Sunday, September 28th, 2008 at 6:49 AM
Are Builders Next?
While the taxpayers are walking the plank today over the Wall Street bailout, we’re not done yet. Rob Dawg has pointed out that we have yet to hear of any of the major homebuilders going bankrupt, and we’ve highlighted the plight of local builder Barratt American.
The U-T featured Mick and the boys on the front page of their Home section today, describing the coalition they have formed, and what they are doing:
“We aim to help builders understand what is being done to them and put them in touch with qualified professional advisers, such as lawyers and work-out specialists,” Pattinson said of the coalition. “We are taking the stories of bad bank behavior to regulatory bodies and legislators in Washington, D.C., and individual states. We are focusing on ways to help builders address acute problems such as personal guarantees.”
Here’s a link to the story:
http://www.signonsandiego.com/uniontrib/20080928/news_1h28group.html
Don’t think that the bailout stops this week. The whiners are lining up at the trough now, either looking for their share of the $700 Billion, or going for more.
In the meantime, here’s a note sent in yesterday by a reader named ‘pissed off sub’:
There are over 100 mechanic liens filed against Barratt amounting to millions of dollars. This is public record. Yet Barratt holds land for a 1380 home development and it won’t be affected? These guys suck alright. Go to Barratt’s website it says they are a respected name. In what world? Barratt, you want respect, sell that Fanita Ranch land to an organization that can do something with it and pay your subs. That would be respectable.
Posted on Sunday, September 28th, 2008 at 6:49 AM in Uncategorized | 6 Comments » | 
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This is only the beginning. First the financial institutions and don’t forget Pelosi got $25B for the auto makers under the radar last week. Hell, whats $25B when we are talking about $1.4T?
The builders will be next and then don’t be surprised if the NAR is standing in line looking for their billion dollar rescue before Xmas.
The dollar is toast. Right now I’d like to have the contract with the Treasury for supplying ink and paper.
SD_Coastal | September 28th, 2008 at 8:41 am“We are focusing on ways to help builders address acute problems such as personal guarantees.”
Oftentimes in the development business “personal guarantees” are the only way banks will extend credit to developers. The reason is obvious. They’ve been burned many time even with the guarantees as developers pay themselves exhorbitant salaries bleeding the corporate shell dry. Messing with this aspect may save the skins of the current gang but absolutely assures no housing construction rebound ever. Ever.
Rob Dawg | September 28th, 2008 at 9:53 amLove the pic from the paper’s article… I moved back to San Diego 2 yrs ago. I run almost daily past that ugly half built mess. I noticed the dust collecting & figured as much- the funding was lost. Ouch! We have bets going on how long it will sit Or if someone will tear it down…My guess it goes to auction? Another group swoops in?
Donna | September 28th, 2008 at 12:50 pmDisturbing to builders is the fact that some banks are enforcing personal guarantees that make them personally liable for repaying the debt.
Oh, the horror.
John | September 28th, 2008 at 10:38 pmI’m not 100% sure on my figures, but I think these are close. (Maybe JtR can confirm.)
Of the 18 homes completed (or virtually so) in Magnolia Estates in Carlsbad (the development in the UT photo) Barrat sold six homes in 2006. Only one in all 2007. None in 2008.
Housing prices in that development were barely lowered in all that period. Barrat simply refused to believe that the market was softening and that their $2.2 million homes weren’t still worth $2 million.
They also gamed their bankers by not completing their unsold homes, even though they were virtually done, so they could still pay (lower) construction rates on their loans.
And as noted, the contractors haven’t exactly been paid for their work, either.
Even after one of the originally “sold” homes went into bankrupcy (bought by a flipper, of course) and the REO was resold –with MULTIPLE OFFERS–at only $1.35, they STILL thought their homes should be selling at almost $2M — but the market was telling them otherwise!
Two of the model homes were apparently sold to “investors” as they have never been lived in but have been for (re-)sale for just-about-forever now. (They keep re-listing after a break of a few days to come back onto the MLS as “new” so don’t believe the DOM numbers.) Even these models are just now starting to be offered at about $1.8 and they are LOADED with upgrades. But still no one is buying. This means that these homes still are not at the right price.
When the cash-flow started drying up that was a BIG CLUE that the prices were too high. But Barrat did practically nothing to sell any of these homes at anywhere near market prices.
Now in high end homes ($2M+ market), I’ll admit it can take longer to sell. But there were several “wake-up call” moments for Barrat and they kept hitting the snooze button.
I believe the total sold so far comes to 12. So besides six unsold homes, there are still five empty lots and two homes that are maybe half-done.
It will be very interesting to see what becomes of these homes–who they will be marketed to and what they will finally go for. The longer they stay in their “ghost town” section of the neighborhood, the less attractive they are going to be for buyers.
shoppingaround | September 29th, 2008 at 4:54 amIt appears none of the Home Builders “get it”:
KB Home (KBH) reported a larger-than-expected quarterly loss early Friday as it held firm on pricing, fueling a stunning order decline and rise in cancellations as potential buyers walked away, even as the company retools its business model with smaller – and cheaper – homes.
http://tinyurl.com/4yv48p
Downturn | September 29th, 2008 at 8:14 am