Volume 47, Issue 5 - June 2008
In the News
Distributors Lose Big Bucks when Builders File Bankruptcy
When a homebuilder goes bankrupt, the builder’s creditors aren’t the only ones who pay the price. Building products distributors and dealers whose products may have supplied productions for these homes, but which have yet to be paid, are often left to suffer. Homebuilders Levitt and Sons in Fort Lauderdale, Elliot Building Group in Pennsylvania, Turner-Dunn Homes in New Jersey and Florida-based Tousa Inc., which builds homes in Las Vegas under the Engle Homes brand, have all closed down recently. One dealer that has fallen victim to a builder’s bankruptcy is Coyote Springs Window and Door of Las Vegas. While it’s not Engle Homes that filed bankruptcy, Mark Reasbeck owner of Coyote Springs Window and Door says it’s a different builder (who due to an impending court battle he couldn’t name) who has “flown under the radar so far.”
Reasbeck says that he first found out this builder was in trouble the day before the company actually shut down.
“Having a track record and previous relationship doesn’t really matter,” Reasbeck says. “If you ask for a deposit from a ‘Wall Street’ builder, they laugh you out of their office, but waiting 60-plus days to get paid is no problem [in their view]. This builder did put up deposits on special orders.”
Reasbeck says it was the job superintendent that notified him that he would not be paid for the project that totaled $180,000 for three jobs.
“He sent an e-mail saying it’s over tomorrow at 9 a.m. … Then I went to the office and the owner said the banks revoked their financing to which they verbally committed,” Reasbeck explains.“
One-hundred and eighty-thousand dollars on three jobs (at $60,000 a job) has been a normal course of business over the years with no problem but, in today’s market, it’s a slow death,” he says. “I’ve been playing ‘leap frog’ with paying suppliers because of the hole this produces. I’ve already paid for the product and the contract labor. I’m out that money, plus any kind of profit and overhead.”
Asked when he has run into this situation before, what has he done in the past, Reasbeck says, “I’ve stayed away from questionable builders in the past, and dealt with people I know and have a relationship with, and even then, I got stung for $100,000 last year on that kind of customer. It just isn’t business as usual.”
“If you threaten not to perform service for no payment, they just have someone else do it and then back-charge you and take it from the money they owe,” Reasbeck continues. “I’m convinced that there are no rights for the supplier/subcontractor. It’s all in the builder’s favor.”
Having been in the situation before, Reasbeck is taking a different approach this time.
“I found which eight banks were involved in these three projects and sent them a letter asking how I am to be paid since they pulled the funding,” Reasbeck says. “I gave them three business days to respond. I heard from one bank’s attorney and one other bank VP at 4:30 p.m. on the deadline day telling me I basically had no recourse with the bank, and my contract was with the builder.”
Reasbeck says his position is, “I contracted with the builder in good faith that financing was in place and then the banks pulled out. The bank has possession of the property and my windows are there, so I’m going after the banks.”
New Financing Package Helps 84 Lumber
84 Lumber Co. in Eighty Four, Pa., has entered into two new five-year financing packages totaling $590,000,000, arranged by Sun Trust Bank and Wachovia Bank, that company president and owner Maggie Hardy Magerko says puts the company in a solid position of strength as it works through the current U.S. housing slump.
Single-family housing starts decreased 27 percent from 2006 through 2007, from 1,465,000 units to 1,046,000 units; yet 84 Lumber experienced only a 20 percent decrease in sales and remained profitable, according to a company release.”
This deal allows us to move forward with our business plan without earnings covenants,” says Hardy Magerko. “Our plan is to emerge from the housing slump debt free by eliminating unprofitable stores, reducing slow moving inventory, increasing vendor terms, reducing overhead, and improving our accounts receivable aging while focusing on increasing market share in our core markets nationwide.”
A main focus of reducing debt is closing and selling off unprofitable stores. 84 Lumber owns 85 percent of its operating locations, with a value of approximately $650,000,000. Additionally, the company owns inventory and receivables of approximately $500,000,000.
Since January, 84 Lumber has moved to trim unprofitable locations decisively, resulting in the closing and consolidating of 52 stores this year. Many of these stores, located in metro-markets, were consolidated into nearby larger operations, which offer additional services such as: door shops, engineered wood products, installed services, and component manufacturing. Hardy Magerko says that these moves will allow 84 Lumber to increase market share by focusing the company’s resources in core markets and expanding available services to professional builders.
“A great many people from 84 Lumber, Sun Trust, Wachovia and others have worked diligently on this plan, which puts 84 Lumber in a position of strength as we all work through this market downturn,” says 84 Lumber chief financial officer Dan Wallach.
“We believe the operating decisions we have made, along with the new financial package, will allow us to meet our goal of emerging from this slump as a more efficient, debt-free company, positioned to take full advantage of the housing market turnaround when it occurs,” Hardy Magerko adds.4 www.84lumber.com
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