The chronology of Fidelity Homes, from its start-up in June 2000, through the “From The Ground Up” series of feature articles in Professional Builder ending in March 2002, until Fidelity ended business operations in November 2008, provides context.
Context, for what?
From one perspective, Fidelity is just another casualty of the Great Housing Recession, notable only in the attention it garnered from the PB audience. There have been many casualties since this debacle began in 2006; no doubt, there will be more before it all ends. Nothing new or noteworthy, in that. But, from a different perspective, chronology is the context of circumstances and decisions that provide insight for the business lessons that ought to be learned – and for matters more important than the best business lessons can ever teach.
Fidelity started in the middle of a business investment-led recession. “Things were a battle”, said David Hunihan, who had started Fidelity, along with best-friend Todd Menke. Then came 9/11. “Our bank actually decided to not loan us money on a project due to close within 30 days, as they thought one of us might get Anthrax poisoning.”
They had started Fidelity with a vision/dream, and little else. Some experience. A little bit of money. “The truth is, I hadn’t really thought about owning my own company until Todd and I left our previous employer”, David recalled. Involvement in “From The Ground Up” provided expertise and resources, but it also required time and attention. The start-up financial pressure continued more than a year past 9/11, requiring additional infusions of capital from investors and requiring David and Todd to periodically forgo their salaries.
The company’s financial situation stabilized by the end of 2002, when David and Todd decided to pursue separate paths. “The company was healthy and viable, but I wanted to pursue opportunities in real estate development, and David had plans to expand the company in other directions”, explained Todd. By the account of both David and Todd, the parting was difficult emotionally, yet amicable, beneficial, and agreeable to both of them. They started as close friends, they parted as close friends, and they remain close friends.
David’s dad purchased Todd’s share of the company; he was Fidelity’s largest investor anyway, and now also found a role in the company’s operations.
Fidelity went on to successfully complete its two initial projects, and acquired subsequent projects. The company had adequate cash flow, but that cash was pulled in different directions, both as working capital and as equity in project acquisitions. “It was the beginning of the run-up, we had had some moderate success, had good cash flow, and we needed places to go”, said David. In terms of project selection, the business model was opportunity/deal-driven, not particularly strategy-driven.
In all, Fidelity built 160 homes between 2001 and 2008. “We were active in the boom, but it affected us differently”, David said. “We started with very little cash, so we were still working on generating capital through our start-up years. Our only means of buying land and acquiring projects was to borrow [the money].
“Ultimately, the debt – and the fact that [one] development got delayed by almost three years and then [another] by 18 months – is what sunk us. We presold over 50 homes in [the first], but couldn’t start them when our costs were running up, due to governmental delays, then we had problems closing them when the water was held up in approvals. That caused us to wait on pre-sales [in the other]; we had over 4000 leads, but kept telling everyone to wait until it was platted. By the time we opened, it was the end of 2006, and we had missed our window.
“From that point, sales diminished, until we had nothing coming in. We managed cash the best we could from our WIP and were able to finish all our homes. I went without a salary or other income from the Company for almost two years, and my CFO did the same. I will never be able to repay him.”
The company had expanded from two employees at the start, to 23 at its peak; then came the three sets of layoffs. Of the final group: “Most of them kept working for a [period] after I let them go; they couldn’t bring themselves to leave. I finally told them they couldn’t stay anymore and had to move on. I did my best to find them all other employment. The last few . . . were with me almost until we closed our doors.
“The biggest problem was that no one knew how long the recession would last; we kept holding on a little longer, waiting, hoping.”
Next: Factors and Circumstances