Real Estate Journal

With home sales slowing to a crawl and buyers unable to qualify for mortgages, some home builders are struggling to keep their operations going.

Already, Levitt Corp.’s Levitt & Sons unit has filed for bankruptcy-court protection, and a second builder, Tousa Inc., said it is considering several “in and out of court restructuring and reorganization” options, including a possible Chapter 11 filing. While those small Florida-based builders were partly crippled by company-specific issues, the make-or-break matter for most builders — and for those who may be enticed by their cheap stock prices — is the ability to generate cash to service debt and to pay for the construction of new homes. Such liquidity risks could trap investors.

“Liquidity is the No. 1 concern for builders, and rightly so,” says Nishu Sood, an analyst at Deutsche Bank. “It’s a matter of survival,” he says of the many builders that borrowed heavily for the land they stockpiled during the housing boom.