Interesting Times

From HousingCrisis.com, 4-12-10

We caught up with Mick Pattinson late last week, who says this of the banks, “we’re not gonna let the bastards beat us.” Mick takes this banks business personally. He says he and the principals in Barratt American Homes, a Builder 100 casualty of the Great Recession that went out of business in a Chapter 7 liquidation last August, lost $100 million in equity as the company’s lender consortium shut down their lines, discontinued project lending, called in their loans.

He speaks for many in the business who are struggling with a fatal error reading that came of builders who took out short term debt on long term assets, land.

What remains missing as people speculate about the timing of a recovery are two factors critical to a restoration of lending, both for home mortgages and for commercial AC&D loans: absorptions and price stability. While both of these factors are erratic, the cost of money that could be put to work to navigate through and out of trouble will continue to be asphyxiatingly high.

Mick and a few trusted cohorts ex- of the now-defunct Barratt American Homes have rekindled the fire in the entrepreneurial belly, and reincorporated under a new aegis, The Barratt Group. The Barratt Group is an avowed shadow of the company it succeeds, but it is a home builder nontheless, and it has begun to hire back some of the staff who had the rug pulled out from under them as Barratt American failed last Spring.

“We’re out there on the court house steps picking up foreclosures, distressed assets, and broken development deals,” says Pattinson. It’s a plan, and it keeps the fledgling company’s destiny in its own hands. No lending, no ulcers over whether the debt deadlines will arrive without demand for the homes ahead of that time.

Pattinson’s defiance inspires. “We’re drawing on private capital. We’ve got a track record, and a good name with our customers, and we’re going to keep fighting this through. It’s small potatos, but it’s what we can do for now.”

There are Mick Pattinsons, larger and smaller, across the country. Speculation among Wall Street real estate investment analysts and home building company executives is that 80% to 90% of private home builders who competed as recently as 2007 will  have “exited” their markets by the end of the downturn in the next 12 to 18 months.

This means that the companies they built under the trustmarks of their family names and their brand names will either go away or morph. This also means that the skin they’d put in to secure lots to build on will be a mere memory. This also means that many of them have creditors calling them to make good on personal guarantees that are now haunting them at home as well as at work.

And this is the way the cycle designs the housing economy to work. All the events in the narrative have occurred repeatedly before, but never before with such widespread destructive force at such high-stakes from an absolute dollar value.

We also heard back from Rich Ohmann of Raleigh, N.C.-based St. Lawrence Homes, founded and run by Rich’s brother Bob Ohmann. St. Lawrence filed for protection under Chapter 11 in February 2008, and is close to substantial completion of its plan for reorganization to come out in the weeks ahead.

Rich reports that the company is doing “just okay,” selling inventory, pre-sales, and building with a line from local lender Capital Bank. Having had to downsize its entire in-house selling team, St. Lawrence is getting a heartening lift from New Home Star, an outsourced sales force.

“It’s like we’ve managed to get off life support, and now we’re wobbling weakly down the hospital corridor with the hospital gown flopping in front,” Ohmann says.

You want short term debt to cover short term assets, but you don’t see that combination when home buyer sales demand is still a big X Factor tied to jobs and consumer confidence.