With Greenland EB-5 debt in foreclosure, big Qs about future of stalled project, including collateral, platform, & investor visa middleman. What's government's role?

The stalled Atlantic Yards/Pacific Park project faces another financial convulsion, as news about a foreclosure arrived yesterday, raising huge questions about the future owners of the project, the nature of the collateral, and how any ownership transfer might affect the commitment to build the expensive two-block platform--as well as the role of government.

In Greenland losing grip on $5B Pacific Park megaproject, the Real Deal reported that Greenland USA, which owns nearly all of the future Atlantic Yards/Pacific Park, has defaulted on two loans totaling $349 million under the EB-5 investor visa program. Those affect control over the six development sites over the railyard, though, as described below, the collateral may overlap.

A foreclosure auction is scheduled for January, which could mean a new owner of development rights and, presumably, the obligation to build the platform. It also raises questions about the transfer, enforcement, and potential renegotation of the May 2025 deadline to complete 2,250 units of affordable housing, with 877 (or 876) more units to go.

Graphic by Ben Keel & Norman Oder

It also raises question about how and whether the middleman for the debt, Nicholas Mastroianni II of the U.S. Immigration Fund (USIF), will control the asset, as he apparently did with the Nassau Coliseum EB-5 debt, though his company didn't put up the money.

Though Mastroianni was the subject of a tough October 2014 article in Fortune magazine by Peter Elkind (& Marty Jones), The tangled past of the hottest money-raiser in America's visa-for-sale program  (and more here), citing his "long history of legal problems, failed ventures, and unpaid debts." 

What that missed was his company's continued dubious practices, visible then, and even more visible now.

What obligations does Mastroianni have to the people who put the money up? 

What role, if any, does Empire State Development, the state authority that oversees/shepherds the project, have? 

How do the obligations to complete the affordable housing and platform transfer? In other words, it could be difficult to market a foreclosure sale if it comes with significant obligations.

Not only that, the project developer must pay the Metropolitan Transportation Authority $11 million a year for development rights over the railyard, through June 2030. Greenland USA is current on its obligations, the MTA confirmed this morning.

The backstory

Original developer Forest City Ratner, which announced the project in 2003, got it approved in 2006 and then revised in 2009. It raised the first $249 million in low-interest EB-5 debt, via 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.

Once Greenland in 2014 bought a 70% share in the project, excluding the Barclays Center arena and the 461 Dean tower, the joint venture marketed two more tranches of debt. 

Those loans ($249 million for Atlantic Yards II and $100 million for Atlantic Yards III) were marketed to investors in China, beginning in January and October 2014, respectively. Note the emphasis, in the screenshots at right, on the already-completed Barclays Center.

Thee investors, who each put up $500,000, accepted virtually no interest in exchange for green cards for themselves and their family--and the expectation they'd be repaid in five years, with the possibility of potential extensions of two years.

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 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.

Greenland Forest City built three towers--535 Carlton, 38 Sixth, and 550 Vanderbilt--before Forest City unilaterally paused the project. After a restructuring, Forest City was left with only 5% of the project. 

The company was later absorbed by Brookfield, which says its share is "nominal"--which may or may not equal 5%. Brookfield no long has Forest City's shares in the three 70/30 towers, as two rental towers have been sold, and the condo building 550 Vanderbilt has sold through. 

Greenland has since marketed three terra firma development sites, to TF Cornerstone and to the Brodsky Organization, and partnered with Brodsky on a fourth site.

Graphic by Ben Keel & Norman Oder

Pacific Park wobbliness

In June, the Real Deal reported that Mastroianni and Greenland USA were restructuring the debt. That obviously didn't work. Greenland had announced plans in 2019 to proceed with the first of two platform blocks. Each block would support three towers over the MTA's Vanderbilt Yard.

But the pandemic delayed plans and Greenland USA has sold properties in Los Angeles at a loss. The loss of the 421-a tax break, as well as rising construction costs, meant that Greenland--despite reaching an agreement with the MTA over the technicalities of the platform--in August said it couldn't predict when it might start. 

ESD officials, at an August meeting of the (purportedly) advisory Atlantic Yards Community Development Corporation (AY CDC), said they were considering a tax deal for the project to replicate the benefits of 421-a, as well as public engagement regarding the future of the project, including the transfer of development rights from the unbuilt B1 tower across the Flatbush Avenue to Site 5, enabling a much larger tower.

The AY CDC requested a financial analysis of the project by October 3, but ESD--after that deadline--said there was no target date for that report.

Greenland's parent company, Shanghai-based Greenland Holdings, has, like other developers in China, faced growing debts, lower profits, stock price hits, and a downgrading of debt. Atlantic Yards/Pacific Park could hardly be a priority.

Losing control

Yesterday, the Real Deal reported that "Greenland is set to lose control of the delayed second phase" of the development:

The developer defaulted on the loans when they matured last November and in January, according to an offering memo from Newmark, where a team led by Jordan Roeschlaub and Adam Spies is marketing a UCC foreclosure.

The auction is scheduled for Jan. 11. It’s not clear why USIF waited a year to foreclose, although Mastroianni told TRD in May that he was working to restructure the debt.

The publication couldn't get a comment from Mastroianni or Greenland. Also, TRD reported that Fortress Investment Group in 2020 "purchased a stake in the debt"--presumably at a discount. Fortress has partnered with Mastroianni on other projects.

The Real Deal reported that “Greenland borrowed the money in 2014 from Nick Mastroianni’s U.S. Immigration Fund." More precisely, the money from immigrant investors via a special purpose fund created by Mastroianni's company--though its not unlikely that provisions leave him in control, and potentially able to reap profit.

Will the auction happen? This morning, in the Real Deal's The Daily Dirt: Greenland’s Pacific Park Plight, Kathryn Brenzel wrote:

From Wall Street Journal ad

Over the past few weeks, I have spoken with a number of current and former elected officials and other sources familiar with the project who expressed doubt about Greenland’s ability to finish the project. This month former deputy mayor Alicia Glen said state officials should work with Greenland to transfer project rights to another developer before the company defaults or its parent firm goes bankrupt.

That was before the foreclosure. But--who knows--it's not impossible that some kind of renegotiation would foreclose that auction.

As stated in the foreclosure notices, "The Collateral will be sold to the highest qualified bidder; provided, however, that Secured Party reserves the right to cancel the sale in its entirety, or to adjourn the sale to a future date by announcement made at the time and place scheduled for the public sale."

What's the collateral?

As I wrote in June, the security for Atlantic Yards II investors included "rights and obligations" including all six towers over the railyard--none likely to rise soon--and (originally) the B15 tower site (662 Pacific Street, aka Plank Road). 

That's at least according to what potential investors were told in 2014--which could have changed. (Updated) B15, as noted below, is off the table.

According to foreclosure notices in the Nov. 15 Wall Street Journal, the investors in Atlantic Yards II, who are collectively owed about $185 million (plus interest) of their original $249 million loan, have collateral in the sites B5, B6, B7, and B8, while investors in Atlantic Yards III, owed $100 million, have collateral in the B9 and B10 sites.

Note that B8, B9, and B10 rely on the second phase of the platform, which would be the last of the project to be developed.

From Wall Street Journal ad

(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.

Otherwise, they may have no claims to any currently monetizable collateral.

The security for Atlantic Yards III investors, according to what I saw, 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, again, the documents may have since been revised. but, as described above, they have been segmented.

So the collateral is not very monetizable without big spending.

What's ESD role

As I've reported, the bi-weekly Construction Updates circulated by ESD have indicated no new construction (though a school is under way). The ESD website for the project has not been updated for the current two-week period.