Rottlund Homes, the 83rd largest builder in the country last year, will close its doors and liquidate its assets after it failed to reach an agreement with its three-bank syndicate to fund operations, according to CFO Steve Kahn. The company will cease operations after it completes 40 more homes, 20 of which are under contract.
Roseville, Minn.–based Rottlund, one of the industry's leading builders of attached for-sale homes, was unable to interest other lenders in funding its operations and couldn't find a buyer for the company, Kahn confirmed. According to a Nov. 10 lawsuit filed in Ramsey County District Court, Rottlund owes three lenders nearly $29 million.
Because of the company's significant debt, lenders probably wouldn't recover all they've put into the company, Kahn noted. Rottlund has already sold its Des Moines, Iowa, operation and most of the assets in its Tampa, Fla.–based division. A court-ordered receiver will now be part of the company's finances, per its loan agreements.
The company's finances were complicated by a business model predicated on attached housing, which made up 284 of its 334 sales in 2010. Lenders were unwilling to speculate on the sale of attached projects, which often requires the start of construction before all the units are sold.
Moreover, land the company bought five years ago has lost so much value there's no equity left in it. "The land has lost value to the point where the banks loan-to-value could not support the debt," Kahn noted.
Rottlund is among the few high-profile home building firms that have gone out of business in the last year, after a raft of bankruptcies and liquidations in 2008 through 2009. Kahn emphasized that the company's shut down would be orderly and that all its subcontractors would be paid.
Rottlund's focus on townhomes and condominiums helped the company become the largest home builder in Minneapolis in the mid-1990s and one of the largest builders in the entire country. According to our BUILDER 100 list, Rottlund was the 40th largest home builder in the country in 2002, a high-water mark for the company. Rottlund closed 1,641 homes that year, three-quarters of them attached, with $319 million in sales.
The company was founded in 1973 by Dave Rotter and Roy Lund, who were joined within a year by Rotter's brother Bud. The company has always done detached housing, but Rottlund may be best known for its work in attached construction, particularly in urban settings. It was among the first builders in the 1980s to return to building townhomes in downtown Minneapolis and St. Paul.
During its first 20 years, Rottlund built primarily in Minneapolis-St. Paul, earning a 7% share of the market in the early 90s. After a $56 million public offering in late 1992, Rottlund expanded into Naples-Ft. Meyers, Fla.; Indianapolis; Orlando, Fla.; and Tampa, Fla. Then, in 1996, in a move that caught national attention, the company bought the assets of Kevin Scarborough, Inc., in New Jersey.
Rottlund was the sixth-largest builder in the Minneapolis MSA last year, selling 190 homes. Though permits fell during the first half of the year, the Minneapolis market is among the healthiest in the country this year, according to Hanley Wood Market Intelligence. Home prices have stabilized and permits levels are projected to rise strongly next year.
Boyce Thompson is editorial director at Builder.