Principals at Wilmington’s largest commercial real estate companies saw benefits to a proposed bond offering seeking $500 million to invest in local properties.

Led by local developer Jon Vincent, Eastwood Property Group plans to initially invest in 14 commercial
properties – many of which are his own projects. These include the new Bank of America building on North Third Street downtown and Airlie Commons, home to the new Woodlands Bank office on Military Cutoff Road.

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.

Vincent’s partners include Jim Wallace, founder of Intracoastal Realty, and Steve Niemeyer, founder of Wrightsville Builders.

While banks currently are resistant to lend money for real estate development, some industry leaders said this project could infuse the market with enough capital to get it rolling again.

“You’re taking a number of large properties, signature properties and you’re immediately stabilizing them. I think it would have positive ripples,” said Hanson Matthews, a founder of Maus, Warwick, Matthews and Co.

Eastwood is attempting what is called a 144A filing – an asset-backed bond offering – which would enable the company to sell shares of itself to private investors, without the disclosure requirements of a traditional initial public offering. The business plan indicated that the company was looking for qualified institutional investors. The bond fund would sell shares on an exchange that is open only to institutional and other sophisticated investors.

“It certainly is a courageous attempt. The key is, who is going to step up with the funds. If the investors come forward and the cash flows, there’s a lot of potential there. It depends on who will invest in it,” said outgoing city councilman Jim Quinn, who has been in the real estate industry for 23 years.

Such a boost of capital may be just what the local economy needs right now. “Bankers are telling me that they are intimidated by the feds. They’re intimidated by the economy,” Quinn said. “There are no lenders out there that are meeting the needs of the community.” And, that’s where Vincent and Eastwood come in, he said.

“I’m optimistic that this might be a vehicle that could help increase liquidity in the commercial real estate market,” said John Lennon, owner/broker at Coldwell Banker. “I think the key to its success – that vehicle or anything like it – is going to have to recognize the depressed values in the market.”

Devaluation has glutted the market with competing properties and funds such as this one nationwide, he said. “Clearly there is tremendous amount of competition with the abundance of capital on the sidelines from distressed real estate markets in the country,” Lennon said. Thus, attracting large investors may be competitive.

“The flip side is it can also create an artificial increase in property value. I hope that doesn’t occur,” he said. In order to prevent that, a comprehensive due diligence with realistic valuations must occur before assets are acquired, he said.

According to the outlined plan, the prices Eastwood will pay for the initial 14 properties will be no more than 95 percent of a new appraisal of each property. The new appraisal would be conducted by a third-party after the money is raised, according to the document.

“I felt for some time that our market was terribly over-priced,” said Grayson Powell, managing broker at Coldwell Banker. The price adjustment was needed, he said. But unfortunately, the fallout was more drastic than expected.

“Right now they could be cowering down and scared to death, but it appears that they are making a proactive stance,” Powell said. While many people are nervous about the market, he said he’s excited about it. Vincent and his business partners see the opportunity and want to seize it, Powell said. “I love that they are thinking outside of the box.”

“You have to balance that euphoria with reality,” Lennon said. The stakes are high and the risks could be great.

Powell said, “I would love to sell them some stuff.” Although, he said he hasn’t approached them yet and isn’t sure if his company is in the position to be involved.

The investment process

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 around – leaving the 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 partners

Reached by phone earlier this month, Vincent said he is under a non-disclosure 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 CEO of Harbor Island Partners; 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.

“It’s a great idea and if anyone can make it work, it’d be Jon Vincent. It’s a big undertaking,” said Joel Tomaselli, the developer of Lumina Station, while on the road last week.

“When I get back in town, I’m going to call Jon to see where I can get a number to get in line,” he said.