C.P. Morgan’s demise puts 2,000 home sites on market already overwhelmed with land

The closure of home builder C.P. Morgan Communities already is a nightmare for its employees and many of its customers.

But its impact on the market for new-home sites could be devastating and linger for years. The end of C.P. Morgan, the largest
central Indiana builder for a decade, will throw 1,200 home lots and options for 800 more onto an already flooded land market.

The C.P. Morgan inventory alone is equivalent to about half the new homes constructed in Indianapolis for all of 2008.

"There’s just such an abundance of lots — it’s going to be a slow game to get other builders to pick them up,"
said Brenda Richards,
a principal and land specialist with Greenwood-based Leading Edge Commercial Real Estate.

She’s talked with builders who wouldn’t take lots in some areas even if they were free because it isn’t worth paying taxes
while they wait for the market to rebound.

Even in custom-home neighborhoods, where lot prices in the past have been nonnegotiable, developers are cutting deals and
offering incentives to persuade builders to bite.

And for the buyers, those with spotless credit, banks are requiring a whopping 35-percent down on home lots, said Richards,
who brokered C.P. Morgan land deals in Greenwood, Franklin and Whiteland.

"It’s a good time to buy if you’ve got money," she said. "I don’t know anyone who has any."

Another challenge for C.P. Morgan lots in partially built subdivisions is that a new builder would have to construct a similar
product-production homes at entry-level prices, among the hardest-hit portions of the home-building market.

Builders with a similar product to C.P. Morgan’s already are dealing with their own problems. They’ve seen their lot inventories
balloon to a five- to eight-year supply, and the last thing they need is to add more, said Steve Lains, CEO of the Builders
Association of Greater Indianapolis.

Meanwhile, finding credit to buy land is next to impossible, and no one is interested in sinking scarce cash into more speculative

Before deciding to shut down, executives at C.P. Morgan had negotiated to sell the company to Michigan-based Pulte Homes Inc.
in a move that could have kept all the lots from flooding the land market. But the deal fell through, putting the land at
the market’s whim.

"Having the property go back to a competitive auction for the prime pieces I think will help keep the price from getting
deflated," Lains said. "But the farther-out land will be on the market for a while."

One potential buyer is locally based Paul Shoopman Homebuilding Group, a firm founded in 2007 by the company namesake, a veteran
builder who sold Dura Builders Inc. to Los Angeles-based KB Home Inc. near the market peak in 2004.

Shoopman has been buying lots in small quantities and is waiting to look at an inventory of C.P. Morgan properties.

The company, which builds in 21 communities, is most interested in subdivisions with existing lots and room for future phases,
making it cost-effective to open a model home and stick around awhile, Paul Shoopman said. One example is the Homestead community
in Monrovia.

"Right now, we just need more buyers," said Shoopman, who is on track to build about 125 homes this year. "The
buyers’ confidence
level isn’t as high as we would like it to be."

He doesn’t expect the C.P. Morgan lot prices to drop much more than 15 percent to 20 percent off the previous range from the
high $20,000s through the $30,000s, in part because plenty of players will be willing to hold onto the lots until the market
returns. Many of the parcels also are in distant suburbs on former farmland.

"Needless to say, they were efficient in pricing and developing," he said of C.P. Morgan.

The home builder sold about 2,600 homes in 2005, more than double its nearest competitor, according to data from IBJ’s Book
of Lists. But by 2007, its output had fallen by half, to 1,200 homes. Data for 2008 was not available.

The company ceased operations Feb. 27, and began sending refunds to buyers who put down deposits on homes not yet built. No
decision had been made on whether C.P. Morgan will file for bankruptcy, a spokesman said.

The undeveloped lots probably will be returned to lenders who already are dealing with a raw-land market that’s "terribly
depressed," said Ice Miller partner Henry Efroymson, a bankruptcy and creditor rights specialist.

He’s not sure dropping more lots will have much of an impact since there isn’t much of a market for the properties now, anyway.
Several projects slated for large tracts already have been shelved. And C.P. Morgan isn’t the first builder to shutter its
local operation. Homegrown Davis Homes shut down in July 2008, and KB Home left the Indianapolis market in 2007.

"Many lenders are holding those undeveloped lots, hoping for a turnaround down the road," Efroymson said. "But
right now,
it’s a buyer’s paradise, certainly for undeveloped lots."

And the outlook for a turnaround looks grim to Richards, the land broker. Is there light at the end of the tunnel?

"Yeah, it’s a train," she said.

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