The president of the Estridge Group says he has heard from three potential investors that could help keep his troubled homebuilding operation in business.
Without an infusion of cash, Paul Estridge Jr. said Wednesday, he will likely have to close his sales department within a week to 30 days.
The company needs about $2 million in capital and a credit line of $6 million to $8 million to remain in business, he said.
Carmel-based Estridge Group, one of the area's most recognizable local names in homebuilding for more than 40 years, said Tuesday that it is seeking investors or a line of credit to stay afloat.
Estridge has pared the company from 150 employees in 2004 to 15 today. He somberly told IBJ that he laid off 10 of his 25 employees on Tuesday.
Estridge, which traces its roots to 1967, could become just the latest in a string of local home builders that have failed in the recent economic swoon. C.P. Morgan Communities LP and Davis Homes folded in 2009, and Hansen & Horn Group Inc. followed suit in 2010.
But Estridge remains hopeful about his long-term prospects.
“This is a knockdown, not a knockout,” he said from his office at Clay Terrace in Carmel. “We’ll reconstitute ourselves in some way, shape or form.”
One way or another, Estridge said he has no intention of exiting the homebuilding business. “I’ll never retire,” he said.
Estridge said he needs the line of credit to continue, and without that, more of his firm’s employees will lose their jobs in the short term.
Estridge’s latest pursuit of outside investments marks the second time in less than a year the company has sought a cash infusion to keep operating. Last June, about 25 investors agreed to contribute from $25,000 to $500,000 in exchange for profit sharing.
Banks still hesitate to loan homebuilders money, Estridge said, due to the economy and tighter state and federal regulations that make many loans to homebuilders unprofitable for banks.
“Local banks want to loan the money, but I’m told flat out, if they do, it will be punitive,” said Estridge, who joined the his father's firm in 1983 and helped expand it into a major local player in custom and production homebuilding.
Nationally, new home sales have declined from 1.2 million in pre-recession 2005 to 321,000 in 2010. According to the Builders Association of Greater Indianapolis, home permits filed during the same five-year period in central Indiana have dropped from 13,202 to 3,720.
Steve Beck, managing partner in the local office of Geneva Capital Group and a long-time local banker, said Estridge’s plight is common among home builders.
“The biggest issue today is, what’s the value of the property?” Beck said. “No one is sure if we’ve bottomed out or not, and regulators are talking out of both sides of their mouths. On one side, they’re urging banks to make more loans. On the other hand, they’re telling banks to tighten up [constraints] on those loans.”
Another factor hurting homebuilders like Estridge is appraisers, who Beck said are being “overly conservative and downgrading the value of homes.”
“Until this thing gets worked out,” Beck said, “banks are saying they’re not making any loans that could cause them any potential problems.”
Estridge, 53, said demand for his company’s homes is solid.
Estridge said he has 41 homes under construction, with 21 of those sold. Estridge has buyers lined up for another 28 homes, but has no financing to build them, he added.
Beck said local demand is only part of the equation. Since many loans are sold on the national market, 60 percent of a bank’s ability to offer loans has to do with national demand.
Estridge said he met with all his customers Tuesday night. “People want to know, are we going to finish their homes,” he said. “The answer is, ‘absolutely.’”
Estridge said he laid out three primary options for his home-seeking clients; Get a refund for deposits on houses not yet started; have the homeowner provide financing for construction costs up-front; or transfer the contract to one of two companies owned by family members (Estridge Custom Galleries and Coronado Custom Homes).
While Estridge prefers to spend his days looking forward, he admits he made a big mistake that put his business in jeopardy.
“I continued making interest payments on all the land we owned at a level of $400,000 a month for three or four years,” Estridge said. “That depleted all of our capital. I should have just given the land back to the bank. As I look back, there’s the tactical versus the moral and the ethical.”