Next month, the first of what probably will be numerous hearings is scheduled in U.S. Bankruptcy Court in Portland, Ore., where the fate of Renaissance Development Corp.’s reorganization plan will ultimately be determined.
Lake Oswego, Ore.-based Renaissance, which filed for protection from creditors under Chapter 11 on Sept. 26, 2008, submitted its plan on June 30. It is hoping to be one of the few builders to emerge from bankruptcy as a functioning entity. Its plan provides details about how the company would build out its 11 subdivisions (depending on the levels of construction financing and home buyer interest it can muster), move forward (or not) on other developable properties, and resolve its indebtedness with lenders and other creditors.
If approved by creditors, the plan would release Randy Sebastian, Renaissance’s owner, and his wife, Sandra, from all personal guarantees of the company’s debt obligations. However, the owners have made a sizable personal financial commitment to keeping Renaissance afloat during bankruptcy, having already lent the company nearly $2.2 million, and having offered to lend up to $5.5 million more until the reorganization plan is confirmed.
For every dollar Sebastian lends the company, he would receive one share of common stock in the reorganized Renaissance Development Corp., into which two other entities—Renaissance Custom Homes and The Lakes at Fishers Landing LLC—would be folded. He will also receive additional shares upon the sale of ownership interests he has in properties subject to liens. Sebastian would remain Renaissance’s majority shareholder and stay on as president and CEO. The company’s unsecured creditors would also receive stock in exchange for their debt (although those owed less than $20,000 would be paid 25% of their claims).
Construction lien claims would be paid, with 3.25% interest per year, from proceeds of the sale of homes and property.
Renaissance’s new board of directors would consist of Sebastian, Tim Breedlove, who is the builder’s COO, and two directors chosen by the unsecured creditors committee. The new board would choose a fifth director jointly.
The reorganization plan presents an optimistic projection of the survival of Renaissance Development, which lost $18.3 million last year on revenue that fell by 61% to $53.7 million and closings that dropped by 62% to 87 homes. The company blames its problems primarily on the more than 100 sales cancellations it experienced in 2007, which cost it more than $55 million in revenue and sent Renaissance into a tailspin. It’s worth noting, though, that even as the company’s closings plummeted, its average selling price between 2006 and 2008 actually rose to $615,676, from $543,248. But as business conditions worsened, Renaissance desperately slashed prices at some of its communities by as much as 25%, although by then it was too late to stave off bankruptcy.
Its reorganization plan states that the company’s sales in May through June 2009 “have exceeded activity levels for the past 15 months.” It projects that the new company would be profitable again next year, when its revenue is expected to reach $42.6 million and its net income a positive $927,000. By 2012, revenue and profit are expected to grow to $69.5 million and $2,86 million, respectively, and then level off over the proceeding two years.
However, the viability of this plan, and Renaissance’s ability to repay secured creditors, rests on how successfully the builder can complete and sell homes at its 11 existing subdivisions in Washington and Oregon, as well as other developable parcels it owns. Renaissance devotes a good portion of its reorganization document to outlining the current disposition of those subdivisions, including their potential sales and how future construction will need to be financed.
Take, for example, its 294-lot master planned community in Forest Grove, Ore., called Pacific Crossing, which opened for sale in the first quarter of 2007. In the first 138-lot phase, Renaissance has closed 34 homes and has built five others it hasn’t sold yet. Its construction and land debt for this phase alone with lender Sterling Bank is $9.6 million. It also owes Sterling $5.3 million for land it owns in phases three and four of this project. However, both lender and builder must decide whether building out this community will be worth the effort when, according to the plan, “[a]ttracting a sufficient quantity of interested and qualified buyers to this location has proven challenging.”
One of Renaissance’s other lenders, Columbia River Bank, has indicated that it might not be able or willing to provide vertical construction financing for the builder to complete Hunter Ridge, a 30-lot gated community in Camus, Wash., where Renaissance already owes Columbia $4.8 million for land and construction loans. Renaissance has sold only four houses at this subdivision, and recently has been directing its presale activity here “toward customers who can obtain custom construction financing.” If it can get construction financing to complete another subdivision in Camus, called Hunter Crest, Renaissance intends to offer “a collection of smaller, less expensive-priced homes” that would range from the upper $300s to the lower $400s.
The reorganization plan states that Renaissance Development would continue to maintain, market, and sell each of its retained properties for at least the next five years. In doing so, it would be entitled to 15% of the gross price of homes sold, prior to payment of any allowed secured debt claims. On the sale of existing homes that banks have retrieved as collateral for debt, the plan states that Renaissance would be entitled to a 3% listing/selling commission and could charge a warranty fee of 0.8%, which would come out of the selling price of the house. Renaissance would also receive a project management fee of 1.8% per year of the outstanding balance of the loan securing the home, to be paid by the lender.
The first court hearing on Renaissance’s plan is scheduled for Aug. 18.
John Caulfield is a senior editor for BUILDER magazine.
Learn more about markets featured in this article: Portland, OR.