Homebuilding in Uncertain Times

While it is too soon to draw any parallels between the coronavirus pandemic and prior recessions, it is prudent to recognize the potential risks for the economy and homebuilders. In prior downturns, quick and decisive action was critical to navigate challenging markets and position for the eventual recovery.

There are many strategic alternatives available to homebuilders that are experiencing the impact of coronavirus. Defensive strategies are likely to be more appropriate for those deeply impacted by the virus, while offensive strategies may be prudent for those with stronger balance sheets or that have been less impacted by the virus.

Click below to access the full report or read on for selected strategies.

Defensive Strategies:

Maximize Liquidity

• Draw down revolving credit facility

• Defer land acquisition and development

• Raise new junior capital

• Raise capital from existing investors

• Extend maturities of existing debt

• Sell land & lots

• Reduce headcount

  Covenant Relief

• Pursue waivers for covenant violations

• Amend agreements

  Deleverage

• Raise equity from new investors

• Rights offering from existing investors

• Convert debt to equity

• Sell land & lots or divisions

  Strategic Mergers

• Merge with competitors to gain efficiencies of scale, rationalize expenses, etc.

• Merge with a peer with a stronger balance sheet, liquidity, and access to capital

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Offensive Strategies

Acquire Distressed Land and Lots

• Acquire land and lots from builders and developers (earlier in cycle)

• Acquire from banks (later in cycle)

  Invest in Struggling Builders

• Invest to provide liquidity and / or deleverage the balance sheet

• Invest senior equity or debt to generate a sufficient return for the risk

• Invest in “fulcrum” to gain effective control

  Acquire Builders

• Acquisition of stock or assets to consolidate market share or enter new markets

• Acquisition through a bankruptcy court (i.e. a Section 363 sale process)

  Strategic Mergers

• Merge with competitors to gain efficiencies of scale, rationalize expenses, etc.

• Merge with or acquire competitors to gain market share and accelerate growth