By York, Tom
Mick Pattinson, the embattled executive of Barratt American Inc., has joined forces with more than 30 fellow contractors from as far away as Medford, Ore., to convince banks to restore lending lines that have been shut down as the housing crisis has worsened.
He's the driving force behind Homebuilder's Coalition for Responsible Bank Behavior, which got its start in early June.
Two of Pattinson's credit lines set at $125 million were suddenly shut off after the housing crisis struck with full force in August 2007 when regulators were pressuring banks to retreat from financing new construction.
The pressure has continued as the credit crisis has deepened in 2008.
Pattinson said banks have been "instigating contrived defaults to reduce their exposure to the residential housing sector."
"It's at least a statewide, if not a nationwide problem," said Sacramento attorney Michael Hackard, a coalition member who represents a number of the builders in legal actions.
Carlsbad-based Barran American, which once averaged 500 homes a year, will build fewer than two dozen homes by Dec. 31, said Pattinson.
The firm has been reduced to rebuilding homes lost in the October wildfires after Bank of America shut off two of his credit lines, he said.
"We're still in business, and we're still building homes, but not very many," he said. "We're doing piece work."
Coalition members, mostly small- to medium-size builders, include such high-profile individuals as Sherm Harmer, principal of San Diego-based Urban Housing Partners Inc., Rich Gustafson, president of San Diego-based City Mark Development and Horace Hogan, CEO of Carlsbad-based Brehm Communities.
Coalition members have been pressuring lawmakers and high-level bureaucrats in Sacramento and Washington to talk to banks about the issue of lending, or not lending, as the case may be.
Credit Lines Sought
Pattinson said coalition members "have been harshly treated" by their banks, and in a few cases, driven out of business or into insolvency due to the inability to borrow money.
Builders need credit lines to cover such expenses as labor and materials, including subcontractors, such as electricians and plumbers, before they can sell homes and repay the loans.
Barratt American's annual revenues plummeted two-thirds in three years, from a high of $305 million in fiscal year 2004 to $121 million in calendar year 2007 (the business changed its financial reporting period in 2005).
Pattinson said his struggles began in the summer of 2007, when Charlotte, N.C.-based Bank of America Corp. froze his credit on two major projects.
BofA has declined to comment.
Pattinson said BofA asked him to pay down the amount owing on the lines with the expectation that they would be unfrozen and renewed.
Nevertheless, over the next several months, he said he reduced his indebtedness to $70 million from $100 million, half of which was taken from $15 million that should have been paid to his subcontractors.
He said he stopped paying interest on the two lines in March when he realized the lender would probably not unfreeze, or renew, his credit under any terms or conditions.
Those loans are now in default, and his subcontractors still have not been paid.
At that point, he said he was forced to lay off more than 100 employees and greatly retrench operations.
'Still Building'
Meanwhile, his group has launched a Web site, pathtodefault.com to publicize the plight of builders such as Barratt American.
Pattinson said he's trying to find new sources of money so he can re-capitalize operations and prepare for what he believes will be the inevitable up-tick in new housing construction.
He said the housing recovery bill signed into law July 30 by President Bush should help regional and national homebuilders. One provision raises the minimum amount for government guaranteed loans to $625,000, which should lure more buyers in high-cost markets like San Diego County.
Rod Brown, chief executive at the California Bankers Association in Sacramento, said he's trying to get both sides talking about what can be done to ease the crisis. The trade group represents more than 300 banks in the state, ranging in size from the largest to the smallest.
"The CBA is trying to open the lines of communications among the various parties," he said adding, "Banks are not trying to put (builders) in a situation that's uncomfortable. The last thing a bank wants to do is put a home builder on the path to default."
Sherm Harmer, who serves as the president of the local chapter of the Building Industry Association, emphasized that not all banks are at fault. "There's a disparity between lenders and lending practices," he said.
He noted some banks have been willing to work with contractors. And he said he understands the enormity of the crisis facing the banking industry.
"It's a liquidity crisis," said Harmer.
Still, home builders are struggling, and in many cases, can't finish existing projects. "It's in slow times like these you need credit," Harmer said.
Copyright San Diego Business Journal Aug 4, 2008
(c) 2008 San Diego Business Journal. Provided by ProQuest LLC. All rights Reserved.