November 5, 2008

A newly constructed three-bedroom house sits empty in Fairmont in Lockport.

Beautiful pink flowers bloom on the bushes planted out in front of the home.

But John Knoelk's hope for his Majestic Home Builders business is withering fast. The nation's "credit crunch," a phrase that is dominating the news these days, is crushing Knoelk's business.

The Lemont man is facing foreclosure and bankruptcy because he can't get any more construction loans to build homes on lots he owns. And he can't sell the 1,500-square-foot Fairmont home he built at 303 Godfrey Avenue.

For Steve Caton, managing broker for Caton Commercial Real Estate Group, the credit crunch means he had a dozen doors slammed in his face as he sought loans for his Limestone brewery/restaurant project in Plainfield. He finally got the loan and the business will open in early December, but it wasn't easy.

Caton, of Plainfield, and his business partner, Joliet entrepreneur Rob Monaco, were pre-approved for a loan 18 months ago when they signed the lease for their restaurant space at 12337 S. Route 59.

Then the bottom dropped out of the credit market and the loan disappeared when the bank he had been working with was acquired by another bank. Suddenly the people he had been working with at the bank were gone and no one would return his phone calls.

Change for everyone
Knoelk and Caton have spent the last year tangled up in the credit crisis that is gripping the nation. Billion dollar bailouts have been passed, but the money won't arrive soon enough to save some livelihoods and dreams.

Knoelk recently sent a letter to 342 people trying to get private financing for his home projects in Fairmont, an unincorporated area between Lockport and Joliet. So far he's received only two responses. Without loans to build the homes, he's stuck with empty lots he can't afford.

"The banking industry has changed not only for me but for all of us," Knoelk wrote in his letter. "The pendulum has swung from one extreme to the other. This leaves me and many of you in a precarious position. I currently have six lots that are accruing interest and (I have) no money to build on them."

Caton's dream is still alive. First Midwest Bank in Plainfield came to his rescue earlier this month. Caton said he never would have received the loan with a partial loan guarantee from the Small Business Administration. The day Caton found out he finally had his loan was extremely emotional.

"I felt like crying," he said.

Too soon to feel it
Steve Randich, community banking regional president for Harris Bank in Joliet, said the federal bailout bill sent money to the nation's big banks to stabilize the credit market. But those big banks are still hesitant to loan money to the smaller banks.

Randich said it's too soon to feel the effects of the bailout at the local level. But even with it does finally reach the local level, lending policies may never be as loose as they were in recent years, he warned. That's probably bad news for Knoelk.

"There was a time when banks were allowing builders to build spec houses," Randich said. "I would tell you there's not a real strong urge to do that now."

There's a glut of unsold homes sitting empty for banks to loan money for spec homes that might be tough to sell, he explained.

"We have to work through the inventory and that's going to take time."

Tougher standards
And it may be tougher to qualify for all kinds of loans in the future, Randich said.

"We're coming off some underwriting standards that were more loose than they should have been and we're coming back to basics in banking," said Randich, who has been in banking for 30 years. "And some of that doesn't feel right to people.

"... The regulators right now are really out there dictating a lot of things banks are going to have to do now and in the future," Randich continued. "It's never going to go back to where it was. The years of what we just came through, I don't think we'll ever see again."

Randich said there will be fallout from the shift back to basics.

Knoelk, who is president-elect Will-Grundy Counties Home Builders Association, realizes he's part of that fallout. He feels bad for the Fairmont area, which was just starting to see a resurgence in building after years of decline.

"I've made great friends here and I'm trying to help this community get back on its feet," Knoelk said.

For Caton, his fight to get a loan for his brewery/restaurant was just the beginning of his battle. Now he has to open and run a restaurant in a terrible economy.

"I don't expect to make any money the first year," he said. "I hope I can break even. But I am optimistic. ... This is a concept I believe in. This is a concept I feel very passionate about."

Knoelk wishes he could be optimistic about the future. He's not sure what he will do now.

"My dream job is building houses," he said. "I was put on this earth to build houses. I can't see myself walking away from it. We're all in survival mode now, whatever we have to do to wait this thing out and survive."

Related Blog Posts
Turkey Talk

The views expressed in these blog posts are those of the author and not of the Sun-Times News Group.