Local Builder Files For Bankruptcy Protection

Construction has come to a halt in the Avington development on Pouncey Tract Road near the Interstate 64 bridge. Prospect Homes, the developer of this townhouse project and  well-known local homebuilder for more than 25 years, filed for Chapter 11 bankruptcy last week. The company, owned by President Joe Audi, owes creditors between $50 million […]

June 10, 2009; 3:07 PM • by Al Harris

Construction has come to a halt in the Avington development on Pouncey Tract Road near the Interstate 64 bridge. Prospect Homes, the developer of this townhouse project and  well-known local homebuilder for more than 25 years, filed for Chapter 11 bankruptcy last week.

The company, owned by President Joe Audi, owes creditors between $50 million and $100 million, according to the filing. More than 200 companies and individuals are owed money.

Many businesses listed as creditors were not surprised by the news, as checks had been late in arriving for at least six months. But several local business owners said they kept working with Prospect after Audi met with them, in part because they wanted future work and had known the company for decades.

The company listed assets between $50 million and $100 million.

Audi and attorney Roy Terry did not return calls by this story’s deadline. In 2008, Prospect Homes was the No. 6 builder in the Richmond area, selling 114 units, according to annual rankings by the Home Building Association of Richmond.

Eight of Prospect’s top 10 creditors are banks, including SunTrust Bank, BB&T and First Market Bank. According to the filing, those banks are owed nearly $30 million combined, $21.6 million of which is secured by real estate and equipment.

Audi himself is also listed as a creditor.

One of creditors, a subcontractor who asked that his name not to be used, said the homebuilder’s problem is that the banks have turned off the spigot.

“The banks say they will fund it, and then they renege on it,” he said.

The subcontractor said his company has worked on Prospect homes where the bank said it would issue a construction loan but, after building started, did not come through. In other instances, he said, lenders have stopped financing midway through a project.

Some construction loans are divided into six segments, or draws. Each new draw is given out based on how much work has been done on the house. The subcontractor mentioned one instance when a lender had disbursed two draws to Prospect but stopped funding after that.

“If the banks work with them, there is a good chance they’ll work out of it,” he said.

BizSense called several bankers named in the filing, but none returned our request for comment.

He estimates Prospect has about 50 homes under construction and up to another 25 for sale. He said that Prospect owes him a six-figure amount and that the company had been in trouble for about a year.

“Most of the people on that list have really tried to work with them,” he said. “But you got small guys like me and they started to get 90 days behind – it’s got us in a tough spot.”

Subcontractors of all stripes are listed as creditors, including excavators, plumbers, electricians and decorators. Other creditors include law firms, utilities and an insurance company.

The company also owes back taxes to Chesterfield, Henrico, Hanover and other localities, according to the list.

West Broad Village LLC is listed among the creditors. Prospect was supposed to build homes in the community but pulled out a year ago, according to Lisa Earnhardt, who oversees the development for Unicorp USA.

“They had a lot of projects in their pipeline and decided, at the time, that they did not feel comfortable starting another,” said Earnhardt.

David Reel, president of the Home Building Association of Richmond, said the issue of financing goes well beyond Prospect.

“Prospect is a victim of a larger problem, and that is the credit situation out there,” Reel said. “People just can’t get financing.”

Reel said that two years ago builders’ biggest problem was finding lots and that now they are struggling to get funding from banks, even those where they have never fallen behind on payments.

“The pendulum has swung from relatively easily credit to virtually no credit,” Reel said.

Trickle Down:

For months, many small businesses that handled some aspect of homebuilding for Prospect said they believed the firm was on the edge of bankruptcy. That meant they had to make a decision: keep working even though payment may be late in coming, if it came at all, or sever ties. In interviews with four businesses, all say it was a tough decision.

The owners of A1 Asphalt said they stopped working for Prospect in late 2008 after the company repeatedly fell behind on payments. Plus, the company had enough other projects. But Carolyn Truitt, the owner of the cement firm Carefil, said she wanted to keep doing business with Prospect and was praying for them to pull through.

“We’ve known them for 17 years. And we decided to hang in with them,” she said.

Carefil is owed $184,000. Truitt said she has no idea how much she may eventually recover.

“Joe did everything he could,” she said. “He had meetings with us, and we agreed to back them, to work with him. We chose to stick with him, and we still believe in him.”

The 20 largest creditors:

SunTrust Bank: $6.13 million

Wachovia Bank: $4.9 million

Regions Bank: $4.9 million

First Market Bank: $4.2 million

BB&T: $3.6 million

C&F Bank: $2.9 million

Franklin Federal Bank: $2.1 million

Farmville Investment Group: $1.8 million

Virginia Commonwealth Bank: $1.5 million

Old Dominion Floor: $264,000

American Applicators: $224,701

Danny Smith Inc.: $208,715 (disputed)

Village Bank: $184,195

Carefil: $183,902

Richmond Decorating: $182,405

JSC Concrete Construction: $156,082

Creative Wood Products: $150,000

Brossfield Landscaping: $142,314

Ronco Plumbing: $131,856

Wolfe Distributing: $120,858

June 10, 2009 3:07 PM 0