Wall Homes of Arlington, Texas, filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code on Saturday.
In a filing with the Texas Northern Bankruptcy Court, the builder stated that it owes five lenders — JPMorgan Chase, RBC Centura, Comerica, Frost National, and Guaranty Bank — more than $57 million plus $620,000 in interest. Its filing also identifies $197,063 in claims from Wall’s unsecured trade creditors. (In a separate filing, the company stated that its construction and trade debt averaged $3.5 million to $4 million.)
Stephen Wall, the builder’s president and CEO, said that his company’s goal is to complete houses under construction and come out of Chapter 11 leaner and better positioned for when the local housing market recovers. Indeed, Wall Homes’ bankruptcy filing states that it expects to close at least 25 homes within the first 20 days after filing. The company also intends to continue selling homes while it reorganizes under Chapter 11. (When it filed, Wall Homes’ lenders were refusing to provide capital for any homes that haven’t already been sold.) The builder and its subsidiary Wall Homes Texas LLC (its field operations) entered Chapter 11 with 92 employees, of whom 68 are superintendents, salespeople, and other field personnel.
On the date it petitioned for bankruptcy protection, Wall Homes was active in 50 subdivisions in Dallas-Fort Worth, Austin, San Antonio, and Houston. It has 127 completed single-family homes (including models) whose value the builder estimates at $28 million. Wall also has another 67 homes sold and under construction, whose aggregate contractual price totals $15.7 million. All told, the company went into bankruptcy with approximately 250 home sites plus $40 million in undeveloped land.
(In its filing, Wall Homes stated that its median home price falls somewhere in the $225,000 to $245,000 range. However, last summer the company started building homes selling for under $100,000 to capture first-time buyers.)
Steve Wall launched Wall Homes in the spring of 2005 after leaving Choice Homes, where he had been chief executive. Two years later he more than doubled his new company’s subdivision count when Wall Homes acquired Newmark Homes’ assets in Dallas-Fort Worth from TOUSA, a deal it consummated in June 2007. (That year, Wall Homes generated $25.6 million in revenue.) However, this acquisition turned out to be mistimed, as it occurred just as Texas’ housing market was showing signs of weakening.
The company states that as market conditions worsened, some of Wall Homes’ lenders demanded that the builder turn over proceeds from home sales that it had been using to run its business. The company’s two equity partners — Warburg Pincus and Jen I LP, which have unsecured debt claims against Wall Homes totaling more than $48 million plus interest — “attempted to work out an arrangement with lenders but these attempts proved unsuccessful,” according to a statement filed by Wall Homes’ CFO Darris McClure. By mid-2008, Wall Homes found itself in a “liquidity crisis” caused by its lenders’ credit restrictions and the builder’s inability to get its equity partners to contribute more capital. This combination of factors “necessitated the need for Chapter 11 relief,” the company stated.
John Caulfield is senior editor at BUILDER magazine.
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