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Comstock's Defaults Darken Its Future

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By Alejandro Lazo
Washington Post Staff Writer
Wednesday, August 27, 2008

Comstock Homebuilding of Reston has defaulted on several development loans the company used to finance its projects during the years of the housing boom.

The company is hoping to renegotiate the terms of its loans with several banks, but some analysts warned that the company's future is cloudy.

"Comstock Homebuilding Company's ability to exist as a going concern is the primary risk to shareholders," Christopher R. Lucas, a senior real estate analyst in the Tysons Corner office of the investment firm Robert W. Baird, said in a July report, before Baird ceased covering the company. Lucas added that that the weak housing market and slumping economy "create a difficult operating environment for Comstock."

Several publicly traded home builders have filed for bankruptcy as slumping home values leave developers unable to pay their debts. Last year, two publicly traded builders, Levitt and Sons of Florida and Neumann Homes of Chicago, filed for bankruptcy protection. This year the Florida-based luxury builder WCI Communities filed for bankruptcy protection.

Comstock has received notices of default or demands for repayment from five lenders over the past two months, according to filings with the Securities and Exchange Commission. The company owes the banks about $86.5 million, according to the filings.

In July, Comstock said it had hired Baltimore-based FTI Consulting to help restructure the company. Comstock also announced in July that it would stop making payments on about $94 million of about $157 million in loans, or about 60 percent of its portfolio.

The move is intended to force lenders to the negotiating table, Bruce Labovitz, the chief financial officer of Comstock, said in a phone interview yesterday.

"The banks are overwhelmed with problems, and in order to get the attention of the banks and in order to create some urgency around renegotiating our debts, we felt that we had to elevate the discussion," Labovitz said.

Comstock's lenders include several prominent banks such as Wachovia, BB&T, the Royal Bank of Canada and M&T Bank. The projects these banks funded include condominium projects in Sterling and Woodbridge as well as subdivisions in Atlanta, among others.

Labovitz said it was not clear how the negotiations would affect the status of the projects. Banks can foreclose on projects in development, but typically they do not like to hold land or buildings on their books. In some cases, banks will even hire the same developers they foreclosed on to finish projects.

Comstock, founded in 1985, operates in the Washington, Atlanta and Raleigh, N.C., markets. Over the past 18 months, the company has laid off more than 100 people and left the Myrtle Beach and Charlotte markets, Labovitz said.

The company is also appealing a July 9 delisting by the Nasdaq Stock Market because its share price has been under $1 for too long. Labovitz said that the company expects a decision on the appeal next month but that the company's stock price would probably not improve until its debts were settled. The company's shares closed at 11 cents yesterday, up about 1 cent.


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