Not a shock: Greenland, with middleman Mastroianni, is "restructuring" the $349M loaned by EB-5 investors to Atlantic Yards. (Repayment delay until when?)

There's a surprising--if hardly shocking--tidbit of information in a generally flattering 6/5/23 Real Deal article about the notorious Nicholas Mastroianni II, the country's leading middleman for investor visas, headlined Nassau casino bid presents graceful exit for EB-5 king.

The subheading is "Mastroianni’s vision to revamp arena was sidelined by Vegas. That’s okay with him." Well, of course. 

He put up none of the initial $100 million that 200 Chinese EB-5 investors lent to the Nassaul Coliseum renovation via a fund organized by his U.S. Immigration Fund, but--as far as I can tell, thanks to contract provisions favoring the middleman--was able to control the lease to the county-owned arena himself after arena operator Mikhail Prokhorov walked away during the pandemic.

The Atlantic Yards surprise

Regarding Atlantic Yards/Pacific Park, for which Mastroianni helped raise $349 million in two tranches ($249 million for so-called Atlantic Yards II and $100 million for Atlantic Yards III, with marketing beginning in January and October 2014, respectively), the article states:

“I’m the senior lender on that,” Mastroianni said. He’s restructuring the debt with Greenland, the Chinese firm that bought the development from Forest City, so it can finish the megaproject.

He's not putting up the money, even if an entity he's created (and, likely, controls) made the loan and, as shown in the screenshots, promoted the already-built Barclays Center as part of the fundraising pitches.

The immigrant investors from China (498 for Atlantic Yards II and 200 for Atlantic Yards III, at $500,000 each) put up the money, and accepted--assuming they understood it--minimal returns. 

Why? Because they expected to get green cards for themselves and their families and, ultimately, the return of their principal. (The policy justification is that EB-5 funds purportedly create jobs, though that's extremely dubious, and undermined by Mastroianni himself.)

But there's been no announcement that they've been repaid, and repayment is likely already late. Meanwhile, the developers saved likely more than $100 million compared with far more expensive short-term financing.

What it means

I doubt that restructuring--likely, delaying payments in some form--the $349 million that Chinese EB-5 investors lent will help Greenland Forest City Partners (GFCP) finish the project.

GFCP is now owned 95% by Greenland USA, an arm of Shanghai-based Greenland Holdings Corp.

That's a big lift, requiring a new plan, with financing, to build a platform over the Vanderbilt Yard to support six towers; approval by Empire State Development to move bulk from the unbuilt "Miss Brooklyn" tower across Flatbush Avenue to Site 5, long home to Modell's and P.C. Richard, to create a giant two-tower project, and various changes in state tax policy--will the 421-a tax break come back?--and international interest rates. 

And that's not even considering the challenges faced by the Shanghai-based parent, which has sunk in the Forbes Global 2000 rating and has seen its credit rating hammered.

But a restructuring may help Greenland USA avoid some cash flow difficulties, since they (I suspect) don't have much cash available and would rather use it, if necessary, to start the first phase of the two-block platform. Each block would support three towers.

To be specific, the borrowing entity, for deals that closed in 2015 and 2016 and were supposed to last five years--with two-year potential extensions--was an affiliate of the project developer, Greenland Forest City Partners. 

As of 2014, Greenland USA, an arm of Shanghai-based Greenland Holdings Corp., owned 70% of the project going forward, excluding the arena company and B2 tower. As of 2018, Greenland USA owned 95%. Greenland Forest City Partners sold two of the towers they jointly developed as 70-30 partners, while the other one is a condo building.

But yes, Greenland USA owes most if not all--depending on any restructuring within GFCP--of the money to be repaid. Forest City, the original developer, has since been absorbed by Brookfield.

First round

Remember, the first round of EB-5 financing, $228 million, came via a different intermediary, the New York City Regional Center, which in early 2020 said the investors had been paid back, some eight-and-a-half years after the loan closed.

That stretched the original plan for a five-year maturity date plus a two-year forbearance period, but perhaps the documents were amended. (Or the deal was "restructured," as well.)

That low-cost financing saved the developer more than $100 million versus conventional financing, by my calculation. 

Where did Greenland get the money? Likely not from project revenues. Perhaps it came from selling Atlantic Yards/Pacific Park leases to other developers, and/or the parent company's own reserves and bond issuances.

Investors on the hook

For both Atlantic Yards II and Atlantic Yards III, the developer paid only 4.5% interest to investors through the Mastroianni-created entity, which took back 4.25% to pay for operating expenses. (That 4.5% rate, as I've written, was perhaps one-third of the going rate for a risky mezzanine loan.)

The investors do not get that remaining .25% ($1,250) but rather have to kick back $1,000 a year in service fees, according to documents I've seen. (The interest rate does go up .25% for each one-year extension.)

Meanwhile, they've had to pay taxes on the "phantom income" they've received but had to return.

The $249 million Atlantic Yards II was supposed to mature 12/31/20, with two one-year extensions. That meant it should've been repaid by the end of last year.

The $100 million Atlantic Yards III loan was supposed to mature no later than 5/1/21, again with two one-year extensions possible. That meant it should've been repaid last month.

For Atlantic Yards II, investors were told the loan could be repaid via the refinancing and/or sale of various elements of the project. 

Note that, while Greenland Forest City has sold development leases (to the B4, B15, and B12/B13 sites), that money has apparently been used for other purposes. 

No more easy pickings are left: the six development sites over the railyard require that platform, and the  Site 5 plan requires a new state approval process.

What's the guarantee?

The security for Atlantic Yards II investors included "rights and obligations" including all six towers over the railyard--none likely to rise soon--and the B15 tower site (662 Pacific Street, aka Plank Road), at least according to what potential investors were told in 2014.

(Updated)

That B15 development lease was since sold to The Brodsky Organization, which built the Plank Road tower. It's unclear to me if the EB-5 investors have any claim on that building. 

That led to a partial repayment in 2019 to the intermediary of about $63 million, so a little more than a quarter of the $249 million total. With that, Atlantic Yards II investors could get their share of the money back--or not, given the convoluted EB-5 process than in some cases favored "redeployment" of their funds.

The security for Atlantic Yards III investors, included, among other things, the development rights to B9 and B10, the last two buildings over the railyard. (That potentially overlaps with Atlantic Yards II.)

But the developer still hasn't purchased the development rights from the Metropolitan Transportation Authority. Nor is the second block of the platform in sight.

So they also have no claims to any currently monetizable collateral.

Which means, I suspect, that they have little leverage in the "restructuring."

More "shady deals"?

Of course, if EB-5 were regulated by the federal government--and city and state officials were less than eager to go to bat for dubiously promoted and risky investment products--the investors wouldn't be in such an unfortunate position.

Instead, as Fortune's Peter Elkind wrote in 2014, "But because the EB-5 industry is virtually unregulated, it has become a magnet for amateurs, pipe-dreamers, and charlatans..." 

Shortly after that, Elkind wrote a separate article about Mastroianni, with his "long history of legal problems, failed ventures, and unpaid debts." What that missed was his company's continued dubious practices, visible then, more than 8.5 years ago, and even more visible now.

Even before Mastroianni entered the picture, when I wrote about the first round of EB-5 funding, I called it "Anatomy of a Shady Deal," as summarized in a December 2010 round-up, more than 12 years ago. That pattern, it seems, has persisted.