Comstock Homebuilding Companies, which has struggled financially for more than three years, is finally showing signs of stability, according to Chris Clemente, chairman and CEO of the Reston, Va.-based builder.

“We’ve been operating under the radar for a while, but our ‘Open For Business’ sign is on again,” he told BUILDER in an interview on Monday.

Comstock lost $172.5 million over 15 quarters through September 30, 2009, but has managed to generate positive cash flow since the third quarter of 2008, a trend Clemente expects to continue to be evident when Comstock reports its 2009 fourth-quarter and year-end results on March 26.

As part of its Strategic Realignment Plan, Comstock has been shedding debt, which currently stands at around $45 million, from $102.8 million on Dec. 31, 2008 and from $330 million in 2006. It has reorganized or liquidated projects, which Clemente said have been whittled to four or five from between 35 and 40 during the housing boom. And Comstock continues to sell through its existing inventory of condos and townhouses. “We never stopped selling; we just kept our heads down while we managed our assets.”

Last year, Comstock closed 75 homes (compared to 650 in 2005), and expects to close between 100 and 120 in 2010. Quite a few of the homes it’s selling today have already been built, as Comstock converted its entire condo portfolio to rental in 2008, which “made a big difference in our cash flow,” Clemente said. The builder is reconverting that portfolio to for-sale units.

This summer, Comstock is scheduled to begin a new project called Potomac Square, within the final stage of its Cascades subdivision in Loudoun County, Va. Around the same time, it will also start building on lots left at its Emerald Farm community in Frederick, Md. The company also continues to do fee-contract work for property owners.

Comstock has gotten to this point without filing for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. (Last November, as part of its restructuring, Comstock filed Chapter 7 liquidation petitions for three subdivisions in Georgia, as it wound down its Atlanta division.) Clemente is convinced that staying out of Chapter 11 abetted his negotiations with lenders. “I fired lawyers who told me that my only recourse was bankruptcy, just as I did in the early 1990s,” said Clemente. Instead, he prefers to do workouts with banks “project by project,” which he calls his “do it yourself” approach.

These negotiations in several cases have led to significant loan modifications and even debt forgiveness, according to documents Comstock has filed with the U.S. Securities and Exchange Commission:

•Last October, Key Bank agreed to increase the cash flow—to 15% of net sales—available to Comstock from settlements at the builder’s Potomac Yard project in exchange for a higher interest rate on that project’s $22.8 million loan;

•On Nov. 10, Fifth Third Bank eliminated $1.3 million in secured debt related to Comstock’s Brookfield project in Raleigh, N.C. It released Comstock and affiliates from its obligations and guarantees, and Comstock agreed to cooperate on helping the bank foreclose on a portion of that project;

•Last week, Stonehenge Funding, a company Clemente owns, acquired an unsecured Comstock note from J.P. Morgan Ventures with an outstanding balance of $9 million, and then cut the principal owed on that note in half, to $4.5 million. Clemente also cut the interest rate on that loan in half. In a separate deal, Bank of America agreed to modify an unsecured loan of $3.7 million by delaying, until January 2011, Comstock’s obligations to pay interest on that debt from the date of a previous modification in November 2008.

Clemente stated that these last two loan modifications “complete our Strategic Realignment Plan” and “effectively stabilize Comstock.” The builder also expects to receive a $35 million tax refund this year against past losses.

The company is looking for new projects again, which Clemente said would be financed by a combination of bank and private equity money. He said Comstock continues to have “good relationships” with Key Bank, Bank of America, and Guggenheim Corporate Funding. “We’re not desperately seeking financing, but we are looking for it,” he said.

But don’t expect Comstock Homebuilders to be aggressively buying land any time soon. Clemente believes the housing recession is the result, in large measure, of too many builders having convinced themselves that their business wasn’t cyclical. “They thought the business had changed; it hasn’t.” Comstock’s “new focus,” said Clemente, is on managing its return on capital and investment in land. Right now, Comstock controls only about 300 lots, and going forward it will mostly build on land it has optioned for use.

John Caulfield is senior editor for BUILDER magazine.

Learn more about markets featured in this article: Washington, DC, Atlanta, GA.