How did the middleman for the Nassau Coliseum loan get control of the lease--and a $7M payment? As vote on rent relief awaits, County far from transparency.

In an unusual switcheroo still obfuscated by Nassau County officials, the Nassau Coliseum lease has been taken over by an ethically dubious businessman known for aggressively promoting investor visas.

That businessman is Nicholas Mastroianni II, whose Nassau Live Center assumed the lease in August after former arena operator Nassau Events Center (NEC), headed by Russian billionaire Mikhail Prokhorov, shuttered the pandemic-stalled building, leaving $100 million in debt.

Now Mastroianni’s positioned to get rent relief from the County, even as he’s pursued new ways to reap revenue from the Coliseum deal and engineered a settlement from Prokhorov three times larger than has been previously disclosed.

How did this happen? Mastroianni, according to Newsday's recent deadpan summary, “was legally entitled to take control of the Coliseum lease, and by default, is a partner with RXR Realty in development of the area [around the County-owned building], because he coordinated the loan for the Coliseum’s 2015 renovation.”

That obscured a lot, notably the strangeness of having Mastroianni—subject of a tough 2014 article in Fortune describing his “tangled past” and ethical clouds—get the lease just because he “coordinated” the loan. After all, that scenario—as I wrote in December—resembles a mortgage default that leaves the mortgage broker, not the mortgage issuer, in charge.

Even worse, County officials--followed by Newsday--earlier wrongly called Mastroianni’s U.S. Immigration Fund (USIF) the original lender of the $100 million, rather than the middleman. 

From U.S. Immigration Fund; the page, which
needs updating, says "Construction in Progress"

Actually, the money came from 200 Chinese nationals seeking investor visas under the federal EB-5 program, which trades green cards for purportedly job-creating investments. 

Mastroianni’s USIF, based in Jupiter, FL, has been called the country’s leading regional center, or EB-5 loan packager, bringing cheap capital to large real-estate projects in New York City, Jersey City, and Los Angeles.

In this lucrative, under-scrutinized business, private companies like the U.S. Immigration Fund push the envelope, adopting names that deceptively connote a governmental role—violating best practices, according to an industry group--and misleading investors.

At the Nassau Legislature, though, it all sounded routine. Two legislative committees, at the County’s urging, on Feb. 4 approved a generous, pandemic-spurred suspension of rent for Mastroianni's Nassau Live Center until either six months after state occupancy restrictions are fully lifted, or no later than the end of 2022.

On video, that legislative hearing raised more red flags, as I describe below. A county official stumbled when describing the deal—a “tell,” of sorts. And a legislator misdescribed the deal’s structure, clearly unaware of Mastroianni’s coup.

Why it matters

Why does this matter? And why should Nassau County officials and Long Island’s dominant newspaper take notice, before the full county Legislature votes Feb. 22, presaging a return of New York Islanders fans to the Coliseum?

First, the public deserves basic honesty, especially since, as the hearing demonstrated, Nassau Legislators simply don’t understand the complex deal.

From Fortune: Oct. 14, 2014

Second, though Mastroianni’s record merits greater scrutiny, in this case he’s gotten a pass. For example, Newsday’s never mentioned that Fortune article--the closest was a glancing reference to his "history of legal troubles"--though one skeptical legislator cited the article at a 2015 hearing when EB-5 funding was first broached.

Third, there’s a non-trivial chance that, as with some other Mastroianni projects, the investors will sue him and his company. And that could complicate the scenario—reopening the Coliseum—that clearly motivates the County government.

(Note: when I queried Mastroianni's company and the County about related issues in December, they ignored me.)

At the hearing, fudging the lender

At the hearing, Deputy County Executive for Economic Development Evlyn Tsimis recounted the pandemic-induced upheaval last spring, involving default by Prokhorov’s NEC “on their $100 million loan that they took from Nassau Live—sorry, Nassau Coliseum Funding 100.”

Her stumble crystallized the contradiction. While Mastroianni’s new entity Nassau Live has taken over the Coliseum lease, it didn't loan the money. 

Nor—at least as has been publicly disclosed—did it pay anything to acquire the lease, plus Prokhorov’s valuable share in the 72-acre Nassau Hub development plan, as junior partner to RXR Realty. (Still, WSHU not unreasonably concluded that "Nassau Live bought the lease.")

The loan came from Nassau Coliseum Funding 100 LLC, organized by Mastroianni's USIF, which pooled funds from those 200 immigrant investors. (Loan recipient Nassau Events Center was formed by Forest City Ratner, developer of the Barclays Center, which later sold its share to Prokhorov.)

But EB-5 deals often disadvantage investors. In this case, it left the Manager—another Mastroianni entity—apparently able to install Mastroianni’s Nassau Live as the new “Borrower” and, as explained below, pursue a strategy to boost Mastroianni’s revenue.

At the hearing: who cured the default?

Tsimis, to Legislators, made the transactions sound routine: “There was a settlement in lieu of foreclosure, between NEC and the lender, and in August of last year… the leasehold lender that we've described, Nassau Coliseum Funding 100, cured NEC's rent default. Their designee, Nassau Live Center, stepped into the shoes of NEC as Coliseum tenant…. And then Nassau Live took on all aspects of the Coliseum lease, as well as the borrower obligations under the EB-5 loan.”

Letter from Nassau County's lawyer

That was memorialized in an Aug. 18, 2020 letter from Nassau County’s lawyer to USIF’s lawyer, which cited a settlement between “Leasehold Lender”—the immigrant investors in Nassau Coliseum Funding 100 LLC—and Prokhorov's company, and acknowledged County receipt of $2.2 million from that lender to cure the tenant's default, paying the County back rent, utilities, and other charges.

But those summaries ignored the role of the lender’s Manager, Nassau Coliseum Funding 100 GP. (Note the "GP" at the end.) According to a Sept. 8, 2020 letter to the investors that I obtained, the Manager negotiated that settlement, approved by the county, to allow Mastroianni’s Nassau Live Center to take over the lease.

“As part of this settlement,” according to the September letter to investors, Prokhorov’s NEC “paid approximately $7 million to Nassau Live” to pay various costs, including back rent, interest, utilities, and closing costs. That, according to the letter, saved investors legal fees and potentially significant losses.  

 

Letter to EB-5 investors

It also suggested to investors that the settlement had been made with the new borrower, Nassau Live, without going through the lender. That contradicts the County letter.

That $7 million payment--not previously disclosed--seemingly left Nassau Live with more cash available to pay the $4 million annual rent on the Coliseum--despite limited events--even as it seeks extended suspension of that rent.

Then again, as I explain below, most of that payment may have already been routed to Mastroianni.

Advantageous contract language

How could the middleman take over the loan?

Language in the loan prospectus, known as a Private Placement Memorandum, suggested investors were protected: the loan would be “be secured by mortgages on the Coliseum Ground Lease and a security interest in the other rights of the Developer to the Coliseum Project.”

Investors would gain “the right to assume (or the right to designate a qualified developer/operator to assume) the Coliseum Ground Lease following any… an event of default.” 

But that was also subject to other language in the prospectus, apparently enabling the switcherhoo. “Manager has the exclusive management and control,” it stated, “of all aspects of the business of the Company.” Moreover, it warned that “there can be no assurance that [transactions] will be resolved equitably or to the benefit of the Members.”

So the recent transaction, though presumably legal, need not be fair.

Overlooking questions, for results

From Tsimis’s statements, it seems that the County is focused on reopening the Coliseum--crucial to Long Island identity and vital to County coffers--and getting the Hub moving.

Similarly, County Executive Laura Curran, announcing Nassau Live Center as Coliseum tenant, in August stated, “This deal follows rigorous negotiations and fulfills my main objectives — forging a path forward for sustained Coliseum operations and keeping us on track to redevelop the Nassau Hub."

RXR's development partner on the Hub is now a new entity called Nassau Live Developer. “That is a designee, an affiliate of the lender,” Tsimis told Legislators, in what struck me as an obfuscation.

Nassau Live Developer, another Mastroianni company, may be a designee of the lender, Nassau Coliseum Funding 100 LLC, especially because Mastroianni effectively controls the latter without owning it. And they may be affiliates, assuming they share management. 

Still, the name Nassau Live Developer suggests an alter ego of the new Coliseum leaseholder, Nassau Live Center, which is the borrower, not the lender. 

Indeed, in the County's August 2020 press release, "Nassau Live" was used as a shorthand for Nassau Live Center, and then cited as also participating in the Hub. There was no mention of Nassau Live Developer, which would not be created until November 2020.

Questioning the deal

During the hearing, Legislator Arnold Drucker asked what might have happened had the County taken a harder line, not “agreeing to such a long drawn-out suspension” of the rent.

“We don't think a hard line… is the way to go,” Tsimis replied, adding that “the County is in a much better position with a tenant who has a vested interest in the building, and in the Hub redevelopment project.”

She cited the tenant’s willingness to open the building, maintain utilities, and “these obligations that they've taken on,” including that $100 million loan.

But that $100 million total likely no longer exists. Unmentioned at the hearing: the Manager in December pushed the immigrant investors to move some portion of their loans to a separate EB-5 project in Manhattan, diminishing the debt attached to the Coliseum. 

That apparently successful move likely would deliver more interest income to Mastroianni as middleman while also reducing the total Coliseum debt owed by Nassau Live—also Mastroianni.

“I just think,” Drucker said, “that we had more leverage in this situation because the new tenant, who was the mortgagee here, stood to lose $100 million—correct?—from the defaulting party.”

Drucker had that backwards. A mortgagee is a lender in real estate. The Coliseum’s new tenant, Nassau Live, is the borrower, not the lender. It's unclear if Nassau Live paid any money to acquire the Coliseum lease or put up any new collateral--beyond the existing lease--to backstop the loan. After all, a foreclosure might repeat the cycle, with the Manager installing a new Mastroianni entity.

Tsimis didn’t correct Drucker, saying “it would have been a very messy situation,” given potential litigation involving Prokhorov's company. “I really don't believe we would be where we are today, with the building open, and the Islanders playing.”

The Manager gets most of the interest

There was no discussion of what Mastroianni might earn from all this, but we have some clues.

In the September letter to investors, the Manager announced that “Nassau Live assumed the obligations of the borrower under the EB-5 Loan,” intending to split it, with $60 million attributed to the Coliseum, secured by the existing mortgage, and $40 million attributed to the Hub, secured by, among other things, future rental income.

Unmentioned: the EB-5 investment initially was divided among a $75 million Building Loan and a $25 million Project Loan, according to the prospectus, so the new split suggested a lesser value from the Coliseum.

“The manager intends to continue to pay the 0.25% return”—$1,250 a year on $500,000—“on the outstanding principal balance,” the September letter said. The funding source wasn’t stated, but presumably represented money from the $7 million settlement.

That statement obscured how a Mastroianni entity (the borrower) would likely be paying another Mastroianni entity (the Manager) nearly all the interest on the loan, as per the prospectus. Moreover, that annual $1,250 payment per investor is reduced by 80%, given an annual service fee of $1,000.

The profits are enabled by EB-5 alchemy: regional centers earn money from the difference between the interest paid by borrowers, however below-market, and the interest accepted by investors, which is negligible. (The investors care less about investment return than gaining green cards—and getting their $500,000 back.)

The funding at issue, at 4.65% and 5.19% annually for the Coliseum and Hub segments of the $100 million loan, would deliver--by my estimate--$4.5 million in annual interest to Mastroianni as Manager. The 200 investors would get, in aggregate, $250,000 before the service charge, which would return $200,000 to Mastroianni. (A default would trigger an increase of 4% interest for each loan, according to the prospectus.)

Might that $7 million settlement with Prokhorov delivered millions to the Manager? If so--at least based on the example alleged in another U.S. Immigration Fund deal--some portion of the interest may have been kicked back to a migration agent in China, which recruited the investors.

Contradictions from the Manager

With more transparency, the legislative hearing might have been explored how Mastroianni's letter to investors in September didn't just contradict the County's August letter, but also contradicted his letter to investors in December

After all, that September pledge to pay interest was contradicted when, in December, the Manager began encouraging the investors—as I wrote—to shift their money to another EB-5 investment, warning that "the borrower has no ability" to pay that interest.

The Dec. 1 letter warned that the loan likely wouldn’t be paid off by its Oct. 31, 2023 outside deadline, and could take into 2025 or later. So investors were encouraged to redirect their money into another project, 1568 Broadway in Manhattan, “which the Manager believes is materially safer.”

In Newsday, Mastroianni called the December letter a “regular communication to our investors” and a RXR spokesman termed it “a routine letter to investors.” Those claims would've been tougher to make had the contradictory September letter surfaced by then.

Whatever its relative safety, 1568 Broadway (aka TSX Broadway) was overhyped. For example, Mastroianni’s letter to Coliseum investors claimed that TSX Broadway had been appraised at $4 billion—but that calculation was made before the pandemic.

The letter also suggested that TSX Broadway’s completion date, estimated at Q3 2022, was “likely to be significantly after the effects of the pandemic are felt on the economy”—though New York City’s tourist economy, according to some estimates, could take until 2024 to recover.

Protecting the county, not the investors

At the Legislature, beyond the amendment offering rent relief, another amendment, in Newsday’s summary, included “protection for the county against potential legal action from investors in the federal EB-5 program.”

The amendment's text was not made public in the agenda, but Tsimis’s description was confusing: “an important indemnification to the county by the EB-5 lender in connection with any claims from their investors to the county.”

But why would the lender—the investors, via Nassau Coliseum Funding 100—voluntarily indemnify the county? Perhaps the decision was made by the Manager. (That said, it's unclear if that would also indemnify Mastroianni's entities from a lawsuit.)

Did the PPP involve the Coliseum?

During the hearing, Legislator Drucker asked if Nassau Live Center had applied for or received any money from federal Paycheck Protection Program (PPP), suggesting that, if so, they should redirect such savings to the County. (They haven’t applied, as far as I could tell.)

Tsimis, after saying she didn’t know, was told by a County attorney that a loan wouldn’t be considered part of arena revenue, so it couldn’t be clawed back.

“Our position is that they have considerable expenses, just to keep the building running,” Tsimis said. “So, again we think it's a good deal.” (The $7 million payment from Prokhorov's company had not been aired.)

The measures passed unanimously and likely will go to the full Legislature Feb. 22, three days before the Coliseum can first host some Islanders fans--though it may take somewhat longer.

Flashback: 2015 warning

A few legislators critical of Mastroianni and EB-5 at the 2015 legislative hearing are members of committees hearing the Feb. 4 amendment requests, but they raised no questions.

Mastroianni promoting the Coliseum
 investment in 2014 in China

Perhaps they didn’t understand the deal, or simply prioritize the arena reopening. 

Or maybe it’s a partisan issue: in 2015, these Democrats questioned tactics proposed by a Republican County Executive, but now the County Executive is a Democrat.

Still, it’s worth remembering how Legislator Kevan Abrahams in 2015, after invoking the Fortune article about Mastroianni’s “long history of legal problems, failed ventures, and unpaid debts,” asked, in incredulous tones: "Why would this legislative body consider going into business with somebody who has an unscrupulous past like this?"

"Certainly we understand that there is a checkered past,” responded Ashley Cotton, a representative of original borrower Forest City. “We’ve done two successful raises in Brooklyn with him already and look forward to what I hope you guys most want to see, which is, we're going to get the financing and do this project.”

“Everything that I have read," Abrahams countered, "you don’t have a problem with it?” (And he didn't know, apparently, of the overhyped promotion in China, involving kids in hockey uniforms, for the Coliseum investment.)

Cotton said they’d had no problems with the work of Mastroianni's U.S. Immigration Fund, which had twice successfully raised EB-5 funding for Atlantic Yards/Pacific Park in Brooklyn.

Abrahams interrupted: "What’s relevant to this body is understanding what happened and why this information wasn’t disclosed to this body... I know people are going to turn a blind eye and vote for it anyway… I couldn’t sleep at night knowing I voted for someone that has done these types of things, and been sued in court like this. And if Forest City is prepared to drag this legislature and this county into bed with these folks, then shame on them."