FROM THE FRONT
30 July 3-July 9, 2009 | Dallas Business Journal | dallasbusinessjournal.com
2005andbuiltinAustin,Dallas,FortWorth,
Houston and San Antonio under its subsid-
iary Wall Homes Texas LLC. It was listed
as the fastest-growing privately held com-
pany in North Texas for 2008, according to
the Dallas 100, a business-growth competi-
tion put together by Southern Methodist
University and sponsored, in part, by the
Dallas Business Journal. Separate DBJ
research indicates the company had 299
housing starts in North Texas in 2007 and
311 completions that same year, making
it one of the largest homebuilders in this
market. It reported 105 local employees at
that time.
Wall and fellow Choice Homes executive
Darris McClure formed Wall Homes with
the goal of building homes ranging from
$80,000 to $200,000.
On May 14, Wall resigned from his posi-
tion as CEO of Wall Homes Inc. and became
an equity holder and CEO of the new com-
pany, Endeavor Wall Homes LLC. McClure
couldnotbereachedforcomment,andWall
would not confirm whether his one-time
partner was going to be part of the new
company.
"We're ready to start building houses
probably beginning as soon as Monday,"
Wall said about Endeavor Wall. He declined
to give details about plans for the new com-
pany until results of a recent auction are
finalized.Intheauction,heandotherinves-
tors placed winning bids for some of the
assets of his failed company. He did say
plans include building in six communities
in North Texas and four in San Antonio.
"We're going to have a scaled-down ver-
sionof whatwehadbefore,"hesaid."We're
going to have a lean and efficient organiza-
tion."
A total of 970 lots and 200 homes across
the state valued at more than $14 million
were sold at the June 5 auction, according
to Mark Andrews, a shareholder with Cox
Smith Andrews Inc., the San Antonio law
firm representing Wall Homes. About 10
homebuilders endured 40 rounds of bid-
ding trying to lay claim to what was left
of Wall Homes, Andrews said. The auc-
tion was held in the Dallas offices of Cox
Smith Matthews and conducted by BDO
Consulting Corporate Advisors LLC. Only
participants that submitted a qualifying
bid and an earnest money deposit were
allowed at the table.
The big winners at the auction were En-
deavor Wall and D.R. Horton Inc., which
divvied up the bulk of the lots and homes,
according to court documents. Officials
with D.R. Horton could not be reached for
comment.
Investors in Endeavor Wall include mem-
bers of the extended Horton family, An-
drews said. The lots were owned by four
major lenders -- Chase Bank, Frost Bank,
Guaranty Bank and RBC Bank.
According to court documents, here's
who got what:
D.R. Horton bought lots in San Antonio
and Austin from Chase Bank for $714,000.
D.R. Horton bought Guaranty lots for
$4 million.
EndeavorWallHomesboughtFrostlots
for $4 million.
Endeavor Wall Homes bought 18 Frost
homes for $3.2 million.
Endeavor Wall Homes bought material
assets of Wall homes for $95,000.
Additionally, Wall Homes abandoned
about $2 million worth of lots in Dallas-
Fort Worth and Houston owned by Chase
Bank, and an additional $1.5 million worth
of lots owned by RBC Bank. That means
the banks will maintain and sell those lots
themselves, Andrews said.
The sale is expected to close by Monday,
Andrews said.
Once the auction closes, Endeavor Wall
will be open for business, Wall said. He said
hehasn'thiredanyemployeesandwouldn't
say where his new offices will be.
HedidsaythathelearnedalessonatWall
Homes,whichreceivedfundingfromaprivate
equity firm. His new company will be fund-
edbyinternalcashflowandprofits,hesaid.
"We're going to grow, and we're going to
grow smart," Wall said. "I'm thrilled to be
in a position where we can grow the com-
pany at our own pace."
Jody Reese, a principal with real estate
analysts Residential Strategies Inc., said he
wasn't surprised that Wall Homes switched
from restructuring to liquidation.
"Most builders that go into a restructur-
ing attempt, it hasn't worked out," Reese
said. "It hasn't yet."
Andrews said the Wall Homes bankrupt-
cy is the largest in the industry that he's
seen locally since the late 1980s and early
1990s. But others may very well top it going
forward.
"There's going to be quite a bit of shake
out here for the next few years," Andrews
said.
Dwayne Toler, an expert in distressed
real estate for Dallas-based NewSource
Partners, said it's becoming more common
to see homebuilders such as Wall break
off from a foundering company and start
a new venture. Reorganization is impos-
sible, he said.
"Thecapitalmarketforthehomebuilding
industry is almost nonexistent," Toler said.
"You can't get exit financing, and there's
no plan of reorganization that will work
without added capital."
Toler said the Wall Homes situation high-
lighted one important fact: The downturn
in the housing market has definitely hit
North Texas.
"Alotof peoplethoughtthatDallaswould
be somewhat immune," he said. "We're in a
credit death spiral. Banks won't lend, and
assets will continue to lose value. It's as bad
as I've ever seen it, and I'm afraid it's going
to get worse."
Staff Writer Phoebe Wu contributed to
this report.
kcromerbrock@bizjournals.com|214-706-7112
WALL:Homebuilderstartsnewventurebybuyingassetsofbankrupt1stattempt
GUARANTY: Experts think bank is unlikely to receive the help it's asking for
FROM PAGE 1
year. And despite big capital infusions from
billionaire investors Robert Rowling and
Carl Icahn, the bank said, in essence, it's
hanging by a thread.
Without government assistance and a
"significant equity capital infusion" from
investors, the bank will be out of capital,
and therefore, it will be a target of regula-
tors.
"Theystateitprettyclearly:If thisdoesn't
happen then we're pretty much done," said
Kee Han, an analyst with SNL Financial.
That general announcement had a few
specific targets, said Scott MacDonald,
President and CEO of the Southwestern
Graduate School of Banking at Southern
Methodist University.
"It's an appeal to existing shareholders
and the regulatory community: You're
going to have to deal with this one way or
another," he said.
Guaranty (NYSE: GFG) may also be look-
ing to head off potential lawsuits from in-
vestors.
Colonial BancGroup Inc. (NYSE: CNB) of
Montgomery, Ala., faces at least a half-doz-
en shareholder lawsuits that contend the
bank didn't keep investors fully apprised of
its weakening financial condition. In mid-
June, Colonial received an official order
from regulators requiring it to raise capital
and improve its balance sheets -- a demand
similar to one Guaranty received in April.
Earlier, Colonial had said it had been ap-
provedforthegovernment'sTroubledAsset
Relief Program but didn't clearly state the
additional conditions it had to meet to par-
ticipate in that program, according to the
lawsuits.
"You're a public company: If you don't
tell the truth, you might get sued," Gard-
ner said.
More broadly, a full disclosure of the
bank's situation could help reduce the un-
certainty premium hanging over it. When
Citibank, Wells Fargo and Bank of Amer-
ica disclosed the extent of their subprime
mortgage loan exposure at the start of the
year, their stock prices climbed, MacDon-
ald notes.
GuarantyfacedaMay21deadlinetoraise
additional capital or face regulatory inter-
vention. That deadline has passed.
"They're in limbo, which is why they put
out that announcement," Gardner said.
A Guaranty spokesman declined to
comment for this story. The FDIC doesn't
comment on open and operating banks, a
spokesman said.
Extraordinary assistance
Some 23 banks in Texas received money
via the government's Troubled Asset Re-
lief Program. But Guaranty -- the state's
fourth-largest bank -- did not.
The TARP program was designed to put
government capital into healthy banks that
neededacushiontogetthroughthecurrent
slowdown and continue making loans.
Guaranty has never said whether the
bank applied for TARP funds. The bank
this week again declined to say whether it
applied for that assistance.
"They may not have been in financial
condition to receive TARP," MacDonald
said.
If regulators declined to allow Guaranty
into that program, it's unlikely they would
provide the bank with a rarer, more intense
and potentially more expensive form of as-
sistance, said Ken Thomas, a Miami-based
bank consultant and economist.
Guaranty is asking for "open bank assis-
tance," a plan in which the regulators put
money into the bank or take bad assets out
of it while leaving it open and in the hands
of its current owners.
A Florida parallel
In this respect, Guaranty's request mir-
rors the biggest bank failure thus far in
2009: the May 21 collapse of BankUnited
FSB.
Guaranty and BankUnited are both
savings banks regulated by the Office of
Thrift Supervision. Both have been bat-
tling problem mortgages. And the two are
roughly the same size. BankUnited, based
in Coral Gables, Fla., had $12.8 billion in as-
sets when it failed, according to the FDIC.
At its last report March 31, Guaranty Bank
had $14.4 billion in total assets.
Before it failed, BankUnited sought the
same sort of help that Guaranty now is
asking regulators for. But the bank had
little chance of getting that kind of help,
Thomas said.
The open bank assistance that BankUnit-
ed sought and Guaranty now is seeking
is reserved for the biggest banks in the
country.
"It's big enough to be on the radar screen,
but it's not too big to fail," Thomas said.
"The government is not going to step in
unless there's a system risk. If this was
Guaranty Bank of America, it would be
too big to fail."
The FDIC extended a form of open bank
assistance programs to Bank of America
this January and to Citigroup late last fall.
But based on their experiences in the 1980s,
regulators are biased against open bank
assistance plans, said Commerce Street's
Gardner.
"They have a bias against open bank
assistance, they also have a bias against
banking existing management," he said.
"If you could get it, that would mean bring-
ing in new management."
And no qualified bank leader is likely to
quit his or her job to lead a government-
aided turnaround of a struggling bank,
Gardner said.
Bidders will wait
On the private sector side, Guaranty
won't find investors until the government
has stepped in and wiped away its bad as-
sets and wiped out current shareholders,
Thomas said.
"Nobody's going to touch the bank un-
less the toxic assets are removed," he said.
"They come in after the shareholders are
wiped out. They wait for the government
to do the dirty work."
To be fair, Guaranty is in much better
shape than BankUnited was before its fail-
ure, Thomas notes.
"If thiswasthreeyearsago,wewouldsay
(Guaranty's) is a really bad situation. Now,
compared to BankUnited, it's not as bad as
you would imagine," he said.
Should Guaranty fail, Thomas and
Gardner say its process would resemble
BankUnited's where regulators created a
new bank, stripped away the bad assets and
sold the new bank to the highest bidder.
"The presumption is they'll do what they
did with BankUnited," Gardner said. "It's
a big difficult situation."
A private equity investment group led by
W.L. Ross & Co. and Carlyle Group won the
bidding for the good parts of BankUnited.
It was one of three bidders for those as-
sets, said Thomas, the Florida bank con-
sultant.
Untimely spinout
For 21 years, Guaranty was a subsid-
iary of Temple-Inland Inc. (NYSE: TIN),
a maker of cardboard boxes and timber
building supplies, before being spun out
at the urging of Icahn.
That move was completed in December
2007, just as the excesses of the residential
mortgage lending bubble became appar-
ent.
Guaranty invested heavily in securities
backed by mortgages made in California.
It has not reported a quarterly profit since
it became a standalone institution.
Rumors of its failure have grown persis-
tent this summer.
"I hear every week this is the Friday,"
Gardner said.
Regulators typically close banks on Fri-
day to give them a full weekend to shift
the bank's operations to a new owner or
receiver.
cwatt@bizjournals.com|214-706-7123
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