PortHaven Project in Jeopardy as Investors Sue

Less than two months after the county commission amended the comprehensive plan to give it a crucial go-ahead, the Porthaven project, a multi-million dollar mixed-use project slated to radically transform the heart of Eastpoint, has run smack dab into the anger of its major backers.

A group of investors, mainly from in and around the Fayetteville, Arkansas area, filed a June 19 lawsuit in the U.S. District Court in Western Arkansas against the developers, and the bank and loan officers who helped bankroll the project.

These investors, who bought into a private equity investment of about $3.5 million three years ago, now allege that they were misled by the developers, as well as several agents of Chambers Bank of North Arkansas.

Named among the many defendants are Dirk Van Veen, who has served as the face of Growth Group LLC, before the county commission, and former Eastpoint seafood dealer Bruce Millender, who worked to coordinate the sale of several Eastpoint properties into the 31-acre parcel that is to become PortHaven.

"The development project described to (the investors) was no more than smoke and mirrors," the lawsuit alleges, going on to say that the project's backers shared "intentionally misleading facts" that were either known to them "or so obvious that (they) should have known."

The plaintiffs are seeking to recover their lost investment and to collect punitive damages.

In a telephone interview Friday, Christy Comstock, of the Everett and Wales law firm in Fayetteville, said her clients' involvement in the project began in the spring of 2005, when they were presented the opportunity to invest in "attractive waterfront townhomes in a new urban atmosphere."

Four of these investors then traveled together with three of the potential developers, Mitchell Massey, Edward Davis and Morgan Hooker, to Eastpoint and met with Millender.

"After visiting the site and studying the written materials and communication regarding projected returns and expected profit margins, Plaintiffs were persuaded to wire a total of $3.2 million to an escrow account with Chambers Bank of North Arkansas to purchase equity investments in Eastpoint Redevelopment LLC," reads the lawsuit.

These private securities were used to acquire financing to purchase a 16.92-acre consolidated parcel from Millender, at a cost of $19 million, Comstock said.

At the time, the investors were led to believe the project would lead to 220 units and were reassured, according to the lawsuit, that "due to the involvement of Eastpoint, Florida resident Millender, the regulatory approval process was on a ‘fast track' and that the regulatory hurdles for Eastpoint Landing had been cleared."

As it would turn out, that "fast track" would take nearly three more years to complete, and would result in a project much larger in scope that had originally been envisioned by the developers.

Suit Says Developers Failed to Raise Needed Equity

The 62-page lawsuit goes into considerable detail as to Millender's financial arrangement with the Growth Group, outlining how in deals signed in May and June 2005, he and his company, Heritage Coast Properties, received 10 percent of the Growth Group's retained interest in the property at the time of development or resale, and was granted a $4 million " preferred equity" investment in the property.

As a result of this preferred equity, Millender and his company received $4 million less at closing, but were to be repaid $7.55 million by Jan. 2006, which included a 150 preferred return on both, said the lawsuit.

The suit contends that this "preferred equity" arrangement "increased the purchase price by no less than $4 million."

The suit also contends the developers overstated the project equ ity and then later expanded the scope of the project without advising the plaintiffs.

"They said they raised $10 million in equity when they did not," said Comstock. "They barely raised enough cash to close on the property"

The lawsuit argues that "To this day no townhomes have been built. Eastpoint Redevelopment has defaulted on the $14 million loan from Chambers Bank used in the land purchase. County and state regulatory issues remain unresolved."

The project's scope expanded considerably in March 2007, after Miami architectural firm Duany Plater-Zyberk and Company conducted a week-long charrette in Apalachicola to brainstorm ideas and work up designs.

Their designs resulted in a project encompassing 311 units on 31.09 acres, and a few weeks later, the county agreed to transmit to the Florida Department of Community Affairs a change in the comprehensive plan that would allow Growth Group to create densities as high as 10 units per acre for Porthaven.

The developers had sought 11.3 units per acre , or about 350 units, on the site, which runs from just west of First Street to east of Second Street, and north from the water to just south and directly east of Russell Street.

Van Veen repeatedly contended during the hearing that the 47 to 55 small shops and restaurants that will be placed on 61,000 square feet of commercial space required the higher residential density in order to create "a vibrant town center."

First Units Wouldn't Be Available until Mid 2010

Two months ago, the county commission again gave PortHaven the thumbs up, this time agreeing to state-mandated changes that would enable the developers to get four times as much credit for open space left along the waterfront than for upland open space.

"I think everything went well, it went relatively smooth and we had a lot of support from the commission," said Van Veen, in a telephone interview in May. "(County Planner) Alan Pierce and (Assistant Planner) Mark Curenton came up with a calculation based on price differentials between waterfront and inland property.

"I think it's fantastic," said Van Veen. "It's the polar opposite of what happens in Panama City. Instead of privatizing the waterfront and building it up with tall buildings, you guarantee public access,"

Van Veen said last month that he was waiting to hear back from his partners, and insisted "It's a great time for getting a project approved and for obtaining services." He could not be reached for comment following the filing of the lawsuit.

"This is the best time there is," Van Veen said in May, outlining a nine-month time frame to get the Planned Unit development approved, nine months for horizontal construction and at least another six months for vertical construction, it would be "the middle of 2010 at the earliest" before units would be available.

He stressed that the overall economic impact of the project would mean $17 million in employee salaries for non-construction jobs, and a bout $2 million in annual total property tax revenue after year seven.

Van Veen said financing would be "certainly more difficult" given the ongoing housing crisis. "Financial markets tend to be more reactionary than proactive," he said, while stressing that the PortHaven project would outperform "poorly built, poorly designed, poorly located products" built during the county's boom of the last decade.

"We don't know what that's going to look like in two years," he said, adding that Duany, Plater Zyberk products are "selling well relative to the market.

"It's a flight to quality and we feel were extremely well positioned," he said. "It's really about the neighborhood."

Van Veen made no mention of the fact the entire project is now being marketed by the South Florida brokerage firm Marcus & Millichap.

PortHaven Project Being Marketed by South Florida Broker

The listing contends a $83.5 million profit can be made on a purchase price of $42.5 million, for a total cost of development estimated as $ 212.3 million.

The listing notes the purchase price includes all entitles and approvals, and touts 300-plus residential units, 58,550 square feet of commercial space and 1500' of waterfront frontage

The price per acre translates to about $1.4 million, with a price per buildable square foot of $62.16.

"This investment represents an opportunity to acquire through a joint venture 30 +/- acres of waterfront property in Eastpoint located in the heart of Florida's "Forgotten Coast" an area known for its natural beauty and excellent sporting opportunities," reads the listing. "Porthaven is a New Urbanist development project focused on creating vibrancy and a sense of community among the visitors to the area.

"Designed by the nationally renowned architectural and land planning firm DPZ, Porthaven achieves this sense of connectedness through pedestrian orientation, complementary amenities, specialty retail and a variety of residential components. The variety contributes to the vitality of Porthaven by bringing together individuals different lifestyles and interests into the same community and has the added benefit of spreading unit absorption across a wide range of customers," it reads.

The lawsuit also claims that defendant John Russell Meeks, a loan officer for Chambers Bank, received a $ 1 million interest in the project without making a cash contribution. He is the nephew of bank board of director's member John Ed Chambers III, according to the complaint.

The suit alleges that the bank knew or should have known that Meeks had an interest in the development and that Eastpoint had insufficient funds to close on the development loan.