Builder faces a mountain of debt

Renaissance Homes’ bankruptcy is hurting banks and vendors even as the giant homebuilder pledges to repay $138 million

By Lee van der Voo

The Lake Oswego Review, Oct 2, 2008, Updated Oct 30, 2009

Renaissance Custom Homes, a big player in the Oregon housing market that is stationed in Lake Oswego, officially filed for bankruptcy.

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The bankruptcy of Lake Oswego-based Renaissance Custom Homes is already squeezing Metro-area companies.

While the homebuilding company – one of the largest in Oregon – promises to pay banks, subcontractors and vendors are owed millions as homes sale slump and unpaid debts promise a rocky winter for those left holding the bills.

Renaissance Homes showed signs of financial trouble before filing for bankruptcy last Thursday. Unpaid contractors filed liens on Renaissance properties as home sales slowed, prompting the company to refinance debts, sell land and lure investors.

But with cash flow stalled by a sagging economy, Kim Whitman, vice president of sales and marketing at Renaissance, said the company has been particularly hard hit by failed sales on 95 homes. Renaissance builds high-end housing in the $350,000 to $1 million price range, targeting buyers ready to trade up from first homes.

Buyer inability to sell existing homes, however, left the company holding 95 custom-built homes in 2007. Those homes were nearly a third of the 318 built that year by Renaissance. The lost revenue accounted for $52.4 million of the company’s debts and left Renaissance behind on payments toward $77 million in bank loans.

From the courts

In court papers, Renaissance appears to hold nearly enough assets to cover its debt. The company is affiliated with a variety of different corporations and three are covered by the bankruptcy filing. They are Renaissance Custom Homes, Renaissance Development Corp. and The Lakes at Fishers Landing. The companies have combined assets of $128.5 million, compared with $138.4 million owed.

The bankruptcy filing allows each to leverage more loans from banks to help Renaissance Homes continue building. While the terms of the deal are still being negotiated with the companies’ primary lender, Sterling Savings Bank, Renaissance Homes is expected to continue sales and ultimately pay off debts.

But a restructuring plan due in several weeks is geared at helping Renaissance Homes make good on its bank loans. In the short term, the plan will do little for smaller businesses tied to the company’s financial troubles. The plan currently freezes payments to unsecured debtors owed money by Renaissance.

Those who keep building with Renaissance will be paid through loans for future work. But old bills will be subject to repayment plans yet to be structured by a bankruptcy court. The strategy will crunch cash flows for roughly 350 unsecured creditors owed money by Renaissance.

Many are simply homebuyers owed warranty work on homes or contractors who performed simple jobs for small fees. Others are established businesses that have performed work for which payments will now wait.

A list of the top 20 unsecured debtors tied to Renaissance shows the largest sums are due to mostly Metro-area companies.

The businesses perform excavation and painting work, sell lumber, build cabinetry and countertops, provide lawn-care or sell plants, build masonry, install plumbing, sell appliances and fixtures or design advertising. Collectively they are owed $3.3 million.

That sum is small compared with the $77 million owed to four regional banks: HomeStreet Bank, Sterling Savings Bank, U.S. Bank and Columbia River Bank.

Tough times

Yet for small companies that rely on the income, especially those that worked almost exclusively with Renaissance Homes, times are tough.

Some businesses have already laid off workers. Most are diversifying business plans and aggressively stumping for work. A few say they have borrowed money to cover the gaps in revenue from unpaid Renaissance bills. All are doing without capital expenses.

Few are bitter.

Dave Howells, who owns Howells’ Custom Cabinets in Portland, credits Renaissance Homes with his business success, despite being owed $541,372.

Like many of the vendors and subcontractors struggling under its debts, Howells has worked with Renaissance Homes for long enough to tie his own business success to Randy Sebastian, owner of Renaissance Homes.

“I’ve been with Renaissance since the beginning. My success has been his success. We all got caught in this,” Howells said.

The effect on his business has been difficult. His staff of 30 has dwindled to a handful of employees since Renaissance Homes was at its peak in 2005, building 307 homes that year and taking in $165.3 million in revenues. At the time, 59 percent of work at Howells’ Custom Cabinets came from Renaissance.

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