When Builders Go Broke

When Patrick and Betty Ann Wagner moved 50 miles from Chicago's Northwest Side to suburban Antioch, Ill., a year ago, they figured their five kids would delight in the three swimming pools and sand volleyball court of their new subdivision's community center. Sitting at a large pine table in the kitchen of their four-bedroom home, Patrick opens a glossy map. "This is where they said the clubhouse would be," he jabs at the paper. But the rec center is just an open pit, and their neighborhood is eerily quiet. Across the street, two homes are still swathed in housewrap behind mounds of dirt; two others are finished but empty, with "For Sale" signs in front.

Welcome to Clublands, a 600-acre development conceived by Neumann Homes, which in 2004 had plans to build as many as 950 homes selling for $300,000 and $400,000 in this suburb less than a mile from the Wisconsin border. But it never happened, and probably never will. Today the Warrenville (Ill.), company, once ranked the 35th-largest homebuilder in the nation, is bankrupt. A court-approved auction is liquidating all its property. Among the assets on the block are two-thirds of the Clublands sites that were never sold—and the tract for that promised clubhouse.

Bankrupt Builders

Despite sales of $518 million in 2005, Neumann is one more casualty of the national housing bust that has driven hundreds of thousands of homeowners into foreclosure, shaken the foundations of America's biggest banks, and knocked the entire economy for a loop. At least a half-dozen homebuilders have filed for bankruptcy in the past several months. They include Levitt & Sons, the famed builder that created Levittown, the archetype for suburban planned communities, on New York's Long Island; Tousa of Hollywood, Fla.; and Kimball Hall, a suburban Chicago outfit.

Although the major publicly traded builders are all still operating, industry leaders DH Horton (DHI), Pulte Homes (PHM), Lennar (LEN), and Centex (CTX) are losing money, too. Any turnaround seems far off. On June 17, the government reported that home starts in May fell 32% from a year earlier. Builders, buyers, and investors will get their next take on the market on June 25, when the government reports new home sales for May; they're expected to be down 43% year-over-year.

The fact that so many other homebuilders are struggling provides little comfort to Neumann's creditors, who may never get their money back, subcontractors forced under by the failure of their biggest client, villages like Antioch that can no longer bank on property taxes from Neumann developments, or home buyers who had hoped for a suburban community and instead find themselves in limbo. Wagner, a 39-year-old electrician, feels burned. "This is one of the worst experiences of my life," he sighs.

Neumann's Dream

The man in many ways responsible for the situation in which Wagner and many other frustrated homeowners find themselves is Kenneth P. Neumann. A mining engineer and sometime outdoorsman from Wisconsin, Neumann, now 51, started his eponymous company in 1992. Within two years, he had made a name for himself by building starter homes in outlying suburbs with amenities such as recreation centers and pools. Intense and hard-driving, Neumann had visions of becoming the biggest homebuilder in the U.S.

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