Over more than two decades, Jeff Caruso has pumped at least $10 million of his own money into his company, Crofton, Md.-based Caruso Homes. And he has offered to extend, in the form of a loan, up to $1.3 million more to keep his business afloat while it reorganizes under the protection of Chapter 11 of the U.S. Bankruptcy Code.
Caruso Homes and 24 affiliates filed for Chapter 11 on Monday, and Caruso confirms that the company's total liabilities exceed $100 million. "We have so much debt right now that we need to clean up our balance sheet," he told BUILDER in an interview this morning. To that end, his company has mothballed about half of its 30 projects under development in Maryland and Virginia. It has reduced its workforce to 45 people from 160. Through agreements with subcontractors, Caruso Homes has completed most of the homes it started in those communities. And it has struck agreements with several lenders for debtor-in-possession project financing to continue to build homes.
Caruso Homes has loans outstanding with 10 banks. Caruso says that only one (which he wouldn't name) refused to modify its loan or work out its debt. On the other hand, he points specifically to Wachovia as being particularly helpful, and said that most of his banks are being cooperative. Caruso Homes also owes $2.3 million to its 30 largest unsecured creditors (84 Lumber tops that list, with a claim of $451,261). Caruso says most suppliers and subs have said they would work with his company again "once we sort out how we can pay them." Caruso Homes has no liens filed against it by creditors.
If the court approves the financing it requires, Caruso Homes expects to be out of Chapter 11 within 120 days of its filing. Caruso foresees more cuts in his operations to reach that goal. His reorganization strategy envisions a company with around 35 employees that builds around 100 homes per year. However, Caruso concedes that the re-emergence of Caruso Homes as a solvent entity hinges on market conditions in Maryland and Virginia where, he says, sales are still spotty, even as the builder settled 16 home sales over the last 30 days. Caruso Homes is now building a more affordable product, too. Two years ago its houses averaged 3,400 square feet and were priced between $600,000 and $900,000; now, its homes average 3,000 square feet and are selling in the mid $400,000s. "Prices in our market continue to go down, and I don't see any leveling off for a while," he says.
Right now, Caruso Homes has about 40 completed homes in its inventory, and the company expects to build and sell 110 units and generate $60 million in sales this year. That compares to 198 homes built and $116 million in revenue in 2007, and 248 homes built and $122 million in sales in 2005. The company owns or controls around 800 lots and builds on and maintains another 1,100 lots owned by its investment partner, Dutch-based SNS Finance, from which the builder receives contractors' fees for its construction work. Surprisingly, Caruso is seeking new investors to purchase more land, which he believes could hold a key to his company's long-term success. "[Buying] land at current prices is the only way you're going to make money in the future. The trick, though, is to buy land that doesn't sink you."
Learn more about markets featured in this article: Baltimore, MD.