Callaway Gardens' financial landscape in despair

Iconic Pine Mountain natural attraction selling 4,000 acres of property to pay off loan, then hopes to raise money for a resurgence amid slumping visitation

tadams@ledger-enquirer.comMay 19, 2012 

It's an oasis of tranquility, brimming with lakes, ponds, flowers, lush forests, hiking and bicycling trails and several attractions aimed at putting those who visit in touch with the natural world.

But, behind the scenes, Callaway Gardens has been less than calm and bleeding financially for years from its resort operations, cut by declining attendance and an infusion of projects meant to boost revenues, but draining them instead.

Its back now against the wall because of heavy debt, Ida Cason Callaway Foundation, the Pine Mountain, Ga., resort's nonprofit parent organization, has made the dramatic decision to sell roughly 4,000 acres of the 13,000 acres it owns to wipe away that debt and start anew. A prospective buyer is waiting in the wings.

"I can tell you the operations, the resort, has been suffering for a long time," Edward Callaway, chief executive officer and chairman of the foundation's board, said in a lengthy interview with the Ledger-Enquirer. "The first major dip where our revenues really dropped was after 9/11. It just stopped and people quit traveling."

But it wasn't just the Sept. 11, 2001, terrorist attacks on the United States that put the financial squeeze on the beloved Gardens, which marks its 60th anniversary Monday and once attracted 1 million visitors per year. Annual attendance fell to about 769,000 five years ago and was down to 395,000 last summer.

Callaway said a series of untimely missteps meant to enhance the resort with an upscale hotel, a spa and housing developments has had mixed results that mostly have not returned the revenue expected.

The Great Recession that put the rest of the nation in a tailspin starting in 2007 also has kept Callaway Gardens on the ropes, prompting it to slash expenses heading into this year.

That led to four rounds of layoffs -- the latest in January and March -- with the Harris County employer's staffing tumbling to 500 full-time equivalent positions. When Callaway took the helm of the operation in early 2004, there were 800 full-time equivalent employees on the payroll. The management staff has been sliced from 150 eight years ago to about 70 now.

"The foundation has been feeding the resort every year of its deficit," said Callaway of the rising debt level, the amount he would not specify. "We decided that we weren't going to carry it further. We just said the resort needs to carry its own weight."

He stressed that the foundation itself, which has about 200 volunteers who help operate the resort, is not under any financial duress, operating from an endowment and Gardens admission fees. It is the resort operations, which encompasses about 1,000 acres of property, that has forced the foundation to make the drastic move of parting ways with the property that it is now using as collateral to help it survive.

The players involved include Synovus Financial Corp., the Columbus-based regional banking firm that has had a long relationship with Callaway Gardens and loaned the resort money to fund its operations through good times and bad. The bank's ATMs dispense money to Gardens visitors.

There's also Yellow Sign Inc., a subsidiary of Atlanta-based restaurant chain Waffle House, which entered the picture last December as a party interested in taking possession of the loan note held by Synovus to set up a potential land deal with Ida Cason Callaway Foundation.

Synovus on Friday declined to discuss the matter, saying it doesn't disclose customer relationships or transactions because of privacy laws. Kessel Stelling, the bank's chairman and CEO, in an interview several weeks ago, confirmed Callaway is a customer, but would not discuss it further.

A call to Waffle House Chairman and CEO Joe Rogers Jr. seeking comment was not returned. Rogers is the son of Joe Rogers Sr., who co-founded the restaurant company with Tom Forkner in 1955.

Yellow Sign is a private investment company that has much more lending flexibility than Synovus, which has been under federal regulatory oversight for several years because of the banking crisis.

Edward Callaway said his foundation approached both Synovus and Yellow Sign to broker the transaction transferring the resort's debt from one to the other, a move that took place in late March.

"We needed non-traditional lending to create the room under which we could sell this collateral," Callaway said. "We were able to create value between Synovus' options and Yellow Sign Inc.'s options, and in that value there was a deal between the two."

For Synovus, it allowed the bank to take the large loan off its books with ease -- avoiding default proceedings against the iconic Callaway Gardens brand -- while also appeasing shareholders and regulators.

"I think they did a great job of exiting that note for their stockholders, but also did me a favor by giving me a more flexible lender," Callaway said. "And Yellow Sign can do well with this, too. So, all three parties benefit."

For Yellow Sign, it presumably is an opportunity to make money off the retirement of the loan note through the sale of the property to a buyer Callaway would not disclose. He also declined to discuss the possible sales price of the land, although at $4,000 per acre, it would fetch around $16 million.

"The entity that's proposed buying the 4,000 acres that's our collateral has asked to remain anonymous and we will respect that to see if this transaction matures or not," he said, giving no timeline for a land sale to occur, although a property survey is now under way and should be completed in June.

The bulk of the acreage is situated in a swath of land that includes the 200-acre home of The Steeplechase at Callaway Gardens, an annual fundraising event for the arts. Aside from Nelson Road, which cuts through it, the property is mostly a healthy stand of forestland that is zoned for agricultural use.

"The current party we're talking to (knows) it's a stretch of property in Harris County that's the best deer hunting in the Southeast," said Callaway.

In the interview, Callaway talked of the property as if it is already gone. Should the current deal not go through with the prospective buyer, he said, its days in the hands of the Ida Cason Callaway Foundation are numbered anyway.

"We plan on liquidating that 4,000 acres, because it will be liquidated for us if we do not," he said. "The loan holder can foreclose on it at any time we default on that loan."

Callaway recounted how the resort operations got into the predicament it is now in. Returning to Pine Mountain in 2004 from operating a ski resort once owned by his family in Crested Butte, Colo., he found the Gardens struggling to make ends meet because of the economy. His family, including father Howard "Bo" Callaway, tasked him with turning its financial position around.

The CEO soon made the decision -- he now calls it a "self-inflicted injury" -- to induce a third-party called Noble Investments of Atlanta to build an upscale lodge and spa to attract a different clientele that would augment its older Mountain Creek Inn, which at one time was part of the Holiday Inn chain.

"The thinking was that it would bring a new customer to Callaway Gardens and we'd grow our business," he said. "But what happened is the old customer moved from the (modest) resort to the lodge and left our continuing business with a lower level of occupancy. So the lodge and spa actually hurt us, hurt Callaway Gardens. It did not help us."

Another "hiccup" came with the move to bring in yet another developer, Cousins Properties, as part of a joint venture to build more homes and neighborhoods near the 175-acre Robin Beach Lake. After all, Longleaf Pines, a 138-home subdivision launched in 2003, had done very well and sold out.

The second development began in 2007, Callaway said, "just in time to catch the death of real estate" as the U.S. financial and housing crisis was smoldering into an 18-month recession. With the world economy staggering amid soaring gas prices, visitation began to slump badly.

"The resort was in jeopardy, and if the resort were to fail it would take a total rethink of how the Gardens works because so much of the revenue comes from guests staying at the resort," he said.

Thus came the stark realization by the foundation's dwindling number of board members that something needed to be done, and quickly. The idea to put property up for sale to retire the debt, cut back operating expenses, including layoffs of employees, was put in motion.

"This money is essential to the elimination of debt," Callaway said. "The Gardens and the resort can take care of itself. We just can't take care of ourselves and lug that (debt) anvil around with us."

Like a flower hopefully blooming in the sunshine after a fierce overnight thunderstorm, the strategy once the property is sold will be to launch a "Renew the Gardens" fundraising campaign, Callaway said. The preliminary goal is to bring in $25 million from those area philanthropists who want to see the natural attraction succeed and thrive.

"One of the things that's been an impediment to raising money for the Gardens is that donors know everything now is just going into the resort," he said. "People are asking us: When are you going to fix all of this so we can help you?"

The foundation typically tries to raise money for improvements to its infrastructure and new attractions every decade or so, the CEO said. It's been about 15 years since the last campaign, however.

If the property sale goes through, and if the fundraising campaign is successful, the plan is to refurbish the park's buildings and roads and turn it into a year-round attraction. The holiday lights display, Fantasy in Lights, is its biggest draw now, followed by a dazzling six-week burst of colorful azaleas each spring.

"We can make the Gardens bloom as beautifully in January and February as it does in April, because there are winter blooming plants," he said. "We can make May, June and July as pretty as April. We can turn Callaway Gardens into a 12-month garden instead of a 45-day garden."

That's a sound strategy, said Peter Bowden, president and executive director of the Columbus Convention & Visitors Bureau, which includes Callaway Gardens in its marketing of the area to visitors and conventions.

"You always have to reinvent yourself, regardless of what the destination or what the attraction is," he said. "Using Columbus as an example, a couple of years ago it was the National Infantry Museum. Before that it was Port Columbus (Civil War Naval Museum) and before that it was the RiverCenter (for the Performing Arts). And now we've got whitewater as the new thing. Once you've got the T-shirt, it's hard to bring those folks back over and over again if you don't have something new to offer."Asked if he is trying to set the Gardens up for the next two or three generations, Edward Callaway responded that he's not that ambitious. At this point, he just wants one more generation of his family to operate it, or about 30 more years.

Asked if the move now to part ways with a large chunk of the land owned by his grandparents, Cason J. and Virginia Hand Callaway, will be enough to keep the Gardens healthy and vibrant, attracting people from far and near to experience the beauty of nature, he hedged a bit.

"We have the rest of that acreage available to us, the 9,000 acres," he said. "It's the big part of the endowment, obviously, and it has a lot of value. I would like not to, but I'm not going to rule it out."

That said, Callaway said he believes that Callaway Gardens and Ida Cason Callaway Foundation -- named after his great-grandmother -- are at a "better point" than they've been since his return home eight years ago.

"One way to look at it is we're halfway across the stream," he said. "I think we've got a real opportunity here in 2012 to go from where we have been, to where we want to be, and you're catching us part of the way through that exercise."

But Callaway also realizes time is of the essence, and in a very uncertain world he wants to put the land sale behind the Gardens quickly and move forward before anymore storm clouds begin to brew.

"The things that concern me are things like what if Israel attacks Iran and this whole thing changes," he said. "I've got a flexible lender, but he may not be infinitely flexible. And if the world turns upside down, I've still got all of that debt. So until that (property) is liquidated and we are debt free, the resort is at risk and therefore the foundation is at risk."

Staff writer Jim Mustian contributed to this report.

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