Major builder fails scores left in limbo

Regency Homes files for bankruptcy after last-minute deal fails

'We are very sorry'

$500,000 bond unlikely to be enough to cover deposits on homes

July 31, 1998|By Robert Nusgart | Robert Nusgart,SUN STAFF

Regency Homes Corp., whose aggressive style once made it the largest private home contractor in Maryland, declared bankruptcy yesterday, affecting hundreds of customers and creditors in metropolitan Baltimore.

The builder is estimated to have 150 to 200 pending contracts with homebuyers who have hundreds of thousands of dollars tied up in deposits and escrow accounts. Yesterday's Chapter Seven federal bankruptcy filing means the company is out of business.

The company, whose reach once stretched from Baltimore through the Washington suburbs and into Northern Virginia and Richmond, released a statement yesterday saying, "[Regency] has been unable to resolve its business difficulties."

Industry experts labeled Regency's demise as the largest by a Maryland homebuilder. According to Paul Trinkoff, Regency's attorney, the bankruptcy filing contains 119 pages of creditors. Trinkoff also said the Regency Corp. -- the builder's parent company -- would be filing a Chapter Seven bankruptcy petition today

The company -- at one time the largest private home contractor in Maryland, with buildings in almost 40 communities -- had been negotiating to be bought by Beazer Homes USA of Atlanta, the nation's 12th largest builder.

A deal apparently had been reached late last week, but fell apart when certain demands by creditors became unacceptable to Beazer. Calls to Beazer yesterday were not returned.

"It is extremely unfortunate that we have been unable to reach an agreement. Indeed, we were very close to a sale that would have resulted in the most beneficial solution for our customers, subcontractors and employees," said Regency President Frank V. Mazza in the statement. "However, that did not occur. At the last moment, the parties could not agree. To our customers, contractors and employees, we are very sorry for the difficulties this has caused."

In 1996, the company bought out its sole partner -- British construction giant Y. J. Lovell -- with the help of $9 million from Grotech Capital Group, a Baltimore venture capital firm.

Regency continued to seek other sources of capital to finance its expansion and got a $14 million infusion last year from Bankers Trust -- $4 million up front and a $10 million unsecured credit line.

"The thinking was that they waited too long and continued to hope that at the last minute a deal would be cut," said former Regency Vice President George Middleton.

"And when a deal didn't come through, it was too late to do anything else but [file bankruptcy], they really didn't have any choice at that point in time.

"Likely Grotech will be in the same position as the rest of the world, including myself, that money is owed and money is not available."

Almost immediately after the Regency filing, which came minutes before the close of business, the Maryland Insurance Administration released a statement saying it possessed a $500,000 bond from Regency to cover escrow deposits. The statement said the bond would not be a part of the Chapter Seven proceeding.

However, the $500,000 is believed to be insufficient to cover all the deposits on file once the commission determines who is covered by the bond.

Thomas P. Raimondi, associate deputy insurance commissioner, said the commission will distribute the money once the state obtains a complete list of depositors and the amounts owed them by Regency.

End of year

"The exact amount of each distribution as well as the timing of the distribution cannot be determined until all the potential depositors and amounts owed are identified," Raimondi said in the statement. He later said he hoped distribution could come by the end of the year.

The height of Regency's operation came in 1996, but as it continued to expand it was unable to service its debt. Sales offices were sporadically closed, economic problems began to mount and Regency's sales and market share began to slip.

Last year it slipped to seventh largest builder in the region as net sales dropped from 278 in 1996 to 183, according to Meyers Housing Data Reports, a Washington publication that tracks and analyzes new home sales.

With most builders riding a booming market, sales for Regency amounted to 61 for the first three months and only 14 additional sales in the second quarter, dropping them to No. 16 among the area's top 20 builders. The company's share of the Baltimore market dropped to 1.4 percent from 3.4 percent during its height in 1996.

Regency had positioned itself as a builder of upscale "move-up" homes in some of the area's most popular developments, including Hawk Ridge Farm in Carroll County, South River Colony in Anne Arundel, the Villages of Winterset in Owings Mills New Town and Springhouse Station outside of White Marsh.

Over-expansion?

But some in the industry attributed Regency's downfall to over expansion.

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