John Denham had a great company and great people. What he didn't have, he said, was great timing.
"The economy got us," said the owner of the now-bankrupt Ashland City construction firm, Grade LLC. "It was too much to overcome."
Construction firms like Denham's and other small businesses linked to sluggish consumer spending have felt the brunt of the economic downturn in the Nashville area as corporate bankruptcies among builders, contractors, restaurant owners and retailers continue to surge.
Nearly 400 business bankruptcies were recorded for 2008 in Middle Tennessee, according to the latest federal court records, more than double the total from the previous year.
Local bankruptcy lawyers and industry officials say construction firms continue to account for the biggest portion of the bankruptcy spike, even though other sectors also are represented.
"Besides builders and contractors, we're starting to see some of the (subcontractors)," said Joe Rusnak, a bankruptcy specialist with the Nashville law firm Tune, Entrekin & White. "It's kind of starting to trickle down."
Sluggish consumer spending also has taken a toll on restaurants and retail shops.
Among recent victims, owner Daniel Barragan and his business partner filed a Chapter 11 bankruptcy petition for Rosario's Mexican Restaurant in Edgehill Village about two weeks ago. The restaurant remains open, but it owes at least $452,812 to US Bank, its largest creditor, records show.
"The plans we presented were realistic," Barragan said this week. "We didn't see this coming."
Steve Rudd, a partner with Nashville-based Restaurant Retail Properties, which handles leasing for many restaurant spaces, said the next six months are crucial.
"(Owners) were hoping that the Christmas season would be good for them. Well, obviously the reports came in and it was horrible," Rudd said of restaurants and retail shops that have already failed.
Other restaurants that have closed in recent weeks include Bistro 215 in Green Hills and three restaurants in the Shoppes on the Harpeth off Highway 100, including a satellite location of the well-known City Limits Bakery & Café.
Co-owner Terri Woods said all of the Hwy. 100 locations opened last summer, but they didn't last because of gas shortages last fall and "people's attitudes about the economy." Woods called those factors "the kiss of death." Woods' flagship café remains open in Bellevue, however.
At Rosario's, Barragan hopes to make ends meet and emerge from bankruptcy by spring. Sales are down 25 percent to 30 percent compared to 2007, he said. Cooks, prep staff and cleaning crews all have taken pay cuts of $1 an hour, and other employees have seen their hours reduced.
Meanwhile, retail sales nationwide slumped 2.7 percent in December, the sixth straight month of declines and the longest string since comparable records began in 1992, the U.S. Commerce Department said Wednesday. The decline was double the rate that analysts had expected as consumers cut back on everything from car purchases to eating out.
"There is a major retrenchment going on," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm.
Pain soars among buildersThe saga of Grade LLC's life cycle illustrates the turmoil among builders here.
Founded in 2005 when Denham decided to strike out on his own, Grade quickly began collecting $4 million to $5 million a year in annual revenues excavating and laying utilities at Middle Tennessee building sites. Its payroll exceeded 50 workers.
But the pipeline of work started to slow in 2007. Government contracts were canceled, and a deal to lay utilities in the Reserve at Temple Hills, an upscale development on the border of Davidson and Williamson counties, progressed slower than Denham expected.
Meanwhile, Grade had payments due on approximately $1 million in heavy equipment needed to do business. Even with its workforce slashed in half, Grade had no choice but to file for bankruptcy in late November.
"When everybody stops all your work at once, it's hard to bounce back from that," Denham said.
The building industry has made a particularly dramatic about-face over the last two years. During the housing boom, demand for new lots and homes seemed insatiable, and lending standards were relaxed. The combination prompted many people to start their own businesses.
Now building has slowed, and banks have tightened credit, forcing some of those new businesses to close.
"I think they just got over-leveraged," said John Rochford, the Reserve at Temple Hills' developer and a longtime Nashville business executive. "It was just the amount of credit available."
Most small operations have less of a financial cushion to ride out fiscal storms.
"These people are more or less self-employed," said Keith Slocum, a partner in the Nashville bankruptcy firm Salas Slocum Law Group.
Bankruptcy filings are expected to continue at a torrid pace through the first half of 2009. Businesses are still attempting to ride out the aftershocks of Lehman Brothers' collapse Sept. 15 — an event that shook credit markets worldwide — and it will probably take until spring for the full impact of it to be felt, lawyers said.
"Over a long period of time, we'll begin to fit the pieces together," said John McLemore, a bankruptcy lawyer with the Nashville firm Garfinkle, McLemore & Walker. "It takes about six months from an event in the economy for it to trigger something in bankruptcy court. … Beware the ides of March."
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