Big Retirement Home Builder Seeks Chapter 11 : Housing: Leisure Technology is the second major firm in its field to file for bankruptcy protection this month. A nationwide industry sales slump is blamed.
The nation’s housing slump claimed another victim from the troubled real estate industry Friday when Los Angeles-based retirement home builder Leisure Technology and seven of its subsidiaries filed for protection under Chapter 11 of U.S. bankruptcy laws.
Leisure, one of the nation’s largest developers of retirement communities with estimated annual revenue of $183 million, was the second major home builder to seek protection in federal bankruptcy court this month. In its court filing, Leisure Technology listed assets of $218 million and liabilities of $168 million.
On April 15, Houston-based U.S. Home Corp., which has estimated annual revenue of $690 million, filed under Chapter 11, a company official confirmed Friday.
Chapter 11 allows a company to continue operating under supervision of the bankruptcy court while it attempts to reach settlements with creditors.
Leisure Technology and U.S. Homes have been hurt by the nationwide housing slump, which has depressed home values as much as 30% in some areas.
In a memorandum to his company’s 100 employees, Chairman Michael L. Tenzer said Leisure sought protection in U.S. Bankruptcy Court in Los Angeles because “potential (retirement home) purchasers often have been unable to sell their existing homes or to obtain sufficient equity from depressed resale prices. As a result, our prospective purchasers are unable to buy new homes.”
Although Leisure continues to negotiate for new working capital, lack of demand for its upscale retirement homes in Florida, New York, California and New Jersey caused it to default on $102 million in secured loans and $66 million in unsecured bonds.
In Leisure Technology communities such as Leisure Village Ocean Hill in Oceanside, where prices start around $275,000, sales dropped 63% in the third quarter.
Late Friday, the New York Stock Exchange announced that it has begun a review to determine whether to continue listing Leisure’s common stock and $2.25 cumulative convertible stock in the wake of the bankruptcy court filing.
In trading Friday, Leisure Technology stock closed at $1.625 a share, down 12.5 cents.
In recent weeks, real estate brokers said, lower mortgage rates have lured more potential buyers from the sidelines, helping home sales stage a small rally.
Tenzer said he too has been heartened by increases in the number of signed contracts for Leisure homes in March. He also noted that the inventory of homes fell to $20.4 million on April 24 from $21.2 million Jan. 31.
In light of the developments, as well as ongoing talks with creditors, Tenzer said, “hopefully, we will emerge quickly” from bankruptcy court.
But Kenneth Campbell, president of Audit Investments in Upper Saddle River, N.J., gives Leisure Technology only a 50-50 chance of emerging from bankruptcy court.
“I’ve always thought their management was very bright and they build a heck of a good product, but it is going to take a special act of genius” to extricate themselves from bankruptcy court as a going concern, Campbell said.
