An Unfinished Life

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    Erin O'Boyle

    STANDING SILENT: The New American Home 2010 remains largely unchanged since November as the builder awaits a $1.8 million bridge loan to finish it. A rendering (above) provides an accurate glimpse of what the desert contemporary custom home will look like when (and if) it is finished.

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    Erin O'Boyle

    MONEY PIT: Domanico Custom Homes has sunk an unbudgeted $800,000 of its own 
    money into the project and owes another $400,000 to subcontractors and suppliers. The $1.8 million of financing the company seeks will pay off those debts and finish the house, including an infinity-edged pool  that anchors an extensive outdoor living experience.

This year’s house, for instance, features a two-level floor plan by KTGY Group architects in Irvine, Calif., and Robert Williams, in San Clemente, Calif., that puts an extensive master suite and another guest suite and home office on the main level and a trio of suites and a “Man Cave” upstairs. Outside, an infinity-edge pool anchors an outdoor experience that was to include a full, sheltered kitchen and a contemplative garden, thanks to a design scheme by Summer/Murphy & Partners in Dana Point, Calif.

In addition, builders would have been enlightened about an aerated foundation system that mitigates expansive soil problems, an approach to building science that would reduce the home’s energy use by nearly 50 percent, and a waste management program that recycled or salvaged almost all of the construction debris generated on the jobsite.

Instead, the unfinished house highlights the issues facing a growing number of builders who’ve had their financing frozen, renegotiated, called due, or denied regardless of how well they are satisfying their loans or have performed in the past. “When our investor pulled out, we approached the local banks we’d worked with for years,” to finance the home’s completion, says Knecht. “But by that point [February 2009], they weren’t doing any spec-home financing.”

Projects such as The New American Home 2010, built on speculation with a price tag initially targeted at more than $4 million, says Ledford, are at the extreme end of the lending spectrum. Even so, he says, FDIC-led bank closures and regulatory pressure on lenders to get their real estate portfolios in line with federal guidelines imposed in 2006 have left AD&C financing in limbo across all price points. “[The situation] is preventing them from taking on any new loans at this point,” he says.

The immediate fallout, says Ledford, has left builders scrambling for other sources of money to either start or complete their projects. Knecht, for instance, has tried several tactics, from hard-money (or bridge loan) lenders seeking a 25 percent return to selling individual, $360,000 shares to attract a pool of smaller private investors to make up what he needs. He’s knocked on the doors of several local and national banks with various proposals—all without success.

In October, Knecht posed himself as the eventual homeowner to eliminate the stigma of a spec house, but the banks still didn’t bite. “There’s no urgency on their part and no clear or stated barriers or unanswered questions we can address,” he says, echoing many of his builder peers. “They’re working at their own pace.”

Recently, Domanico offered the house with a $1.8 million price tag, about half its most recent appraised value, to attract a buyer, finish the house, and get out from under it. “To keep doing this every single day with nothing to show for it is very stressful,” says Knecht. “I worry more each day.”

In many ways, says Ledford, the small, local banks that have been the backbone of private residential construction lending are handcuffed by tighter FDIC lending guidelines and a broadsword approach to freezing or calling in real estate loans, regardless of their performance. “I understand and don’t blame lenders necessarily,” says Bill Hoover, a Las Vegas home builder and 2009 president of the Southern Nevada HBA. “Lots of banks have failed, and if a home’s appraised value won’t pay off the loan, why lend?”

That scenario has played out especially in Las Vegas. Average home sales prices there have fallen 55.6 percent to about $119,000 from their peak in 2006 and to just 5 percent more than what they were selling for in 2000, according to the National Association of Realtors and the S&P/Case-Shiller Home Price Index. That’s the most significant decline of any city in the country, including Detroit, Phoenix, and Miami, and, according to Case-Shiller, is twice the national average home price decline.

Learn more about markets featured in this article: Las Vegas, NV, Los Angeles, CA.