Q: Many builders were forced to declare bankruptcy or close their doors altogether in 2009. How was Berkeley Homes able to ride out the downturn in the housing market?
A: It has been a combination of luck and foresight — and probably more of the former. We were fortunate that when the market really started declining, we were in well-located projects and were far enough along in the sales and construction of them that most of the debt had been retired. We continued to look at new projects as the market was falling but, fortunately, didn’t execute on any of them. The best deals we have done recently are the ones we didn’t do.
As we close out of our previous projects, the issue has been what to do now given the current market environment.The primary thing we have done is to set up a separate entity that is focused on buying distressed real estate assets, primarily foreclosed properties, and refurbishing and selling them.
Q: How would you describe the state of the homebuilding industry today?
A: Fragmented and delicate.
On the one hand, you have the large public builders that for the most part have been able to work through much of their balance- sheet issues and have amassed large stockpiles of cash. This is allowing them to buy land without outside financing and at very low prices.
On the other hand, you have what’s left of the small and mid-sized builders. Many banks are unwilling, or unable, to lend on new real estate projects. This is forcing smaller builders to turn to nontraditional financing sources, but this can be very expensive and new projects may not justify the added cost.
Q: What is your prediction for the next five years?
A: I think we will see a modest increase in new homebuilding in the Denver market in 2010 versus 2009.
As we begin to work our way through the foreclosure supply and as we hopefully add jobs to the economy, I think 2011-15 we get back to a more normalized gain, but nothing like we saw nationally between 2002 and 2007.
