Kirk Homes simply ran out of time and options.

The Streamwood, Ill.-based builder, once among Chicagoland's largest, was unable to convince a bankruptcy court judge that its plan for reorganization out of Chapter 11 would be viable. That judge on Monday rejected the latest version of that plan, claiming that it lacked specifics and presented an unrealistic business forecast.

Kirk Homes’ president John Carroll, and its outside counsel, Forrest Lammiman of the firm Meltzer, Purtill & Stelle, did not return phone calls from Builder requesting comment on Judge Carol Doyle’s decision. The Chicago Tribune reported on Tuesday that the judge didn’t think Kirk Homes’ plan—which the builder had amended twice in the previous week—sufficiently protected the liens held by its lender, JPMorgan Chase.

Carroll is quoted by the Tribune as stating “Kirk, as it exists today, is out of business.” Carroll was not sure how the company would be wound down, and it was unclear a presstime where Kirk's inventory of homes currently stands.

Judge Doyle didn’t accept Kirk Homes’ construction and sales projections. Its amended plan called for the company to retain 350 lots in three subdivisions. It would build 87 homes next year and increase its construction steadily to 500 homes in 2014. The builder projected that its sales would generate enough capital to pay off its $52 million debt with Chase over 15 years, with a $15.6 millon balloon payment due in 2024.

However, to get that plan off the ground, Kirk Homes needed Chase’s approval to use funds provided by the ban to pay for construction and real estate, something that Chase was simply not disposed to give. The builder also couldn’t afford the expert witnesses it needed to sway the judge that its plan, based on improving market conditions, could work.

Kirk Homes—which celebrated its 30th anniversary in 2008—had its best year in 2006, when it sold 328 houses. At one time, the company was building 500 houses per year. But like many production builders, its growth ambitions outran its ability to sell enough homes in a deteriorating housing market to generate the cash flow it required to service its burgeoning debt.

In an interview with Builder last week, Lammiman sounded confident that his client had made sufficient concessions in its amended plans to satisfy Chase. Under its plan, Carroll would have purchased a 49% stake in Kirk Homes, which is employee owned. But the bank’s outside consultant—Brian Grant, of the turnaround firm CM&D—is quoted as saying that Chase believed it would ultimately get back more from Kirk Homes’ liquidation under Chapter 7 than from a reorganization plan that Grant called “a tremendous risk.”

John Caulfield is a senior editor with Builder magazine.

 

Learn more about markets featured in this article: Chicago, IL.