Paul Estridge Jr. says he’s in talks with three investors who are interested in keeping his home-building operation, The Estridge Group, in business.
If the investors, whom Estridge wouldn’t identify, don’t intervene, the company will probably be forced to discontinue its sales operation within 30 days, Estridge told IBJ.
Estridge has pared the company from 150 employees in 2004 to 15. The company had 25 employees before 10 were let go March 15.
Estridge, which traces its roots to 1967, could become just the latest in a string of local home builders that have fallen to the 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 upbeat about his long-term prospects.
“This is a knock-down, 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 home-building business.
“I’ll never retire,” he said.
Estridge, who joined the family firm in 1983, said he needs a $6 million to $8 million line of credit to continue and that, without it, more of his firm’s employees will lose their jobs in the short term.
Estridge’s latest pursuit of outside investors marks the second time in less than a year the company has sought a cash infusion to keep operating. Last June, 25 investors agreed to contribute from $25,000 to $500,000 in exchange for profit sharing.
The banks are still hesitant to loan home builders money, Estridge said, due to the economy and stiffened state and federal regulations that make many loans to home builders unprofitable for banks.
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 during the same five-year period in central Indiana dropped from 13,202 to 3,720.
Steve Beck, managing partner in the local office of Geneva Capital Group, 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 on those loans.”
Another factor hurting home builders 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.
He has 41 homes under construction, he said, with 21 of those sold, and buyers lined up for another 28 homes but no financing to build them.
Estridge said he met with all his customers Tuesday night.
“People want to know, are we going to finish their homes?” he said.
He laid out three primary options for his home-seeking clients, he said: Get a refund for deposits on houses not yet started, have the homeowner provide financing for construction costs upfront, or transfer the contract to one of two companies owned by his brothers-in-law (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.”•