One of the largest private home builders, John Laing Homes (aka WL Homes) filed for bankruptcy on February 19, 2009. It has been 100% owned by Emaar Properties since June 2006. Until recently, it had 105 real estate developments across the United States and operated mainly in California, Colorado, Texas and Arizona.

John Laing Homes, Research Report (Jul 5 2009)

*News Flash:

Jul 17, 2009 Update addressing key events in July, specifically who to contact regarding upcoming auctions, which properties are now OREOs and contact info for the real estate advisors responsible for marketing the properties ($69.99, Updated as of 7/17/09). View excerpt.

Our full report in July’09 provides a List of Real Estate Properties coming on the market.

Components of the Base Report

• Discussion of Impending Liquidation of John Laing Homes
• Listings of Real Estate Properties

• Specific location – e.g., “Located at Filings 9 & 18 within the Stapleton MPC in Denver Colorado, which is located north of 35th Ave. between Akron Ct. and Wabash St.”
• Specific unit number – e.g., “Bldg 5 Unit 1153”
• Minimum release price

We are watching this case daily. Watch for further updates.

Click here to read an excerpt of this Research Report.

Lists attached. 80 pages
>> Starting at $129.99 for Base Report. Enhanced Report containing all Enhancement Modules for $199.99

Home Sales Research

Base Report $129.99 Enhanced Report $199.99

Enhancements Modules are available separately - $19.99-$69.99.

Enhancement Modules to the Base Report:

(1) CRO Status Updates: Where are the Fire Sales?
Buyers of the Enhanced Report will get a list of status updates by the Chief Restructuring Officer of WL Homes in May 2009 indicating the projects where they are conducting the biggest fire sales. For example, his comment for certain projects was “Wouldn’t be able to sell” or that the asset value was “Wiped Out”.

(2) List of Related Developments: Are there Other Properties?
The Related Developments List provides details about John Laing Homes’ interests in other residential developments (not in bankruptcy). Most useful for institutions and investors seeking to pick up related distressed assets, especially the entities where the builder holds 100% interest.

Details provided:

• Name of Entity
• Description – e.g., “Acquire, develop, construct and sell a 68 development of single family detached housing in Carlsbad, CA (Cordelane)”
• The amount or value of John Laing’s Interest in the related development

(3) Contact List: Who to Call?
Who do you call for bulk sales or OREOs? Many banks are involved in John Laing Homes’ bankruptcy. The Contact List provides information on the contact person for the bank and the lawyers involved. The report also outlines the banks which have already kick-started the process towards foreclosure.

Details provided:

• Bank Name
• Name & Fax Number of Contact in Bank
• Law Firm, Lawyer’s Name & Address

(4) List of Homeowners: Info on Potential Resales?
The Homeowners List is a comprehensive listing of all the homes sold by John Laing Homes prior to its bankruptcy. It helps investors and buyers looking for resale homes bought during the boom (ie, these owners are likely to have bought at a high price).

Details provided in the list:

• Name of Development - e.g., “Stonetree”
• Address: e.g., “120 Spanish Lace Irvine CA 92620”
• Sale Closing Date

Home Sales Research

Add CRO Status Updates $19.99Add Related Developments $69.99Add Contact List $49.99Add Resales $69.99

John Laing Homes, Research Report (Mar 11 2009)
Chapter 1 of the Report discusses the List of Abandoned Projects and how the bankrupt builder is dealing with various uncompleted developments. Chapter 2 summarizes the financing situation and the budget released in court filings, thereby addressing the question of whether there will be a cash infusion to support operations and continued construction.
Cash flow budget attached. 48 pages.
>> $49.99

John Laing Homes, Research Report (Feb 19 2009)
An analysis of the builder’s balance sheet at the time of bankruptcy, their major creditors and the extent to which banks are exposed, the properties they are exiting and whether they would honor customer obligations. 6 pages.
>> $29.99

Caruso Homes’ primary business consists of developing real property and the management and building of single family homes in Maryland, Virginia and Delaware. Caruso Homes, Inc. manages the business, while the real estate is held by 24 project companies. Although some properties have already been sold in auctions and other sale arrangements, the builder is currently in the midst of negotiating its reorganization plans with bank lenders.

Caruso Homes, Research Report (Jun 15 2009)

Discussion of recent developments regarding the real estate properties of Caruso Homes. Details included in report:

• Names and locations of the real estate properties of Caruso Homes
• Status updates on the latest developments regarding these real estate properties
• Name of specific project entity which owns the properties
• Estimated asset values and latest appraisal values, where available
• Identities of banks holding secured claims and amount of secured claims
• Minimum release prices stipulated with banks for properties where they are available

View Excerpt.

>> $149.99.

Caruso Homes, Special Research on SNS/Waterford Projects (Jun 18 2009)

Discussion of recent developments regarding the SNS/Waterford properties managed and developed by Caruso Homes, which are not part of the bankruptcy proceedings. Properties include Symphony Village. Details included in report:

• Names and locations of projects
• Names of the project entities holding the real estate
• Status updates regarding the projects
• Inventory status and budget for project
• Default status of projects and debt/lien situation
• Caruso Homes’ management relationship and involvement in the projects

>>149.99

Caruso Homes, Research Report (Mar 7 2009)
Data-driven analysis of the estimated asset value of real estate developed by Caruso Homes, indications of minimum prices of single-family homes by the bankrupt builder and the pricing level of recent homes sold by Caruso Homes.

>> $99.99

Caruso Homes, Update (Jan 28 2009)
A discussion of multiple bank exposures to Caruso Homes’ projects and the terms of financing by the bankrupt home builder to continue operating.

>> $49.99

Caruso Homes, Lenders’ Focus Research Report (Aug 1 2008)
Take a look at recently-closed home sale prices, the settlement reached between Caruso Homes and M&T Bank on a sale plan for the Palisades, and the Jan’09 auction results.

>> $49.99

A leading home builder in Nevada which has developed 40 communities since its founding in 1988, Rhodes Homes, filed for bankruptcy on March 31, 2009. The builder has 2 key projects - Rhodes Ranch and Tuscany Residential Village. At the time of bankruptcy, there were more than 300 finished lots remaining to be sold in Rhodes Ranch and more than 350 finished lots to be sold in Tuscany Residential Village.

Rhodes Homes, Research Report (Jul 5 2009)
Our latest report in June’09 discusses the bankruptcy situation of Rhodes Homes and provides a List of Real Estate Properties on the market for Rhodes Ranch and Tuscany. The List contains the following info on both developed and partially developed lots:

• Project Name - e.g., “Rhodes Ranch”
• Address - e.g., “168 Red Tee Lane, Las Vegas, NV”
• Minimum Price - e.g. “180,673.80″
• Model Homes and Furniture Available

Enhancement Modules:

Cash Flow Budget

The builder’s cash flow budget, with its existing cash position, is provided to investors assessing the builder’s stability in bankruptcy and the probability of liquidation. Presents details such as the amount of ongoing development work on unfinished lots, units closed and sale projections (a measure of how likely buyers can bargain down the price).

List of Homeowners - Info on Potential Resales

The Homeowners List is a comprehensive listing of homes sold by Rhodes Homes prior to its bankruptcy. It helps investors and buyers looking for resale homes bought during the boom (ie, these owners are likely to have bought at a high price). Addresses included.

Want to know how much a unit in Tuscany Residential Village is valued by the builders themselves? View Excerpt.

>>$149.99 for Base Report and $199.99 for Enhanced Report.

Home Sales Research

Base Report $149.99 Enhanced Report $199.99

We scrub court filings on a daily basis for these appraisal values and, in this article, we will walk you through appraisal values from court filings and understand the jargon (“as is”, “upon completion”, “disposition value”) and underlying assumptions underlying real estate appraisal.

See, for example, the diagram below which presents selected appraisal values which we found in the bankruptcy filings for Destiny Homes, a single family homes developer in Arizona.

In a comprehensive appraisal report found in court filings, one is likely to see 3 kinds of values:

• Market value “As Is”
• Prospective market value “Upon Completion”
• Disposition value

The Market Value “As Is” is the price for which the property will most probably sell if exposed to the market for a reasonable period of time in an “as is” condition, i.e., construction may not be uncompleted yet. The “as is” qualification basically reflects the real estate in the condition observed upon inspection, as it physically and legally exists without any use of assumptions, conditions or qualifications.

A finer point to note is that the “as is” appraisal is based on the “highest and best use” of the property. “Highest and best use” is a core concept in real estate appraisal. According to the Appraisal Institute, this is defined as “the reasonable probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value”.

During this downturn, investors may find the “as is” value in these appraisal reports to be extremely low. This is usually because the appraisal is based on the opinion that, in “highest and best use”, the most probable buyer would be a speculative investor they would require a discount to carry the entire project and sell off the individual components over the sales campaign.

We see this most in home builder inventory where there is significant risk associated with the large number of lots and differing property types (e.g., developments with both single family homes and townhomes). This is especially true when there are lots are in various stages of construction. These properties present an opportunity for distressed real estate investors.

On the other hand, the Market Value “Upon Completion” typically represents a much higher number. Unlike the “as is” value, this number is calculated based on numerous assumptions based on the appraiser’s opinion – see the illustrative table below on the market value “upon completion” for another developer, Lakemont Legado in Nevada. One of the biggest assumptions underlying this appraisal value is the probability that funding will be available to complete the lot.

Finally, another appraisal value increasingly seen is the Disposition Value. This is the most essential number for the buyer or investor. Subtly different from the concept of market value, it provides the most probable price that the property is likely to fetch in a limited market period. Effectively, this is the fire sale price that investors should look out for.

For example, in many cases of bankrupt home builders which we analyzed, the disposition value is estimated assuming a market time frame not exceeding 6 months. This is significantly longer than the usual 12-month time frame underlying market value. In order to facilitate a rapid sale of standing inventory, sale prices can be reduced by 30-40%. As such, if the Disposition Value is not provided, what a buyer or investor can do is to apply a discount rate to the Market Value “As Is”.

These personnel will usually make affidavit describing details of the situation which the bankrupt builder is facing, attaching important exhibits with liquidation values and expected sale prices. See the sample exhibit below.

This is an excerpt of a detailed status report from the Chief Restructuring Officer of John Laing Homes In May 2009. How do we find and make use of these exhibits?

In the above sample, the left-most column provides the name of the real estate development and the right-most column provides comments on the net realization value of the assets in a piecemeal liquidation under Chapter 7.

For example, in relation to the Serrawood Lots, the builder expects to let the property go for $50K/lot in a forced sale. Why would the builder release such information into the public arena?

Going back to the situation in John Laing Homes, the Chief Restructuring Officer provided the report to support the builder’s motion for debtor-in-possessing financing, sale of real estate assets, and most importantly, in opposition to a motion to convert the case to Chapter 7.

To achieve these objectives and recommend another course of action (reorganization in this case), he had to provide numbers and details to back up his claim that the best way to maximize the value of the assets is through a Chapter 11 reorganization process. This came in the form of a status report outlining the estimated liquidation versus going concern values.

The main implication from this is that one will have to hunt for objections to motions to convert the case to Chapter 7 and affidavits (including expert testimony) supporting why the builder should be kept as a going concern. The most important part of these court filings usually lies in the attached exhibits.

As part of homebuilding operations, builders routinely rely on third party contractors and suppliers to furnish materials, machinery, labor and services. These third parties have rights under state law to assert mechanics’ liens against the real estate.

In some states, the law allows contractors to file a mechanic’s lien on a home up to 6 months after the work was completed. If not released, these liens can affect buyers’ credit and ability to refinance.

One solution often advocated is for home buyers to buy title insurance. There are pitfalls relating to this solution, one of which is that standard title insurance policies do not cover claims for mechanics liens.

Moreover, there are several cases where the title insurance companies will not even proceeding with home closings, and the purchase/investment process can be held up considerably. A recent example is Kirk Corp, a major builder in the Chicago area.

In May 2009, the title insurance companies will not proceed with home closings for Kirk Corp without assurance that the construction liens will not impair title to the purchased homes. These companies used to rely on the Kirk Corp’s agreement to indemnify them against any valid lien claims. However, with the builder in bankruptcy, they were unwilling to rely on such indemnities.

What has to happen in this scenario is for the builder to obtain a court order authorizing them to close home sales free and clear of all liens, whether filed or unfiled. In this situation, the liens attach to the proceeds of each sale instead.

Buying home inventory from a bankrupt builder with a “section 363 sale” authorization is probably most optimal risk-free way for buyers to invest in distressed properties. These motions will reference section 363(c) of the Bankruptcy Code, since the builder is selling the homes in the ordinary course of business.

In this scenario, your best assurance comes in the form of a court order where the operative line is:

“Each Unit shall be conveyed pursuant to section 363 of the Bankruptcy Code and the terms of the Unit Agreement, free and clear of any and all liens, encumbrances, interests and claims…”

First, this motion is a precursor to an essential court order – to transfer clean title to home buyers free and clear of liens of mechanics and banks. Second, bankrupt builders usually file a list of homes available for sale as an appendix to this motion.

Sometimes, investors may even find appraisal values attached to these lists, saving time for research on price discovery.  See sample exhibit found from the court filings of Den-Mark Construction.

What if the motion is filed by a bankrupt builder to sell homes to buyers with pre-existing sale contracts? For example, when Mercedes Homes filed a motion to sell homes in January 2009, it expressed the intention to close on the sale of 450 homes under contract, once construction is completed.

Does it mean that the list of home sales is no longer useful? We explain here how you can exploit value from these lists.

One of the most important lessons in understanding the distressed residential development sector is that presales seldom translate into sales.

Take for example the case of The Place at Channelside, a Florida luxury waterfront development project consisting of 244 residential condo units and approximately 13,000 square feet of retail space. The developer had 226 presales, i.e., 93% presales level. However, the developer was only able to close on 73 units after completion of the project.

The low rate of home sale closings mainly stemmed from:

• Speculative buyers who purchased multiple units in projects within the Channelside District and were unable to carry the unit cost;
• End-users were unable to finance the purchase owing to interest rate increases and overall tightening of mortgage underwriting with the advent of the liquidity crisis.

Actually, if you look more closely at the bankruptcy motions for other builders, you would find that the builder will usually be requesting court authorization to modify the sale contracts as well. This shows an expectation that sales are unlikely to close, which means that investors can start making inquiries at these distressed builders for a sale price lower than the existing contract price.

According to our ForeclosureInsight^TM Databases, there are now approximately 40% more abandoned properties compared to the level during the early 1990s real estate bust.

Some of these abandoned properties are bank-owned, i.e., properties which banks have foreclosed upon and were unable to sell. On the other hand, there are other properties abandoned by builders. How do we find these properties?

There are proposed bills in states like Florida which seek to establish an online registry to list abandoned or preforeclosure properties statewide. Property owners, both investors and lenders, would be required to register the properties.

However, until the registry is put into place, investors have to do some research into court filings to identify abandoned properties, and more importantly, “freshly abandoned” properties. For example, a court order by a bankrupt builder may inform investors that:

“IT IS ORDERED that the interest of the Chapter 7 Trustee in the property listed in Exhibit A is abandoned pursuant to 11 USC § 554 and no longer property of the Estate.”

In some other cases like John Laing Homes, the home builder might actually announce early in bankruptcy proceedings its intention to abandon certain properties. The question is: how do we find such lists of abandoned properties?

In February 2009, John Laing Homes stated in Chapter 11 bankruptcy proceedings that it intended to reorganize around selected projects in their Southern California and Laing Luxury divisions. The bankrupt builder had closed their non-core divisions in Northern California, Colorado, Arizona, Texas and Florida and had either exited or had been in the process of exiting their operations in those areas immediately.

It was also in the process of shutting down certain construction projects in the Southern California division which were not economically feasible to maintain. This was not surprising since John Laing Homes had not been profitable and haemorrhaging cash. It was dependent upon the financial support of its parent, Dubai-based Emaar Properties, to maintain liquidity and mitigate ongoing losses.

Prior to the bankruptcy, the builder had also decreased its 1,100 person workforce by 90%. Given the manpower shortage, it was only a matter of time when the builder discontinued more projects, especially if bankruptcy proceedings dragged on and it was unable to successfully restructure.

The builder expressly listed projects it clearly intended to exit, filing an official list of “Abandoned Projects” in a motion regarding payment to utility providers in the bankruptcy court. Basically, the idea is to reduce utility charges by shutting off utility services to abandoned properties.

This means that it is not merely a simple task of searching for keywords like “Abandoned Properties”, “Abandonment”, etc, in a bankruptcy docket. On the contrary, investors should be looking into motions on utility service, motions relating to contractors (a builder wouldn’t need contractors to continue work on abandoned properties), etc.

Heritage Highgate, Inc and Heritage-Twin Ponds, II LP (related to Heritage Homes Group) own and develop a residential subdivision in Lehigh County. Prior to bankruptcy, they have delivered 101 units of a 411-unit subdivision, with sales pending for 35 units. Heritage Residential at Wilton’s Corner own and develop a residential subdivision in Sicklerville, NJ. Prior to bankruptcy, they have delivered 104 units of a 195 unit Subdivision, with sales pending for 12 units.

Heritage Building Group, Research Report (May 20 2009)
The Main Research Report, updated as of May 20, 2009, covers 2 main issues:

• The situation regarding home sales by the distressed entities of the Heritage Building Group (lot number, purchase price and closing date of recent and anticipated sales).
• The builder’s financial position and recent developments in bankruptcy.

A Financial Details Supplement containing the 3 most recent monthly operating reports and financial statements in bankruptcy (annotated with analysis), which provides more details on the financial position of the builder. 236 pages.

Report Types

Main Research Report $69.99 Main Research Report with Financial Details Supplement $99.99

Heritage Building Group, Research Report (Jan 30 2009)
Highlights from the Heritage properties bankruptcy filings - treatment of deposits and warranties, proposed ongoing sales and bank exposures. 6 pages.
>> View Free Sample Report

Heritage Building Group, Research Report— Addendum (Jan 30 2009)
Excerpts from filings - cash flow budgets and sales projections submitted by Heritage Highgate and Heritage Residential, in support of cash collateral motions. 24 pages.
>> $54.99

Mercedes Homes Inc, along with 10 affiliates in bankruptcy, is engaged in the marketing and construction of single-family homes in sales price range of $90,000 to $700,000 per home. Their homebuilding operations are mainly located in Florida, Texas and the Carolinas. In the last fiscal year ending Jan’09, the companies generated $407 million in revenues.

Mercedes Homes, Research Report (Jun 1 2009)
Report on recent home sales and prices sold by Mercedes Homes. Provides information on more than 120 properties sold:

• Name of Project
• Address of Homes/Lots Sold
• Sales Price
• Closing Costs

>> $99.99

Mercedes Homes, Research Report (Mar 11 2009)
Report on recent home sales and prices sold by Mercedes Homes. Recent Homes Closing Notice attached. 10 pages.
>> $69.99

Mercedes Homes, Research Report (Jan 29 2009)
An overview of information released in Mercedes Homes’ bankruptcy proceedings - bank exposures, cash usage, home sales, warranties and their proposed plan to continue acquiring lots for development. 7 pages.
>> $34.99

The Landcraft subdivions are part of North Carolina and South Carolina limited liability companies engaged in land development. These include Saddlebrook, The Heights, Kelsey Glen, Water Mill, River Chase, Myers Mill, Aumond Glen, etc. There have been several lot sales and ongoing negotiations for the sale of subdivisions and regarding builder contracts.

Landcraft, Research Report (May 21 2009)
With the ongoing sale of Landcraft subdivisions, we provide timely information on how to value and evaluate the Landcraft subdivisions (Saddlebrook, Back Creek Farm, Aumond Glen, etc) as well as the impending liquidation scenario. This report discusses the position of the Landcraft subdivisions, valuations and debt/lien situation as well as analyses as to the probability of liquidation of these entities.
Schedules attached.
>> $149.99

Landcraft, Research Report (Jan 31 2009)
This report discusses the Landcraft subdivisions in bankruptcy, events which have occurred since bankruptcy petition including sales of lots, the estimated asset values, the debt situation and lien priorities, contracts with builders
Schedules attached.
>> $69.99 ($89.99 for Addition of May’09 Status Report which does not come with detailed Financial Analysis)

Analyst Report

Jan’09 Report $69.99 Jan’09 Report with May’09 Status Update $89.99 May’09 Report $149.99