Caruso Homes files for bankruptcy protection

From staff and wire reports

June 25, 2008

Caruso Homes Inc., a homebuilder operating in Maryland and other Mid-Atlantic states, has filed for bankruptcy protection, blaming what it called the "double whammy" of the credit crunch and falling home prices.

The company listed debt of more than $100 million and assets of less than $100 million in Chapter 11 documents filed Monday in U.S. Bankruptcy Court in Baltimore. About 24 affiliates also sought court protection.

Caruso will conduct "business as usual" during its reorganization and does not plan to go out of business, the company said. The company said it will make good on existing contracts for homes, and will continue to pay vendors and contractors.

The company said it has had to reduce home prices as a result of the nationwide housing slump, and couldn't continue to pay its debt on land it owns as a result.

"The recovery is slower than we expected, and just looking into the future it doesn't look like the rebound in the market will be something we can withstand with the current pricing in the market," said Chris Block, vice president of operations for Caruso.

The company said it expects to emerge from bankruptcy in 90 to 120 days as a smaller, but profitable company. It has slashed employment in the past six months to help lower its costs. It had 189 employees a year ago, and 25 today.

Founded in 1986 by Chief Executive Officer Jeffrey Caruso, the builder has erected more than 2,000 homes in suburbs surrounding Washington. The company has 30 projects under development in Maryland and Virginia. Its housing developments are primarily in Prince George's, Charles and Anne Arundel counties, as well as Northern Virginia.

In the past four years, Caruso and its affiliates have generated more than $100 million in annual revenue.

To fund its operations while in bankruptcy, Caruso agreed to loan his company as much as $1.3 million in so-called debtor- in-possession financing. The financing must be approved by Judge James F. Schneider. The loan will be secured by all of the company's assets and the CEO will have priority over the lenders. Block said the company expects to continue paying contractors who do work on its homes during the reorganization.

"We're not going to ask them to do work for us unless we know we can pay them," he said.

New home sales for the first quarter of 2008 dropped 13 percent from the fourth quarter and have plummeted 33 percent from the first quarter of 2007.

Caruso's 30 largest consolidated unsecured creditors are owed $2.3 million. The biggest claim, more than $450,000, is held by 84 Lumber.

Bloomberg News and Sun reporter Paul Adams contributed to this article.