Southern California lost a well-known home builder this week. Barratt American, based in Carlsbad, CA has filed for Chapter 7 bankruptcy liquidation, closing its doors rather than continue with the Chapter 11 reorganization filed in January. Barratt built more than 17,000 homes in California since the 1980’s, and earned a reputation for innovative construction of entry-level homes. Sagging demand for new homes combined with the tight lending market, sadly, has forced Barratt out of business.
Barratt President Mick Pattinson has served as the president of the Building Industry Association of San Diego building and the California Building Industry Association. He has stated regrets for continuing to build new homes when Southern California land prices ballooned and building fees skyrocketed in San Diego County to as much as $100,000 per house. Barratt remained determined to build homes for sale in San Diego when other builders were canceling development plans and firing workers.
City Square Townhomes In Escondido, CA
But Mr. Pattinson does not take all the blame for Barratt’s demise. He has also criticized Bank of America for pulling funding as early as 2007 on a number of units that were midway through construction. B of A froze Barratt’s $125 Million line of credit, and that was the beginning of the end for Barratt. The company never regained momentum after losing support from B of A. Other builders have voiced similar complaints, as loans for new construction projects have been nearly impossible to obtain in the past two years.
Aragon Townhouse in La Mesa, CA
Barratt is best known in San Diego County for major infill projects including Aragon in La Mesa and City Square in Escondido. Aragon features Mediterranean-style attached townhomes from 1,052 to 1,700 square feet priced from the low $400,000’s. City Square is a planned development of 102 colorful, contemporary 4-story townhomes that were originally priced from the $300,000’s to the $500,000’s, just off Main Street in historic Escondido. The company also recently converted two aging motels in South La Jolla’s Birdrock beach neighborhood into upscale La Jolla condos called the Seahaus.
Seahaus Condominiums in La Jolla, CA (Birdrock)
One major project is left in limbo due to the Barratt’s collapse. Barratt American was the master plan developer for Fantina Ranch in Santee, in Northeast San Diego. Plans were approved in 2007 for 1,400 homes on a sprawling 2,500-acre parcel of land. The project is now facing foreclosure by two different lenders.
Barratt American had grown to the 22nd largest home builder in the region, with as many as 160 employees at the peak in 2005, a year in which it built 172 homes. The company downsized significantly in recent years, and is left with only 5 employees as of the date of its bankruptcy filing. Barratt’s president Mick Pattinson says that there is a good chance that the company will reform in a year or two when the economy improves.
On a brighter note, recent reports suggest that new home construction may be on the rebound sooner than later. Toll Brothers reported higher than expected orders in its fiscal quarter that ended July 31. Toll Brother’s net orders increased 3% from a year earlier, representing the first quarterly gain since 2005. More details will be provided in an upcoming blog post. Come back soon!
Geoffrey Schiering (J.D./M.B.A. Broker/Realtor) specializes in San Diego luxury homes transactions in La Jolla, Del Mar, Carmel Valley, and Rancho Santa Fe. The Schiering Team at Keller Williams Realty provides
Barratt American’s story is very reminiscent of what I witnessed on the east coast during the Savings and Loan crisis in the late 1980’s. Solid builders were stopped in their tracks when banks abruptly stopped financing projects and called for payment in full of the outstanding debt before projects were ready to sell.
This has an affect on many lives of the craftsmen that build the homes and impacts the communities that have partially finished homes for months if not years.
It saddens me anytime I read about a builder’s demise and this is no exception.
Thanks for the information Geoffrey. It’s a shame that another great builder closed the doors. It’s not the first time a decreased credit line was part of the problem.
Hey Mack – did a lot of builders merge during the Savings and Loan crisis?
It is a sorry state of affairs. Mr. Pattinson even suggested a while back that BofA may have cut off the credit line to “go after the assets”. Let’s hope that’s not the case. The banks need to support the new home builders, ideally through thick and thin.