Builder is one of Arizona's largest
by J. Craig Anderson - Jan. 28, 2009 12:00 AM
The Arizona Republic
A home-building company founded by one of the Valley's most generous philanthropists sought legal protection from creditors Tuesday by filing for Chapter 11 bankruptcy reorganization.
Tempe-based Fulton Homes Corp. is one of the largest home builders based in Arizona, with 21 subdivisions selling homes in the Valley.
Like many builders, Fulton has struggled to keep up with its debt payments as banks demand additional capital so their loan values don't exceed the builders' declining property values, market analysts say.
Fulton Homes was founded 35 years ago by Chairman and Chief Executive Officer Ira Fulton, a prominent community figure and one of the state's best-known philanthropists.
The engineering college at Arizona State University bears Fulton's name, and its Mary Lou Fulton College of Education was named after his wife in May. The couple's Fulton Foundation has contributed more than $160 million to ASU.
Doug Fulton, Ira's son, is the company president.
Neither the Fultons nor company bankruptcy attorney Mark Roth returned calls seeking comment. Court documents show that Fulton Homes owes $100 million to $500 million to more than 100 individual creditors, including lead creditor Bank of America.
The company's estimated assets are listed as $100 million to $500 million, the documents show.
The company is scheduled to have its court-mandated meeting with creditors on March 3.
Companies filing for protection under Chapter 11 of the U.S. Bankruptcy Code typically remain in operation while the court reviews creditor claims and resolves debt issues.
Though it's likely Fulton Homes will continue as a company, bankruptcy creates new challenges in securing credit to build homes - and persuading consumers to buy them.
Future lenders undoubtedly will require Fulton to secure its credit with company assets and will charge higher interest rates, making it more difficult to do business in an environment that is already putting many builders out of business.
2008 was a dismal year for home builders everywhere. Companies such as Fulton that were heavily invested in the outer edges of urban sprawl - places like Queen Creek, Maricopa and Casa Grande - fared the worst.
Phoenix analyst Jim Belfiore of Belfiore Real Estate Consulting said home builders were expected to pull only 6,000 to 10,000 building permits in the coming year, a far cry from the 55,000 permits issued in 2005.
Fulton, like many Valley home builders, had a backlog of speculatively built homes from 2005 to '07. It has been aggressively trying to sell those homes and get contracts on new ones by lowering prices, market watchers say. But the builder had started few new homes recently.
Fulton took out 61 single-family permits to build new Valley homes last year, said RL Brown, a housing-market analyst.
The builder reported 428 closings or sales, so the numbers suggest that most of those sales came from Fulton's speculative inventory, built in past years.
How many more spec homes Fulton has on its books isn't clear. The builder pulled only two Valley building permits in December.
Brown said Fulton's financial situation is most likely a direct result of the housing market's problems and not a product of mismanagement.
"It's bloody out there," he said of the Valley's housing market.
The Arizona Department of Real Estate's most recent list of home builders in financial trouble includes 41 projects by a variety of builders that have filed for bankruptcy protection since the housing market hit a stucco wall in 2007.
Those bankruptcies include Trend Homes, KB Home, Americabuilt Communities and Engle Homes.
Bankruptcy erodes customer confidence, especially since many bankrupt builders stop honoring past customers' home warranties. Belfiore said Fulton customers' warranties could be voided by the court even if the builder wants to continue honoring them.
"Some of the control is not going to be in their hands anymore," he said. "Lenders have a say because they're the ones writing off part of the debt."
Brown said Fulton behaved like every other big builder in Arizona. It bought land during the boom and built houses based on speculation that demand for them would continue to grow.
But home sales and construction have continued to slow in the Valley, and land values have sagged.
Fulton Homes started operations in 1974 and grew to become one of the Valley's biggest private home builders.
In December, Doug Fulton told The Arizona Republic that the coming year would bring about "natural selection of the building industry."
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