BMHC Takes a DIP and Goes for the Extra Yard or Two

From PROSALES, by Andy Carlo: Repeatedly, we report on the toll over-levering during good times has taken after the good times turned bad.

The Building Materials Holding Corporation story of a rising star now fallen is more of the same. ProSales senior editor Andy Carlo’s update to his initial report –on BMHC’s filing for Chapter 11 bankruptcy protection–carries tidings that the nation’s 6th largest lumber and building materials player has secured a court thumbs up to fight another day, or month, or year, or more.

BMHC chairman & CEO Robert Mellor, click to access company restructure IR site.

BMHC chairman & CEO Robert Mellor, click to access company "restructure" IR site.

Following the court order, the Boise, Idaho dealer and construction services provider can continue to meet its obligations to customers, including the fulfillment of contracts and honoring warranties, while meeting its obligations to suppliers, employees, and subcontractors.

At Wednesday’s hearing, the court granted initial approval for BMHC to access a new $80 million in debtor-in-possession financing facility from Wells Fargo Bank and other lenders. BMHC has been permitted by the court to use $40 million of the credit facility immediately, with the full $80 million available upon final court approval.

In a statement issued by BMHC, the company said that it expects the new financing to “provide ample liquidity to meet its ongoing obligations to employees, customers, and suppliers during the reorganization process.” Altogether, BMHC expects the reorganization process to take about three to four months.

Here, from the company’s Web site, is chairman and CEO Robert Mellor’s statement:

“We are very pleased that the Bankruptcy Court in Delaware has approved our First Day Motions and our DIP financing, which allow us to continue business as usual and to meet our obligations to our customers, suppliers and employees,” said Robert E. Mellor, Chairman and Chief Executive Officer. “All of our operations are open, and we are continuing to serve our customers with the same focus and dedication as always. We appreciate the support we have seen from both our customers and suppliers as we move forward with this process to make BMHC financially stronger for the long term.”

Going Green, Bleeding Red, Fading to Black

It’s going to take more than green to get home builders the leash they need to work through the dark before the dawn of residential construction’s worst era since the 1930s.

Within the past couple of weeks, we’ve witnessed the financial failure of Louisville, Colo.-based green home building pioneer McStain Neighborhoods and, now, a Eugene, Ore.-based green builder fades to black amid a mountain of debt.

Here’s why McStain capitulated in what may be the fourth or fifth inning of housing’s downturn, per a note from principal Carolyn Hoyt.

We were hit by a couple of last minute “roadside bombs” which really knocked us for a loop. We plan to finish out and sell everything in the pipeline before we close down (probably) for good.

According to “the state of the homebuilding industry” blog, McStain’s major creditors line up as follows:

McStain’s largest unsecured creditors include Scheer’s Inc. of Illinois (which is owed $10.85 million), Key Bank ($3 million), CRE400 Centennial LLC-Crestone ($2 million) and William and Associates of Boulder ($1.54 million), according to the bankruptcy filing.

Other unsecured creditors include First National Bank, GE Capital, Namaste Solar Electric Inc., Guy’s Floor Service Inc. and the City and County of Denver (sales tax).

In Oregon, the story takes place on a smaller, but no less wrenching, scale. It concerns a second-generation “master builder” Chad Ruhoff, who started working on his dad’s houses and developments in the 1980s, and ended up working for Home Depot in Portland after his mini-empire collapsed in the past two years.

Ruhoff’s showcase project was his last, a 41-unit subdivision on the old Wylie family homestead at the intersection of Garden Way and Martin Luther King Jr. Boulevard. Ruhoff paid $3.3 million for the property in June 2007.

Ruhoff not only saved the 1901 farmhouse, he sought to amplify the rural theme throughout the subdivision. He hired architect Jean Rehkam Larson of Minnesota, who literally wrote the book on the iconic American farm house design to draw up the plans for his “front porch” community.

The houses were to be his greenest yet with high-performance toilets, solar hot water heating, LED lights. He was reaching for top-rung Earth Advantage certification, said Aaron Solbeck, who was construction manager for Ruhoff for 7 1/2 years. “We were basically trying to make a super, super tight house that was eco-friendly.”

Ruhoff hired Eugene marketing firm View Design, which built a sophisticated Web site for Wylie Creek. In July 2008, Ruhoff featured Wylie Creek in the Tour of Homes.

And then sales stopped.

Green may be where home building is going, but it’s not proving to be a way to get there.

Rich Ohmann, Live and Uncensored

On Ground Hog Day, 2009, we got word from one of our favorite characters in home building’s pantheon of bucaneers, engineers, imagineers, and minor magnates–Rich Ohmann–that his brother Bob’s Raleigh, N.C.-based company, St. Lawrence Homes, was filing for protection under Chapter 11.

The Ohmann’s company is not alone in its plight. The way they’re handling it is what may set them apart from peers.

Click to access St. Lawrence Homes Web site.

Click for St. Lawrence Homes' Web site. Bob Ohmann (left) and his brother Rich.

Since they entered bankruptcy, they’ve been working their way out of it. St. Lawrence’s emergence from this state is not happening as swiftly as, say, Chrysler’s, but hey, Fiat’s not planning inroads into U.S. home building anytime soon, so the company’s principals are working their way through the hard way. They’re selling houses, generating cash flow, paying bills, and trying to keep the lights on every day.

We’d received a few choice missives from Rich (who’s head of marketing and chief cook and bottle washer at St. Lawrence Homes) about society, big business, policy, and how it all affects trying to be a home builder in today’s tough market conditions. We asked him to write for readers, because we think his candor, insight, and values as part of the home building community reflect how more than a few colleagues feel.

Here’s Rich’s first post, which he entitled “Blah, Blah, Blah, Blah.”

I have to tell you that I’m not a fan of funny t-shirts with smirky messages. ‘I’m with stupid’ with an arrow pointed to the left or right isn’t for me. ‘My Mom and Dad went to Hawaii and all I got was this lousy t-shirt’ isn’t cute to me. The list is endless. This is not a recent issue for me so you can’t pin the economic malaise on my disdain for message t-shirts.

What’s this got to do with my need for screed? Last night, after a mind-numbing, rotten, catastrophe of a day I walked into my home, greeted by my wife and kids. Smiling and happy, full of the news of a couple of idyllic summer days with an order from my wife to start up the grill and handle my end of dinner.

I was struck with how wrong the old t-shirt was, the one that could easily be worn as uniform for most of us in homebuilding these,  ‘Life sucks, then you die.’ Contemporize the message: ‘Confidence plummets, then you go bust.’  ‘You default on your loans, then they take your truck’. I’m not willing to accept it though and I’ll try and tell you why.

First, you gain your worth from who you are not what you are. If your material possessions and self important position defines your lot in life you have nothing. As a home builder things are tough. But I’m just a home builder and nobody else is either. For me, as a Dad, as a husband life is grand. Regardless of what comes my way I’ll have success if I keep my eye on the important things in my life. Am I by necessity having to make tough decisions about what I can provide for my family? Certainly. The material things aren’t as important to them as I thought they would be. It turns out that they just want our family, and everything else is optional.

Second, care for others more than you care for yourself. Self-worry, self-pity, self-loathing evaporate when you look for ways that you can help others. A family in my sons school has a gravely ill child. I pray for them and think about them often and what I might to do help them. My problems are small by comparison. I was in line at the grocery store and recognized a former employee a few customers back, a young father with a wife, 2 kids and another on the way. I knew that he was facing tough times, tougher than what I was facing on that day. I bought a gift card at the checkout counter and told the cashier to use it to help pay for his groceries.   It kept me focused on the fact that no matter what I face I can always find someone who needs more help than I do and that feed my soul by helping others.

Third, cut the negative noise off. Les Brown is a motivational speaker. Very early in his career I hired him to speak at a small convention. He was a great speaker and so uplifting. I can still remember that he encouraged everyone to find unreasonable people and hang around with them.  Reasonable people will logically tell you why you can’t do something, why the obstacles are too great. Unreasonable people walk on the moon.

Finally, find inspiration. Sure it’s a dark time but you can find things that inspire you if you keep your eyes wide open. Inspiration will lift the burden of impending doom from your shoulders. You’ll come to understand that you aren’t defeated by today but rather that you have opportunity around you. I like to think that I’ve taken the middle years of my life as a sort of vacation time and, because the market was grand, had my semi-retirement early. 

Now?  Back to work. Work is what we all did before mortgage money was easy, labor was cheap and the stock market lulled us to sleep. Work is what built this country and what my parents taught me. Mom and Dad told me to save where I could, spend what I could pay back and to look upon the future with great hope. Turns out that they knew what I realized last night standing in front of my Weber grill.

Time to close some houses.

Stock Watch

Click to access Stock Web site.

Click to access Stock Web site.

From PROSALES, by Craig Webb–Stock Building Supply’s business is a shadow of what it was about 24 months ago, and so the company’s new private equity majority owner the Gores Group wants to make its costs a shadow of what they once were.

With an assist from a Delaware bankruptcy court decision, Gores will get satisfaction on one of its key conditions in its distress-sale purchase of Stock from UK-based Wolseley Plc. A judge approved termination of more than 200 leases Stock had contracted for during its run-up years, 2005-to-2007, a move tantamount to cramming down what Stock would have had to pay to maintain the leases.

ProSales magazine editor Craig Webb has Stock coverage of the judge’s resolution, as well as analysis of Wolseley financials for Stock operations for the latest reporting period.

ProSales Rules Stock Analysis

There is one place to go for insight into the lumber and building materials sector’s most dramatic story of the moment. has been the bleeding edge reporter on the collapse of Stock Building Supply–one of residential constuction’s juggernaut roll-up companies–from the time United Kingdom-based owner Wolseley Plc ran up the white flag of capitulation, to Wednesday’s sale of a 51% stake to private equity players, The Gores Group.

ProSales’ lineup of news and analysis on Stock’s stunning implosion and frantic survival tactics include a number of reports this week: 

Click for expert Stock analysis.
Click for expert Stock analysis.

Razing Hell: New-Home Demolitions in the California Desert

What a world! A demo home is not just about new houses that demonstrate performance and noteworthy features.

New-home demos now include a batch of bank-owned distressed properties that banks are giving a thumbs down. Demolished.

Here’s a lurid video clip of California’s hell razers, making the rounds on the blogosphere [Copied off Calculated Risk]. Patrick Duffy’s Housing Chronicles blog asks “Is this really the best way to handle the problem?”

Matthews Homes is the home builder. Guaranty Bank of Irvine, CA, took possession of the project through foreclosure, and now wants out, as the bank was getting slapped with fines for improper maintenance of the properties.

Here’s a lift from Victorville, CA. Daily Press reporter Patrick Thatch:

Just Another Casualty

Just Another Casualty

Victorville- The housing collapse is taking a literal form for one bankrupt housing development. Four model homes and 12 nearly finished spec homes at Bear Valley Road and Highway 395 are being demolished.


The developer filed bankruptcy about 18 months ago and the foreclosed property went to Guaranty Bank in Irvine.

A Guaranty Bank official, Real Estate Officer Dean Smith, said they were facing daily fines from the city of Victorville if they didnt do something with the homes and property that not up to code. He said it was a choice of pumping their own money into property site improvements and additional money to bring the home up to code or tear down the 16 homes.

Smith said the bank is not in the building or land development business and because of the current housing market does not see anything happening with the property for at least five years.

Our only option is to either proceed with putting more than a million bucks into the land, which we’ve already taken a huge hit on and lost a lot of money, or, we tear down the houses, Smith said.

He said the builder put up the homes before completing the site improvements and failed to have enough money to finish roads, walls, and other improvements that bring the community into code. Everything just fell apart at that point and we cant sell homes that are not up to code, Smith said.

He said the city of Victorville fined the bank once because the home are out of code and would have faced daily fines if Guaranty didn’t do something with the vacant houses.

There are still substantial dollars that need to be put into the land before the city of Victorville will give certificates of occupancy on the houses and the bank isn’t willing to put forward that amount of money, Smith said.

He said the homes are a liability to Guaranty and that all of them are heavily vandalized inside and out with broken glass everywhere. Our projections are that those houses would sit the way they are for at least five years, what would they be worth then? Smith said. He said once the homes are demolished the property will be put on the market again. Calls to the developer were not returned.

Brother Act: Chapter 11 won’t stop Raleigh-based St. Lawrence Homes from making a go for the other side

Dad was a vintage movie theater proprietor in upstate New York, whose six-day work weeks and 14 or 15-hour workdays in the 1960s and ’70s rub off directly on his daughter and sons, who consider work fun and laugh a lot on the job. The older brother starts out as an electrician working job sites for Ryan Homes’ Buffalo division in the 1970s; the younger goes into school teaching, but not for long.

They’re the Ohmanns, Bob Ohmann who founded and is the CEO of Raleigh, N.C.-based St. Lawrence Homes on a bank loan that allowed him to do exactly one spec and two pre-sales, and his kid brother Rich, who joined Bob as head of marketing after the venture got its footing.

Bob’s early experience with inhospitable housing cycles came when he’d shifted gears from doing electrical work on new houses to selling them for Ryan Homes in the Buffalo area.

“In the 1970s, they had a little thing called the gas crisis, and interest rates were up around 19%,” Bob Ohmann recalls. “Still, out on French Road [Buffalo] the Ryan Homes folks would set up a card table out in a field, and people would line up at the card table to buy a new home from them. No matter what, you got to stay in touch with what people need. Even today, a couple’s about to have their first kid, and my bet is they’re not thinking we need to move into a two bedroom rental apartment. More times than not, they’re thinking they need a new home.”

From one spec and two pre-sales in Raleigh in December 1989, the Ohmanns built their company into a $191 million powerhouse, closing 489 homes in 2006, peaking at about 600 in 2007. Then, time warp hit. The Carolinas, like Texas, withstood the worst of housing’s dislocation just about all the way through 2007 before the Carolinas market and their company succumbed to gravity.

“We started to feel it go a little soft around August ['07], but then we had a great November—sold about 50 houses that month—and we thought then that it was going to be a good snapback, but then everything collapsed,” says Bob Ohmann.

On Groundhog Day 2009, as most people began their vigil for the end of one of the grimmest winters in memory, Ohmann elder sought protection under Chapter 11 bankruptcy laws. Within five days after filing, the Ohmanns had secured Debtor-in-Possession financing from Raleigh-based community lender Capital Bank.

Their story with lenders is all too familiar. They started banking with a local bank called Pioneer, which was acquired by regional bank Centura, which was acquired by international financial company RBC. Their major lender today, SunTrust, bought the regional bank, Central Carolina Bank, they’d initially set up business with.

As their success trajectory steepened in the years 2003, ’04, ’05, and ’06, they found themselves at the local and regional land dance with some new players with hugely deep pockets.

“They [the public home builders] were printing stock and printing money, and they’d come in and bid up the price of all the land,” says Rich. “We were thinking, we have to go get some land or we’ll run out, but we were paying prices that were way too high because the publics had bid it all up.”

Now, the publics are dumping that land, getting tax carryback money from the IRS, and then coming back into the land market to buy the land at enormously reduced prices. “They got their bail out,” Rich says. “They should be happy.”

Meanwhile, banks continue to exert pressure on builders who owe them land acquisition and development payments as well as construction loan project financing.

“We’re not blaming anyone for what’s happened, but the business just doesn’t work the way it used to when it comes to home building finance,” says Bob Ohmann. I.e., no one takes your call if you’re trying to get through to a big bank.

Today, their company has cut 75 percent of its staff, has turned to real estate brokers as its sales force, has renegotiated as many deals as it can with trades and materials suppliers, and has introduced new entry-level product under its BroadStreet Homes line. It’s doing its damnedest to build and sell 150 homes in 2009 to pay the bills, keep the lights on and the doors open.

Apart from the faceless, nameless big bank lenders where it’s well nigh impossible to get a returned phone call, the other big challenge they’ve had is with some of the subs that have been absorbed into big conglomerates, especially in the concrete business.

The Ohmann name’s not on the company signage, but the brothers Ohmann like to think of their name as backing the value of every St. Lawrence Home.

“Bankruptcy isn’t giving up,” says Rich. “It’s a way to get enough time to reorganize and save the business.”

As they fight each day for survival, two key “learnings” occur to Bob and Rich Ohmann, and they think other private home builders who may get sucked into the default vortex might benefit from knowing them. One is company data. The more straightforward and simple and correct all the company accounting is, the better the relationship will be with multiple creditors and lenders who’ll have to agree on modified terms and cuts. So, keep all accounts in good order and be able to understand and explain every part of the balance sheet to make things easier on yourself if you get in trouble.

The other thing is this. If you’re headed into trouble and plan to work yourself out of it, do some work on your Web site before you announce that you’re filing. Analytics show that you’re going to get an awful lot of hits on your site the minute you file, and you want all the explanations and articulation of the go-forward plans need to be there when word surfaces that you’re reorganizing.

How do they rate their odds of getting to the other side? Rich’s opinion on the matter: “My brother Bob is like a guy up in the bridge of a ship, and he doesn’t care if there’s rocks, or icebergs, or tsunamis ahead; he’ll still say ‘full speed ahead.’ Me, I’m just really good at steering.”

General Growth Collateral Damage

General Growth Properties succumbed this morning, with a Chapter 11 filing in U.S. Bankruptcy Court in New York, taking with it The Rouse Company and residential real estate entities including The Howard Hughes Corporation.

The Wall Street Journal reports extensively on what it terms “one of the largest real-estate failures in U.S. history, capping a precarious, months-long effort to juggle the crushing $27 billion debt load it shouldered in past acquisition sprees.”

The Las Vegas Sun runs this story this morning.

Earlier Wednesday, debt rating agency Standard & Poors said it had learned that a loan backed by the Grand Canal Shoppes at the Venetian resort was transferred to special servicing after General Growth, the mall owner, couldn’t come to terms with servicer LNR Partners Inc. on an extension. This means General Growth is in danger of defaulting on the loan.

The balance on the loan, which matures May 1, is $393.7 million, S&P said.

The New York Times notes the list of the key creditors:

Among the companies listed as General Growth’s 100 largest unsecured creditors are Eurohypo, a unit of Germany’s Commerzbank that holds $2.6 billion worth of loans; Wilmington Trust and the Bank of New York Mellon, representing several classes of bonds; casinos including Mandalay Bay and the Venetian; and an assortment of retailers such as Sephora, Guess?, Borders and Macys.

In its bankruptcy filing, General Growth said that it sought permission to retain a bevy of advisers, including the investment bank Miller Buckfire, the turnaround consulting firm AlixPartners and the law firms Weil, Gotshal & Manges and Kirkland & Ellis. The document was signed by Marcia L. Goldstein, the chair of Weil’s well-known bankruptcy practice.

An industry observer draws our attention to dismaying specifics with respect to the residential development implications in GGP’s filing. Here’s our note this morning from “Jennifer.”

Click on image for access to Summerlin, Nev., info

Click on image for access to Summerlin, Nev., info

Key to the discussion of which entities are in bankruptcy is the definition of “GGP Group”.   Page 62 of the document says “GGP, along with its approximately 750 wholy owned Debtor and Non-Debtor subsidiaries and affiliates, collectively “GGP Group”.  On that same page there is a footnote to the document which says that its Exhibit “A” lists all of the entities for which Chapter 11 bankruptcy was filed on April 16th.

At the bottom of page 64 of that document, I was startled to see the following comment blithely made by the Debtor:  “In addition to its core shopping center business, the GGP Group also owns and develops large-scale, long term master planned communities.  GGP Group has five master planned communities in and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas. These communities contain approximately 18,500 saleable acres of land.”

I then went to Exhibit “A”, listing the 200+ new Chapter 11 debtors and scrolled down.  I saw Chapter 11 Debtor names which included entities with Town Center Drive in them, and five entities with “Howard Hughes” in them, including The Howard Hughes Corporation and Howard Hughes Properties, Inc., as well as reference to a Canal Shops entity.

The standard “First Day” motions for the bankruptcy cases have been filed, including the all important motion to obtain authorization to keey paying the Debtors’ employees, and to pay them any unpaid prepetition wages. There is no indication yet as to when the first day motions will be heard.

In the Debtor’s Motion for Joint Administration of Cases (Court Document #2) which I read, it says that the GGP Group has a large unsecured line of credit, but it doesn’t say anything about how much money is available to be drawn. That document also says that most of GGP Group’s financing is through mortgages on specific properties. 

That does not bode particularly well for the Summerlin operation, because it means that any land sales which are occurring have their cash proceeds tied up, as “lender’s cash collateral”, which an angry mortgage lender is not necessarily likely to let them use.

I am afraid that this is not a good day in the history of Columbia, Maryland, Summerlin, Nevada and ??? in Houston, Texas.

The “Next Wave” of pain in real estate–based on trillions of dollars of commercial mortgage backed securities debt due over the next several years and not enough capital access to offset it–has now begun.

Residential gets another blow as a result.

LandSource Reorg Plan Hits Deadlines

As two key deadlines approach–one April 15 [tomorrow], and one at the end of May–Lennar chief investment officer Emile Haddad is meeting today in Santa Clarita, Calif., with a steering committee of first lien holders of LandSource Communities to try to reach agreement on a deal structure that could take the vaunted land venture out of bankruptcy, according to an executive familiar with the meeting.

Click image for LandSource backgrounder.

Click image for LandSource backgrounder.

The steering committee, which consists of representatives of five hedge funds–Och-Ziff, TPG, Marathon Capital Management, Anchorage Capital, and Third Avenue Management–together represent more than 50% of the first lien debt in LandSource. Lennar/Emile Haddad has had a letter of intent that offers $140 million for 15% of a new operating company accepted by the steering committee.

Now, Haddad and the steering committee must hash out a deal structure and business plan designed to generate cash so that the hedge funds can get their money out–probably in about three years. The $140 million Lennar has offered comes with conditions that would relieve Lennar of previous obligations–bonds, development costs, etc.–estimated to be worth about $55 million. See Big Builder senior editor Teresa Burney’s previous analysis of Lennar’s proposed purchase of LandSource assets out of bankruptcy.

Lennar’s accepted letter of intent sets tomorrow as the deadline for its offer of $55 million for an additional 10% of equity in LandSource.

This would indicate a value of $550 million for a land venture that was purchased for $1 billion in 2005, had a book value of $1.3 billion in 2006, and was valued at $2.6 billion in 2007, when Lennar sold 68% interest in the company to MW Partners, a partnership of Calpers, Calpers advisor MacFarlane Partners, and Weyerhaeuser Real Estate Company.

A $300 million valuation for the land in the venture would be a figure that executives familiar with current land trends estimate would be closer to market realities.

The other, more critical deadline, is May 31, which is when the LandSource Debtor-in-Possession (DIP) financing expires. Set up by Barclays, the DIP allows LandSource funds to keep operating while bankruptcy proceedings occur. The next scheduled LandSource reorganization hearing under Kevin J. Carey, Chief Judge, U.S. Bankruptcy Court–District of Delaware, is scheduled for Friday, April 17, at 10 a.m..

Here’s an additional topline from the Lennar offer letter from Burney’s earlier article.

The land Lennar would gain title to through its investment includes Mare Island, Kingwood/Royal Shores, Placer Vineyard, and interests in Lennar Bridges and HCC Investors.

The reorganization plan, which requires approval by creditors and the court, also calls for a non-public rights offering for shares in the newly reorganized LandSource to be sold to generate capital. Barclays would buy whatever isn’t farmed out to other investors.

The challenge with the Lennar proposal is that it takes care of the first lien holders, but it leaves second lien holders and unsecured creditors out in the cold, according to the executive familiar with the offer. The court has indicated it wants a plan that addresses not only the first lien holders, but second and unsecured as well.

“The judge can cram down the amounts owed to all the parties if it comes to that, but if any plan to come out of bankruptcy is going to move forward, there’ll probably have to be accommodations for the 2nd liens and unsecureds, because they can make things difficult if they’re wiped out,” said the executive familiar with the proceedings.

Dan Ryan, Truth or Dare

In the wake of last week’s Pulte-Centex pyrotechnics, a classic debate intensifies. Will public home building companies–with their access to and use of the public equity and debt markets–weather the ravages of the next 12 months better and jump out farther ahead in market share when business shows its first signs of strength next year?

Or will private companies–comprised of a handful of Teflon wonders who survived, plus a few who played their non-compete clauses like violins during the industry swan dive, and, finally, the ones who financially reconstitute themselves like  crabmeat you’d see in the frozen seafood section of the grocery store–come out of this with the secret sauce to dominate the recovery.

Dan Ryan, Photography by Chris Volpe

Dan Ryan, Photography by Chris Volpe

Here’s a story you couldn’t make up. The Pittsburgh Ryan family of home building royalty gives us this example of why you should never underestimate the power of the private home builders, even though lenders have most of them groveling on their knees, begging for time.

Yes, publics have millions of “other people’s money” to draw down and mark down as they figure out what their footprint should be, and what their cost-base can come down to while the going is tough. And public companies have unfair accounting advantages that basically allow them to deflate the land value of all competitors as they liquidate their own holdings and collect tax carrybacks, only to return as purchasers of some of the same land at cents on the dollar later in the cycle.

Private companies’ land impairments are literal pounds of flesh extracted from real people’s pocket books, frequently guaranteed with the company principal’s own personal wherewithal, i.e. their homes, etc. When they write down the value of land, they’re kissing money goodbye–whether it’s their own or it’s borrowed–and that’s bad.

So, here’s the Ryan story, and it’s about almost getting beaten, but not.

Chances are, Frederick, Md.-based Dan Ryan Builders will make it. If all goes as planned, even the current headwinds in the market will only haircut a little over 30% of his single family new-home volume from peak through this calendar year. He can thank being in some decent locations in the D.C. metro market for some of that fortune.

But that’s not all.

He knows adversity by heart. In the early 1990s, as another home building company we’ve all heard of–NVR–was hurdling into bankruptcy, the fact that the “R” in NVR stood for the company founder, Dan’s uncle Ed Ryan, couldn’t save young Dan his job.

When he tells the story, he says, “I left NVR, and started my own company in another tough moment for housing, during the downturn of the early 1990s.” Then he catches himself. “They fired me,” he confesses. “That was a difficult moment.”

So difficult for Dan that he went over to the home of his father and mentor Jim Ryan–Ryland Homes founder in 1967–for solace and direction. They sat out on the patio of Ryan elder’s home, and each of them looked out into the forest to the southwest. Dan tells his father what he’s been told in a very sensitively handled exit interview. He says, “Dad, they said they didn’t want to let me go because they really like me; they just didn’t think I was ready to run a profit center.”

“Dan, you know that in a downturn, a good company like NVR doesn’t let go of their ‘A’ players,” Jim Ryan tells his son. “They don’t think you’re an ‘A’ player, Dan.”

That’s what Dan Ryan got for comfort the day in 1990 he got fired from his $65,000 a year job. He didn’t talk to his father for a week or so from that moment, and his father got to thinking maybe he’d been a little too candid with his son. Jim recalls the moment in his own career in home building in the mid-1960s, when his own brother Ed gave him a pay cut of $5,000 a year–which prompted Jim to leave Ed’s company and go start his own.

So, fast forward to 2007, when Dan Ryan Builders nets a profit of $35 million, both father and son know in their heart of hearts that brutal honesty was what the moment called for.

In fact, after his father told him that NVR hadn’t regarded him an “A” player, Dan went for a public speaking course and a business leadership course a la Dale Carnegie, and started the job of turning his shyness into the warm magnetism you’ll see in him today.

“You’ve got to be strong to be good; it’s something you’ll hear my dad say often,” says Dan Ryan.

There are more of these stories, no doubt. Stories that blend your biography with the business. Stories of your determination; your perseverance; your tenacity. We’d welcome hearing them, and we feel that if you’ll share them with your industry colleagues here, it would give everyone a sense of the strength it takes to be as good as you are.

Those backyard patio moments make us who we are. Backyard patio moments may be where adversity hits the hardest, but also where character and resilience get their kick start. Why not share yours with your industry?

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