By John Rebchook
McStain Neighborhoods is closing its Louisville headquarters at the end of the month and postponing construction in two communities in a move that may help the Colorado company stave off bankruptcy.
McStain, started in part by a husband and wife team in the 1960s, is the latest area home builder getting whipsawed by the terrible housing market.
Village Homes, the biggest locally owned home builder in the metro area, last week filed for reorganization under Chapter 11 bankruptcy.
Denver-based MDC Holdings, parent of Richmond American Homes, cut its work force by 10 percent in the third-quarter and announced it is pulling out of Illinois, where it has seen its home sales drop by 43 percent.
Beazer and Centex Homes, two large national builders, announced earlier this year that they were pulling out of Colorado.
Even Stapleton, one of the hottest home sale markets in Denver, is expecting a 30 percent drop in new home sales this year compared with 2007.
Denver-area builders, buffeted by national economic forces out of their control, are grappling with a downturn many are saying is even worse than the real estate depression of the late 1980s.
"We have considered bankruptcy," said Tom Hoyt, who heads McStain with his wife, Caroline.
He added that every midsized builder in the Denver area must consider bankruptcy in this environment. "Our game plan is how do we avoid that?"
The big hurdle is the lenders.
"Lenders need to start lending again and get out of this panic mode," Hoyt said.
"And even more important, we need to see consumer confidence return."
"But right now, we are standing on the thinnest ice bridge that gets us from here to that solid foundation," Hoyt said.
About two months ago, he and Caroline took back the helm of McStain.
McStain traces its roots to 1966 and was building "green" homes at a time when most people thought that was a color rather than sustainable, energy-efficient construction. It has built thousands of homes in the Boulder and Denver areas but will build only about 150 homes this year in communities in Westminster, Lafayette, Lowry and Stapleton.
About 75 people were working for McStain two months ago, down from a peak of about 120. As of Wednesday, there were 21.
Hoyt said he has toyed with the idea of getting rid of a physical headquarters building and using technology to create a virtual office. For one thing, he liked the sustainable aspect of eliminating commutes and going paperless.
"But it was something I was hoping to implement over two years, not 30 days," he said.
As part of his plan to cut costs, he has postponed a planned 600- unit development in Longmont and a high-end development in northwest Lowry.
Coincidentally, from 10 a.m. until noon on Saturday, McStain will be selling about 100 pieces of furniture at a warehouse at 5303 E. 47th Ave., Unit N, in Denver.
"They'll be at garage sale prices," said Tami Noel of McStain Home Studios. "They're priced to move."
While McStain sells excess furniture every year, Hoyt said that as part of its belt tightening, the company wants to get rid of excess inventory. And since there aren't as many model homes available for these sofas, tables, desks and bedroom furniture, it's a good time to unload them, he said.
McStain isn't the only company in a cost-cutting mode.
Christopher M. Anderson, senior vice president and chief financial officer of MDC, one of the nation's largest home builders, in a recent SEC filing said that "our employee head count decreased by more than 10 percent in the third quarter alone. Unfortunately, these difficult steps are necessary to return our company to profitability."
The company has been having these "reductions in force" for the past year.
This downturn is worsening at a time when the market slows for seasonal reasons, anyway, said Roger Reinhardt, executive vice president of the Home Builders Association of Metro Denver.
"Builders truly are struggling and in jeopardy," Reinhardt said. "They're at the mercy of of economic factors that they have no control over."
Economist Patty Silverstein said that the silver lining is that by not building, the supply of unsold homes is reduced, which the market needs to get back on it feet.
On the other hand, the home-building industry has a huge economic ripple effect.
"It's a shame if builders can't hang on for a little longer," said Silverstein, president of Development Research Partners in Littleton and chief economist for the Metro Denver Economic Development Corp.
She said she thinks the market will start to recover around mid- 2009.
"But I guess the bottom line is that there are still some very painful situations in the months ahead," Silverstein said. "It's not like everything is going to turn around tomorrow."
INFOBOX
Interested in buying company's model home furniture?
* When: 10 a.m. to noon Saturday
* Where: Interior Services Network, 5303 E. 47th, Unit N
* Items: Sofas, tables of all kinds, office furniture, bedroom furniture and art
* Payment: Cash or checks payable to McStain Enterprises
Originally published by John Rebchook, Rocky Mountain News.
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