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And the Walls Came Tumbling Down: Issues in U.S. Construction Insolvencies
By: Judith Elkin and David Liebenstein1
We are in the midst of arguably the worst economic crisis since the Great Depression. One of the biggest victims of this meltdown is the construction industry, both residential and commercial, which has been hit as hard, if not harder, than any industry in the United States. Prior to Spring of 2007, the easy availability of credit and the escalation of real estate values created boom times for those involved in both the residential and commercial real estate markets. Houses, apartments, office buildings and hotels were all being built and financed with reckless abandon. But the 2007 crash in the subprime housing market created a domino effect, and by 2008, all sectors of the real estate and construction industries were seeing red. Both the residential and commercial construction markets have suffered mightily because of the housing crisis, the unavailability of credit, the inability of businesses to refinance debt and the general global economic downturn.
Because of the tight credit market, in June 2009, private housing starts were at a seasonally adjusted rate of 562,000, 46% lower (+/- 4.3%) than the June 2008 rate of 1,078,000.2 In June 2009, privately-owned housing completions were at a seasonally adjusted rate of 818,000, 27.7% lower (+/- 9%) than the June 2008 rate of 1,131,000.3 Construction spending has also taken a precipitous decline. Total private construction was down 17.4% year over year.4
Because of the impact of the economy on the construction industry, a variety of high-profile construction-related bankruptcy cases have been filed recently...
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Presented at the Annual Meeting of the International Bar Association, Section on Insolvency Restructuring and Creditors’ Rights
1 Judith Elkin is a partner at the Bankruptcy and Business Reorganization Section of the law firm of Haynes and Boone, LLP. Ms. Elkin is resident in the firm’s New York office, and has in excess of 25 years’ experience representing debtors, creditors and other parties in interest in US and international insolvency cases. David Liebenstein is an associate in the Bankruptcy and Business Reorganization Section of Haynes and Boone, LLP and is also resident in the New York office.
2 U.S. Census Bureau News Joint Release, U.S. Department of Housing and Urban Development, July 17, 2009.
4 U.S. Census Bureau Manufacturing, Mining, and Construction Statistics, Construction Spending, May 2009.