Articles & Publications

  • Bank of America/Merrill Lynch

    Posted Apr 6th, 2011 By MPKA in Articles With | No Comments

    Workouts for private builders could take another 2-3 years

    We recently hosted a conference featuring David McCain of MPKA, which is a consulting firm that provides financing and debt restructuring advice to homebuilders. Private builders may still require another 2-3 years to fully work through legacy real estate transactions that usually carried full recourse for the borrower. This recourse element has complicated restructurings as most private builders have personal asset holdings that are real estate centric and therefore do not carry the liquidity necessary to quickly address non-performing loans. Many small banks are still not aggressively pursuing loan restructurings given limited capital reserves that could be further strained by recognizing a writedown on a failed loan. Home prices have declined 31% since the peak, which implies that land prices are down more than that given relative stability in the value of construction materials. At this stage of the cycle, modifying existing loan terms is less common while foreclosure and liquidation are becoming more prevalent, which implies continued opportunities for public builders to acquire attractively priced land for at least the next two years. We estimate that ~40% of deliveries for the industry this year will come from newly purchased land (since the beginning of 2009), which carries a gross margin benefit of at least 200bp over legacy lots.

    Listen: Debt restructuring presentation and current events as presented by David McCain to Bank of America/Merrill Lynch

    Restructurings are now making their way inland

    Loan restructurings for private builders on the East and West coast were the first to be addressed when the downturn began, which may reflect the quick demand recovery in those markets and the ability to execute trustee sales versus the judicial foreclosures that are required elsewhere in the country. Credit issues in the Midwest are now coming up with increasing frequency, which includes Indiana, Michigan and Ohio. Addressing these loans could present attractive lot deals for public builders that have a large presence in those markets, which include BZH and MHO in Indiana (>10% of their national community base) and MHO and NVR in Ohio (>20% of their national community base). BZH could be a particular beneficiary as we estimate that only 25% of its deliveries in F2011 will come from newly purchased land, which creates an operating leverage drag relative to peers.

    Capital available for construction but not lot acquisitions

    Credit availability generally remains non-existent for acquiring and developing entitled land given the still ample availability of finished lots, although some lending has returned for home construction in attractive markets (e.g. cities on the coasts). A lack of credit from smaller banks may persist even after housing starts rebound as commercial loan issues are starting to arise with increasing frequency, which reflects the fact that these loans typically carry longer maturities than residential loans and therefore are only now starting to mature. This reality could erode capital for smaller banks that otherwise would be available for residential real estate development. Terms for residential construction loans to private builders carry maximum loan-to-value ratios of 50-60% versus more than 70% at the peak and require at least six months of cash collateral to cover interest payments. The alternative to bank credit for private builders are private equity or other investment funds that are extending loans at interest rates in excess of 10% or making equity investments with a targeted return on capital of at least 18%, which severely limits the scope of projects that private builders can pursue.

  • Debt Restructuring: Moderating Factors and Lessons Learned

    Posted Nov 29th, 2010 By MPKA in Articles With | No Comments

    By David McCain and Bill Albers, MPKA, LLC

    (This is the fifth and final article in a series on what builders need to know about restructuring debt and planning for surviving financial adversity in today’s real estate market.)

    Once a debt restructuring specialist has been hired and the process of restructuring begins, there are many factors — both subjective and objective — that can come into play and affect the outcome of the negotiations and the timeliness of the deal.
    Read More »

  • Case Study: Developers Climb Out of Debt and Live to See Another Day

    Posted Nov 29th, 2010 By MPKA in Articles With | No Comments

    By David McCain and Bill Albers, MPKA, LLC

    (This is the fourth in a series on what builders need to know about restructuring debt and planning for surviving financial adversity in today’s real estate market.)

    You have made the decision to hire a debt restructure specialist, and the process begins.

    From the time you hire a debt restructure specialist to the time you reach a settlement can take as little as 60 days or as long as a year, but the process is typically completed within three to six months. The following case studies were performed within this time frame.
    Read More »

  • Case Study: Developer Is $300 Million in Debt and Sees $100 Million in Equity Disappear

    Posted Nov 29th, 2010 By MPKA in Articles With | No Comments

    By David McCain and Bill Albers, MPKA, LLC

    (This is the third in a series on what builders need to know about restructuring debt and planning for surviving financial adversity in today’s real estate market.)

    You have made the decision to hire a debt restructure specialist, and the process begins.

    From the time you hire a debt restructure specialist to the time you reach a settlement can take as little as 60 days or as long as a year, but the process is typically completed within three to six months. The following case study was performed within this time frame.
    Read More »

  • Banks Provide Many Alternative Routes for Settling Debts

    Posted Nov 29th, 2010 By MPKA in Articles With | No Comments

    By David McCain and Bill Albers, MPKA, LLC

    (This is the second in a series on what builders need to know about restructuring debt and planning for surviving financial adversity in today’s real estate market.)

    You have made the decision to hire a debt restructure specialist, and the process begins.

    Your initial consultation will include spending several hours discussing your projects, company, debt and finances.

    Be prepared to share large volumes of documents, including: loan documents, appraisals, tax returns and financial statements for all borrowers and guarantors, contingent liability schedules, developer schedules, global cash flow statements, historical financial statements, cash flow statements and balance sheets, historical unit activity, projected unit activity, copies of all bank communications, and, if there is any, a summary of litigation and its status.
    Read More »

  • Debt Restructuring Helping Builders Survive Today’s Financial Crisis

    Posted Nov 29th, 2010 By MPKA in Articles With | No Comments

    (This is the first in a series of articles on what builders need to know about restructuring their debt and planning for surviving financial adversity in today’s real estate market.)

    By David McCain and Bill Albers, MPKA, LLC

    Even as the promise of a housing recovery moves closer into sight, debt restructuring is the name of the game for many builders in their attempt to set themselves on a realistic course and survive the worst economic times since the Great Depression.

    There is a natural progression of emotions that unfolds as we see our financial world disintegrate around us. Initial thoughts center on protecting the equity we have invested in our projects, and for many this can represent years of profits, time and personal guarantees rolled over from one community to the next.
    Read More »

  • Tony DeLuca, Pringle Development

    Posted Apr 7th, 2010 By MPKA in Testimonials With | No Comments

    MPKA has shown to possess unique financial insight and has brought a creative and distinctive approach in solving today’s business challenges.

  • Cary Glickstein, Ironwood Properties

    Posted Apr 7th, 2010 By MPKA in Testimonials With | No Comments

    At a time of great uncertainty, MPKA brought to bear tremendous experience across varied disciplines to provide much needed insight to our particular situation. Their insight and credibility with lenders and capital sources helped us successfully navigate the ever-changing maze of problems and opportunities, such that we were able to re-capitalize our company and place it on solid footing. In short, our company will survive this storm fully intact largely due to MPKA’s experience, guidance and perseverance, and recommend them to any builder/developer looking to preserve and protect their hard work and shareholder equity.

  • Steve Nordstrom, Pringle Development

    Posted Apr 7th, 2010 By MPKA in Testimonials With | No Comments

    I have found the advice and creative insight from MPKA invaluable as we navigate through unprecedented challenges. I recommend them without reservation.

  • Jim Medall, Rhine Medall Interests

    Posted Apr 7th, 2010 By MPKA in Testimonials With | No Comments

    Bill Albers walked us through a very difficult time in our business by providing clear and concise counsel. His advice saved us time and money, and most importantly, we can now focus on our future without the shadow of the past impacting our vision.

MPKA © 2012 - Creative Web Design