William Lyon Homes has managed to shrink itself down to bare bones, narrowing its losses to $11.6 million versus $41.1 a year ago, even as it has whittled down the number of its active communities by 38% in the last year.

But a new source of nourishment is flowing into the company from a real estate investment group, which is loaning the company $206 million to restructure its debt and provide capital for operations and potential land deals.

“We are confident in our ability to generate cash now that we have the ability (with the cash infusion) to prime the pump and get some of these projects started again,” William H. Lyon, company’s COO told analysts during a Thursday, Nov. 6 conference call.

At the end of September, the Newport Beach, Calif.-based company had only 24 communities open, down from 39 the same quarter a year before. Despite fewer sales outlets, the company’s closings for the quarter were essentially flat at 227 versus 230 the year before.

The average sales price was down 33%, from $368,700 last year to $245,700 this year because of price depreciation and because the company has begun to focus on lower-priced homes. Now the company has no projects where prices are more than $500,000.

“Four or five years ago we started buying more entry-level product to develop,” said Lyon. “It’s definitely bearing fruit now, where jumbo financing is still a challenge.”

William Lyon Homes has also managed to boost its gross margin to 12%, which is skinny, but still a big improvement from the 5.4% margin the year before.

There are signs the market is beginning to stabilize, particularly in California, company executives said. The cost and numbers of incentives have dropped to almost nothing and the company is considering some modest price increases in some products in some markets.

Teresa Burney is a senior editor at BUILDER and BIG BUILDER magazines.

Learn more about markets featured in this article: Los Angeles, CA.