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Repo man.


John Allison Adds To His Mobile Home Millions By Bargain Hunting Assets From Failed Thrifts

Capital Buyers Inc. in Conway will soon close on a $400,000 mobile home loan portfolio, another successful bid on assets from a failed savings and loan.

This deal is the latest in a string that has seen this small business cash in on loan packages that have surpassed the $32.5 million mark and 6,000-plus repossessed mobile homes worth $90 million (See Capital Highlights page 19).

And no one is more surprised by the scope of it all than the two partners who make the venture click: John Allison and Chuck Heriford, two veterans of the mobile home industry.

"We honestly thought Capital Buyers would never reach this size," remarks Allison.

"We thought every deal would be the last one," echoes Heriford.

Things have definitely snowballed since Heriford approached Allison with a business proposition to buy several dozen repo mobile homes back in 1987. Along the way, they developed a computer model that allows them to do a quick and accurate analysis of loan portfolios.

The two businessmen formed Capital Buyers in 1988 and have logged more than 1,200 hours flying to and from deals since. And it's been a trip well worth taking. The loan portfolios alone add up to a cool $10-to $14-million profit when 1997 rolls around.

"We think 90 percent of this will happen in five years," adds Heriford, as if six years might be too long to wait for such a windfall.

The profit picture would be even more astounding if they could've landed a $350-million loan portfolio last September.

Capital Buyers, in a joint venture effort with Paine Webber, was the high bidder, but lost out to No. 2 when they asked the Resolution Trust Corp. to give warrants and assurances to seal the buy.

The near miss was even harder to swallow considering the RTC later viewed such requests as acceptable operating procedure. Ouch!

The financial packages backing Capital Buyers have been dream deals for loan officers at three Little Rock institutions (First Commercial, Metropolitan National Bank and Worthen Bank & Trust) and two New York outfits (First Boston and Paine Webber) and Wallace Fowler's First State Bank of Arkansas in Trumann.

"The loan backing the first buy was paid off in 19 days," Allison states. "Now that was only a few dozen repos. When we bought the 2,000-unit package, we paid off 40 percent of the principal the day after closing. That last big one [1,600 mobile homes] was presold the same day we closed."

Many of the loans are in the Southwest region, and some might question the soundness of buying mortgages in states like Texas and Oklahoma that have been put through the economic wringer.

Allison thinks it's smart business dealing with a mobile home owner who's survived the ordeal of oil crash/S&L failures and kept his mortgage current.

"This guy has been making his payments in one of the toughest economic climates ever," Allison observes. "To me that's someone who's a good risk."

This same region that is providing so much opportunity today for Capital Buyers was treating Allison harshly not so long ago (See Mobile Career page 19).

Castle Under Siege

Five years ago, John Allison was nursing a battered net worth and a bruised ego after the oil patch economy did a nose dive smack dab in the middle of his mobile home business.

Allison, then CEO of Castle Industries in Conway, helplessly watched the value of his stock drop 72 percent. By 1984, the stock price plummeted from a high of $16.88 per share to a low of $4.63. The freefall wasn't over either.

By the time Allison cashed out of the company in 1986, the sales price was $2.22 per share, and his 25 percent piece of Castle was worth less than $1 million.

The experience was particularly humbling because Allison had stepped in, salvaged Castle Industries from bankruptcy and built the company into a pre-oil crash dynamo with a net income of $12 million, $10 million cash on hand and no long-term debt.

"When I was 10 years younger and had Castle, I wanted to conquer the world," a 44-year-old Allison reflects today.

That was when oil prices were heading toward $50 per barrel. But in that era when $100-a-barrel crude wasn't unthinkable, the price began crashing.

"In hindsight, it was poor management on my part," Allison laments. "I should've seen that coming, but I don't know how I could. I'd seen what can happen at Barcraft and Castle before I bought it. I knew if we just treated a corporation properly, fed it and not bleed everything out of the damn veins -- and that means money -- it would do well for you."

Tumbling oil prices translated into unemployed oil field workers, which had been the mainstay of many mobile home dealers. That and other oil-related layoffs led to failed dealerships, which shipped thousands of mobile homes back to manufacturers like Castle Industries.

Most mobile home dealers don't have the financial wherewithal to finance their own floor plan, so manufacturers sign on as guarantors to facilitate bank loans for dealers to pay for their inventory.

In the 10 years before the oil crash, Castle only spent $600,000 honoring this sort of repurchase agreement. In the 14 months after, Castle wrote checks totaling $8 million to cover floor plans from mobile home dealers gone bust.

Castle and other manufacturers, with their overheads structured to a sustained sales volume, were hit hard by this backed-up inventory. New orders were brought to a standstill, and companies were faced with selling a logjam of product.

In the end, this trend forced the dismantling of a cash-crunched Castle Industries. This same oversupply of mobile homes that put a serious dent in Allison's net worth is now providing him with today's lucrative repo opportunities.

The performance of his banking investments have already surpassed the heyday of Castle Industries. And the future of his latest mobile home endeavors is headed toward more dollar signs followed by six or seven zeros.

Cycle Come Full Circle

There were 56 mobile home plants in Texas alone before the mid-1980s oil crash. Now there are six.

In 1983, 550,000 new mobile homes were shipped from manufacturers to dealers. By 1990, the number had fallen to less than 200,000 units.

Allison looks at these numbers and sees the light at the end of the tunnel for mobile home manufacturers. He's confident it's not the same runaway train than crashed through Castle.

The glut of repos that has inundated the market will soon be gone, Allison believes, and there won't be enough production to meet the coming demand for mobile homes.

"And that's fixing to happen," says Allison, who intends to cash in on this development with his own manufacturing plants.

When he left Castle in 1986, Allison bought the Bigelow plant and renamed it Spirit Homes Inc. Two months ago, he picked up Prestige Homes (the former Castle plant in Conway) in a pre-bankruptcy acquisition and dubbed it Prestige Quality Homes.

In between, Allison bought another former Castle subsidiary last year. The old King Homes Manufacturing plant on Hwy. 286 is used to refurbish repos bought by Capital Buyers. It's also used as Allison's base of operations.

When the repo market peters out and the assets from failed thrifts are all gone, he's ready to crank out more mobile homes in what amounts to a reconstituted Castle Industries. But this time around he'll be more wary of economic blindsides with his Spirit Homes.

PHOTO : GOING MOBILE: (From left to right) Chuck Heriford and John Allison, partners in Capital Buyers, and their lawyer Tom Prince have racked up more than 1,200 air time hours and untold frequent flyer miles successfully bidding on millions in mobile home assets owned by failed thrifts.

PHOTO : BIG-TIME BARGAIN HUNTERS: John Allison (left) had the financial muscle, and Chuck Heriford (right) had the idea to cash in on the S&L sell off. To date they've bought more than 6,000 mobile homes and $32.5 million in mobile home loans.
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Title Annotation:includes related articles; John Allison of Capital Buyers Inc.
Author:Waldon, George
Publication:Arkansas Business
Article Type:company profile
Date:May 20, 1991
Previous Article:Recession takes toll?
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