by J. Craig Anderson - Oct. 10, 2008 12:00 AM
The Arizona Republic
This year has been a difficult one for Trend Homes, but in some ways the Chandler-based home builder has been fortunate.
It was on the brink of insolvency in January when private equity firm Najafi Cos. agreed to purchase the bulk of its assets through a Chapter 11 bankruptcy proceeding.
Now, the second incarnation of Trend Homes, or as company CEO Reed Porter calls it, "T2," is trying to pick up where its failed predecessor left off.
Porter spoke with The Arizona Republic recently about the company's recent troubles and where things stand today.
Question: How is the company's health now compared with a year ago?
Answer: First of all, it is a new company. The Najafi Cos. formed a new legal entity. They acquired assets of the old company through the bankruptcy, including homes, lots, computers and other equipment. They also purchased the names Trend Homes and Classic Communities and hired all the (50) old employees, too. But it is a brand-new company that doesn't have any of the old issues.
Q: What led Trend Homes to file for bankruptcy protection in January?
A: It was kind of what would be known as a prepackaged bankruptcy. The deal was heavily negotiated with the creditors. Najafi wanted to buy the company's assets, but those assets had decreased substantially because of the housing market. They were no longer worth as much as the debt. So the old Trend Homes sold almost all of its assets to Najafi through what's known as a 363 sale, which can only happen through Chapter 11 reorganization. It's a complex process that allowed Najafi to purchase assets and assume some of the debt. The old (company) is still in Chapter 11.
Q: What's the relationship like with Najafi, and what role does Trend's new owner play in day-to-day operations?
A: We now have new credit that allows the company a fresh start to go ahead and continue to do business, and we can offer homes at today's market price. We're no longer hanging around with a bunch of overpriced assets. Our new home prices are competitive with foreclosures and short sales, and we're ready to go. Trend's six communities completed construction on all the unfinished homes this summer. We're eager to get some new homes sold in those communities.
Q: Several weeks ago, the company was trying to reach an agreement with its former land bank, Taro Properties Arizona, to buy nearly 500 vacant lots inside the partially built Cooley Station North subdivision in Gilbert that were going into foreclosure. What was the outcome of those talks?
A: When Taro filed for bankruptcy (in August), that stayed the foreclosure. We're still trying to put a deal together to buy those lots, but there's no plan at all. Certainly we have an interest in continuing to build homes there. The new Trend Homes will continue to build homes in six of the old Trend's seven communities, but Cooley Station North is being treated differently because it has a different bank. For whatever reason, they didn't like the terms that the other bank liked.
Q: Even though you don't have any plans to continue building homes inside Cooley Station North, you are still the sole member of its homeowners association board of directors. Are you planning to step down from that position?
A: That's being worked out through the Taro bankruptcy. The new Trend Homes doesn't have any assets in Cooley Station North, but Taro owns 65 percent of the property. The last thing (Taro) wants is for the property to decrease in value. They've got $30 million worth of land that they're trying to protect. The management company is still operating, but everyone's doing all they can to cut costs and services during these difficult times. It's a challenge everywhere. Every single partially built community is having trouble with the HOA.
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