Is there Life After Bankruptcy?

By Betty Parker September 30, 2010

milano-(1).jpgThe financial downturn sent virtually every element of Southwest Florida’s development-oriented economy into a tailspin, but few companies have ridden a roller coaster like developer WCI Communities.

In the past decade, the Bonita Springs-based company shot up meteorically, fell into bankruptcy and is now back in the business of building homes. “It’s not only a new company,” says CEO David Fry, “it’s a new company in a new world. The world has changed, and we have to change with it.”

The business was a Southwest Florida giant from the start, building 18 master-planned communities in Florida, including several along the Gulf coast from Manatee to Collier counties. In 2002 WCI went public, followed by years of expansion into the Northeast and Middle Atlantic states. In 2004 the company was named “America’s Best Builder” by the National Association of Home Builders.

Then the economy tanked. Real estate sales stalled. And contentious boardroom battles ensued, fueled in part by the notorious Carl Icahn, a billionaire investor who once chaired the board. WCI, facing about $2 billion in debt, declared bankruptcy in 2008.

After 13 months of reorganization, WCI emerged from bankruptcy late last year still intact and with a debt now at $230 million. And after years of no home-building activity, 11 new residences are under construction at Venetian Golf and River Club in Venice and Pelican Preserve in Fort Myers—communities chosen because of high demand, few existing homes on the market and few foreclosures. More new homes are planned later this year at Heron Bay in Coral Springs on Florida’s east coast and Manchester Square in North Naples.

“WCI will keep its focus on designing, creating and operating ‘premier lifestyle communities,’” Fry says. But the definition of “premier” is different now.

The market dictates that home prices will range from $200,000 to $700,000, he says. That’s well under the upper six figures to $10 million-plus the company used to charge for custom work. And they will be one-story, single-family homes. None of the towers WCI once built are planned; the market has too many now.

Fry thinks there’s also an oversupply of golf courses, and foresees fewer of those in future WCI projects. “There’s a generation coming up that plays less golf, that has different needs and wants,” he says. Amenities are still important, he says, but buyers now measure the total package value more carefully.

Ken Plonski, a WCI vice president until he left in 2007 to start Master Planned Communications, a public relations company for developers, says the new strategy should work for WCI. “There’s an opportunity for them, but it may take years,” Plonski says. “This new WCI is a completely different company than it was five or six years ago. They have to prove themselves again, and if they do, their chances of success are much better.”

The previous emphasis on luxury homes, especially the high-rise towers, helped lead the company into bankruptcy, he adds. “The change to the mid-market buyer should be more stable. If they don’t start building too far ahead of their actual contracts, they should be OK.”

Both Plonski and Fry say the company faces a challenge from the number of resales on the market, which needs to shrink more before people start buying new homes.

But WCI has no intention of leaving Florida. “We’re known as a Florida developer, and our demographics are here,” says Fry, pointing to the retiree/empty nester/second-home buyers he sees as customers. WCI’s assets outside the state are being sold.

Fry’s assessments are echoed by other top WCI executives. Some are relatively recent hires in the company, and their experiences with the “new” WCI are different from long-time leaders who’ve been along for the entire ride.

But they all agree the new WCI is ready and able, and already moving into a new world of real estate.

David L. Fry

President and CEO

David Fry has held several executive positions with WCI since he joined the company in 1995. But it was Friday, Aug. 1, 2008, when he had his first-ever conversation with then board Chairman Carl Icahn.

In a brief phone call, Icahn told him the former CEO, Jerry Starkey, had resigned. He offered the job to Fry, who accepted. Then he told Fry that on Monday they would file for bankruptcy.

“It was my worst nightmare,” says Fry, who already

had been cutting staff and costs because of the slow-down in sales. “I assumed that we would not be keeping the golf courses or the communities. I assumed we

would liquidate.”

That assumption was wrong. The company survived, and is now building homes on a schedule that calls for steady increases. But the experience in the months between then and now was one that few business leaders face.

In the first few months after bankruptcy, the focus was on paying vendors and employees, and essentially stabilizing the business, says Fry. Determining the value of the company came later, and was complicated by the meltdown of the financial industry.

“No one was forecasting anything,” Fry says. “It was very difficult to get cohesive views for a five-year period, but finally we did.”

That formed the backbone of a plan to bring the company out of bankruptcy. The board of directors, secured creditors and unsecured creditors all had to agree on that plan, and when they did, in June 2009, the company was able to emerge from bankruptcy. A process that was expected to take 18 months was done in 13.

Little hint of the turmoil would have been obvious to an outsider or visitor to their communities during that time. But inside the company, things were tough. Layoffs and “right-sizing” actually began much earlier, in 2006, in response to the housing slowdown.

Then, in the spring of 2007, billionaire mogul Icahn launched a takeover bid for the company, calling Starkey and board members “not qualified” to lead the company through the difficult industry conditions. After five months of fights and blame from both side, shareholders voted that fall to put Icahn and two of his nominees on the company board.

In 2008, Icahn ordered a halt to home construction, followed by more layoffs. In August that year, the company filed for Chapter 11 bankruptcy. Regulatory filings show Icahn divested his shares in the third quarter of that year. The company is now owned by its lenders.

Employee morale was an issue. “We tried to do a lot of communicating,” Fry says. “We wanted to be honest with our people and not sugarcoat things, and I think they appreciated that.”

WCI’s leadership and the recovery plan, including the sales of some assets and resumption of home building, gained the confidence of lenders, who kept Fry and others on board to run the reorganized company. “We’re more conservative, less aggressive, and that helped build confidence with the lenders,” Fry says. “We had a chance to reflect on what WCI did well and keep that. There were some things we changed, and there were some things the market changed for us,” such as a new focus on homes and on communities that some might call simpler, and others more value-driven.

Like others in the field, Fry questions whether real estate will ever go back to where it was five or six years ago. Conditions today, he suggests, could be the new normal.

“But I believe people will continue to come to Florida for the weather and the beaches. That doesn’t change,” Fry says. “Now we’re in position to grow. We’ve reduced our overhead and debt, and we’re fortunate to have the luxury of patience. I think we did the right thing. I didn’t think that Aug. 4, 2008, but I think so now.”


Russell Devendorf

Senior Vice President and CFO

Finding someone to take the post of chief financial officer in a company that is three months into bankruptcy might seem a challenge, but the bankruptcy was part of the reason Russell Devendorf came on board with WCI.

He had worked previously for a major homebuilding company that had declared bankruptcy. He also had worked in Florida, and was ready to return from Phoenix.

And the chance to work with such a well-known figure in the business world as billionaire investor Carl Icahn, who was then board chairman, added extra appeal to the post. “WCI had a good name. They were known as a good builder,” Devendorf says. “It was definitely a challenge, but I liked that. I saw some true opportunity” in the job.

“It was like a firestorm at first,” he says. “There were not a lot of people there who’d had any experience with bankruptcy. Unless you’ve been through it, it’s hard to know what to expect.”

Just the word “bankruptcy” makes many people think a company is finished, he says, but WCI filed under Chapter 11, which put into motion intense cost containment, discipline in spending and creating a new set of best practices. That track “gives you potential for a fresh start. It gives you a chance to reorganize and reset your finances and emerge as the new WCI”, he says.

But it’s never a sure thing, Devendorf says, and it’s never easy. “We had to keep communication going, be honest and open with people, because no one knows what to expect, and not knowing can be one of the worst things. We wanted to make sure everyone knew we were all pulling on the same rope to get out of this thing, and if we worked together, we would come out.”

With the company’s emergence from bankruptcy, he says, the challenge is to re-establish WCI’s reputation as one of the country’s top homebuilders. Much of that depends on sales, and much of sales depends on the depletion of existing homes, which he and others acknowledge isn’t happening as quickly as they had hoped. Still, he says, “We are taking a cautiously optimistic approach,” and restructured to be more nimble and react quickly as conditions demand. They have identified niches in the market—such as the second-home buyer looking at single-family homes—and WCI is building with that customer in mind.

Things are improving internally as well. Managers are analyzing benefits and compensation compared with others in the market, and have added some staff “in very select positions” related to building and selling new homes. “It’s all about the people we have working here,” he says. “It’s a credit to the team that we were able to emerge from bankruptcy and give ourselves this opportunity to move forward. I expect to be here for a long time.”

Tim Oak

Senior Vice President,

Florida Homebuilding

After working for WCI more than 20 years, Tim Oak has seen good times as well as times he says “were no fun at all.” But even during those not-so-good times, he says he always believed the company would get through it.

“It was a blast,” he says of WCI’s biggest years. “We’d have 500 to 1,000 new homes under construction at any one time. We were really, really busy, and it was exciting.” As many as 225 people worked for him.

Now, 11 homes are under construction—but even that is an improvement. “Six months ago, it was zero. We finished a lot, but we went three or four years before starting” those now under way. And how many people work for him now? “Way, way less than before.”

He first noticed a slowdown in the fall of 2006, and blamed it on a string of hurricanes. Then tourist season failed to materialize, and expectations turned to the next tourist season. Nothing got better.

“I’m a builder. I’m used to downsizing, to things going down and back up,” Oak says. “But bankruptcy is something you can’t prepare for unless you’ve been through it. The minute you declare, it’s a whole different ballgame,” with bankers, attorneys and others taking new roles and operating procedures changing.

The hardest thing was letting valuable, longtime workers go. “The ‘It’s not you; it’s the economy’ speech gets really old after a while,” Oak says.

But he remained confident the company would come back. “All you can do is work as hard as you can and do the best you can do,” he says. “I truly believe that. I knew I was doing all I could do, and beyond that….”

The March decision that allowed him to start building again, instead of just finishing homes and watching assets be sold, was the light at the end of the tunnel, Oak says.

While WCI has narrowed the range of homes it will offer, building those homes is not so different from before. “Homebuilding is basically a repetitive industry,” Oak says. “It’s about discipline and doing the right things. Now everyone is concerned about what they’re spending. They’re focused on value and simplicity, and we’re going to be in tune with what they want.”

Doug Schwartz

Senior Vice President,

Asset Management

Although Doug Schwartz joined the new WCI in January, his knowledge of the company is substantial. That’s because he worked for WCI from 1990 to 1997, giving him experience that has been invaluable in decisions involving the sale of some company assets and using others to maximum advantage.

“WCI is very familiar to me,” says Schwartz, who also has worked with other major developers. “I knew the assets and the brand reputation. How often do you get a chance to redefine what a company becomes in its next iteration?”

Bankruptcy brings many changes, but Schwartz vetted the situation thoroughly before rejoining the company. “There really have not been many surprises,” he says, adding that the biggest one was positive: how quickly they paid down their debt and became an operating company again. “Now we’re ready to turn to the next page of WCI,” he says. “I thought it would take us through 2011 to get this far.”

Disposing with “non-core assets” is a big part of his job, including properties outside Florida. But even some Florida holdings fit that category, and have been or will be sold. “Non-core” Florida properties include a former hotel site in Daytona, little more than a vacant strip of beach. That’s being sold. So is Sun City near Tampa, where the company has been for decades, but where style has changed dramatically over the years. “In terms of price point and buyer profile, it’s not consistent with most of our Florida communities,” Schwartz says.

Keepers are generally holdings where “WCI has put its stamp; where the company has delivered the lifestyle, has the amenities in place and where most of the community is built out,” he says.

All of WCI’s major Southwest Florida communities are “core assets” that the company expects to keep. They do, however, plan to sell “a few small out-parcels,” including the assisted living facility site near Pelican Preserve in Fort Myers and a small residential property outside the Hammock Bay community in south Naples, Schwartz says. ■

WCI Timeline  


Westinghouse Communities Inc. (the original WCI) develops Pelican Bay on Southwest Florida’s coast

near Naples. 


Westinghouse develops Gateway community in Fort Myers. 


Al Hoffman and Don Ackerman form Florida Design Communities (FDC) in Tampa. 


FDC stockholders and other investors purchase Westinghouse’s real estate business operation. 


WCI Communities limited partnership merges with FDC to become WCI Communities Inc. 


WCI opens the Hyatt Coconut Point Resort and Spa in Bonita Springs. 


WCI releases 11 new towers in one year, a company record. 


WCI issues initial public offering in March and becomes a publicly traded company on the NYSE under the symbol WCI.


WCI expands into the northeastern United States.


WCI expands into the Mid-Atlantic states.


WCI files in August for Chapter 11 bankruptcy protection, with $2 billion in debt.


WCI emerges from Chapter 11 in September with debt reduced to $450 million. 


The board of directors approves resuming homebuilding operations in three communities: Heron Bay, Pelican Preserve in east Lee County, and Venetian Golf and River Club in Venice.

Filed under
Show Comments