You can scratch Pacific Lifestyle Homes off the lists of bankrupt builders. After nearly two years in Chapter 11, the Vancouver, Wash.-based company left bankruptcy court this week after a judge approved its reorganization.
“We are very excited and grateful to have made it through this process,” Kevin Wann, the company president, told BUILDER this week. “It definitely took longer than we thought,” he added. “There was a lot more fighting than we initially expected there would be.”
Pacific Lifestyle, which filed Chapter 11 in October 2008 with more than $56 million in bank debt, eventually managed to strike a deal with its three main lenders—two national banks and one regional bank. Known as a cash collateral arrangement, it allowed Pacific Lifestyle to take the cash from the homes it sold and use that to build new homes, which it then sold, allowing the builder to continue operating.
That doesn’t mean Pacific Lifestyle kept on with business as usual. According to Wann, the company slashed the prices of their unsold completed homes, unloading them through online liquidators and other means. It cut its 115-employee workforce to 19 people. It purchased lower-priced land for its new offerings and reduced the square footage of those homes, working with manufacturers and suppliers to offer higher quality finishes at lower cost, so that the homes could be competitively priced with foreclosures and resales. It began offering construction financing directly to buyers who wanted Pacific Lifestyle to build them a home on their own lot. It shifted its marketing dollars away from print and television advertising to less costly online avenues.
It all added up. “Today, we’re sustainable and can make a profit in today’s environment,” Wann said. Less expensive land certainly helps: Wholesale lot prices have fallen to $30,000 to $60,000 his home market of Portland, Ore., and Vancouver, Wash., area, he says.
Going forward, Pacific Lifestyle expects to close between 70 and 80 homes this year, all in the Portland/Vancouver area. While the tax credit’s expiration did result in a slow May, according to the builder, traffic and sales have jumped again in recent weeks at Pacific Lifestyle, where the customer base is two-thirds move-up buyers.
That’s a complicated group to serve right now. While mortgage rates are hovering at 4.5% for a 30-year fixed-rate loan and home prices are lower than they’ve been in years, many would-be buyers with equity in their homes often cling to outdated ideas about the values of their existing homes.
“They want to think that their home is worth what it was three years ago,” Wann said. “I counsel people to sell low and buy low.”
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: Portland, OR.