Anatomy of a home builder's liquidation

Kimball Hill Homes CEO Ken Love recently laid out the plans to dismantle the nearly 40-year-old home building company to Builder magazine. What caught my eye (in bold) is that during bankruptcy they still managed to pay of 96% of their subs and suppliers. So how did they do that when I keep hearing tales of other builders stringing their vendors along for months at a time? Read on:

In an interview with BUILDER yesterday afternoon, Love laid out how Kimball Hill intends to close its operations, in three phases. Over the next 120 days, the company intends to complete 450 homes that are in various stages of construction, and deliver those homes to buyers. Within the next six months, Kimball Hill also hopes to be able to sell its 170 homes in inventory and 90 models. (It is returning deposits to around 100 buyers of homes that hadn't been started.)

During the second phases, which will happen simultaneously with the first, Kimball Hill will attempt to "monetize" its land and other assets. As of October 31, the company had 66 owned communities in which there are 3,018 finished lots, 419 lots under development, and 3,740 "paper," or raw, lots. Love says that he would prefer to sell off these assets in bulk to one or a few buyers, even though he admits the demand for land right now is soft. "The gap between bid and ask has widened," he observes. That being said, he believes there are investors looking to buy land they can hold on to for a number of years until market conditions improve. However, if Kimball Hill can't find a single buyer for its real estate, it will sell off assets individually over the next 15 months.

Phase three will involve tying up loose ends, like pending lawsuits. But unlike most other bankruptcies, Kimball Hill is not saddled with a blizzard of mechanics liens. "We’re very proud of what we did during the Chapter 11," says Love, whose company set up a pre-petition liability fund that, to date, has repaid 96 percent of its trade partners and product suppliers. Love notes as well that as employees are laid off, each will receive a "fair" severance that is based on their levels of responsibility and tenure with the company. (Kimball Hill still has $35 million in debtor-in-possession financing it can draw on, as well as cash from the sale of its homes.)

For those people who think it's simply a formality for new home builders to take the place of companies like Kimball Hill because they're essentially 'all the same,' I can assure you many companies would not have acted this fairly and decently towards suppliers/subs and employees.