Wall Street Journal Reports Supply of Homes for Sale has risen by 12% in March 2008 from March of 2007. 

The accompanying graph shows the rises in three major markets across the country in resale and speculative inventories.  The three markets are Southeast Florida (Orange), Chicago (Yellow) and Los Angeles (blue).  The study included results from 8 eastern cities, 5 central state cities and 11 western US metro areas. 

This includes the impact of banks bringing foreclosures to market and the continuing efforts of some builders to drive cash flow by replacing speculative inventory as existing sells.  The message is clear to me; if we want to ease the housing market crisis we must balance the supply and demand.   Builders need to find alternative strategies for speculative building. 

Financial Work Out Experts Visit SMA Florida Offices
We had one of our most interesting recent meetings on Tuesday evening.  We met with the Algon Group out of Atlanta with offices also in Tampa.  They specialize in assisting businesses of all types (the Tampa division specializes in the home building industry) work with their banks to avoid bankruptcy/foreclosure and to restructure their project deals.  Their business card sums up what they do very well.  It reads “Financial Advisors for Complex Situations”.   

We learned a few things from them in our brief meeting.  The highlights were that any builder who is not personally guaranteeing their loans are in the driver’s seat right now and can gain an edge in the market by restructuring any land deals where the land price basis has depreciated.  This will allow your current projects (where your land may be over market value in basis) to compete against the foreclosed land or lots coming to market art current pricing levels. 

We also heard that builders who sign personally may still be able to deal if you are current with the banks but are projecting cash flow problems in the future.  The key is approaching the banks early and working out a mutually beneficial deal.  Some builders can even end up managing (for a fee) any projects that the banks have to foreclose on if you are working with them professionally and not burying your head in the sand and hoping all will pass over.

My advice is to let a professional group, such as Algon, run the interference and negotiate the deals for you.  If the negotiations get rough (and they probably will) you are shielded from being the bad guy thus protecting your relationship with the bank to some extent.

Surviving and Thriving in the Housing Market Downturn
Related to our Algon meeting, SMA is going to be offering a two day conference in Orlando in the second half of June or the second week in July , at the latest, on how to not only survive the downturn but how to thrive in the remainder of the downturn and be prepared for maximum profit and efficiency once the downturn subsides. 

Algon will be one of the presenters discussing the complex financial situations that builders find themselves in today and how to deal with them successfully.  Industry financing and merger and acquisition specialist Ron Robichaud will also be presenting. 

Their presentation will include the following…

Despite homebuilding being in the weakest market in decades and we see little recovery in the near term.  However, opportunities abound to strengthen companies and improve balance sheets even in bad markets.  We will address such topics as the outlook for residential construction in the US; understanding restructuring, including the “Spectrum of Distress”; maximizing value for existing owners of companies in financial distress; making new investments in distressed companies and identifying new sources of capital. 

The housing industry has gone from boom to bust.  Homebuilders large and small are feeling the pressure of a shrinking market, tighter credit and plunging land values.  All should understand how the current environment creates opportunities to restructure a company, improve competitive position, acquire attractive assets, or at the very least survive.

Attendees will learn how to negotiate with lenders, buy or sell assets, conduct exchange offers, participate in bankruptcy auctions and attract new capital.

Additionally, SMA’s professional team has combined with some of the nation’s most successful builders to develop a new operational business model designed to…

• Eliminate risk
• Minimize your use of leverage
• Protect your assets and earnings
• and lower operating costs and raise your profits.

Additionally, we are bringing together a group of sales and marketing experts to discuss unique methods to market your homes and to describe the best incentive systems to create a sense of buyer urgency even in today’s market.  This same group will be looking at guerilla marketing strategies that are working for some builders. 

I only wish we could make this happen sooner.  Finally, we want to encourage all to attend.  In an effort to keep the cost down, will be offering this program at a flat rate of $499/attendee for Inner Circle members and $999/attendee for non members to the first 50 registrants.   We are also working on travel package deals and hope to share some ideas on the best travel options to Orlando in the near future.  We will be sending out an e-mail with further details and a registration form to all Inner Circle members in the next couple of weeks. 

America’s Best Builder Award
Builder Magazine is taking entries for their 2009 version of America’s Best Builder Award.  The award recognizes excellence in…

• Finance and operations
• Design and construction
• Customer service and quality
• Community and industry service
• and marketing.

The application deadline is August 25, 2008 and the entry fee is $135.  If you are interested, let us know if we can assist with the application process.  Enter on line at www.builderonline.com.

Several SMA Inner Circle members, in a variety of volume categories, have won America’s Best Builder Award in the past.  You can be next!!