The recent bankruptcy filing by short-lived Arlington, Texas, home builder Wall Homes Inc. is bad news for private-equity outfit Warburg Pincus LLC.
Wall Homes owes the firm about $42 million, according to court papers. Warburg Pincus’s investment, which helped launch the closely held builder at the top of the housing market in 2005, is unsecured and “subordinated to secured lenders.”
Wall Homes said it was forced to file for Chapter 11 bankruptcy protection after it failed to free up more money from its lenders, including J.P. Morgan Chase & Co. and RBC Centura Bank. The builder, which recently was featured on the ABC television show “Extreme Makeover: Home Edition,” said its assets include $83 million in undeveloped land, unsold homes and houses under construction. “We are disappointed in the outcome, but recognize the extremely difficult economic environment facing homebuilders,” Warburg said in a statement.
The moral of this story? Always understand how you’re going to get out of a deal before you enter into it! Whether your strategy is to walk away, utilize the 1031 Exchange or even throwing more money at the deal, make sure you have an “out” when entering into a real estate deal. And remember, ‘buy and hold’ only works when there is appreciation of a property.
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