Led by developer Jon Vincent, a group of prominent Wilmington businessmen are seeking to raise $500 million to invest in local commercial properties – a project that could begin to stabilize real estate prices and would create one of the largest real estate holdings in the region.

Vincent and partners Jim Wallace of Intracoastal Realty and Steve Niemeyer, founder of Wrightsville Builders, have started Eastwood Property Group LLC to offer a private, structured debt offering on 14 pieces of real estate in the region – many of which are their own projects. Included in the initial portfolio are the new Bank of America building on North Third Street and Airlie Commons, the new home of Woodlands Bank on Military Cutoff Road.

“The pressure regionally is on collapsing real estate values,” said Chad Paul, who is CEO of Harbor Island Partners and is a member of the four-person investment board for Eastwood Property Group.

“This deal will drive Wilmington and will stabilize a lot of the real estate projects in Wilmington,” that are distressed, Paul said.

In a document labeled “confidential business plan” reviewed by Greater Wilmington Business Journal, but provided to the paper by individuals not affiliated with the company, Eastwood outlines local conditions the company sees that will allow it to buy up properties at levels 35 percent to 50 percent below mortgage values, manage those properties and then sell them at a profit after the economy recovers.

“Properties may now be acquired at below book value. Eastwood will utilize a proprietary set of shared resources to operate these properties efficiently, maximize value and then extract value through sale or refinancing at the appropriate point in the recovery cycle,” according to the business plan.

The debt offering is in the form of a privately traded bond. Eastwood is trying to raise $500 million in the bond offering to purchase attractively priced properties – including the 14 properties it is putting up for sale.

The prices Eastwood will pay for the properties will be no more than 95 percent of a new appraisal of each property which will be done after the money is raised. A third-party appraiser will be hired to do the work.

The bond offering is securitized by Life Settlement Properties and administered by an independent trustee, according to the plan. The plan also says the trustee will purchase policies to underwrite Eastwood’s obligations at 2 times, or 200 percent of the amount funded.

Many in the Wilmington development community said they are closely watching Vincent’s plan. Some sources say it is a long shot, a “Hail Mary” which could stabilize financing for the 14-property investment portfolio and could give a stable floor to pricing in the local commercial real estate market.

Others say it’s not a big deal and the market will correct itself in due time. But everyone seems to agree that the local banking and development communities could use an infusion of capital.

THE PARTNERS

Reached by phone last week, Vincent said he is under a do not disclose agreement that prohibits him from discussing the company. He did say that he hopes the deal will close on Dec. 10. If it doesn’t, it will likely close in mid-January, he said. A message left for Jim Wallace was not returned.

In addition to Vincent, Wallace, and Niemeyer, who is also co-founder of Tri-Coast Properties, the rest of the Eastwood team outlined in the business plan includes a four-member investment board. That board includes Chad Paul; Keith Betts, executive vice president and Wilmington market president at Crescent State Bank; Ken Lucas, CEO of The Tar Heel Companies of North Carolina – a Raleigh-based property management company – and a founding director of the Crescent State Bank board and Steve Agnoff, president of Agnoff Investments and former official with Fenner Drives.

Three of the members of the investment board sit on the board at Crescent State Bank: Paul, Lucas and Betts. Vincent, an accountant by training, helped Paul start Port City Capital Bank in 2002. Port City Capital Bank was acquired by Crescent State Bank in 2006.

The documents named Houston-based business law firm Pagel, Davis & Hill, P.C. as Eastwood’s legal counsel. Ollie Dee Boykin Jr. of Ridgeland, Miss.,-based Horne LLP is named as Eastwood’s auditor.

Vincent moved to Wilmington in 1987 from Mississippi, according to the documents.

THE FINANCIAL PLAN

Eastwood’s financial strategy is laid out in the business plan. Eastwood is seeking to raise money from a structured bond (debt) offering in late 2009 to early 2010 using an asset-backed bond offering. “Servicing this bond debt is the core driver for Eastwood,” according to the business plan.

Eastwood is attempting a 144A filing. This will enable the company basically to sell shares of itself to private investors, without the disclosure requirements of a traditional initial public offering. It will do that by selling shares on an exchange that is open only to institutional and other elite investors.

“Eastwood will be obligated to fully service the debt incurred under the bond offering over the 10-year life of the bond,” according to the plan.

The business plan outline calls for no payout to investors during the first two years while the company would be in acquisition mode, ideally taking advantage of a down market where properties could still be bought significantly below mortgage value. The plan calls for a payout of $162.5 million in the third year as acquisition stops and the projects begin to perform. In the fourth through the 10th years, the payout would be $54.1 million a year, according to the document.

“The precise amount of the annual bond payments is based on the discount that buyers negotiate at the time the bonds are sold – typically 10 percent to 25 percent of face value,” according to the plan.

The face value of the bond is expected to be $1.67 billion.

The business plan included a section outlining that the company would maintain an account to pay the roll-up amount in year three of $162.5 million.

THE INVESTMENT PROCESS

The business plan indicated that the company was looking for qualified institutional investors. Paul said the bond offering probably would appeal to “big insurance companies around the world.”

Eastwood hopes to acquire as much as 50 to 80 pieces of property. This size would make the company “the biggest private property holding in the region,” he said.

The company will use the existing portfolio and the capital from the bond offering to establish a platform for expansion of the company’s holdings, according to documents. The paperwork contains warnings that few good acquisition opportunities will remain after the next 24 months.

According to the business plan, Eastwood plans to refinance at low loan-to-value rates, possibly as low as 50 percent to 70 percent. The company will monetize the assets by 1) “capital preservation and debt service capability” and 2) properly timing the refinance or sale.

The exit strategy, according to documents, is to sell, “at the top of the curve,” when the economy turns back around – leaving the new owners with class A space for 20 to 30 years to come.

The debt service is a 10-year bond offering and the target yield is a 12 percent annual return, according to the business plan.

THE PORTFOLIO

Eastwood’s business plan calls for the company to “acquire and roll-up an initial portfolio of about $100 million in property assets.” This includes four class A office buildings, 6 sites for commercial or industrial development, two hotel sites, four residential development properties and more than 1,500 acres of land.

Of the 14 properties Eastwood is offering in the business plan, four are currently income-producing: The Pines I and III at Mayfaire, which contains about 60,000 square feet of office space, the new Bank of America building on North Third Street in downtown Wilmington, which has 52,000 square feet of office and 36,000 more square feet of space at Airlie Commons which is home to the new Woodlands Bank office on Military Cutoff Road.

The other properties outlines in the business plan are still under development.

• The Pines II and IV at Mayfaire
• Lincoln Plaza, a planned commercial and residential mixed-use project on North Second Street between the new Bank of America building and Bannerman Station.
• Airlie Crossing, a planned 17,000 square foot office building at Wrightsville Avenue and Oleander Drive
• A proposed office building in Chapel Hill on two acres of land
• Oyster Landing is a 300-acre planned multi-use residential development in Onslow County
• Riverbend at Cedar Hill is a 906-acre multi-use residential development planned for Navassa
• Olde Georgetown development in Brunswick County is a planned residential project on U.S. 211.
• Market Street Commerce Center is a proposed mixed use office/commercial development at Market Street and Judges Road in Wilmington
• Cardinal Crossing, a 144-unit multi family development in Wilmington and
• The proposed Hampton Inn slated for a spot on Grace street between Second and Third streets.

THE OPPORTUNITY

The business plan goes to great lengths to explain the unique economic conditions in Wilmington that make the bond a safe bet.

Property values have been falling in Wilmington as the economy has slowed. Companies aren’t expanding fast enough to absorb new office space and banks haven’t been willing to loan developers money to build hotels and other private projects.

There are a dozen or so pages in the prospectus devoted to touting the region. It charts the census bureau’s predictions for growth, the prime location near the beach and it emphasizes the region’s proximity to two growing military bases, Camp Lejeune in Jacksonville and Fort Bragg in Fayetteville.

The business plan warns that traditional credit markets will not be able to respond in time to help the pending maturities of commercial mortgages during the next 24 to 36 months. “Eastwood intends to execute its strategy of capturing these properties at discounted values then utilizing its existing operational processes and shared resources to operate these properties at a profit,” according to the documents.

THE PRESSURE

Paul said that the money from the bond could help stabilize prices on plunging real estate values. “You could at least have a price,” he said. “It will give a stabilized price and a bid on those loans,” he said, speaking of some of the loans made by Cooperative Bank and Cape Fear Bank that ended up dooming the two local institutions earlier this year.

Both banks were shut down by the North Carolina Commissioner of Banks, and the assets were split between the FDIC and other regional banks who bid on the assets. First Bank of Troy, N.C., wound up with many of Cooperative’s assets. First Federal of Charleston, S.C., assumed control of most of Cape Fear Bank’s assets.

Paul emphasized how healthy the local real estate market could become if a company like Eastwood is able to buy up a handful of properties and stabilize prices.

Others in the real estate community who preferred not to be named in this story said the infusion of capital into the local economy would help many developers, contractors and subcontractors pay some bills and start to normalize those businesspeople’s relationships with the banks.

The property assets Eastwood is putting up as part of the debt offering do not represent all of the distressed properties in the region, and relief for some bankers, developers and contractors doesn’t mean relief for the entire economy.

But more than one developer said there are prominent people in Wilmington who are out of money and getting cash calls from the bank. If this bond offering works, it could save a lot of people from personal and professional bankruptcy.

“Anybody you talk to will tell you that if anybody can get this done, it’s Jon [Vincent],” Paul said.