Barratt American, the Carlsbad, Calif.-based builder that had been protected from creditors under Chapter 11 since Dec. 24, gave up its attempts to reorganize its operations last week and will go out of business. The company converted its bankruptcy to Chapter 7 liquidation on Aug. 6.
However, the company’s president Mick Pattinson tells the San Diego Union-Tribune that he intends to start a new home building business sometime in 2010. Any new company will, no doubt, be informed by his experiences over the past three years, during which he insists that home builders were “let down” by forces beyond their control.
Pattinson was part of a management team that acquired Barratt American from its British parent, Barratt Developments, in 2004. He built the company to where it was closing nearly 500 homes per year in 2005 and generating more than $330 million in revenue. But like many builders in California and elsewhere, Barratt American continued to build homes even as buyer demand—which in California was limited even during boom times by home-price inflation—eroded further.
In interviews with BUILDER and other news media, Pattinson consistently blamed his company’s failure on three factors: market conditions that saw land prices soar; impact fees that in some California markets add $100,000 or more to the price of a house; and the lack of support from lenders, specifically Bank of America, which despite a 27-year relationship pulled the plug on the builder’s $125 million credit line after Barratt started missing debt payments.
So ticked off was Pattinson about being abandoned by his lenders that he formed a lobbying group with more than 40 other builders called the Homebuilders Coalition for Responsible Bank Behavior. Pattinson also talked about looking for ways to fund future construction and development projects without bank financing.
As business conditions worsened last year, Pattinson was selling Barratt’s “unencumbered assets” and had traveled to Europe in search of new financing. However, it appears those efforts did not meet the company’s cash needs, and its decision last week to discontinue its operations came after the builder’s creditors complained that further reorganization efforts would be “futile,” according to the Union-Tribune. Creditors had also lost confidence in Pattinson’s management, according to the North County Times.
John Caulfield is senior editor for BUILDER magazine.