Las Vegas Sun

March 28, 2024

Astoria, Concordia stop work

Astoria Homes, one of Las Vegas’ largest private builders, announced it stopped constructing homes after lenders foreclosed on three of its neighborhoods.

The locally based builder laid off 17 people last week and is down to 17 employees — a tenth of the 170 workers it had at the height of the housing boom in 2005-06.

Astoria President Tom McCormick said the company didn’t miss any interest payments on its short-term loans, but its lenders in two developments in Aliante and the northwest were no longer interested in extending them — as is common — and foreclosed on the neighborhoods.

McCormick said the company had no other options to secure financing to pay off the loans. Many banks that had lent to the builder aren’t 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.”

Like Astoria, Concordia Homes has also stopped building homes, and 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 operating that way 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.

“We are going to be here in some shape and form,” McCormick said. “There is no reason to keep going forward if nothing has changed, and it really becomes a matter of preservation.

“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 doesn’t make sense.”

McCormick said Astoria had ongoing financing commitments from Nevada State Bank and Key Bank on a hillside development in the Lone Mountain area. Some of the 360 homes planned in the northwest neighborhood have been built, he said.

The Wall Street financial meltdown in September scared a lot of lenders from making real estate loans because of fears of the economy and housing market, McCormick said.

“They told us they didn’t want to go forward so, ‘Pay us off, or get us out. We don’t want to build anymore,’ ” McCormick said. “We were selling homes and making payments on the loans. We told them, ‘There is no one to pay you off.’ ”

In Aliante, JPMorgan Chase and Bank of America foreclosed on Fields and Prominence, two communities where 160 of 500 homes were left to be built, McCormick said.

The foreclosures don’t affect the residents of communities where infrastructure has been completed, McCormick said. The banks assumed ownership of vacant lots and any homes that haven’t been completed, he said.

Las Vegas isn’t alone with troubles in its housing market. Earlier this month, The New York Times reported on a Phoenix builder who hadn’t missed an interest payment, but because of the declining revenues of the builder, GMAC and JPMorgan Chase froze construction loans on subdivisions it financed before foreclosing.

Analysts have suggested such foreclosures will increase because of the weak economy and fears of a further slowdown in housing. Federal regulators are also putting more pressure on lenders to make good loans, analysts said.

“The one thing I would say is that 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.”

But McCormick said the stoppage makes sense — the market doesn’t need new homes now anyway.

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. Builders are struggling to compete with the existing homes on the market because it is tough for them to lower prices further because of land costs.

Builders sold 665 new homes in December to bring their annual total to 9,741, a decline of 49 percent from 2007. The way 2009 is shaping up, it’s going to be worse, McCormick said.

Builders took out 148 building permits in December. Two weeks ago, all Las Vegas builders sold only 35 homes — in signs of a further slowdown, he said.

The long-term outlook for Las Vegas is good with its job and population growth, but area builders have to get through a tough time, he said.

“I am very worried about the market,” McCormick said. “People are projecting anywhere from 5,000 to 10,000 sales this year, but when you have 150 a month times 12 months, that is 1,800. I don’t think it will stay 150 a month forever, but it is so hard to make projections right now. The general public is waiting to see what the government is going to do before they decide to buy. For us to try and figure out what is going to happen this year without know what or if anything the government is going to do is a wild guess.”

The latest development with Astoria comes on the heels of Woodside Homes, another privately held company and the seventh largest builder in Las Vegas, proposing to hand over the company to creditors. The Utah-based firm, which filed for Chapter 11 bankruptcy protection last summer, continues to build homes in Las Vegas and has no plans to stop, spokeswoman Jennifer Mercer said.

Woodside was one of the owners of Kyle Canyon, which was foreclosed on by lenders last fall and also owns land in Inspirada in Henderson, but Mercer said the builders will continue to hold onto that property.

Private builders such as Astoria are more likely to halt construction because they have less access to capital than the large public builders. Woodside was the only private builder in the top 10 in 2008. Astoria has been ranked 11th to 16th in recent years, according to the In Business Las Vegas Book of Business Lists.

Astoria has more lot inventory than other builders and when the market weakens, that puts it more at risk because of the cost of that land, Smith said.

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