Foreclosure suits hit 2 Lakewood developments
By Alby Gallun
Crain's Chicago Business
September 23, 2009
The foreclosure wave rolling through the suburban homebuilding business has swamped Lakewood Homes Inc., which faces foreclosure suits over projects in Joliet and St. Charles.
Bank of America N.A. has sued to collect more than $24.9 million owed on loans to finance Lakewood Prairie, the 765-unit Joliet development, and Saddle Ridge, the 168-unit project in St. Charles. Lakewood plans to let Bank of America take over the properties without a fight, says Buz Hoffman, president of the Hoffman Estates-based builder.
In January, Lakewood told its lenders it couldn’t keep its five suburban projects going unless they agreed to fund sales and marketing and other costs, Mr. Hoffman says. Unable to get its lenders on board, the builder decided to shut down its sales offices and let the lenders take back the properties, including ones in Hampshire, Plano and Carol Stream.
“We made it clear that we had no intention of fighting anything,” he says. “It was costing us a fortune, and if we’re going to survive, we can’t keep subsidizing projects that weren’t selling houses.”
Though it is on a homebuilding hiatus, Lakewood in May launched a new business, Lakewood Home Building Solutions, to help lenders manage distressed real estate. The business offers market analysis, construction management and has already picked up a few receivership assignments.
“Right now, most of the banks have no clue what to do with this stuff,” Mr. Hoffman says.
Declaring a default isn’t quite as difficult. Bank of America alleges that a Lakewood entity defaulted on the Saddle Ridge loan in multiple ways; it failed, for instance, to pay back the loan when it matured in November 2008, according to a complaint filed last month in Kane County Circuit Court.
Lakewood has sold 10 of 40 single-family homes and 43 of 128 townhomes in the project, on State Route 25 north of Army Trail Road, according to Tracy Cross & Associates Inc., a Schaumburg-based consulting firm that tracks the local housing market.
Bank of America also alleges multiple defaults on the Lakewood Prairie loan, which matured July 28, according to a complaint filed last month in Kendall County Circuit Court. Lakewood has sold 181 out of 551 planned single-family homes in the development, near South Ridge Road and West Jefferson Street, according to Tracy Cross; 117 of 214 planned duplexes have been sold.
Mr. Hoffman says the Carol Stream and Plano projects are already in foreclosure, but a search of court records didn’t turn up any foreclosure suits involving the developments. It’s only a matter of time, he says, before a lender takes over the Hampshire project.
A Bank of America spokeswoman declines to comment; a lawyer for the bank did not return a phone call.
Though lenders continue to foreclose on developers like Lakewood, few are disposing of properties quickly once they take title, says Tracy Cross, president of Tracy Cross & Associates. Prices just aren’t low enough to get buyers interested.
“Right now, if you get a foreclosure bid price, it’s probably 20 cents on the dollar,” he says. “The ask price from the lender is probably 80 cents.”
The nearly four-year downturn in the housing market has claimed several big Chicago-area builders, including Neumann Homes Inc. and Kirk Corp., which Monday lost a bid to reorganize in Chapter 11 and is now likely to liquidate.
Though Lakewood has avoided Bankruptcy Court, the firm now employs just 15 people, down from 221 people at the market peak, Mr. Hoffman says. In late 2008, Lakewood handed back to lenders developments in southwest suburban Plainfield; Newark, which is west of Joliet, and Burlington, which is west of Elgin.
Mr. Hoffman will consult with lenders for the time being, but he expects to start building again when the market recovers.
“I am in hibernation as it relates to homebuilding,” he says, “but I don’t see that lasting long.”
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