After hightailing out of the Washington, D.C., metro market in spring 2008, just two short years after setting up operations in the market, KB Home is setting up shop in the market once again. Wednesday morning, the company announced it would resume its Mid-Atlantic operations, which include Maryland and Virginia.
"Our nation's capital has some of the country's most vibrant and historic residential neighborhoods," said Vince DePorre, regional president of KB Home's Southeast operations, in a statement. "We have always viewed the Washington, D.C., area as a strategic market, and sustained a presence in the region even as we moved to preserve cash, lower expenses, and reduce inventory companywide. In addition to providing outstanding customer service to our homeowners, we retained some of our most valuable land options with an eye toward rolling out new communities when the time was right. That time is now, and we look forward to contributing to the economic growth of the Washington, D.C., area."
DePorre will oversee the re-opened Mid-Atlantic division.
However, KB is re-entering the market with at least one scar from its earlier foray. The company still has an interest in Crown Farm, a massive 180-acre raw land parcel near Gaithersburg, Md., that has been involved in some legal trappings of late.
KB Home made a splashy entrance into the market in early 2006 by snapping up the desirable parcel in a joint venture with Centex for roughly $140 million, a price that caused many local developers to complain that the large national builders were bidding up the price of land in the market.
However, the project, which was to include 2,200-plus housing units and 300,000 square feet of retail, hit the skids as the housing market stumbled, and by 1Q2008, KB Home had pulled the plug on the market. During the company's 1Q20008 conference call, CEO Jeffrey Mezger said:
"We have decided to wind down operations in Washington, D.C., Chicago, and New Mexico. That said, we are honoring all existing obligations in these markets and closing out communities in a measured, prudent manner while continuing to uphold our high standards of quality and customer satisfaction."
KB Home and Centex tried to unload the land during summer 2008, but with little success; bidders made offers for less than half than what the two public builders had paid for the land, according to local reports. On May 1, 2009, the joint venture, known as Crown Village Farm LLC, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court in Wilmington, Del.
As part of the reorganization, the two companies planned to form a new joint venture, called CVF Operating Co. The "new co" was to act as a "stalking horse bidder" in a late July auction, allowing the company the option of repurchasing the land at a lower price or selling it to a higher bidder. The price of the initial bid was $70 million.
However, court documents filed Sept. 10 showed that the court approved a Crown Village Farm request to modify terms of the acquisition agreement such that the new company, CVF Operating, could terminate the purchase agreement and receive a refund of its $1 million deposit on the property.
In addition, the KB-Centex venture requested an extension from the court to file a reorganization plan since, with the termination of the acquisition agreement, the venture is no longer moving forward with the original reorganization plan. The move elicited an objection that asserted the venture was intentionally dragging its feet in finding a resolution.
Learn more about markets featured in this article: Washington, DC.