. Cogitation would leave us to conclude that economics is restricted to guns or butter, but not to grass or grapefruits?

Response to post #25: What kind of grass are you speaking of? The kind you smoke or the kind you play golf on? Best, Don Bauder

Can a' bs?

Back to straight talk: If the market drives everything and ethics nothing, then whatever turns the most bucks gets the water. That's golf and other playgrounds for the privileged, which means largely snowbirds and other true aliens (to the local market or the land or the water, etc.), the year-round locals be damned.

But ethics and the market aside, intellectual integrity requires that propositions receive RESPONSES not just replies--not to sacrifice any good fun in the process.

I'm gonna start easin' my pain with weed tomorrow, as I can no longer stand the absurdity of opening a can of worms and just lettin' 'em rot.

This all started with "A Town Left Dry."

"a critical question: is the water supply adequate for Borrego’s long-term survival?"

No. If this is wrong, kindly state why, please.

"If not, will new investors try to rescue the crown jewel real estate assets that were recently padlocked?"

I could persist in the sarcasm by saying that one man's jewel is another man's weed lot, but I'll try to be kinder.

Market forces will prevail. Until the wells go dry. Locally and globally.

And "ethics" will be confined, as the subject long has been, to a Mad Ave euphemism, yet another plastic dummy in the endless arsenal of window-dressing toro kaka.

Response to post #27: There are plenty of knowledgeable people in Borrego who question whether water is adequate for the long pull. Best, Don Bauder

I am not sure this was discussed here, if it has, refresh my memory : The De Anza country club is half yellow grass now. Did they decide to cut on the water finally and does that mean the 700K price tag for a home in the middle of nowhere will go down to a more reasonable level, and does that mean the realtards that seem to be "abondant" around town will finally give it a rest ? Could the Road Runner country club charge less than $800.00 monthly in HOA fee , after all this is a mobile home park, that they tried to pass as an exclusive resort ? This is the fall out from the bubble and many people caught a falling knife and it is not over.... By the way, things here in the Coachella Valley are not any better. Golf courses are becoming public, forget the "Exclusive" branding, they have no money to keep it up and the Desert Sun has a hard time explaining it all... That newspaper is a complete joke. The desert should go back to what it once was : the desert ! Empty! There are no jobs in the Coachella Valley, who are they kidding ?

Response to post #27: Business schools are now teaching ethics. I understand the classes are hilarious. If your record shows that you got an A in corporate ethics, you will never get hired on Wall Street. Best, Don Bauder

Response to post #29: The desert there is incredibly beautiful. The park is magnificent. There will always be a Borrego Springs. But it may be smaller. Best, Don Bauder

Just discovered this article. FYI the growers and golf courses pump their own water so they pay nothing for it at all. California has no "water depletion" tax and whatever water you can take out of the ground on your propertry is yours, free. It is not subject to being measured.

The Borrego Springs Water District serves the residential users and the commercial businesses. Their use comprises approximately 10 percent of the water use and their rates are quite high. Tiered rates were recently put in, I believe, so that the first x gallons are at a lower price, with successively higher tiers.

So long as growers and golf courses can just "take" out the water for the cost of electricity or diesel to pump it, there is going to be a problem. The water district is paying growers to pull out their cash crops (citrus/palm trees) and permanently take their land out of production.

This "disturbed" land can then be used for housing developments. Some community members are hoping that this land can be used for solar farms, rather than siting solar farms on pristine desert. There is currently and active application to install a large solar farm on undisturbed desert land on the outskirts of town (not in the park), which has many in the community up in arms. The county seems to be moving forward on this.

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