Prudential Americana Group, one of the largest residential real estate firms in the Las Vegas Valley, is filing for Chapter 11 bankruptcy so it can reorganize its debts while continuing operations.
The company, which had not filed the paperwork by press time Tuesday, has 1,200 sales executives operating under its auspices and has positive operating cash flow. Owner Mark Stark, however, said Prudential Americana Group -- the seventh-largest real estate firm nationally in the Prudential network -- needs bankruptcy court protection so it can restructure its debt.
"We are focused on business as usual," Stark said. "This is a debt restructuring. We continue to grow market share."
The bankruptcy filing will not affect the 3,000 exclusive listings that Prudential Americana has in Southern Nevada, he said. Stark estimated that the company is probably the biggest residential real estate company in the area, with a 15 percent share of all local home resales. Brokers who operate under the Prudential Americana umbrella also sell new homes and commercial real estate.
Prudential Americana is the second big Las Vegas realty firm to seek bankruptcy protection in recent months.
Jimmy Dague, president of Vision Properties doing business as Century 21 Advantage Gold, filed for Chapter 11 bankruptcy protection in August.
At the time of the filing Vision reported $1 million in assets and $1.8 million in liabilities. The company said it had $54.6 million in gross income in 2005. Vision reported its gross income fell to $40.3 million the following year and to $15.8 million in the first eight months of 2007. The brokerage's Web site says it has 500 agents.
Prudential Americana's problems started in October 2004.
Stark borrowed money to buy the company when residential real estate was booming and home prices were soaring.
Stark bought the 75 percent of the company he did not already own from his partners and Prudential Real Estate, the national franchisor. To finance the buyout, Stark borrowed $22.5 million from Salt Lake City-based Zions Bank, an affiliate of Nevada State Bank, and Peninsula Capital Partners of Detroit.
Zions, which is owed $4.9 million of $10 million originally borrowed in 2004, is in first position among the company's lenders. Peninsula is an unsecured lender and was receiving only interest payments, pending a later balloon payment.
When he bought the company, Stark said he expected a slump in the local real estate loan market would follow the boom that sent home prices soaring, but he was stunned by the magnitude of the drop.
"I did not see a 67 percent downturn coming to the Las Vegas market," he said, referring to the drop in existing home sales over the past two years.
Because of the real estate market, Zions pulled the trigger on a loan agreement provision and ordered Prudential Americana to stop making payments to Peninsula, Stark said.
Peninsula executives in turn pumped up the interest rate on their loan to 19 percent from an average of 15 percent, Stark said.
Prudential Real Estate, the national franchisor, offered to assume the Las Vegas real estate company's debt, but Peninsula was unwilling to accept the company's terms.
The national company intends to provide financing to Prudential Americana during the bankruptcy, Stark said.
"It's probably a good strategy," said Lanis O'Steen, who owns a residential real estate brokerage in Pahrump and is a business turnaround professional.
The real estate firm, O'Steen said, can ask the bankruptcy judge "to do what's reasonable and maximize returns and recoveries for all of the creditors."
O'Steen said the bankruptcy filing is further evidence that small businesses are getting hurt because of the popping real estate bubble. Small businesses are key economic drivers, O'Steen said, and their problems could lead to further economic declines.
Prudential Americana operates as an umbrella company for independent real estate brokers who agree to pay a flat fee or a percentage of their commissions for administrative, legal and other support.
Stark told about 600 real estate sales workers on Tuesday morning about the bankruptcy and plans to reorganize the company.
"We had a standing ovation of support from the sales executives," he said.
Stark hopes the company will be able to emerge from bankruptcy protection in about six months.
"We're a great company. We've been here a long time," Stark said. "I want to be here another 100 years."
Contact reporter John G. Edwards at email@example.com or (702) 383-0420.