Builder halts work in county

A prominent Bay Area developer, Delco Builders, has stopped building homes in Sonoma County and brought in a financial restructuring firm in an effort to stay in business, according to a letter sent by the company to vendors and subcontractors.

The decision to suspend work is the latest sign of trouble in the county's construction sector. Housing starts have plunged 61 percent in Sonoma County during the first eight months of 2008, according to the Construction Industry Research Board. Builders took out permits to construct 427 homes and apartments, down from 1,082 during the same period a year ago.

Construction companies have shed 600 jobs in Sonoma County over the past year. There were 14,200 construction jobs in August, down 4.1 percent from a year ago.

Delco had planned to resume construction this summer at its two Sonoma County subdivisions: Southgate in Petaluma and Glenn View in Santa Rosa. The company put both projects on hold last winter with new home sales mired in a slump.

Now the company has stopped all building in the Bay Area and is restructuring finances to repay lenders, vendors and subcontractors, according to the recent letter.

"As we discussed previously, due to the depressed residential real estate market, Delco's cash flow has become very tight, and we need to modify the terms of the loans with our lenders to enable the company to work through the weak housing cycle," the letter stated.

Failure to develop a repayment plan with its lenders will force Delco to shut down the company and liquidate its assets, the letter continued.

Delco officials did not return phone calls seeking comment.

The Pleasant Hill developer's financial crisis comes as home builders increasingly struggle to meet loan payments and pay contractors and suppliers. Builders are tapping reserves, selling land or even renting out unsold homes, industry experts said.

"Everybody is squeezed," said Greg Paquin, president of The Gregory Group, a new home research and consulting firm in Folsom.

Builders will likely face challenges selling new homes well into next year, industry experts said. Foreclosed homes dominate the market and there is a glut of properties for sale in Sonoma County, they said.

"Some guys will file bankruptcy and just walk away. We've seen cases where they really do try to work their troubles out. Sometimes that works, sometimes that just doesn't happen," Paquin said.

Delco cut prices and cut back on starting new homes going into this year, Rick Rosenbaum, the company's vice president of sales, said in an interview this summer.

Before the housing downturn took hold three years ago, Delco started a phase of homes every three months. Last year, Delco slowed the pace and waited up to nine months between phases, Rosenbaum said.

In Sonoma County, Delco was building the 216-home Southgate subdivision in Petaluma and the 49-unit Glenn View development in Santa Rosa. Both are about half built. Delco put up its last home in Southgate in December and in Glenn View in January, Rosenbaum said this summer.

"If demand comes back, we will start building more," he said at the time.

Price cutting and slow sales make it difficult for builders to pay lenders, contractors and suppliers.

A Delco contractor filed a lien against the company last year when it didn't receive the final payment for steel fabricating work on a commercial building in Petaluma. Eastbay Erectors of Richmond was owed $43,000 remaining on the $430,000 contract. Delco later made the payment, Eastbay Erectors officials said.

To help it stay in business, Delco has hired Roseville turnaround specialist Huntley, Mullaney, Spargo & Sullivan.

Steve Huntley, the firm's founder, wouldn't discuss Delco's troubles. He said more developers are turning to the firm for help analyzing finances and negotiating with lenders and creditors.

"We try to make the best out of a tough situation, keep them in business and pay back the lenders as much as they can," Huntley said. "Most often we're being approached to negotiate loan modifications with lenders to make the loans work given today's market conditions. Some lenders are saying can you come up with a new money source and purchase our loan at a discount."

Bankruptcy is another alternative.

"Some developers are doing OK, but they have some projects that are doing terrible. Some are doing terrible, and their projects are doing terrible," Huntley said.

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.