Gemcraft Homes, the industry’s 61st-largest home builder in closings last year, and seven affiliates on Monday filed for protection from approximately 1,000 creditors under Chapter 11 of the U.S. Bankruptcy Code.
In documents it filed with the Maryland Bankruptcy Court, the Forest Hill, Md.-based builder states that it owes its 24 bank lenders about $99 million. The company’s land development division, DLM LLC, which controls more than 20,000 lots, owes lenders $32 million. “Other affiliated non-debtors” owe the banks $32 million. Much of Gemcraft’s borrowing was guaranteed by its owners, according to court documents.
The builder’s 30 largest unsecured creditors have claims against Gemcraft totaling more than $8.1 million, led by the pro dealer chain 84 Lumber, which alone claims $918,246.
When it filed Chapter 11, Gemcraft was selling homes in 47 communities in five states: Delaware, Pennsylvania, Maryland, Virginia, and West Virginia. The company sought bankruptcy protection because it says it could no longer service its debt as a result of a several downturn in buyer demand.
Gemcraft was founded in 1993, and had grown steadily through 2005, when it sold 918 homes and generated more than $300 million in revenue. At the time, the company employed more than 400 people. Since then, the builder has been on a downward slide, and it projects that it will sell only around 350 homes in 2009, versus 501 the previous year. Its gross profit has declined from the “high 20 percent” range at peak to “single digits” now.
Gemcraft had closed six of its seven sales offices, and had reduced its staff to 81 people by the time it filed bankruptcy.
On Oct. 4, Gemcraft retained FTI Consulting to assist it in, among other things, pursuing debtor-in-possession financing and managing its cash. Construction financing, though, has been scarce since last summer, when Gemcraft’s president Bill Luther said “a lot of builders have been frozen from doing anything.” (BUILDER could not reach Luther at presstime for comment about the Chapter 11 filing.)
Consequently, the builder petitioned the court to allow Gemcraft Capital, a limited liability company and affiliate of the builder, to provide a credit facility of up to $5 million. The company says in its documents that it needed $250,000 immediately to meet payroll.
When it filed, the company had 150 contracts with purchasers to build homes that are in various stages of completion, from not having been started to almost finished. Gemcraft estimates that its total receipts for the month ending Dec. 5 would be $11,871,871, and total disbursements $11,809,492, leaving it with about $1.1 million in cash at the end of that period.
John Caulfield is senior editor for BUILDER magazine.
Learn more about markets featured in this article: Baltimore, MD.