Gilbert, Ariz.-based Trend Homes on Jan. 31 confirmed that it had joined the growing ranks of home builders unable to pull out of the industry's steep nosedive and is selling operations to a Phoenix, Ariz.-based private investment firm, Najafi Companies. The $65 million deal for assets of Trend and sister company Classic Communities is predicated on an agreement that the company successfully reorganize under the protection of Chapter 11.
On Jan. 31, Trend Homes and several affiliates filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the District of Arizona. According to court records, Trend estimated the number of creditors to range between 50 and 99 that, after any exempt property is excluded and administration expenses are paid, there will be no additional funds left for distribution to unsecured creditors.
The company estimated assets to range between $100 million and $500 million and liabilities between $100 million and $500 million. The court documents listed the following entities as filing jointly with Trend Homes: Classic Communities Construction, Classic Communities Inc., PFP Funding, PFP Holdings, Roosevelt Park Development, Siena Development, Trend Homes Construction, Trend Homes, and Villa Siena.
If the bankruptcy court agrees to the plan, Najafi expects the private builder to re-emerge 90 days later "healthier, stronger, better-capitalized and better positioned for growth than Trend has been in its 30-year history," said CEO Jahm Najafi in a written statement.
Trend was originally founded in Salt Lake City in 1966 as Trendsetter Homes. In 1989, founders of the company moved the business to the Phoenix area. The company enjoyed robust growth and expanded into condominimum (through Classic Communities) and luxury product lines (through the Regency brand) in addition to its bread-and-butter, value- oriented single-family homes.
In 2005, the company shifted gears and increased its focus (from 25% to 60% of total offerings) on the move-up product line with entry level taking a backseat. But the timing of the strategy proved to be flawed.
Once building 1,200 units a year, Trend saw its closings drop from 1,108 in 2005 to 926 in 2006 despite aggressively offering incentives and slashing prices. It was then that an increasing emphasis was refocused on the affordable entry level market. Going into 2007, after retooling floor plans, and negotiating with subs and vendors, the company felt confident that it could offer entry level product that would be attractive to buyers that had been priced out of the market during the Phoenix run-up in the previous three years. In fact, CEO Reed Porter, the only member of the three families that own Trend who is active in the business, was so confident that, going into the year, he predicted 1,536 closings for 2007.
Instead, the sales environment in Phoenix continued to deteriorate and inventory levels continued to swell. By year-end, fallout from the collapsed mortgage environment proved to be too much and the company was actively being shopped, according to people familiar with the business in the local market who would not speak for attribution.
Trend reported gross revenues of $303 million in 2006, up 6% from 2005's $286 million.
Officials from Najafi did not immediately return calls, but according to the company's website the company is firm that makes investments up to $2 billion dollars across a variety of, often distressed, industries. The company has operating investment arms that focus on consumer products and renewable energy. For example, it acquired the Pert shampoo and Sure deodorant brand from Procter & Gamble in 2006.
In addition, Najafi has current capital investments in residential real estate including West Wing Mountain, a 1,300-acre master-planned development in the high Sonoran Desert of Phoenix, and Pinnacle Peak Place, a 124-acre gated community zoned for estate lots in Scottsdale.
Trend plans to operate without interruption and provide warranty services to customers during the restructuring. The builder's website shows a total of 28 communities in Phoenix, Gilbert, Chandler, Surprise, Peoria and Buckeye. Of those, 17 are currently selling, five are at the grand-opening stage and the balance are in close-out. There are no new communities listed.
Learn more about markets featured in this article: Phoenix, AZ.