Kara eyes financing

Plans to finish housing

By: Stephanie Brown
   MONROE — Kara Homes Inc. says it wants to borrow $5 million to finish construction of the houses it has already sold, including those in two township developments.
   The East Brunswick-based developer filed a motion with the U.S. Bankruptcy Court on Oct. 13 asking the court to allow it to accept a proposed loan from Medical Capital Group. The loan would enable Kara to remain in business, which is necessary to reduce its debt and remove the "aura of distrust" surrounding the company since it filed for bankruptcy protection, according to the motion.
   "The insolvency of a developer of residential homes casts an aura of distrust upon the developer, and removal of that perception is critical to the debtor’s ability to reorganize," attorney David Bruck said in the motion.
   Kara Homes filed for Chapter 11 bankruptcy on Oct. 5, because of slowing sales, loss of liquidity and delays in the field that further delayed closings. The company said it had $296.8 million in liabilities and $350.2 million in assets.
   Under Chapter 11, Kara will be allowed to remain in business and creditors’ claims will be frozen while it comes up with a reorganization plan.
   According to its plan, the $5 million in short-term financing provided by Medical Capital Corp. will enable Kara to continue operations.
   The money would be used to pay "key" administrative employees, complete construction on about 300 houses, which the company believes would generate $215 million, and reimburse some buyers who rescinded their contracts before Kara filed for bankruptcy.
   Two construction projects in Monroe are mentioned in the motion. House construction in Bergen Mills Estates and Sterling Acres at Monroe, which are both located at the intersection of Bergen Mills and Jurgelsky roads, remains incomplete, township Director of Construction Ron Appleby said last week.
   In Sterling Acres, 49 houses have certificates of occupancy and 16 are still under construction, Mr. Appleby said, while in Bergen Mills, 37 houses have certificates of occupancy and eight are still under construction. He said he believes that the completed houses are all occupied.
   Houses in Bergen Mills and Sterling Acres sell for $900,000 to $1.5 million, according to Township Engineer Ernie Feist.
   The motion does not mention plans for Kara to complete its public improvement projects within the developments, such as sidewalks, curbs, road paving, drainage and landscaping not on private property.
   Several calls to Mr. Bruck over the last two weeks were not returned.
   Mr. Feist said the public improvements are protected under performance guarantee bonds, which he said he will call in if the developer does not intend to uphold its commitment.
   A performance guarantee bond is money paid by a developer to ensure that promised work — such as sewer installation and road construction — gets done. The township can seek recourse for an incomplete job by contacting the bond company, which will either use the money to hire contractors or release the funds to the township to complete the job.
   Kara is also responsible for public improvements for Chestnut Woods Estates, located at the intersection of Hoffman Station and Gravel Hill Spotswood roads. The development is nearly completed with the exception of minor landscape projects, such as replacing shade trees that have died, said Mr. Feist. Houses in Chestnut sold for $500,000 to $750,000, he said.