Griffin Homes, which filed for Chapter 11 bankruptcy court protection last month, now hopes to emerge from bankruptcy by fall, and resume building houses by year-end.
The Calabasas developer, one of Southern California's largest builders of houses and condominiums, said it plans to complete 10 of its 15 unfinished projects. The remaining five are expected to be turned over to bank lenders because the amount of money that Griffin owes on those sites exceeds their current market value.
In a Chapter 11, a company is shielded from its creditors while it formulates a plan to pay its debts. Bruce Freeman, Griffin Homes president, said Griffin hopes to reorganize as a smaller but financially stronger company.
Griffin and three partnerships in which Griffin is general partner--which also sought bankruptcy court protection--last month listed a total of $107 million in assets and $132 million in debt in documents filed in federal bankruptcy court in Los Angeles. Freeman estimated that the post-bankruptcy company will have about $50 million in assets and $25 million in debt, and its work force will be reduced from 50 at the time of the filing to about 30.
But there's a catch: Griffin blamed its bankruptcy mostly on its inability to secure additional financing. Now, its plans to emerge from bankruptcy hinge on whether it can obtain the financing that has so far proved elusive.
"Griffin will be sort of a test case," for builders to see if their problems can be resolved through bankruptcy reorganization, said Jim Wilson, a housing analyst at Montgomery Securities in San Francisco.
Griffin, which makes entry-level houses with prices ranging from about $100,000 to $300,000, is not alone in its troubles. The credit crunch and depressed housing market have forced many smaller home builders to close their doors. Griffin, which was founded in 1903 by the great grandfather of current owner Paul E. Griffin Jr., saw its sales plunge to $94.5 million in 1991 from $201 million in 1990. In 1988--Griffin's biggest year--the company built 1,250 houses. Last year, it built only 450 houses.
The sharp falloff in the local real estate market was particularly damaging to Griffin because the developer had several large projects in the works. Problems for builders have been further exacerbated because lenders are seeking to shrink their real estate portfolios and have virtually stopped making new loans to developers. Without the cash generated from its building activities, Griffin has been unable to repay its creditors.
But so far only a few other large residential builders in California have sought to reorganize in bankruptcy court. Last year both Los Angeles-based Leisure Technology and Robert L. Childers Co. of San Diego filed for Chapter 11 protection.
Freeman said Griffin needs about $20 million in loan commitments to get its projects started again. Bank of America, which merged last week with Security Pacific, is Griffin's major lender, with about $55 million in secured claims. Griffin's request to Bank of America for additional financing has been on hold because of the merger, Freeman said. He now expects an answer within a month.
"We really believe they'll want to move forward," he said.
But Wilson, the analyst, was skeptical. "If they didn't lend to you when you weren't in bankruptcy, they're probably not too keen to lend to you in bankruptcy," he said.
Banks are typically looking for the quickest means to resolve their troubled real estate portfolios, Wilson said--and that might mean that Griffin's lenders will try to force a liquidation of Griffin's properties. "A lot of builders are probably watching this one to see what Bank of America does," he said.
Bank of America officials could not be reached for comment. But Adrienne Coffin, an attorney who represents Griffin's unsecured creditors, said she was optimistic that Griffin would get the financing it needs.
Coffin said the bankruptcy might actually help because a lender generally has more protection under Chapter 11. She said Griffin's "approach is very well reasoned and it makes good business sense. We just have to hope that the lenders agree that this conservative build-out of the projects is going to be to everyone's benefit."
Freeman said that if Griffin resumes building by the end of the year, some houses will be ready for marketing next spring. "That's when we see the housing market starting to get some signs of health again," he said.
The projects that Griffin hopes to finish are located in Moorpark, Simi Valley, Quartz Hill, Alta Loma, Victorville, Moreno Valley and Rancho California, and together have about 1,000 empty lots at various stages of development. About half the projects are additions to existing developments, including Campus Hills in Moorpark, Green Briar and Hope Town in Simi Valley, and Quartz Hill in the Antelope Valley.