Woodcrest to Halt Nearly All Its Operations : Development: Builder is latest victim of slump in real estate industry. Most of its remaining 90 workers will be laid off.
Woodcrest Development Inc., one of Southern California’s largest home builders in recent years, is shutting down almost all of its operations at the end of the month.
The company, which launched a restructuring 13 months ago, is the latest--and largest--victim of the real estate slump that has devastated an industry that long has been a keystone of the area’s economy.
Ronald Gilles, Woodcrest’s former president, acknowledged Tuesday that the Irvine-based builder has fallen on hard times and will lay off most of its 90 remaining employees as of April 1. Woodcrest is one of a family of residential, apartment and commercial development companies owned by Corona del Mar investor John E. Wertin.
Because all of the companies are private, penetrating their financial structure is difficult for an outsider. Documents filed recently in the Orange County recorder’s office, however, indicate that Wertin’s entire empire is endangered.
Bank of America, for instance, filed a notice of attachment in January prohibiting Wertin from disposing of much of his private property, including homes in Corona del Mar and San Clemente; or of his personal autos, bank accounts and shares in nearly a dozen interrelated companies. And dozens of mechanics’ liens have been filed against Woodcrest by subcontractors in recent months--an indication that the company cannot pay its bills.
One industry insider said that during the past six months Wertin’s banks have repossessed many of the apartment developments built by another of the companies, Pacific Co.
The various companies’ financial woes stem from weaknesses in both the apartment- and home-building industries, said Gilles, who described himself Tuesday as “just an employee.” Wertin replaced Gilles as president of Woodcrest earlier this year and, Gilles said, is personally directing the diminishing of the company. Wertin did not respond to a request for an interview.
Woodcrest was hit particularly hard in recent months by the loan costs for large parcels of land that it acquired in 1988, when land prices were near an all-time high. Now, as the recession pushes land prices to about 55% of their 1989 levels, Wertin, like many other builders, has had to slash the book value of the property.
As a result, land that his various partnerships and companies acquired in the boom is in many cases not worth what is owed on it. So Wertin cannot raise cash by selling the land: Not only is it worth less, but buyers are scarce because of the recession and the nationwide credit crunch caused by federal regulators’ aversion to real estate lending by the banks and thrifts they oversee.
Complicating the company’s cash-flow problem is the sluggish home sales market. With consumer confidence all but crushed under the weight of a three-year recession, sales are slow, and builders have had to cut prices and profit margins to get what action they have.
Woodcrest, which Wertin established in 1985, was Southern California’s ninth-largest home developer in 1992 and the sixth-largest in Orange County. The company built 623 homes and posted $165 million in revenue last year, according to information that Woodcrest officials supplied to The Times for its annual home builder survey, published March 7.
This year, Woodcrest is building and selling homes in 18 residential projects in Orange, San Diego, Riverside, San Bernardino and Los Angeles counties, Gilles said. The company plans to continue providing sales and warranty service to the projects and to complete development of several of them, he said.
The projects are all owned by limited partnerships, Gilles said, and in many instances the partnerships have opted to look for a new builder to complete the developments.
While various Wertin-owned companies are investors in the partnerships, Woodcrest typically is simply a hired gun, retained by the partnerships for a fee to develop the properties and sell the homes.
One of the partnerships, which owns the Pepperwood Ranch development in Norco, has filed for protection from creditors while it reorganizes its finances under Chapter 11 of the U.S. Bankruptcy Code, Gilles said. The same partnership also owns a Woodcrest project in Victorville and is renegotiating the terms of its construction loan for that development, he said.
Gilles said that he and Wayne Barnett, president of Woodcrest’s San Diego division, will leave the company at the end of the month and start a new home-building firm in San Diego. They plan to hire some of the laid-off Woodcrest employees and are a likely bet, industry insiders said, to land some of the so-called build-out contracts from former Woodcrest partnerships.
Gilles, who had been president of Woodcrest since the late 1980s, would not comment further on the company that he and Barnett are starting.
As for Woodcrest, he described the company as “busily restructuring loans to keep the various projects going forward.” He said he knows of no plans by Wertin to start any new development, however--a sign, perhaps, that this is just one more phase in a slow death for the company.
In December, 1991, Woodcrest announced a reorganization that involved the closing of its Riverside County division and the firing of more than 40 employees, including the presidents of the Orange County and Riverside County units. At the time, Gilles said the restructuring was being done in anticipation of a long-term slowdown in Southern California’s building industry.
Weathering the Storm
Orange County’s five biggest builders, which are among the state’s largest, have had mixed results in coping with Southern California’s long-running recession. Company, Location: William Lyon Co., Newport Beach Rank in state: 1 Projected 1993 sales (millions): $217.0 Percent Change: -31.0% Strategy: Hit hard by declining land values, company is renegotiating loans with its banks, which in some cases have a tight rein on its construction projects. *
Company, Location: Fieldstone Co., Newport Beach Rank in state: 2 Projected 1993 sales (millions): 295.0 Percent Change: -2.0% Strategy: One of the state’s most consistently profitable builders, it tries to keep production steady through good and bad times. Eschews layoffs, maintains close ties with subcontractors. *
Company, Location: Bramalea California Inc., Newport Beach Rank in state: 5 Projected 1993 sales (millions): 178.8 Percent Change: -0.2% Strategy: Facing sluggish sales for its expensive tract housing, it acquires a builder that specializes in mid-range homes. *
Company, Location: Presley Cos., Newport Beach Rank in state: 6 Projected 1993 sales (millions): 207.0 Percent Change: 16.0% Strategy: Loses $11.4 million for 1992 as its land values fall, but analysts say the publicly held company’s cash flow should help it survive. *
Company, Location: Akins Cos., Irvine Rank in state: 7 Projected 1993 sales (millions): 160.3 Percent Change: -3.5% Strategy: Remains profitable by diversifying its operations. Besides building under its own name, it develops and manages properties for major clients. Source: Times research
