Neumann Homes to Declare Bankruptcy

Both Crain’s and the Chicago Tribune are reporting that Neumann Homes, the fourth largest home developer in the Chicago area, is about to file for bankruptcy protection.  They rank 59th nationally among the homebuilders. The company has already laid off most of its employees.

From Crain’s:

The “significant downturn in the Detroit, Chicago and Denver housing markets resulted in this situation,” President Kenneth Neumann said in the release.

Neumann, which has 15 subdivisions in the works in Illinois, said it is seeking funding from its lenders to finance the completion of homes already under construction. It also plans to ask the bankruptcy court to allow the refund of earnest money deposits to purchasers of homes not yet under construction, according to the release.

The company has lost more than $60 million in the Detroit market over the past two years, and home prices in some parts of the Chicago and Denver markets have fallen 10% to 25%.

“Even after the significant help we have received from our lenders this year, the company can no longer weather this storm,” Mr. Neumann said.

It should not be a surprise that the developers are now getting hit. Just this weekend in the Chicago area Pulte held a “monster sale” in honor of Halloween (an apt description as some are calling this the “nightmare” housing market) where they were offering reductions of $25,000 to $75,000 depending on the development. The smaller builders are competing with the big boys in the race to the bottom.

Question is, many custom home builders are also out there with finished product they can’t sell (with 1, 3 or 5 homes finished) – what will happen to them? How long will they hold on?

Stay tuned.

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