HearthStone Homes, which has built and sold homes in and around the Omaha, Neb., market for more than four decades, on February 24 filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.
Last month, one of its lenders, Wells Fargo, sued HearthStone to take control of 46 homes in various stages of construction. The builder owes Wells Fargo $17.5 million, according to court documents.
In its sparse bankruptcy filing, HearthStone states that its liabilities to between 1,000 and 5,000 creditors fall somewhere between $10 million and $50 million. At presstime, the company had not filed a listing of its secured or unsecured creditors, but local news sources report that an unspecified number of HearthStone’s contractors had filed liens against the builder for nonpayment.
Details about what precipitated HearthStone’s bankruptcy also remain sketchy. The Omaha World-Herald reported last week that an agreement to sell the company to Omaha-based entrepreneur John Wanninger—who on January 25 had signed a letter of intent with HearthStone’s owner John Smith—broke down between the parties, although the reasons were not disclosed.
Scott Kincaid, a HearthStone vice president who has been fielding media inquiries about the bankruptcy, has been quoted as saying that the economic downturn made it difficult for the builder to find other potential suitors. But another source with knowledge of HearthStone's operations, who requested anonymity, blames the company's troubles on financial mismanagement by its owners, although this source did not provide any specifics.
Builder was unable to reach Kincaid or Robert Craig, an attorney representing HearthStone in its Chapter 11 case. Angela Kaipust, a Wells Fargo spokesperson, said she was unable to comment. Wanninger, whose various businesses have included construction services, home maintenance, and pest-control firms, did not return Builder’s phone call requesting comment.
A few days before HearthStone sought bankruptcy protection, local news sources reported that Dave Vogtman and Nick Dolphens, two longtime HearthStone employees, were launching their own home building company, called The Home Company. ( Builder will report on this new venture later this week.)
HearthStone has yet to provide Builder with its revenue and closings information for 2011. But like many regional builders around the country, its business had been eroded by the housing recession. In 2008, the company closed 1,290 homes and generated $180 million in revenue. The following year, its closings fell to 995 and its sales to $160 million. An even bigger dip occurred in 2010, when closings dropped to 496 units and revenue plummeted to $68 million. In January, Neil Smith, HearthStone’s vice president, told the World-Herald that his company built 300 houses in 2011. It had also reduced its workforce to 28 people, from 120 four years ago. Smith is quoted as saying that his company expected to build and sell between 275 and 300 homes this year.
In March 2010, a four-year contract that HearthStone had secured with Offutt Air Force Base to build 914 units within 457 duplexes came to an end. At that time, HearthStone officials told Builder that their company was seeking more military housing work in other markets such as Pensacola, Fla., but it is unclear whether it was able to find any.
Builder will report more information about HearthStone’s Chapter 11 proceedings as details emerge.
John Caulfield is senior editor for Builder magazine.
Learn more about markets featured in this article: Omaha, NE.