You know business is tough when two builders in adjacent Western states, both in Chapter 11, join forces to launch a multimedia marketing campaign to dispose of ­existing unsold inventories and to generate buyer interest in new homes they ­continue to build as each moves toward coming out of bankruptcy this summer.

In the second week of January, that campaign, developed by the advertising firm Art4orm, started using TV, radio, print, and billboard ads to direct ­potential buyers to a Web site——that features existing homes being liquidated. The two builders involved in this campaign—Portland, Ore.–based Legend Homes/Matrix Development and Vancouver, Wash.–based Pacific Lifestyle Homes—posted 62 and 35 of their homes for sale, respectively, on that site.

“The normal methods of marketing aren’t producing anything right now,” says Jim Chapman, Legend’s president. “To generate traffic and to move inventory we have to do something extreme to drag ­people out of their homes and back into the market.” Chapman points to one home on the site whose $369,900 liquidation price is 15 percent below what that same home (with $7,000 in options) sold for before the housing recession.

Kevin Wann, Pacific Lifestyle’s president, says his company sold 27 homes through this Web site in the fourth quarter of 2008 at discounts 15 percent to 20 percent below peak prices. But after his company filed for bankruptcy protection on Oct. 16, Wann says his marketing dollars shrank, which made hooking up with another builder to market products more appealing. The fact that Legend and Pacific don’t compete directly made the alliance even more feasible.

Legend, which filed Chapter 11 last June, and Pacific expect to come out of bankruptcy as operating entities. Both plan to submit reorganization plans to the courts this spring. Meanwhile, each continues to build homes under cash-­collateral agreements with its banks. The companies expect to complete the liquidations by early March, at which point the marketing campaign would evolve to pique curiosity and drive ­traffic for their new homes.

Depending on whether it can negotiate new bank financing, Legend—which has shown positive earnings while in Chapter 11 and had $12 million in cash on hand at the end of 2008—expects to build between 60 and 120 homes in 2009. Already, it is changing its product mix to target more customer niches than before, says Chapman. As it moves forward, the builder will emphasize the affordability and sustainability of its homes and communities, although Chapman does not foresee his company going after first-time buyers.

Wann says Pacific Lifestyle, which in its best year (2005) sold 350 units, expects to sell 110 homes in 2009. Over the last year, the builder has been moving away from homes in the 3,300- to 3,700-square-foot range toward smaller houses sized between 2,200 and 2,400 square feet and priced at $250,000 to $300,000. Wann is hopeful that the marketing effort, coupled with “a low–interest rate environment,” will stimulate greater demand.

Learn more about markets featured in this article: Portland, OR.