Renaissance Homes of Lake Oswego, Ore., which was flying high just a year ago, plans to file for Chapter 11 bankruptcy court protection from its creditors today, Sept. 23, or tomorrow while it reorganizes its finances.
The Portland-area builder's fast fall serves as a reminder that few areas of the country remain immune to the market plague and that growing fast has its own risks.
The company's problems began last fall and became critical by spring when the sale of 94 homes, roughly one-third of the company's backlog, fell through because the buyers couldn't sell their existing homes, says Kim Whitman, the company's vice president of sales and marketing. Up until then, the company had lost only between 6% and 10% of sales because buyers weren't able to sell their homes.
About half the houses that failed to close, which had original price tags averaging $600,000, still remain on Renaissance's books.
"They were highly amenitized," Whitman said, as the company's design center enticed buyers to add between $50,000 and $125,000 in upgrades. "That personalized house that came back to us was not what the next buyer necessarily wanted, so if they did make an offer they wouldn't offer the full value of the options. They'd kill you on that."
When revenue plunged, Renaissance managed to keep up its payments to its banks, but not to its subcontractors. Not long afterward, work ground to a halt, Whitman said.
Renaissance would have preferred not to file for Chapter 11, Whitman said, but after talking to the regional banks that provided its financing, the builder decided bankruptcy was the best option.
"We have worked out a deal with all our major banks to support our reorganization plan when we do file," Whitman said late Tuesday, Sept 22. "Those banks will be on board and support us with funding for new construction and operational costs going forward....I don't want to paint a rosy picture...but we will be able to sit down with all our vendors and suppliers and decide how to go forward with payment."
Through the first half of 2007, Renaissance's future looked rosy, according to Whitman. The company had doubled in size and was expecting to close 350 homes by the end of the year.
"But we had doubled in size in one year, and that's got risks in itself," Whitman said. "We knew when we were doing this [that] it is risky because when companies grow this fast one of the wheels is wobbling, but we didn't' know which one it was."
Still, "Through the first half of 2007 we were just rolling and thought, 'Gee, maybe we are going to dodge the bullet,'" Whitman said. "This place was growing nicely, but not crazily like California and Florida and Phoenix."