On Monday, Maryland’s federal bankruptcy court in Baltimore confirmed Gemcraft Homes’ third amended plan for reorganization, meaning that the Forest Hill, Md.-based company, which filed for court protection from its creditors last November, will join that rarefied group of builders that have emerged from Chapter 11 as operating entities.
When it filed its latest reorganization plan two weeks ago, Gemcraft reported $55.7 million in current assets and $55.3 million in current liabilities. Two of Gemcraft’s lenders, Regions Bank and M&T Bank, have agreed to amend their claims against the company (which include financing during Gemcraft’s bankruptcy) and provide the builder with $38 million and $27.7 million, respectively, after it exits Chapter 11. The builder has secured capital from other sources, too, bringing its total post-bankruptcy financing to over $70 million.
All but one of Gemcraft’s other 22 bank lenders have either struck financial agreements for the debt they were owed or have taken back land that collateralized that debt.
On its website, Gemcraft shows that it’s selling homes from 45 communities in five states: Delaware, Pennsylvania, Maryland, Virginia, and West Virginia. Dale Hevesy, a vice president with Gemcraft, tells BUILDER that the company will not be moving forward on four of those communities: Chandler’s Glen in West Virginia, Farm Lane Estates in Pennsylvania, and Hickory Hollow and St. Helen’s Crossing in Pennsylvania.
As part of its reorganization, the company is obligated to sell off, in an expeditious way, undeveloped projects known as Academy Farms, Taylor Estates, Sadsbury Park, Meadowview, and Biscayne Woods, the last of which is already under contract for sale, says Hevesy. While in Chapter 11, Gemcraft reduced its lot position to around 5,000—from 20,000 when it filed for court protection—partly by selling off land to other developers, such as its 2,000-lot Plantation Lakes project, which Lennar acquired.
“Essentially what Gemcraft did was to identify the projects that made sense going forward,” says Irving Walker, an attorney representing the builder from the Baltimore-based firm Cole, Schotz, Meisel, Forman and Leonard.
In addition, Gemcraft also recently secured five new communities from other developers: Scenic Ridge in Baltimore County and Antego Woods in Cecil County, Md.; Hills of London Grove in Chester County, Pa.; and Kings Grove and Windsor Hills in Chesterfield, Va. Hevesy says that the one big change for his company as it exits Chapter 11 will be that “we’ll be less reliant on raw land and more reliant on finished lots.”
Gemcraft’s existing management, led by CEO Bill Luther, is staying on to run the business. “We are enthusiastic about moving forward with the next successful chapter of our company’s history,” said Luther in a prepared statement about his company, which was founded in 1993. Walker was effusive in his praise of Gemcraft’s “exceptional management team. I’ve worked with a lot of companies in distress, and they deserve all the credit for what they’ve accomplished.”
Not surprisingly, the reorganization plan cedes a certain measure of operational oversight to Gemcraft’s lenders. M&T, at least, will be keeping a close watch on the builder’s future activities. According to court documents, the bank is limiting the builder from borrowing more than $1 million for land acquisition or development from any other lender besides Regions. At its discretion, M&T will provide construction financing but only after it approves the builder’s construction plans. Its financing will be limited to 70% of the total costs to acquire or refinance lots, plus 70% of construction costs. Under this agreement, Gemcraft is limited to one spec home and one model per project, and can be spending no more than $2 million per project at any given time.
Gemcraft estimates that its revenue this year would be around $80 million from 300 closings, compared to $84 million from 320 closings in 2009. In its court documents, the company estimates revenue of $67,610,500 for both 2011 and 2012. The company expects to lose $488,464 in 2010, and show positive net income of $973,591 in each of the proceeding two years. When costs related to its new credit facilities are factored in, the company projects 2011 earnings to be $3,591, and a net loss of $51,409 in 2012.
John Caulfield is a senior editor for BUILDER magazine.