John Laing Homes appears to be retrenching to its Southern California home base, as it has closed or suspended its construction and selling activities in other markets while it "reviews" its operations.
The builder has retained Development Specialists (DSI), a national restructuring consultant, to assist in its review process. Bradley Sharp, a senior vice president with DSI, did not return a phone call seeking comment. But most recently, Sharp has been appointed Chapter 11 trustee for a bankrupt financial services company and Mexican food manufacturer, and a consultant for the liquidating trustee of a bankrupt holding company.
Robert Booth, John Laing Homes' CEO, was in Dubai — where the builder's parent company, Emaar Properties, is headquartered — and could not be reached at press time. Emaar did not respond to questions that BUILDER e-mailed the company earlier this week. And John Laing Homes' vice president of sales and marketing, Linda Mamet, reiterated the company's press release, which states that the builder "is currently reviewing all potential options to meet its capital requirements." The release adds that the company has reduced its workforce, but did not say by how many people.
This communications vacuum inevitably invites questions about John Laing Homes' operations and its financial standing wth Emaar, one of the biggest developers in the Middle East. Indeed, at least two sources contacted for this story, who profess knowledge about Laing's situation, said that what precipitated the review process was Emaar's decision to cut off the builder from new working capital. (One source said that Emaar, which paid $1.05 billion to acquired John Laing Homes, has since pumped at least $600 million more into the company.) Sources also contend that Laing stopped paying its trades and suppliers in December.
In an e-mail sent yesterday, Mamet tells BUILDER that some of the information that has been floating around about John Laing Homes is "not entirely accurate." But here's what BUILDER has learned thusfar:
•In Sacramento, Calif., where John Laing Homes consolidated its Northern California region last year, the builder "at a minimum" has halted sales, closings, and construction, observes Hanley Wood Market Intelligence, a sister company of BUILDER. The Sacramento Bee corroborated this when it reported that Laing has closed at least two of its local sales offices. The person who answered the phone at the builder's regional office here would not say if the region's president, Kevin Carson, was available, and deferred all questions to the company's Irvine headquarters;
•John Bissette, president of the builder's Colorado region, says he can't confirm or deny reports in the Colorado Springs Gazette and other news sources that Laing had stopped building in all four of its local developments, as well as in Denver. At one of those communities — Banning Lewis Ranch, where Laing owns 73 lots, including 60 that are undeveloped — the builder "has stopped accepting contracts, is not finishing homes it has started, and last Wednesday cancelled a contract of a home that's completed and gave back the deposit," says John Cassiana, a vice president with the management company that operates this community. Cassiana tells BUILDER that he was informed "point blank" by a Laing official that the builder had reduced its workforce in Colorado to 22 people from 55; Bissette confirmed yesterday that Laing "still has 22 employees in the Colorado region";
•A source knowledgeable about John Laing Homes' operations says that the builder has closed its Arizona region, which it launched in 2007. Even after a dozen rings, no one picked up the phone at the builder's local office in Goodyear, Ariz. John Laing Homes' Web site currently does not include a contact number for either its Colorado or Arizona region;
•Texas Region President Jim Lemming said he could not comment about what was going on in his area or the company in general. Lemming sold his company, Lindenwood Homes, to John Laing Homes in May 2007;
•BUILDER could not fully determine whether Laing is building or selling in any of its communities in Southern California. A real estate blog, "Curbed L.A.," reports that the company has halted construction on its 180-unit Madrone project in Hollywood. And Mamet was quoted in The National, a newspaper in Abu Dhabi, as saying that staff cuts were deepest in Southern California and Colorado.
ROI is MIA
When John Laing Homes was acquired by Emaar in June 2006, it was one of the housing industry's most vibrant private builders. "I'm bullish about the United States," said Mohammed Ali Alabbar, Emaar's chairman, at the time. And Emaar encouraged John Laing Homes to expand its operations into Texas and Arizona.
However, Emaar's investment started looking shakier as America's housing market deteriorated, particularly in the markets where John Laing Homes was building. According to Emaar's consolidated financial statement for the third quarter of 2008 (the latest filing for which data are available), Emaar wrote down the equivalent of $45 million on development properties in its U.S. operations. It also conducted an impairment review of John Laing Homes and concluded that the recoverable amount was "lower than expected." As a result, Emaar recorded the equivalent of a $204 million impairment charge on its income statement.
Laing's relationship with its lenders remains unclear, as the company moves towards some kind of reorganization or recapitalization strategy. At the very least, however, Emaar is on the hook for a considerable amount of Laing-related debt, including a $20 million unsecured loan that matured in 2008 (the status of which could not be determined), $515.42 million in loans secured against real estate in the U.S., and a $59.5 million unsecured loan that must be paid in full by March 2010.
John Caulfield is a senior editor with BUILDER magazine.