Monday, October 24, 2005

Spec Homes Break Homebuilder

This article from Kansas shows how a developer can get in trouble. "In the past few weeks, dozens of subcontractors have filed mechanics' liens against properties built by Three Sons, claiming that Wes Pechin owes them money for work done in Andover. Sixty-seven liens have been recorded so far in the Sedgwick County Courthouse, totaling nearly $385,000."

"The trouble continues for Pechin, who can't afford to complete several homes in the residential developments. And last week, the Wichita Area Builders Association board of trustees suspended Pechin's membership. Pechin says he understands the concerns from WABA and his subcontractors, but says he's trying his best to fix the mistakes he made, which started when he overestimated the amount of work he thought he'd get in 2005. That led him to overspend and overbuild, leaving Three Sons operating for the past 90 days on zero revenue."

"He says he's working with bankers, subcontractors and homeowners to get everyone paid back and get the houses finished. 'I've been in construction my entire life, and I've never done anything other than be completely honest,' he says."

"Pechin went more than four months without any new business. And eight spec houses that he built, thinking they'd sell quickly, haven't been touched. With virtually no money coming in, and unused inventory already paid for, Pechin found himself in a deep hole."

"Pechin says his problems are a combination of a market that isn't as good as he expected, and him 'setting the bar too high.' WABA president Wess Galyon disagrees that the housing market has been soft. He says Pechin simply made an error in judgment and built more homes than he could sell, which caused him to lose money and not be able to finish what he had started."

"'I think what's happened is there was some wrong decisions made about products, the timing didn't gel with the volume of building being done, and it just caught up with him,' Galyon says."


At 6:43 PM, Blogger Chip said...

I feel bad for people like this guy, since he apparently is a small- potatoes contractor. Too bad he didn't cut the price of his spec homes down to cost (or less), just to dump them, until he was out of the woods. Perhaps he was greedy, but that was not apparent from the article. Usually these folks are not Rhodes scholars, just salt-of-the-earth people trying to do well with whatever gifts they were born with.

I have great respect for the small-time entrepreneurs of this country, who take risks in order to make money. They employ others and if they get rich as a result, good for them! As Rush once said, "Have you ever tried to get a job from a poor guy?"

I'm risk-averse. As a result, I have not gotten rich and I do not regret that. But I'm happy for those who did take the risks who also got rich -- many others risked and did not gain or, worse, lost it all.

My hat is off to the entrepreneurs who try, without government help or interference, to make a go of it. As for builders who looked at the national bubble and though it might pertain to their Podunk community, I feel bad for them.

At 2:37 PM, Blogger Sofakingold said...

It's the little guys like this guy who are really going to get creamed by the slow down. The bloated ranks of speculators/developers/investors all subscribe(d) to the business model that showed prices would always increase. When the shit hits the fan, the weak must quickly fold or they get crushed. Egos and greed usually make it really ugly.


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