Private equity firm Sortis backs Thornburgh resort as it fights for Central Oregon water rights

In the witness box of a Deschutes County Circuit courtroom this month, Kameron DeLashmutt told the story of his connection to nearly 2,000 waterless acres near Redmond, Oregon.

The story began more than 70 years ago — with his grandfather’s handshake, $5,000 and 35 cows — which is how DeLashmutt said his family bought the land in 1953.

“As a little kid, I’d ride on a water truck with my grandmother,” the now 65-year-old real estate developer said. “There was no source of water, so she hauled water out to fill troughs for cattle.”

The property’s water supply is still tenuous, even as DeLashmutt has taken enormous loans to build a destination resort, which he described in court as “a little city.”

What was once his grandparents’ rangeland has become a more than $37 million investment for an embattled private equity firm, Sortis Holdings. DeLashmutt’s plans for the Thornburgh resort have also become a litmus test for the future of groundwater management in Central Oregon.

The developer has been trying to permit and finance Thornburgh since the early 2000s. Now under construction, the site could eventually host 950 single-family homes, two golf courses, private lakes and a luxury hotel.

As the project draws on deep pockets to build its roads and infrastructure, its water supply has been in legal limbo due to changing views in Oregon and across the West about how groundwater should be used as drought and climate change make the resource more scarce.

In a trial that began Nov. 5, DeLashmutt asked a circuit court judge, Raymond Crutchley, to rule against the state of Oregon, laying the ground for a water rights conflict that could reverberate across the region.

Thornburgh became a test for state water policy in 2021 when the Oregon Water Resources Department decided it would not give the resort a temporary license to pump groundwater for construction. The agency found the Deschutes Basin aquifer doesn’t have the capacity for Thornburgh’s proposed wells, and the pumping would likely harm the public.

DeLashmutt is challenging that decision in court, with a ruling expected next year.

“This case is about a state agency throwing away decades of policy and process and suddenly changing those policies,” the developer told OPB in an email.

The state’s decision came amid escalating concerns about groundwater declines in Central Oregon and as regulators were finalizing a more conservative approach to wells statewide.

State attorneys and regulators have argued Thornburgh is located in a particularly problematic area.

“That means there needs to be something done. There’s not enough water to sustain new uses,” Oregon Department of Justice attorney YoungWoo Joh said in court.

The outcome of the case could send a message to wealthy interests about whether or not they can overturn state decisions or cow water regulators into saying “yes” to wells by threatening costly legal fights, said an attorney for WaterWatch of Oregon, Karl Anuta.

The nonprofit conservation organization joined in the state’s defense, he said, largely because of the precedent the case could set.

“The agency has an obligation under the law to maintain reasonably stable groundwater levels, and in the past, they haven’t been doing a good job of that‚” Anuta said. “In this particular instance, they started actually saying, ‘No, we have to draw the line and follow the law.’ And so that’s a good thing.”

As of October, the Oregon Water Resources Department had paid out nearly $223,000 in legal fees to defend against DeLashmutt’s Deschutes County lawsuit, agency spokesperson Alyssa Rash said. That bill doesn’t include state costs for myriad other legal protests related to the resort, she added.

DeLashmutt’s ability to pay for his own legal fees was helped recently by a real estate investment trust backed by Sortis Holdings.

The firm started absorbing Thornburgh’s debts in 2021. As of April this year, DeLashmutt’s business entities owe more than $37 million, and Sortis holds liens on the property.

As money flowed out of Sortis Holdings to pay for the high desert development, the company came under scrutiny for buying Portland restaurants and then leaving some in ruin with unpaid bills. This month, several creditors filed a suit to try and force Sortis Holdings into bankruptcy. The firm publicly downplayed the lawsuit as a “preemptive tactic” in a business dispute, The Oregonian/Oregon Live reported.

DeLashmutt said he was “not at liberty” to share details of Thornburgh’s financial agreement or a timeline for repaying Sortis.

Sortis did not respond to a request for comment sent through its website.

DeLashmutt said the company’s management has “lots of development experience with large master planned communities, so they are very knowledgeable lenders.”

Sortis’ founder, Paul Brenneke and his family have a history in Central Oregon. In 2007, the Bulletin reported on the Brennekes’ effort to buy a golf course in Bend’s gated Broken Top neighborhood and turn it into a destination resort. The attempt failed. Last year, the newspaper reported on another deal in Bend’s central district involving Sortis that fell through.

“Management [of Sortis] has been familiar with Thornburgh and myself for 15 years and are strong advocates of the project and our plans,” DeLashmutt said.

He said construction is well underway at the resort site for entrance roads, the water system, a pump station, a reservoir, a lake and a golf course.

“We expect to seed the golf course [in] the summer of 2025 for play in 2026. The lake will also be completed in mid-2025.”

It’s unclear if this level of investment is going to factor into persuading state regulators to authorize the resort’s permanent water supply.

“Developers frequently play a game where they’re trying to persuade their financial investors that they’re about to get the entitlements, and they’re trying to persuade their government regulators that they’re about to get the money,” said Bill Fulton, the former planning director for San Diego, who now works as a land-use consultant around the country. Fulton is not involved with Thornburgh.

In the past, developers seeking groundwater in Central Oregon have used a process known as mitigation. The program, in place since 1998, allows people to buy surface water rights and then leave the water in the Deschutes River while they extract groundwater elsewhere.

The program was designed to help streamflows, but groundwater levels have continued to drop over the last 30 years, with a record number of home wells in Deschutes County drying up in 2022.

Back in 2013, state regulators initially agreed Thornburgh would be allowed to pump up to nearly six million gallons per day from wells. That authorization expired before DeLashmutt actually built wells, nullifying the go-ahead from the state. His efforts to renew that permit, including plans to drastically reduce the amount of water he’s requested, have sparked denials and separate legal battles.

DeLashmutt said water rights have “certainly created a whole new host of issues to deal with that were not planned,” but that the conflicts “led us to amend our plans, reduce our water usage and make numerous changes that will result in greater sustainability.”

Currently, the resort is relying on one temporary water right to supply its wells for construction, said water resources department spokesperson Rash.

DeLashmutt scooped up this water right through a private auction in 2020, when he and the owners of a private water-ski lake outbid the City of Bend. Thornburgh’s access to this water source is valid until July 2028, Rash said.

If Thornburgh wins its latest court battle, its efforts to build will not be fully cleared. It also faces a challenge brought by the Confederated Tribes of Warm Springs. The Oregon Court of Appeals ruled this year that land-use officials must take another look at how they account for the tribes’ treaty rights in approving plans for the resort.