THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: SUNDAY, June 12, 1994 TAG: 9406110321
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: Tom Shean
DATELINE: 940612 LENGTH: Medium
The site had already been zoned for commercial development, and demand for condominiums on the resort island was booming.
{REST} When a St. Maarten's resident approached Jack Gibson in the mid-1980s about developing the one-acre parcel next to his restaurant, Gibson sensed a lucrative opportunity that involved little risk.
The retired chairman and chief executive officer of Dominion Bank of Greater Hampton Roads began doing research on the local market for time-share condos. He spoke with the island's lieutenant governor about development of the Simpson's Bay site. He checked on the backgrounds of prospective architects and construction companies.
Then Gibson and two friends - John B. Bernhardt, a retired vice chairman of Sovran Financial Corp., and Richard J. Holland, chairman of Farmers Bank in Windsor - teamed up with the property owner to develop a 64-unit condominium.
The group figured that one-bedroom units in their 10-story Atrium on Simpson's Bay Beach would sell for more than $200,000. Prices of the two-bedroom units would be at least $324,000, and each of the four penthouse units would go for $660,000.
Gibson, Bernhardt and Holland financed part of the construction with funds borrowed from Holland's bank and with a loan from a Dutch bank on St. Maarten.
But their project became mired in financial difficulties. The partners had counted on longer-term financing from a San Diego mortgage company. When that company closed down, they had to scramble for another source of funds.
``We were worth some money, but we didn't have $10 million to lay on the table,'' Gibson recalls.
He and his partners found some short-term financing from a source closer to home: Smithfield Foods Inc., the Smithfield-based meatpacking and processing company where Gibson and Holland sat on the board of directors.
In December 1989, the company provided the Gibson-Holland-Bernhardt partnership with an unsecured $1 million loan.
Joseph W. Luter III, chairman and CEO of Smithfield Foods, ``had some real estate experience, so we went over to see Joe and invite him into the partnership,'' Gibson says. ``He declined the invitation. But after asking some incisive questions, he made a loan.''
As it turned out, the Smithfield Foods loan wasn't enough. By mid-1990, work on the Atrium at Simpson's Bay Beach had stalled.
In March 1991, Smithfield Foods expanded its loan to the Gibson partnership to $2.4 million. In return, the company received a higher rate of interest on the additional $1.4 million, a $1.9 million second deed of trust on the project and personal guarantees for repayment from each of the borrowers.
The entire $2.4 million loan from Smithfield was paid off later that year by Luter, Gibson says.
But the Dutch bank that provided the developers with part of the initial financing eventually foreclosed on their building and auctioned it off. Luter, says Gibson, bought it for $3.5 million. Luter could not be reached for comment.
Some real estate developers familiar with the St. Maarten venture say they considered the project daring because it was in a foreign jurisdiction and subject to foreign laws. Also, construction would be complicated by the use of a foreign workforce and having to ship in building materials.
Gibson dismisses those observations. The project, he says, involved only modest risk because the Dutch-controlled island enjoyed political stability and the market for time-share condominiums was thriving. Had the availability of bank financing for real estate projects not dried up so suddenly, the condo venture would have come to fruition, he insists.
``We hung in there as long as we could,'' Gibson says.
The Simpson's Bay condo project, says Holland, ``was not something dreamed up overnight. There was considerable research of the demographics and the market.''
But the project, Holland adds, was hurt by conditions beyond the developers' control. Sales of condo units, he says, were battered in 1990 by the Persian Gulf war and vacationers' concerns about international terrorism.
The ivory-colored building with pink trim finally opened last October as an 87-room hotel. Now known as the Atrium Resort, it also has sold four units as time-shares, says its general manager.
But in Windsor, Va., loans for the project continue to linger on the books of Farmers Bamk.[sic] Its $1.2 million claim against Gibson includes a loan for his stake in the St. Maarten venture.
Holland declines to disclose how much the bank lent him, Gibson and Bernhardt for the condominium but says he has paid down his loan to less than $100,000 and that Bernhardt has fully repaid.
{KEYWORDS} PROFILE BANKRUPTCY
by CNB