Publications

How Homebuilders Use The Impending Crisis To Survive and Succeed

Crisis and opportunity have been linked since the beginning of time, and today's business environment is no different.

This month's issue of Competitive Edge examines the housing crisis and how companies use various practices to turn-the-tables and position themselves for extraordinary success. We've matched this with The Kibel Confidential for an insider's view on economic trends and what actions businesses should consider.

HOW HOMEBUILDERS USE THE IMPENDING CRISIS TO SURVIVE AND SUCCEED

The most successful people in this country will share this important fact - Most of their greatest gains occurred when the market was in trouble. Home Builders today are faced with lot prices significantly below the purchase price, very low absorption rates, partially completed infrastructure, inability to meet the terms of the loans and cash shortages.

It is time to take a step back and develop a working Strategic and Business Plan that is believable to the existing lenders and new sources of capital. The Plan must demonstrate to the existing lender that foreclosure is and inferior option to the Plan being presented. The Plan must, therefore, give consideration to cross collateralization, personal guarantees, current default status, future cash flow expectations, reasonable forecasts that reflect a conservative view of the future, and a demonstration of the competence of the existing management. The Plan must show that the restructuring you are seeking allows the business to operate with positive cash flow over the planning horizon. Remember, in most cases, the lenders would prefer not to manage a large and complex project. Hockey stick plans will cause immediate rejection and acceleration of the foreclosure process. If management has already presented a number of forecasts that have not been met, then it is imperative to seek outside assistance to ensure that credibility is achieved.

The planning process, however, should not stop at merely surviving. There are buying opportunities that should be identified and the need to create a marketing plan and financial structure to take advantage of the opportunity. This often requires a financial partner who has the capital and believes in the longer term future of the real estate market. It may be necessary to give away some equity at the front end, offset by participation in the upside.

The difficult task involves the location of these sources. Some may not be in the United States. It is a worthwhile exercise and one needs to understand the kinds of structuring options that need to be considered. The typical sources, while believing in the future of real estate, often lack the expertise to manage and control the various projects. This can create and excellent partnership.

The builders who get there first are going to be the real winners over the next few years while those who are only focused on survival may miss out on a great opportunity for wealth creation.

The Kibel Confidential

Steps Companies Must Take Now...

A Global Solution for a Global Challenge. The Federal Reserve will recognize that the problems of the cash crisis and the economy cannot be solved by domestic action. It is now time to recognize the global economy and the joint interest of the developed countries in providing stability. We, in the Turnaround Business, learned this a long time ago.

Let them Fail. The government needs to be careful about its involvement in the home mortgage crisis. Interference in the Savings and Loan crisis resulted in greater losses than necessary. Many of the borrowers were pure speculators with little to lose. If the values go up they would have gained, if the values go down, the lender losses. The reason the securitized mortgage loans received higher rates of interest is because it was estimated there would be failures in the package, So, let them fail.

There Will be Overkill and in that Overkill Lies Opportunity. Be prepared to take advantage of opportunities to acquire assets at significant discounts. These discounts haven't been seen in many years and may not return for many more.

It Is Time To Preserve Cash And Prop Up The Balance Sheet. Do not be caught in an overleveraged position because the funds you need may not be available even if you are performing adequately. The old rules of lending and obtaining equity no longer apply.

Next Month's Kibel Confidential: The Bubble Has Burst!

Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.