Porterville, California-based Ennis Homes (ennishomes.com), one of the nation's top 200 home builders per builderonline.com and a company founded nearly four decades ago, has filed for Chapter 11 bankruptcy protection. CEO Brian Ennis cited the plummeting value of land as causing problems with bank financing. Per an article from fresnobee.com on the filing:
Chief Executive Officer Brian Ennis said the company was selling houses, but its land holdings fell in value so far so fast that some banks stopped financing development.
"When the land is collateral supporting a loan and the value drops by 50% or more, it's impossible to adjust to that in a short period of time," Ennis said in a statement.
In one case, Ennis received a property appraisal in 2006 for $6.6 million, and within two years the value on the same land plunged by 55%.
"Although the market is challenging, selling homes is not our key issue," Ennis said. "Our key issue was some of our banks stopped lending money."
Ennis said of its 12 home-building projects, three have been eliminated including Silver Oaks in Visalia and two other projects in Dinuba and Wasco. . . .
Ennis said he had 54 contracts ready to start construction in June 2008 when one of its national lenders refused to loan the money to continue building the homes in the projects they financed.
Ennis said the company works with about seven different lenders, but this particular unnamed lender, who he said received some of the government's bailout money, became difficult to deal with. The situation became the basis for the company's decision to file for protection.
Two years ago Ennis Homes employed some 130 people. Today the company is down to 32 employees. According to builderonline.com, Ennis Homes built approximately 170 homes in both 2007 and 2006.
Interesting how Ennis homes admits no fault on their part and blames the BK filing entirely on lenders, who are unwilling to lend on overencumbered property. I am not a banker, but usually you have to have equity in a piece of collateral before you can get a loan right? Isn't that Banking 101?
More importantly, the reason they are out of business is because homes are selling for less than replacement cost. Makes no sense for a builder to spend $200k to build a home that will only sell for $180k. Perhaps Mr. Ennis forgot to mention this because he is too busy trying to place the blame on someone else. Permalink
In the A&D deals I have been involved with, it was common practice for the bank to require at least 20% from the builder developer. Since Ennis was dealing with a bank that received bailout funds, that bank was one of the big boys and they definitely insisted on some skin in the game. What happened to Ennis is the same thing that happened to all of us – the banks haphazardly withdrew construction lending which forced builders to halt construction in mid-stream. Many homes were left only partially complete and in some cases, not even dried-in. The banks did not look individually at each deal. They took a broad brush approach to the problem caused by poor lending practices and applied it nationwide. Ennis was a victim – a casualty. Permalink
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Important: This company is on our list of builder operations that have "imploded" (see also ailing lenders). This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid declines in enterprise value; or abnormal "bail-out" by corporate parents or peers in order to continue to operate. The builders may be residential or commercial.