McStain Neighborhoods, a Denver-area builder specializing in the construction of sustainable communities, has found it needs help sustaining itself and on Thursday filed for Chapter 11 protection in the U.S. Bankruptcy Court's Colorado district.
The Louisville, Colo.-based builder listed its assets at more than $47 million and its liabilities as greater than $44 million at the end of 2008 in the bankruptcy documents. The filing is incomplete, and McStain is asking the judge for 15 days to finish filing all the paperwork because of the complexity of its finances and the number of creditors.
The filing was "precipitated by the rapid deterioration of the local, regional, and national housing markets and the severe restriction in bank funding for construction loans," the documents said.
Under the court's protection, McStain hopes to be able to sell and complete all the company's homes that are finished or under construction and preserve its assets and business for the benefit of creditors and others with interest in the company, the documents continued.
Others with interest in McStain would include the company's employees, since it is employee-owned.
McStain was founded by Tom and Caroline Hoyt, husband-and-wife architects who got into home building in the 1960s by buying a custom Denver-area builder. The company began operating under the McStain name in the 1970s. Over the years, it has built more than 8,000 homes
McStain managed to survive the 1980s housing recession, which was severe in Colorado. But it has been showing increasing signs of strain in the face of the current recession.
Its former CEO, Eric Wittenberg, resigned from the company last September to cut costs. "It became pretty evident that the company couldn't afford two expensive leaders, me and the founder," Wittenberg said at the time. "It's tough to put your own name on the cut list."
But he said then that it was the right thing to do for the company, to give it a better chance of surviving and being well-positioned to grow again when the market gets better.
Wittenberg was listed as the fifth largest unsecured creditor in the bankruptcy filing, along with banks and trades, with a contingent claim of $538,737.
After Wittenberg left, Hoyt jumped back into the driver's seat at the company. It moved out of its headquarters building, sending the employees it had left working from virtual offices.
"We had a really nice office," Hoyt told Big Builder a few months ago. "In retrospect it was really nice for us, and it didn't do a damned thing for our customers."
Shedding the company of the overhead of its offices "put us in the position where we are just a hell of a lot more flexible, and I think we will be able to go up and down with whatever comes in a much more flexible way in the future," he said.
But he also mentioned then that the banking situation was giving the company trouble.
"We are totally constrained by this banking mess," he said. "We feel like the customer side has bottomed out. But I think we are going to be totally constrained by construction lending in the next year or more."
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