Pat Hamill, the CEO of Oakwood Homes in Denver, set up a company to buy homes at foreclosure, fix them up, and resell them. He developed a new line of smaller, value-engineered homes that now account for 60 percent of sales. He reached deep to pay off his debt early in the downturn. His hard work and perseverance paid off. “We made money in September,” he told a crowd of 120 builders gathered last month for a Denver market outlook seminar, one of six put on by Hanley Wood Market Intelligence. “And we expect to make money through the end of the year. In fact, we are rebudgeting for 2010 and 2011.”

Not every builder, of course, is now profitable, but Oakwood Home’s achievement is certainly an inspiration. It’s also an object lesson in how builders needed to respond to the housing recession.

Hamill has no misconceptions about his most important move. Had he and his business partner not retired bank debt early in the recession, “we’d probably be in some form of Chapter 11 right now.”

Indeed, bankruptcy has taken down several large builders in Denver, including Village Homes and Neumann Homes. Centex and Beazer have left town. The silver lining is that Hamill estimates that more than 40 percent of builder capacity in Denver is gone. Through September, Oakwood was the fourth largest builder in town, with 160 sales, accounting for 4.2 percent of the market. “Our market share is up.”

Caught in the net

Unless there’s another serious leg down in the housing market, it looks like Oakwood Homes will be a survivor of this long and brutal housing recession. That’s more than many large companies can say. Though most housing metrics are improving—existing-home sales have been up five of the last six months, new-home sales prices are firming, and the economy is growing again—the pace of builder bankruptcies continues unabated. Maryland-based Gemcraft, a company that once built 1,400 homes in a year, is the latest casualty.

Builders throughout the country continue to have trouble gaining access to financing. In Philadelphia, one consultant told the story of a long-time builder who was rejected for a bank loan. But when he signed up some new investors and put their names on a loan application for the same project, he managed to secure financing.

New companies without debt to repay are obviously in a better position to pay back new loans. In our seminars, bankers told builders that they are giving much more scrutiny to whether a company can pay back a loan should something go wrong. Banks are also looking for builders to put more equity in deals, of course.

Charting a future

Despite continued difficulty securing financing, the builders at these seminars were pretty optimistic about the future. As our cover story makes clear, survivors are looking for ways to jump start their companies. They are looking for land deals, engaging in social media, targeting unserved demographic slices, and developing new lines of smaller homes.

Moreover, medium- and large-sized companies may be eligible for a cash infusion this winter, thanks to the five-year net operating loss carryback signed into law last month.

It’s pretty clear that the companies that stand to benefit most from the comeback worked hard to achieve operational improvements during the recession. Oakwood Homes, for instance, improved its back-office system to the point where it can customize a $200,000 home, produce it in a factory, and frame it in less than a week.

Despite the operational advantage, Hamill says this may be the last housing recession he goes through. He used to laugh when he’d hear recently deceased housing consultant Lee Evans say if you stay in this business long enough, you’ll go broke. “I’m now convinced he was right.”