Skip to main content

Forest City (thanks to Greenland) easily raises $249M in immigrant investor funding, but questions pile up: were investors misled? where does money go? is EB-5 for Atlantic Yards a (modified) Ponzi scheme?

“We'll figure something out,” Atlantic Yards developer Bruce Ratner famously told Crain's New York Business in November 2009. And they have, again and again, even if "figuring something out" may strain the boundaries of credulity or ethics.

In fact, they're pioneers. In 2010-11, they used $228 million from immigrant investors to replace a land loan, even though such bridge financing was dubious under the then-current interpretation of the federal government's EB-5 program.

Today, such bridge financing is A-OK. Developers can hawk green cards to immigrant investors as long as they have a economist's study that claims the project will create jobs.

The new money from immigrant investors--Forest City Ratner last year began seeking $249 million more in what was dubbed "Atlantic Yards II"--need not create the jobs itself.

That $249 million is apparently already in the bag, despite, as I reported, numerous lies and misrepresentations in the marketing of the project.

New York-based attorney Yi Song reported 4/7/14 on the LexisNexis Venture Capital blog:
...Chinese real estate gurus have been aggressively investing overseas... one of the leading Chinese real estate developers – Greenland, acquired 70% equity of the Atlantic Yards project in New York City late last year. As a direct response to the acquisition, the 498-investor EB-5 project, Atlantic Yards II in New York City was fully subscribed in under three months.
In other words, even though the deal with the Chinese government-owned Greenland Group is not yet approved--"acquired" is premature--the role of the big Chinese investor apparently helped give individual millionaires the confidence to park their money in "Atlantic Yards II" in exchange for green cards.

Angles for scrutiny

As I wrote, it sounds like something from The Onion, but it's real: the Chinese government would profit by selling U.S. green cards to Chinese immigrants.

That, on its face, boggles the mind, since the creation of"jobs" is so dubious, and the program seems geared far more to helping developers and entrepreneurs than the public interest.

The dishonest promotion of the $1.235 billion "Atlantic Yards II" as equivalent to the full $5 billion "Atlantic Yards" should, on its face, prompt investigation.

But other angles deserve scrutiny.

Where's the money going?

They can call it the "NBA Stadium, Infrastructure & Residential Project," and they can say its involves $1.235 billion, but--at least in the promotional materials--they don't say how it will be spent.

The arena (not a stadium) is already built. The only way investors' money could go into the arena would be if they're paying for the new green roof.

What about residential? Well, the money could be part of the funding for the future residential towers, which also would rely on tax-exempt financing.

Infrastructure? EB-5 funds could help build the permanent railyard.

Paying back previous EB-5 investors?

The money, I speculate, may be spent in another way.

Remember, Forest City must still to pay off the $228 million it raised from the first round of EB-5 investors, which is due in five to seven years, or beginning next year. If that loan was consistent with others raised through the New York City Regional Center, not only was the interest rate low (4-5% or lower, vs. 12% on the open market), but the loans were initially interest-only.

What's 4% of $228 million? That's $9.12 million a year, not the heaviest lift.

How are they paying back the principal?

There was no public claim on any revenue stream, so that invites speculation. The investors had no claim on arena revenues, as far as I know. The collateral consisted not of revenue-producing property but claims on development rights to future Atlantic Yards sites, rights that Forest City surely had no intention of giving up.

What's left? They could refinance.

So I wonder if the new EB-5 money will be used, at least in part, to pay off the first round of investors.

Of course they haven't said that. I can't prove it, and without a forensic accountant, we can't be sure.

Perhaps money from Greenland, not the new EB-5 investors, will be used to pay back the first round of EB-5 investors. But money's fungible, right, and won't Greenland then get the benefit of the new EB-5 money?

It deserves an outside investigation.

To the newest round of investors, the marketers of "Atlantic Yards II" offer more public assurances. They claim--as in the screenshot at right--that the loan will be paid off after current loans for Atlantic Yards apartment towers get refinanced, thanks to substantial cash flow after "completion and stabilization of the project" (whatever the "project" means).

It it a Ponzi scheme (of sorts)?

If--as speculated--Forest City (with  Greenland) pays off the previous EB-5 funding with new EB-5 funding, they will take the already sketchy EB-5 program to a new level.

Consider that scenario a modified Ponzi scheme--one that may be legal. Think about it. A typical Ponzi scheme, like that of swindler Bernie Madoff, relies on a continuing stream of new investors to pay off old ones at a high interest rate, rather than than using profits.

But Ponzi schemes, which draw new investors because of deceptively high returns, have an expiration point. Because of that high interest rate, the scammer must constantly seek new investors, and is vulnerable whenever earlier investors want their money back. The scheme ultimately blows up.

Under the EB-5 variant, it seem, as long as there's a supply of green cards--and a purportedly job-creating investment packaged to federal standards, to legitimize those green cards--there'd be a potential unending stream of new investors.

(For the first EB-5 investment, as far as I can tell, jobs were calculated based on arena construction; for the new one, jobs are calculated based on a new stage.)

Unlike with a standard Ponzi scheme, there's a lot more slack; there's no need to produce lucrative returns. Yes, the investors want their money back, eventually. But they want to be paid in green cards first.

Ultimately, Forest City and Greenland will have to return the principal to the new investors. And they'd have to have a large enough "project" to create the required jobs, on paper.

But the EB-5 variant--if it operates as I speculate--would be far less precarious than the standard Ponzi scheme. And if it's legal, it would further strain the legitimacy of the EB-5 program.

It's another aspect of "Atlantic Yards II" that deserves an investigation.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlantic Yards/Pacific Park graphic: what's built/what might be coming (post-dated pinned post)

Click on graphic to enlarge. This is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change, and the project is already well behind that tentative timetable.


Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

Not quite the pattern: Greenland selling development sites, not completed condos

Real Estate Weekly, reporting on trends in Chinese investment in New York City, on 11/18/15 quoted Jim Costello, a senior vice president at research firm Real Capital Analytics:
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said. When I read that last November, I didn't think it necessarily applied to Atlantic Yards/Pacific Park, now 70% owned (outside of the Barclays Center and B2 modular apartment tower), by the Greenland Group, owned significantly by the Shanghai government.
A majority of the buildings will be rentals, some 100% market, some 100% affordable, and several--the last several built--are supposed to be 50% market/50% subsidized. (See tentative timetable below.)

Selling development …