Stranded Regency deals may be saved Washington Homes has tentative pact to acquire buyer contracts

To pay $25.5 million

Agreement needs bankruptcy court OK

creditors may object

Real estate

August 27, 1998|By Robert Nusgart | Robert Nusgart,SUN STAFF

Hundreds of homebuyers, stranded by the demise of Regency Homes Inc., may have gotten a glimmer of hope when Washington Homes Inc. of Landover yesterday announced it had entered into a preliminary agreement to purchase certain assets -- including contract rights -- of the bankrupt builder.

The tentative agreement for $25.5 million made between Zvi Guttman, the trustee appointed to the Regency case by the U.S. Bankruptcy Court, and Washington Homes is subject to the reaching of a definitive agreement, a review of all contracts and bankruptcy court approval.

Regency Homes, which at one time was the largest private home builder in Maryland, filed for Chapter 7 bankruptcy protection less than 30 days ago. According to Regency attorney Alan M. Grochal of Tydings & Rosenberg, the company had liabilities of $48 million.

Regency also left 220 buyers with homes in various stages of construction in more than 26 communities from Baltimore to the Washington suburbs and to Richmond, Va., in limbo.

"Honestly, it really is a mess," said attorney Joel Sher of Shapiro and Olander, who is handling the case for Guttman. "We've been in this for a couple weeks and we think we have our hands around the assets and liabilities and we're working our way through it all, but it is an ongoing process."

Regency did purchase a $500,000 bond to cover homebuyer deposits, according to Thomas P. Raimondi, associate deputy commissioner of the Maryland Insurance Administration, but he said it won't be enough to cover the approximately $1.3 million in deposits that Regency had on file. Thus far, 70 of those 220 buyers have contacted his office to file a claim.

The assets to be acquired or managed include building lots, unsold homes, construction-in-progress and contract rights to communities in Maryland and Virginia. Washington Homes said it would not need outside help to finance the transaction.

10th in Baltimore

According to Meyers Housing Data Reports, a Washington publication that tracks and analyzes new-home sales, Washington Homes was the Baltimore area's 10th largest builder for the first six months of 1998. Add its Washington communities and it becomes the fifth largest builder of homes in the Baltimore/Washington market.

The publicly traded company is coming off its fiscal year that ended July 31 with sales rising 12 percent, and its backlog -- homes sold but yet to be settled -- up 39 percent from 1997. Shares in Washington Homes gained 12.5 cents yesterday on the New York Stock Exchange, closing at $5.875.

"All we have done is put in a tentative agreement to reach a definitive agreement, and that process has to happen first," said Christopher Spendley, chief financial officer of Washington Homes. "And once given the green light to go ahead, we would take a rather fast timetable to meet with customers and people who are interested in going to the next step."

Credit for buyer

If the deal is approved by the court, Washington Homes would credit homebuyers with the amount of their deposit and -- depending on the stage of construction -- would either continue with Regency's architectural design or offer one of their own plans.

Nevertheless, Spendley admits that the offer may meet resistance from the hundreds of Regency creditors -- secured and unsecured.

"I think it will take some time," Spendley said. "I do not think it will sail right through. Probably the secured lenders represent the largest group so we will have to wait to hear what their response is."

Grochal said the secured creditors, including Bankers Trust Co. -- the largest at $14 million -- make up $32 million of the total liability.

A creditors meeting, open to the public, has been scheduled for tomorrow at 10 a.m. at the U.S. Federal Courthouse in Baltimore.

Lower offer

The $25.5 million offer is much less than the reported $41 million that, according to Grochal, was offered by Beazer Homes USA of Atlanta before negotiations broke down a week before Regency's bankruptcy filing. That deal came apart when certain lenders declined to take less money.

"There are two things that [the trustee] wants to accomplish," Sher said. "One, trying to get rid of all the assets in bulk, one sale to one buyer. And then get some accommodation for homebuyers. Individual consumers in this case really got hurt. This deal accomplishes both those goals."

Spendley said Washington Homes was familiar with Regency's problems and had conversations with Regency prior to its bankruptcy filing. And when Regency filed for bankruptcy protection, Grochal said, Washington Homes renewed negotiations.

Spendley said the offer was constructed in a manner that would take into account "what we believe is the value and the future value of those assets" and "the complications that we are likely to encounter because the assets have been in a bankruptcy situation."

Seen as good move

Jim Joyce, president of the Ryland Group's Baltimore division, said that it was a good strategic move for Washington Homes.

"There will be some remedial costs to clean up, but for Washington Homes, they see it as a good moneymaking deal," said Joyce, whose company is taking over defaulted Regency lots in the Owings Mills community of Winterset. "They are active in all those places [and] they should have very good coverage in terms of field sales and production operations.

"It should work out well for them," Joyce said. "it's sort of a one-time pop."

Pub Date: 8/27/98

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