Longtime developer Hank Wilton, who has overseen more than 30 major subdivisions in the Richmond metro area, has filed for Chapter 11 bankruptcy protection, claiming liabilities around $70 million. A handful of his projects have gone into foreclosure, and banks are looking at a huge financial hit if a personal guarantee he made doesn’t help fill in the gap between what they lent and what the properties fetch at auction.
But as Wilton goes to his first bankruptcy hearing this week, there are some small numbers, too: He has moved from a $5,700-a-month office to a $750-a-month office. Instead of driving a Mercedes, he’s driving a station wagon.
In advance of his hearing on Friday, BizSense sat down with Wilton to discuss his business operations and his plan to right the ship.
Below is an edited transcript.
Richmond BizSense: Where did things go wrong?
Hank Wilton: I’ve been doing this since 1988. I’ve been running my own type of thing separate from the Wilton Companies, mostly residential development. The problem is I went out and bought a lot of property and obviously got caught with too much. The amount of property I had was excessive given the massive slowdown.
RBS: How did you misread the market? Do you feel like you missed signs that the real estate market was headed for darker days?
HW: The problem is the slowdown has been longer and deeper than anyone has ever expected. I’ve been through one before this, and it wasn’t this long. I closed 400 lots the year before things went downhill. The next year I closed 125 lots, and then 30 lots.
The market was so hot no one could believe it was hot for that long. It had never been that good for that long. So after a point I guess you talk yourself into believing that it would continue.
It was very easy to buy property. Banks were very willing to go ahead and lend you money, and you had contracts to sell the lots to individuals. Then everything came to screeching halt. You think of this as a 12-month period and things will start turning around — now they are talking about another two or three years before you start looking for normalcy. You are starting at ground level again.
RBS: So when did you begin to realize things were taking a turn for the worse?
HW: The problem is you had lots, and builders couldn’t get funding to buy it, and he certainly couldn’t get construction funds. A lot of these lots are sitting around. For two years I spent almost $8 million making sure all the interest was paid here and in Colorado. After you spend that much over a two-year period, you start running out.
RBS: Talk about your Colorado deal. That seems to be the first piece that began to fall into trouble.
HW: Colorado was outside my realm. We had good people out there; my son was out there working for me. It was a resort development, and that was one of the first property types to fall. It was a mistake to go into Colorado. We had a good project out there, but the market wiped out any equity we had in those projects.
RBS: How did you reach the point where you decided that filing for bankruptcy was the best move?
HW: We had been working over the last two years to figure out the best way to go about it. We had all this property on the market for more than two years, but there was no market. We’ve been trying to get rid of property, selling pieces here and there, and giving it back to the bank when appropriate. It’s a lot harder work doing that than developing property and selling lots.
The running joke is we’re working twice as hard for none of the pay.
My personal bankruptcy is taken due to the fact I had signed personally on the land notes. Even though I turn in the land to the bank, the bank will sell the property. Any deficiency, I am responsible for. I bought too much land. If I hadn’t put the personal guarantee, I wouldn’t be filing for personal bankruptcy.
RBS: How will your operations be affected by the bankruptcy? Will you continue to develop any property? Is there property you want to hold on to?
HW: There are a couple pieces I am trying to hold on to. I currently have a development in Chesterfield underway. That is one of the corporations not affected by this. We are still working, but we’ve cut our people down substantially. I have my secretary working half a day, a full-time bookkeeper and one guy in the field. I am also working on keeping a planned development that is part in Hanover and part in Ashland with some partners. We’ll need to hold these properties for two to three or four years before the market returns.
RBS: What is goal of getting through this? What outcome do you want to see happen or make happen?
HW: It’s not easy to go through one of these. I’m gong to have to set up some kind of payment plan over a five-year period and basically get back to work doing some smaller things on a fee basis for some other people, putting deals together and selling them off. Bankruptcy obviously hurts you and your ability to get bonds, so I would need partnerships if I wanted to do another subdivision.
The bankruptcy holds them off while we try to make a plan and try to get everybody happy. It’s a tough job. It will take a number of months to get everything done.
RBS: When things were hot, the banks were happy to lend. Do you feel they were too generous to you, that they should have known better?
HW: I like that they were generous. They did take a risk. But do I blame the banks? No, they did what the laws would let them do. Obviously that was a mistake as far as all those loans people got. But if people will loan you the money, you aren’t going to say no. They have corrected that with regulation, but now it has swung too far to the other side. It is so much harder for people to get loans.
All the money the banks got through TARP, they used that to stabilize their balance sheets. None of that money made out into the market. I understand the regulation made that choice. The banks’ hands were tied.
RBS: How have your financial troubles affected your personal life?
HW: It changes when you don’t have all this money coming in. You change what you do, and you change how you live. I had always contributed to charities and had to cut that back. I went from a $5,700-a-month office to a $750-a-month office. Instead of driving a Mercedes SL, I am driving a station wagon. It changes quite a bit when your income disappears.
RBS: What would you say is the biggest lesson you learned from all of this?
HW: Leverage isn’t always the best thing.
Al Harris covers commercial real estate for BizSense. Please send news tips to [email protected]