Can Kimball Hill save itself?

Developer Kimball Hill Inc. has survived housing recessions during its nearly seven decades of home building since World War II, but today the developer of Rolling Meadows and several Northwest and West suburban communities finds itself in a battle for its life.

Yet industry insiders say there are scenarios that could save Kimball Hill, one of the architects of the suburban home building boom days.

The Chicago area's ninth largest builder's belated annual report filing Tuesday triggered concerns when it acknowledged auditor Deloitte & Touche issued "substantial doubts about whether we will be able to continue as a going concern."

Kimball Hill, in its Securities and Exchange Commission filing, said it is in discussions with lenders but is late on repaying $500 million in loans and it lost $220.5 million last year.

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In the most devastating housing crisis in recent memory, Kimball Hill seeks a plan likely to include more layoffs, land sales and possible bankruptcy protection, analysts said.

Company executives could not be reached for comment Wednesday.

Kimball Hill, a lawyer, discovered he could make more money as a home developer in the 1950s. After building a few homes in Des Plaines and Oak Lawn, he came across a deal for more than 500 acres just south of the Arlington Park racetrack in 1953. Hill bought the land for $750 an acre and wrote the first chapter of the history of Rolling Meadows.

Between 1954 and 1956, Hill built almost 4,000 starter homes in the community.

Kimball Hill was succeeded by his son, David, in 1969, and over the years, the company expanded to build luxury homes in many other Chicago suburbs and eventually across the nation. A Harper College trustee and local philanthropist, David Hill has long been a civic leader in the suburbs.

In recent years, the firm expanded to 12 national markets, saddling it with heavy debt just as the housing slump approached.

If Kimball Hill isn't able to secure additional financing, it could be forced into bankruptcy, the second to do so in recent months. Warrenville-based Neumann Homes filed for bankruptcy in the fall.

The most optimistic scenario for suburban Chicago Kimball Hill homeowners would be if the company sells properties in troubled housing markets in California, southwest Florida, Las Vegas and Texas, according to real estate analyst Tracy Cross.

"They could pull out of everything but Chicago and consolidate their focus on Chicago," Cross said. "They may use one to bolster the other. #8230; Then Chicago would be fine."

Likely buyers would come from venture capitalists, firms with funds investing in real estate turnarounds, Cross said. Such investors would have longer investment horizons and could wait out the current housing downturn.

The fate of Kimball Hill concerns more than the company, its employees and homeowners.

Local municipalities such as Sugar Grove are counting on it to develop key tracks of land, including Settlers Ridge, which aims to develop 2,470 homes on 1,300 acres. Kimball Hill has obtained only 150 to 200 building permits so far, according to Village Administrator Brent Eichelberger.

A Kimball Hill bankruptcy would mean a loss of revenue for Sugar Grove because each permit represents about $2,500 for village coffers.

Trustees recently scrapped plans for a new $20 million municipal center, citing decreased permit revenue as a result of the housing slowdown.

Eichelberger downplayed the loss of revenue.

"We do use permit fees for capital projects, but these projects may not be necessary without the new homes," Eichelberger said.

One of the turnaround scenarios for Kimball Hill and other home developers could be to renegotiate deals with local towns. More developers this year could show up at village board meetings for renegotiations, rather than new projects, according to real estate analyst Steven Hovany.

"A lot of developers will be forced to come hat in hand and ask to renegotiate impact fees, roads, water towers, open land," said Hovany, president of Schaumburg-based Strategy Planning Associates, a real estate research and consulting firm.

At Settlers Ridge, 500 acres of prairie habitat is designated as permanent open space, nearly 40 percent of the total acreage, according to Kimball Hill.

Still, any turnaround will need to survive an extended housing downturn, and many real estate analysts predict the housing downturn to last into 2009.

"They will have to reduce overhead and revise their products to current market trends," Hovany said. "They will have to reduce their debt load, and selling properties is one way to reduce costs."

The problem with selling developments to reduce debts is that other developers are suffering the same downturn, Cross said.

Cross could not estimate how long it might take for a Kimball Hill turnaround -- weeks, months or a year.

Kimball Hill weathered housing recessions in the past and many of Kimball Hill's local developments appear to be nearing completion.

"The company as a whole in Chicago, with the exception of Settlers Ridge, has done incredibly well, compared to other (developers)," Cross said.

Kimball Hill in the suburbs and beyond

bull; Built about 95 percent of post-World War II Rolling Meadows homes.

bull; Expanded during housing boom to California, Las Vegas and southwest Florida.

bull; Settler's Ridge in Sugar Grove planned as 470 homes; 96 have sold.

bull; Built and sold out the 1,000-unit Townes of Willoughby in Algonquin in 1990s, one of the largest subdivisions in the suburbs.

bull; Son of Kimball Hill, Harper College Trustee David Hill, is a well-known philanthropist.

bull; New home starts in the Chicago area are down 35 percent this year.

Source: Daily Herald reporting, Tracy Cross Associates