Thursday, May 12, 2016

How Will the IBS Bankruptcy Impact Modular Housing?

Many people in the modular housing industry knew that IBS and its companies, Excel Homes, Mod U Kraf, Keiser Homes, two All American factories, Epoch Homes, Future Homes and Handcrafted Homes, have been having internal financial problems since late last year.
With the announcement of Chapter 7 bankruptcy yesterday, a great number of people have already lost or will lose their jobs, their insurance and miss out on what appears to be a turnaround year for modular housing. Skilled production line people with many years experience working for the same company for years and even decades are now unemployed. A lot of good middle and upper management folks who rode out the storm and tried to keep the boat afloat face an even more uncertain job market.
The blame game as to who did what, to whom and when they knew it will continue for years and many modular home builders will be looking at modular factories with a more critical eye in the future. And who could blame them.
A couple of real questions about our future have been asked by readers of my blog and it’s time to look the beast right in the eye and try to answer them as best as I can from my viewpoint.

First, will this hurt the modular housing industry? Yes. How much depends on which side of the fence you are on. For future new home buyers, I doubt it will have much of an impact. Modular builders will see their on-site competitors use this news as a selling point against them but this will pass over time. For the people that bought a home from one of these brand’s builders it will be a different story.
Some home buyers that were lucky enough to have their homes delivered to their jobsite will probably not be impacted much by the bankruptcy. The home was already in the builder’s hands and other than material shortages or service for any factory defect, the modular builder will take responsibility and in most cases be able to turn over the keys of a beautiful completed home to homeowners. That’s the pride modular builders bring to this industry.
The homebuyer that has given their builder a deposit on their home to the builder, who then gave it to the factory, is a different story. Many of these buyers either have their homes stuck on a production line or possibly not even started to be built. These are the people that will be impacted most negatively by the bankruptcy. Since there will be legal issues involved in these instances and I am not a lawyer, I will leave this part of the problem to the people themselves. I pray they can find a way to at least get some relief from this situation.
The big question is “How will this impact the modular housing industry?”
With the exception of the homes placed with the IBS factories and either not completed or not started but with a deposit, our industry will survive quite well. Anyone that thinks we should be preparing for a funeral is dead (excuse the pun) wrong.
In actuality, IBS only had 5 factories producing homes. There are well over 200 modular and manufactured housing factories in the US. The biggest impact will be to the East Coast modular industry where the IBS brands were known for their extensive ability to produce true custom homes, one of a kind homes with features that are usually found only in the most upscale on-site built homes.
But look around and you will find other great factories in the East that are ready, willing and quite capable of picking up the production lost when IBS closed the barn doors. From small boutique factories in New England to huge custom modular factories in PA and throughout the rest of the eastern states, production will ramp up to meet the needs.
The impact to our industry’s builder base will have a big impact. There will be a few builders that will be forced out of business by the bankruptcy. I cannot express enough how sad I am about this. Through no fault of their own, they remained loyal to one of the IBS companies a little longer than should have but that is the nature of business.
The IBS builders that will survive this have probably moved on to other factories and will continue to sell modular homes for years to come. Yes, some of them will take a hit but they will come out of this stronger than ever and a lot more skeptical and wiser.
The biggest impact will be bringing in new builders into our industry. The damage to this aspect will be felt for years. But there are some ways to shorten that time frame.
The MHBA, our industry association, has begun putting together a marketing program that should keep modular housing on new home buyer’s radar. The quicker this gets started the better. A real shout out to all the builders and factories that are supporting the MHBA’s efforts on this front.
Education and industry meetings are another way to keep informed. The Modcoach Builder Breakfasts, Round Tables, Boot Camps and the upcoming Breakfast with Modcoach series will continue to grow. The MHBA’s sponsorship of these events has been appreciated in the past and will be critical in the future.
If you are not a member of the MHBA, today would be a good day to visit the Association’s website and join with other builders to promote our industry. Tell them Modcoach sent you….it will be one of the best investments you can make for your business and our industry.
So, what impact will the IBS bankruptcy have on the modular housing industry? Not much unless you are one of the builders directly affected by their bankruptcy.

9 comments:

Anonymous said...

good article Coacg, happy you took the high road. it would be so essy to write a negative.

Richard Cooper said...

Coach, an excellent summation of the situation. I guess the moral of the story now is for home builders to be more cautious when it comes to paying advance deposits to mod production plants. Easier said than done of course when trying to assess the financial condition of a privately held Company!

Our primary bank's commercial division has proven helpful in that for a service fee they have access to credit histories on most businesses.
That service very recently saved one of our client's (and our Company) from placing their requirements for a construction loan with a bank that was on the brink of collapse. Sure enough the FDIC closed that institution down ten days ago.

Aside from that, all mod producers need deposits to provide some degree of assurance that the final balance will be paid at completion.

Sukie in NY said...

I am one of the homeowners who has paid my deposit to my builder, and he turned the deposit over to Excel. I'm pretty sure our house wasn't in production yet (I know our salesperson had 35 houses in the queue!), but I do know that my builder has had some sleepless nights. I'm hoping all of this will work out without my builder or me being too much out-of-pocket. If anyone can point to any articles that might help me understand my options, I would appreciate it.

Josh Margulies said...

suki
there is an attorney serving as a member of the modular home builder Association Board of Directors. his name is Steve Snider and I may be spelling that wrong. Contact the MH BA and get an email address for him. Steve has seen this sort of thing happen before and can offer very good counsel in under five sentences. all of us want to see this work out for you.

Anonymous said...

Richard, I think that if the factories would create an escrow to protect themselves and the customer (builder)that would be the best way to go. The old saying "rob Peter to pay Paul"is not a good buisness model. I think IBS taking deposits well into last week is criminal.

Anonymous said...

It is criminal. To the extent an owner or Board of directors knowingly takes takes deposits or creates liabilities within 30 or so days of a filing, or knowing it is insolvent, it can be held personally liable. See this link:
http://www.icaew.com/en/archive/library/subject-gateways/law/insolvency/legal-alert/when-directors-can-be-personally-liable-on-company-insolvency

Sukie in NY said...

Thank you, Josh. I don't think we, as the customer, will be out any bucks, but my poor builder is hurting. We tried another local manufacturer (NY), but the price came back $30,000 higher than Excel's price. Looks like we might follow our Excel salesperson to another PA manufacturer.

We're nervous, but I think we'll get our house eventually. I think we are going to be delayed a good three or four months. Hope to be in by the cold!

Sukie in NY

Anonymous said...

The main reason the next factory was $30,000 higher was that Excel was buying business by giving discounts up to 15% to builders. Those builders thought every factory did that and are probably getting a huge wake up call about now. Not one builder worried about Excel while they were getting the lowest prices ever seen but now that they have to pay a fair price for their homes from factories that actually know how to make money, they are saying that Excel had bad management. Not true, they had cheap builders looking for the lowest price.

Gary Doski said...

I was an Epoch dealer for the past 20 plus years, my own house is an Epoch house I built in 1994. Epoch built a quality product. Many builders, trying to compete against the likes of Toll Brothers and a few other huge builders, building townhouses and condos has all but killed the mid-range housing market (far and few between). Only high end homes are left.

On top of that, people mostly go modular to save money, putting more pressure on the mfg. Epoch was having problems starting back about 4 years ago, but I was assured they got it worked out. Guess it was only a temporary fix? Too bad, good company, good folks!