The case of Barratt American, the Carlsbad developer of some 18,000 homes in Southern California over the course of nearly 30 years, was converted from a Chapter 11 bankruptcy into a Chapter 7 liquidation Thursday.
While a major chapter in San Diego's homebuilding history ended when U.S. Bankruptcy Judge Louise DeCarl Adler signed the order at about 2 p.m. Thursday, Michael Pattinson, Barratt American president, seemed anything but despondent.
Pattinson was hoping the Chapter 7 wouldn't come, but emphasized if the firm were liquidated, he would be prepared to start from scratch and rebuild a new company.
Last fall, Bank of America (NYSE: BAC) foreclosed on scores of lots at Barratt properties in San Diego County and the Inland Empire.
Richard Kipperman, the Chapter 11 trustee in the case, said the company doesn't have much left.
"They have two lots in Encinitas and maybe 10 acres in Perris. Most everything else has been foreclosed upon," said Kipperman, who may be named the Chapter 7 trustee in the case.
Kipperman said Barratt was simply a victim of the economy.
"They had hoped the downturn would be short-lived. but it didn't turn out that way," Kipperman said.
A separate Barratt American-affiliated partnership -- Barratt itself has a 25 percent stake -- owns the Fanita Ranch property in Santee, but probably not for long.
Two entities are seeking to foreclose on the 2,600-acre Fanita Ranch, where nearly 1,400 residential units were planned.
A partnership controlled by the Westbrook Partners firm, which formerly owned the property, is the senior noteholder and is owed more than $15 million.
Guaranty Bank of Austin, while not the senior noteholder, is owed more than Westbrook. That entity is owed about $30 million at this point and the interest is continuing to accrue.
Westbrook had hoped to develop Fanita under its Terrabrook Homes subsidiary but gave up in the wake of community opposition before Barratt was able to secure the approvals later. Approvals may not matter.
"So what do you do once it's foreclosed upon? Santee got the plan passed but they haven't been able to get the project developed," Kipperman said.
Westbrook and Guaranty meanwhile are currently battling in the bankruptcy court to determine who will foreclose first -- effectively freezing the other lender out.
Further complicating matters in this tussle is the fact that Guaranty itself has been threatened with liquidation by the Office of Thrift Supervision due to allegedly unsound lending practices of which the Fanita Ranch loan may be a part.
Under any scenario, Fanita is almost certainly lost to Pattinson and his partners, and in this economy, even fully entitled assets of this size aren't likely to be developed anytime soon.
Santee Mayor Randy Voepel, who contends that "Mick Pattinson did everything right including coming up with $1 million to widen (state Route) 52," predicted that it will be at least five to seven years before the property can be developed if then.
Fanita Ranch was approved by the Santee City Council in December 2007, but environmental groups have been in the courts attempting to challenge the plan for decades.
Most recently, the struggle has been over the balance between fire protection and habitat preservation.
Voepel said he believes this issue will be resolved, but that doesn't mean the property will be developed. Pattinson agreed.
"With all the costs of ownership and the infrastructure costs, nobody's going to go out to Santee and build houses today." Pattinson said.
Barratt, which had been operating in Chapter 11 bankruptcy since last December, has had a lot more to worry about than just Fanita, which the homebuilder-led partnership, Fanita Ranch LP, acquired in 2003.
Within a year of Fanita's acquisition, principals of the firm led by Pattinson felt confident enough in the homebuilding business that they paid a reported $165 million to purchase Barratt American from its then-British parent, Barratt Developments PLC.
As recently as 2006, about the only thing Pattinson was complaining about were high development impact fees.
With a reported record $378.67 million in revenues for the 2006 fiscal year ended in June, the homebuilder had plenty to cheer about, but then the recession hit and things quickly began to fall apart.
Pattinson contended what really pushed his firm over the edge was the refusal by Bank of America (NYSE: BAC) within the past 18 months to extend a $125 million credit line.
Pattinson had been able to pay down about $70 million of the line when the funding was frozen.
"After having been with Bof A for 27 years, they weren't very loyal to us," Pattinson said.
Homebuilders have had more than a few difficulties with lenders over the last year.
San Diego-based Innovative Resort Communities liquidated last December, after it was unable to convince City National Bank to renegotiate a $15 million loan.
As for Barratt, BofA claimed at the time of the bankruptcy filing last December that it was owed $84 million in secured and unsecured debt.
If the 20 largest creditors in the Barratt bankruptcy are taken together, the total easily exceeds $100 million.
This doesn't even count the amount owed on the Fanita Ranch property, which is under a separate Chapter 11 bankruptcy filing due its different ownership structure
Assuming Pattinson does rebuild his firm, what might it look like?
"I think we'll start with lower-priced product and work our way back up from there," Pattinson said.