Builder faces a mountain of debt
Renaissance Homes' bankruptcy is hurting banks and vendors even as the giant homebuilder pledges to repay $138 million
The bankruptcy of Lake Oswego-based Renaissance Custom Homes is already squeezing Metro-area companies.
While the homebuilding company - one of the largest in Oregon - promises to pay banks, subcontractors and vendors are owed millions as homes sale slump and unpaid debts promise a rocky winter for those left holding the bills.
Renaissance Homes showed signs of financial trouble before filing for bankruptcy last Thursday. Unpaid contractors filed liens on Renaissance properties as home sales slowed, prompting the company to refinance debts, sell land and lure investors.
But with cash flow stalled by a sagging economy, Kim Whitman, vice president of sales and marketing at Renaissance, said the company has been particularly hard hit by failed sales on 95 homes. Renaissance builds high-end housing in the $350,000 to $1 million price range, targeting buyers ready to trade up from first homes.
Buyer inability to sell existing homes, however, left the company holding 95 custom-built homes in 2007. Those homes were nearly a third of the 318 built that year by Renaissance. The lost revenue accounted for $52.4 million of the company's debts and left Renaissance behind on payments toward $77 million in bank loans.
From the courts
In court papers, Renaissance appears to hold nearly enough assets to cover its debt. The company is affiliated with a variety of different corporations and three are covered by the bankruptcy filing. They are Renaissance Custom Homes, Renaissance Development Corp. and The Lakes at Fishers Landing. The companies have combined assets of $128.5 million, compared with $138.4 million owed.
The bankruptcy filing allows each to leverage more loans from banks to help Renaissance Homes continue building. While the terms of the deal are still being negotiated with the companies' primary lender, Sterling Savings Bank, Renaissance Homes is expected to continue sales and ultimately pay off debts.
But a restructuring plan due in several weeks is geared at helping Renaissance Homes make good on its bank loans. In the short term, the plan will do little for smaller businesses tied to the company's financial troubles. The plan currently freezes payments to unsecured debtors owed money by Renaissance.
Those who keep building with Renaissance will be paid through loans for future work. But old bills will be subject to repayment plans yet to be structured by a bankruptcy court. The strategy will crunch cash flows for roughly 350 unsecured creditors owed money by Renaissance.
Many are simply homebuyers owed warranty work on homes or contractors who performed simple jobs for small fees. Others are established businesses that have performed work for which payments will now wait.
A list of the top 20 unsecured debtors tied to Renaissance shows the largest sums are due to mostly Metro-area companies.
The businesses perform excavation and painting work, sell lumber, build cabinetry and countertops, provide lawn-care or sell plants, build masonry, install plumbing, sell appliances and fixtures or design advertising. Collectively they are owed $3.3 million.
That sum is small compared with the $77 million owed to four regional banks: HomeStreet Bank, Sterling Savings Bank, U.S. Bank and Columbia River Bank.
Yet for small companies that rely on the income, especially those that worked almost exclusively with Renaissance Homes, times are tough.
Some businesses have already laid off workers. Most are diversifying business plans and aggressively stumping for work. A few say they have borrowed money to cover the gaps in revenue from unpaid Renaissance bills. All are doing without capital expenses.
Few are bitter.
Dave Howells, who owns Howells' Custom Cabinets in Portland, credits Renaissance Homes with his business success, despite being owed $541,372.
Like many of the vendors and subcontractors struggling under its debts, Howells has worked with Renaissance Homes for long enough to tie his own business success to Randy Sebastian, owner of Renaissance Homes.
'I've been with Renaissance since the beginning. My success has been his success. We all got caught in this,' Howells said.
The effect on his business has been difficult. His staff of 30 has dwindled to a handful of employees since Renaissance Homes was at its peak in 2005, building 307 homes that year and taking in $165.3 million in revenues. At the time, 59 percent of work at Howells' Custom Cabinets came from Renaissance.
Howells has since retooled his business to reflect changes in the homebuilding market. He opened a showroom in Southeast Portland when sub-prime lending first showed signs of unraveling a year and a half ago. Since then he has focused the business on home remodeling.
A shift in focus
That shift in focus from homebuilders to homeowners is also a survival strategy at Tualatin-based West Lake Coatings, owed $101,787 by Renaissance Homes, and for Tualatin Valley Paint in Tigard, owed $96,938.
Kevin Dressel, owner of Tualatin Valley Paint, said he began searching for remodeling work approximately 10 months ago when homebuilding in the Metro area began to level off.
Once responsible for 75 percent of painting at Renaissance Homes, Tualatin Valley Paint has drawn 90 percent of its revenues from new home construction in the last five years.
Dressel said the lucrative homebuilding market drew many contractors to the area in recent years. Competition for remodeling jobs is now fierce as a result.
'I'm not the only person doing that so the reality is there is just not enough work to go around,' said Dressel.
In the last year, Dressel said his staff has shrunk from 85 employees to 15. He believes Renaissance Homes waited too long to tell contractors that it could not pay, forcing smaller businesses to stretch resources thinner while they waited.
'I kept telling my people I'm doing my best to keep you busy for right now but any day we're going to get some money,' said Dressel.
'A financial bind'
'It's not a big surprise to anyone that they're putting a lot of us small companies like myself in a real financial bind. Renaissance is doing what they can for self-preservation. And they've forced a lot of us to do the same thing.'
Renaissance's Whitman said he understands why some of the company's subcontractors are upset over delays.
'On the other hand, here we were exploring all these other alternatives with full faith something would happen,' he said. 'We felt like we could pay our own way and there was also the possibility of outside infusion of capital.'
Once it became clear the company could not pay, Whitman said Renaissance opted to maintain its relationships with banks.
'Lots of builders chose to pay subs and stiff their banks. We made a decision to pay the banks and started stiffing our subs,' he said. 'We believe that long-term our approach was superior because we will be able to build houses.'
That's important for economic recovery for everyone, Whitman said, including subcontractors who went unpaid. Many are likely to see future work as Renaissance Homes resumes building, Whitman said, even while old debts sit unresolved in bankruptcy court.
Linda Sandsness at Canby Plumbing said the mandate to pay banks first will make it hard for subcontractors to collect debts in the short term.
Canby Plumbing is owed $84,291 by Renassiance Homes and focuses all of its work on plumbing for new homes. Sandsness said the 70-year-old family business is prepared to weather the slump.
Only 25 percent of work at Canby Plumbing came from Renaissance, Sandsness said, so she expects the business to retain its 32 plumbers through the slow winter. But she said the company will put off needed purchases of trucks and forego bonuses for staff.
Other plumbing companies, she said, have simply given up.
Worried for winter, some have set their sights on government contracts for road work, utility projects and new buildings. With banks strapped and loans to small businesses in short supply, many are concerned.
Gary White at White Wykoff and Company said his advertising agency is owed $97,600 by Renaissance Homes.
With uncharted waters ahead, he said it's difficult to know what businesses tied to homebuilding should expect.
'I've been in the business for 40 years and I have seen the spikes before and usually, like during the 70s and into the 80s, interest rates would spike and home sales would drop off,' said White. 'It's always been a cyclical business. But nothing like this. This is just unbelievable.'