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twitterBuilder calls timeout as housing slide worsens
Astoria Homes out of financing options, going into ‘hibernation’
Steve Marcus
“When capital runs from the industry, the industry stops,” says Tom McCormick, president of Astoria Homes, which has halted home construction.
Monday, Feb. 2, 2009 | 2 a.m.
Sun Topics
Tom McCormick can empathize with homeowners who have lost their properties to foreclosure.
He’s losing 30 brand new, never-lived-in homes to foreclosure in one fell swoop.
McCormick is president of Astoria Homes, a local, privately owned homebuilder that has stopped construction because it is unable to secure loans in the national credit crunch.
Astoria Homes laid off 17 people last week and is down to 17 employees — a tenth of its workforce at the height of the housing boom in 2005-06.
McCormick said the company had been making incremental payments on short-term construction loans but was unable to make a final, lump-sum payment. His lenders, which had advanced money so McCormick could build two developments in Aliante and the northwest, refused to extend the loans — even though extensions are commonly offered, he said — and foreclosed on the 30 homes. Ten of them are upgraded models.
McCormick said the company had no other option to secure financing to pay off the loans. Many banks that had lent to the builder are no longer lending and some have been taken over by the Federal Deposit Insurance Corp., he said.
“You are doing things right and all your projects are performing, but the problem is, there are no other banks to go to right now,” McCormick said. “Sales are down (50 percent in 2008) marketwide, and it almost becomes a self-fulfilling spiral as everyone fails. We are not going to continue to incur liability. We better just shut things down and go into hibernation and wait for things to get better.”
Housing analyst Dennis Smith, president of Home Builders Research, says he wouldn’t be surprised if more builders take that route because of the lack of capital and inability to make a profit.
Many builders have been building at a loss for several quarters to keep people employed and generate cash flow to pay their expenses, Smith said.
“If you can’t make a profit, then why build?” Smith said. “You have to face reality sooner or later.”
Astoria’s sales have gone from 627 in 2006 to 320 in 2007 to 192 in 2008. The builder is selling fewer than 10 homes a month.
McCormick said Astoria isn’t heading for bankruptcy and will use the cash and sales proceeds it has to finish 60 homes under construction in five Las Vegas neighborhoods. The builder simply doesn’t have the resources to start homes and will have to wait for the market to turn around.
“The term I like is ‘hibernation.’ Let’s just stop and keep selling the houses we have. Let’s see how this whole financial meltdown shakes out. To continue to spend all your money while you are waiting for banks to figure out what the heck they are doing doesn’t make sense.”
Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association, said other builders have shut down because of the inability to get construction loans — not to mention the difficulty potential buyers have in getting home loans.
“All you have to do is look at the number of permits to see they are having difficulty,” Caruso said.
Builders sold 665 new homes in December to bring their annual total to 9,741, a decline of 49 percent from 2007.
Builders took out 148 building permits in December. In a two-week period in January, Las Vegas builders sold only 35 homes among them — signs of a worsening slowdown, McCormick said.
Las Vegas homebuilders have been struggling to compete against falling prices spurred by foreclosures in the existing-home market. Sixty-five percent of existing homes sold in December were owned by banks, and that pushed the median price to $157,250. In comparison, the median price of a new home was $240,880 in December, and builders say it is hard to lower prices further because of land costs.
“I am very worried about the market,” he said. “The general public is waiting to see what the government is going to do before they decide to buy,” he said. “For us to try and figure out what is going to happen this year without knowing what or if anything the government is going to do is a wild guess.”
Private builders such as Astoria are more likely to halt construction because they have less access to capital than the large publicly held builders.
“Common sense and rationality are completely out of the market right now,” McCormick said. “We look at it and say this thing has gone far beyond us and it is happening nationally. There are a lot of builders in trouble because the access to capital is gone. When capital runs from the industry, the industry stops.”
A version of this story appears in In Business Las Vegas, a sister publication of the Sun.
Discussion: 31 comments so far…
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YEAH BABY!!!! Dog, I'll help you out. I Just struck it big!!! +7 Arizona... I'll buy one of YOUR short sale foreclosed homes, just as soon as I gather up my winnings from GVR. Money... More money, Got to get my hands on some... hear it again.
I have absolutely no sympathy for Mr. Tom Mc
Cormick and his kind in this community. He came here to make millions by building crackerbox houses, impacting the community with cheap illegals as workers,etc. etc.
His game, plain and simple, is greed...greed.
I personally hope to hell he and his breed go broke and end up pushing shopping carts filled with beer cans.
Amazing! While reading this, I'm listening to the financial market. One report, "Housing starts are again down", hello. Home builders seem to be a little slow in coming around.
Here is a news flash for them, there is currently a 9 to eleven month backlog of existing homes unsold. The last thing needed is new homes now.
Mr. McMcormick seems to have figured it out. Hibernate, as in "go slide under a rock".
Boo Hoo, start the violin!!!
The knee-jerk reaction of some readers is puzzling. Regardless of what they may think, I consider entreprenurial activity a strong plus for any community. Where else do jobs come from? Who provides a base for housing related industries, and who attracts a population which contributes to the State's economy? Isn't positive growth far superior to the alternative? Right now Nevada, indeed Las Vegas, needs all the help it can get. I encourage Mr. McCormick and other progressive businessmen to continue looking for ways to resume their respective business persuits.
That guy lookslike an undertaker.
thinkgreen, you hit it right. These anonymous commenters have likely never taken a risk, and they just love when they see any sense of distress among those who work hard and take risks to CREATE JOBS. Losers.
McCormick and other entrepeneurs will always land on their feet in the long run.
With home values dropping like a rock and an already huge inventory of unsold homes, why are these companies still building them? The more homes they put on the market, the more the prices continue to drop. If they would all stop building for now, that would not be a bad thing.
Clearly, with inventories high, homebuilders would be smart to stop building and focus on land aquisition for future projects. But that is in a perfect world. Without access to capital and/or credit, even land aquisition is difficult. Plus, they are trying to keep operations going in some way in order to keep staff on the payroll.
Business owners are in a no-win scenario when it comes to public opinion as they will be harshly criticized for whatever choices they make. It's part of the price exacted for being a "doer" rather than a talker.
("He's losing 30 brand new, never-lived-in homes to foreclosure in one fell swoop".)
Fine thinkgreenRPJ, go back and read the article.
Gotjobs, I have no problem with reading comprehension. Make your point or go away.
"The knee-jerk reaction of some readers is puzzling."
Kick-em when they're up. Kick-em when they're down. All from the same peanut gallery of second guessers who haven't nearly but a single gonad to do anything of the kind.
I have a hard time understanding why a lot of posters have gone after this guy. Did you miss your chance to kick your dog.
Our country will never turn around if all we do is bash the risk takers.
Risk taking? There is no risk now, just build a house and lose money selling it for less than it cost to build it. That is a sure thing. Stop bailing all these businesses out! Hello! The valley does not need more homes right now!
If it can happen to Magrathea, it can happen to little companies like this one. Recessions suck.
WHY !! is there not a moratorium on building ?
Nowhere else do they put up thousands of homes and then stand on the street corner looking for a buyer.Put up a model,let the buyer secure the mortgage then build the house.No need to add to the already endless amount of new homes sitting there.
The defenders of Astoria are a sad crew that perhaps does not realize that this company, like many other builders abused the good will of the people by arbitrarily increasing prices during the boom until they helped push the market past a point of reality. Companies like this became arrogant in who they would sell to regardless of federal laws etc., and promoted bidding wars that has essentially led to the crash of the market. You can defend all you want and use phrases that people do not have the "**lls" to take a risk, however, risk is calculated and their risk assessment department lost focus and brought this failure upon themselves just as the lenders have done as well. While they are not the only contributors to the mess, they are at the top of the pile for being pigs! As the saying goes "pigs get fat and hogs get slaughtered." Another hog is being served up for dinner! Capitalism is harsh when it self- corrects!
Perhaps if this bad company resurfaces in the future they will realize that moderation is better than excess. I feel sorry for the people who bought their houses and will not be taken care of with their one and ten year home warranties.
I purchased my home in 04 and was on a waiting list watching the price go up over 10K a month until I moved to the front of the list. I watched the price of the same home go from 269k to 510k in 18 months. I have no sympathy.
Wall street did not get the money, main street did not get the money, the banks did not get the money! BUILDERS GOT THE MONEY! ALL OF IT! THEY DID THIS TO US, and now boo hoo that it got them too. cry me a river!
Astoria did nothing to "artificially increase the price of homes." That statement is, at best, complete ignorance, and at worst, an agenda-pushing LIE. And bullsh*t and misinformation is about all that these anonymous comments are good for. What a joke.
OMFG - builders did not get all the money you whiny, lazy, crybaby losers. Some of the money - more than half of it, probably - went to homeowners who have been in Vegas for a while and sold their homes at the top of the market.
This "crisis" (and I hesisitate to call it that) has two causes: (1) Investor-backed no-doc mortgages, and (2) greedy INDIVIDUALS who either tried to but and flip homes with no knowledge of the real estate market, or greedy INDIVIDUALS who leveraged their homes to buy boats and LCD TVs.
Go ahead, whiny losers, blame the business man. We don't care. Because of our risk and hard work, we always come out on top.
Comment removed by staff.
"...good will of the people by arbitrarily increasing prices during the boom..."
The people have zero good will. Read these posts. Are you kidding me? This is a bunch of rabid dogs. You included!
Here's a lesson in economics. Vendors charge what the market will bear. Period! Anyone who is not doing that is an idiot who is about to go out of business.
Conversely, a vendor who "arbitrarily" raises prices, i.e. without cause, sells no products and will also go out of business. The notion that Astoria exists in a bubble and can somehow manipulate prices and reality to suit their needs is utter nonsense.
That's right, what the market will bear, evidently the market had all it could bear of Astoria and the other builders. I guess the large price increase were because there were some value added additions and improvement to their product, better product and quality for the large increases, nothing arbitrary. O! that is right I forgot.
Johne,
Have you ever thought about how the general population that votes is reflected within these posts. It does make the attitudes toward business ( both successful and not ) easier to anticipate. You think this may be why the electoral college exists?
Home prices are plummeting down to under $60,000 in certain areas so the builders can't compete with short sales or the bank's foreclosures, especially when investors are buying and renting their properties out. When most of the inventory gets absorbed then the prices will start to go back up. Greed was the name of the game.
"You think this may be why the electoral college exists?"
Yup. I do. Especially after seeing how far it can go at public hearings. Here is one of my favorite exchanges at a hearing about "5" homes...
Resident Against: "Eastern Ave was supposed to be a country road!"
LV City Planner: "Excuse me, but Eastern Ave. has been zoned commercial for more than 35 years".
I think much of the public lives in a bubble reality that is mostly comprised of heresy, urban legend, false memories, personal lies and denial.
There aren't many I've read here who acknowledge that people like Tom McCormick have ever worked for anything. It always seems like the Tom McCormicks of the world are demonized for making money. As if making money automatically means ripping someone else off.
Wow! the Arogance of some of our business commenters. Just because they own the govenor, and had as close to a tax free ride during the boom times as any state has given I can see where they get it from. Now you can hybernate with your money and ask the state to strip its services to the ignorant masses to preserve your money. Time to have fair taxes in this state! Quit adding taxes to the general people and tax business.
Welcome Builders to the world that every other homeowner is experiencing that banks,lenders are not working with people to keep them in their homes. I do not feel sorry for the home builders they hired illegals immigrants because the did not want to pay union wages yet they were making great profits on their homes.
The rooster has come home to roost in the new home construction industy. Isn't it amazing how the builders can cry the blues because of what they have done to themselves. They raised the prices of homes on the backs of greedy profits for the last eight years. They went from 12% profits in 2000 to 45% profits in 2006...and now they wonder why it is crashing.
Astoria was a good builder, but they have to pay the Piper like everyone else..
I recently made a visit to an Astoria community I have always wanted to live in - Cornerstone. I was shocked to see it was closed as I am planning to relocate back to Las Vegas in the near future. So what the heck happened while I was gone for the past two years? Who knows? but everyone is pointing the finger at everyone. I think the greed blame can be spread pretty equally from the builders to the mortgage companies, investors, real estate agents - in fact the word "greed" can be replaced with "opportunist". For example - I bought my last home in Las Vegas in 2002 for $175,000. Sold it for $354,000 in 2004. Was I greedy? No. I took advantage of an opportunity. Title Company cut me a check for $114,000. Putting half away for savings and investing - the rest went to a Ford dealership (buy American) some went to our retail industry, and I treated my family to a few nice diners at at some Las Vegas restaurants. I did not buy again out of fear that the market would tumble (which it did) and we did not want to be up-side-down in a home, instead we rented as we waited for home prices to stabilize. In 2006 my company was on shaky ground - I transferred to Indiana and got a promotion out of it. Bought a nice home - hey look at all the snow. Man its cold! Boy do I miss Las Vegas. Hey look - the prices are at their lowest! I want to come back to Las Vegas! And I will. As soon as I find a job there. And when I do, I will buy an Astoria Home at Cornerstone where I've always wanted to live. I love the Astoria product and I will be first in line to purchase a new home when they come back online. The 770 is my favorite so I hope you guys make a comeback. I'm there dude! (Unless I see a 770 in foreclosure. oops! It's that opportunist thing again!)