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Billionaire Fails to Find Paradise Betting on Costa Rica Resort

Photographer: Joao Canziani/ Bloomberg Markets via Bloomberg

Tom Claugus in his private pool at Las Catalinas resort in Costa Rica, June, 2012. Close

Tom Claugus in his private pool at Las Catalinas resort in Costa Rica, June, 2012.

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Photographer: Joao Canziani/ Bloomberg Markets via Bloomberg

Tom Claugus in his private pool at Las Catalinas resort in Costa Rica, June, 2012.

When Charles Brewer was shown the piece of land in Guanacaste province, Costa Rica, back in 2006, he knew immediately it was what he had been looking for. Located on the Central American nation’s Pacific coast, it consists of 1,200 acres of rolling hills, with numerous overlooks, a crescent beach and roaming monkeys.

Brewer, an Atlanta Internet millionaire turned New Urbanist developer, saw it as the ideal spot for his dream project: an eco-town he would call Las Catalinas. The resort would include a high-end hotel plus million-dollar second homes for wealthy buyers from the Americas and Europe.

One of the first calls Brewer made while negotiating a purchase option on the Costa Rican land was to fellow Atlantan Tom Claugus. Claugus jumped at the chance to invest, Bloomberg Markets magazine reports in its October issue. He’s a hedge-fund billionaire who three years earlier had decided hard assets such as property were a good bet. And Costa Rica has a lot to offer: good weather year-round and a stable government that caters to the tourist trade.

Brewer, 53, and Claugus, 61, are now odd-couple partners in Las Catalinas. Claugus bought a one-third stake for $11.5 million; Brewer says his share is somewhat larger. They are also owners of a development that, six years after it was conceived, is still stuck in first gear. Just 10 hacienda-style beach mansions have been built, owned mostly by Claugus’s and Brewer’s partners and associates. There’s a small retail center with a restaurant and shops. A hotel contract still hadn’t been signed as of mid-August.

Photographer: Joao Canziani/ Bloomberg Markets via Bloomberg

Charles Brewer with his children on a bike path in Aspen, Co., July 15th, 2012. Close

Charles Brewer with his children on a bike path in Aspen, Co., July 15th, 2012.

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Photographer: Joao Canziani/ Bloomberg Markets via Bloomberg

Charles Brewer with his children on a bike path in Aspen, Co., July 15th, 2012.

Unpaved Roads

Las Catalinas was challenged from the beginning by poor timing, with Claugus and Brewer attempting to launch their resort in 2007, just as the world economy was gripped by crisis. Two hotel groups backed away from buying land there for an anchor resort, which would have provided capital for construction of an initial 40 homes.

And with the economy seizing up, few buyers wanted to risk $500,000 to $2 million to build a house in a remote corner of Costa Rica accessible at the time only by unpaved roads.

The latest setback came from Costa Rica’s constitutional court, which on Aug. 3, prompted by complaints from local environmental groups, issued an injunction suspending any new construction at Las Catalinas until the court rules on claims of environmental damage and the legality of its water permits. Brewer says that the complaints are without merit and that he hopes construction can continue within months.

Andre Agassi

Brewer and Claugus aren’t the only stalled Costa Rica land barons. AOL Inc. founder Steve Case led a group of investors who also bought land in Guanacaste province in 2007, with plans for an $800 million gated community that would include two luxury hotels, 300 residential units, a golf course and a tennis center designed by Andre Agassi and Steffi Graf. Construction, set to begin in 2009, started in May.

“Worldwide, it just got worse and worse everywhere,” says Bob Davey, who heads a Century 21 real estate brokerage in Playa Flamingo, Guanacaste, and is a general partner in Las Catalinas. “Costa Rica relies on a lot of foreign investment. The North Americans stopped buying, and the Europeans stopped right after that.”

A laggard economy was just one of the impediments to progress at Las Catalinas. Brewer, who founded Internet service provider MindSpring Enterprises Inc. and sold his stake for $50 million after he merged it in 2000 with Earthlink (ELNK) Inc., imposed exacting standards on the construction of the buildings; he insisted, for instance, that such items as roofing materials and doors be handmade. He fired one contractor who didn’t measure up.

Gaining Traction

Claugus says it took him some time to appreciate Brewer’s insistence on the finest materials and workmanship. “The product is higher quality and way more aesthetically pleasing than if I had done it,” Claugus says.

Before the court injunction, Las Catalinas was finally gaining traction. In addition to the 10 houses already built, 10 more lots are under contract, and the sale of another five is being negotiated. Construction of the hotel -- which will feature free-standing villas renting for $300 to $400 a night -- could begin this year. And now that he has something to show buyers, Brewer is moving beyond word-of-mouth marketing to a conventional advertising campaign.

During a recent visit to his own Las Catalinas home, Claugus sat shirtless, doing calculations on a laptop computer, ignoring the spectacular seascape out his window.

“I think we’re going to make a lot of money on this project,” he says. “I thought it would happen a lot sooner.”

‘Vision Driven’

Claugus and Brewer couldn’t be more different in their approach to business and to life. Brewer, an Amherst College and Stanford University grad, once played guitar in a corporate rock band and spends his weekends mountain biking and hiking. He says his philosophy when he ran MindSpring was to avoid being “stuffy and boring” and to apply a business version of the Golden Rule.

“I am very exuberant and vision driven,” he says.

The silver-haired Claugus is a self-made billionaire with a bias for hard data. He has spent the past two decades searching out undervalued businesses for his hedge fund, GMT Capital Corp. When he finds a promising company, he sits its managers down and asks them to explain clearly in 20 minutes how they’re going to make money.

Claugus’s no-nonsense investment style has earned millions for his investors. GMT’s oldest fund, Bay Resource Partners LP, returned an average of 17 percent annually in the 19 years ended on Dec. 31 -- and that includes a 7.9 percent loss last year. Claugus and his team of 14 portfolio managers and analysts run three funds with a total of $4.8 billion from Atlanta’s leafy northern suburbs.

Demanding Boss

In his own domain, Claugus is a demanding boss. One way a GMT analyst gets fired is by ignoring data that contradict his or her investment thesis, he says. So what’s at risk for Claugus in the Costa Rican venture is pride, especially since the town’s struggles coincide with his hedge fund’s 2011 loss.

“You wonder, man, am I losing it?” he says.

The success or failure of Las Catalinas is mostly in Brewer’s hands, since he’s the managing partner. His model is Seaside, a planned community on the Florida Panhandle where pedestrians are more important than cars and daily life is organized around a central hub. Brewer says he also took inspiration from his visits to Mediterranean hill towns, where he admired the narrow pedestrian streets, intriguing passageways and welcoming public spaces.

Fresh Ceviche

In Costa Rica, his plan is to develop no more than 20 percent of the site; the rest will be hiking and bike trails and tropical dry forest. Brewer and Claugus hope to build as many as 2,000 homes. The first 10 are all assembled around Beach Town, an already-operating retail center anchored by an open-air pavilion set above a bustling bar and restaurant, Lola’s del Norte. On a sunny, 75-degree-Fahrenheit (24-degree-Celsius) day earlier this year, patrons sat on bar stools made of varnished tree trunks and washed down fresh ceviche with cold Landshark beer.

Las Catalinas is not designed for hoi polloi. Homes will have full-time attendants to clean and handle light cooking. A landscaping crew tends the trees and flowers. A concierge will help book a sail, a zip line excursion or a climb to the rim of a volcano. A rental management office sublets houses for $3,000 to $10,000 a week. The hardest task residents and visitors will undertake is getting there, which entails flying to the town of Liberia and then renting a car for the 45-minute drive on roads shared by boys herding cattle.

‘Worst-case Scenario’

Claugus, who was recently diagnosed with treatable prostate cancer, finds the idyll he has helped create enormously relaxing.

“Worst-case scenario,” he says, “I’ve got a house with seven buddies, 1,200 acres and all this open space and beautiful beaches, for $13.5 million.”

It’s a price Claugus can afford to pay. He bought his first share of stock at age 8. After earning a chemical engineering degree from Ohio State University in 1973 and a Master of Business Administration from Harvard four years later, he promised himself he would be a millionaire by age 52. He says he made it by 38, though it entailed living on a third of his salary as a chemical engineer at Rohm and Haas Co. and investing the rest.

Oil and Gas

Claugus started GMT in 1993 with $3 million -- half his own, the rest from friends. As of mid-August, his hedge funds owned a 9.1 percent stake in Calgary-based oil exploration firm Paramount Resources Ltd., plus 10.5 million shares of United (UAL) Air Lines Inc. and 9.3 million of Delta (DAL) Air Lines Inc. He also runs an oil and gas company that has an Alaskan drilling partnership with Madrid-based Repsol YPF SA. He is now worth at least $1 billion, according to a source familiar with his assets and data compiled by Bloomberg.

Claugus says that successful investors are right less than 70 percent of the time.

“So, by definition, that means a third of the time you are going to be wrong, even if you are the best,” Claugus says. “You just have to be careful and not let it bother you.”

If Claugus regrets his Costa Rican investment, he’s not saying so, though he admits he and Brewer have had their differences. One is over parking garages. The auto-averse Brewer insists that Las Catalinas not have any. Cars are parked in a lot a few hundred yards away, and residents walk to their homes. “I still struggle with not having a place to park my car,” Claugus says.

No Walls

Yet he has accepted the plan, and Brewer’s idea that the town shouldn’t be walled off from surrounding communities, where about 50,000 Costa Ricans live. The expatriate couple that runs Lola’s also operates a restaurant in a nearby town. The same is true of the surf and bike shop and a recently opened stable and horse-riding facility.

“We want it to be a Costa Rican town, not an American town in Costa Rica,” Claugus says, while stopped on a mountain bike on a ridge overlooking the ocean.

As construction of the hotel and more homes gets under way, Claugus has made one more demand of his partner. He wants a full-time, on-site sales manager to accelerate new purchase -- a job that until now has been done by Brewer in Atlanta.

Brewer has acceded to that and other ideas from his more practical partner.

“I’ve learned a lot from Tom and his more data-driven, analytical approach to things,” Brewer says. “Day to day, I am trying to move our whole company that way.”

On a trip to Costa Rica earlier this year, Claugus and Brewer pick their way up a steep trail to survey their domain. The peak offers a spectacular view of the growing community, with the sun setting over the Pacific in the background.

“Look, it’s happening; it’s happening big time,” Brewer says, exulting in the sunset.

Claugus nods in agreement, and then both men say they hope they can capture that beauty in a photo for their next Las Catalinas sales brochure.

To contact the reporter on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editors responsible for this story: Michael Serrill at mserrill@bloomberg.net; Anita Sharpe at asharpe6@bloomberg.net.

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