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Investment funds move to bankroll builders

Applicants and financiers meet in a pavilion at the International Builders’ Show in Las Vegas. The National Association of Home Builders created the partnership between builders and private equity firms to help builders gain alternative financing for projects. (AP Photo by Laura Rauch)

Applicants and financiers meet in a pavilion at the International Builders’ Show in Las Vegas. The National Association of Home Builders created the partnership between builders and private equity firms to help builders gain alternative financing for projects. (AP Photo by Laura Rauch)

By Alex Veiga
AP Real Estate Writer

Las Vegas — Take a risk. Put some money on the line. See what happens.

It’s a scenario that plays out daily in this gambling mecca. But even by Las Vegas standards, some of the riskiest action last week was happening far from the shimmery din of slot machines and blackjack tables.

More than a dozen private equity firms and a handful of lenders held court in a corner of the Las Vegas Convention Center, receiving a throng of homebuilders looking for a financial lifeline.

The event, held over four days during the International Builders’ Show, was meant to address a key industry roadblock. Homebuilders have seen land development and home construction loans all but dry up since the financial crisis erupted in the fall of 2008. Many have had to walk away from half-finished projects or even shut down.

Now some private equity funds, seeing the potential to charge up to 20 percent interest, are cautiously bankrolling some projects, despite the danger that the fragile housing recovery could stall.

“It’s a very opportune time to make loans,” said Craig Manchester, managing partner of Sentinel Capital, a private equity fund that launched a few months ago.

Speaking from his office in Newport Beach, Calif., Manchester said he charges builders between 12 to 15 percent, plus fees. “A year from now, two years from now — who knows — there may be other lenders who are competing against us, driving our pricing down.”

With rates as high as credit cards, it will be hard for some builders to be able to make a profit on the homes they sell. Still, builders need to start their bulldozers now if they want to be ready for the spring homebuying season.

“We’re missing opportunities,” said Michael Sivage, CEO of Sivage Homes in Albuquerque, N.M. “I’ve got three developments right now that if financing were more available, they’d already be under way.”

At the trade show, builders lined up in front of computer kiosks to enter financial information. They waited in a makeshift lobby before meeting privately with financial advisers brought in to play matchmaker and, ultimately, private equity firm managers.

By Friday, about 255 builders registered to meet with the managers, said Lisa Marquis Jackson, vice president of John Burns Real Estate Consulting, which sponsored the event.

Still, the meetings appeared to be more financial speed-dating than anything else.

Builders got to deliver their pitch and investors got to scout potentially favorable deals, but organizers said the meetings were just the first step in the process.

Traditionally, homebuilders turned to banks for loans to buy land, cover the costs of preparing it for development and, ultimately, pay for construction. Banks usually used the land and homes being built as collateral against the possibility the builder defaulted.

But that approach hit a snag when the housing market went bust, sending land values and home sales into a free fall. And just like many homeowners who suddenly found themselves owing more on their mortgages than their homes were worth, many builders were stuck carrying loans on properties that were worth significantly less.

The credit crunch squeezed banks further, and they pulled back on real estate loans.

Sivage, who also builds homes in San Antonio, Texas, wants to line up financing through a private equity firm.

The builder is having trouble getting the money it needs to expand even though it sold 300 homes last year — a 20 percent increase from 2008 — and is profitable.

“In a normal market, we’d have bankers beating down the doors to get our business, but not today,” he said.

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