How did Fortress Investment Group, mainly owned by Abu Dhabi-based wealth fund, get a piece of Atlantic Yards/Pacific Park? Well, it involves EB-5.

Apparently, the entities--more on that below--controlling the collateral backing the Atlantic Yards EB-5 debt, the U.S. Immigration Fund (USIF) and Fortress Investment Group, are expected to partner (link) with the Related Companies on a joint venture to develop six development sites over the Vanderbilt Yard.

But how did this happen, and who exactly is involved? 

We know that master developer Greenland USA borrowed $349 million under the EB-5 Program, in which immigrants investing in a purportedly job-creating enterprise offer low-interest loans in exchange for green cards for themselves and their families

The loans were organized by the USIF, a business known as a regional center, which recruited the investors, in two tranches, $249 million and $100 million, marketed as "Atlantic Yards II" and "Atlantic Yards III."

(The nomenclature is because there was a previous round of EB-5 funding, organized by the separate New York City Regional Center, for $228 million, which was repaid.)

About $63 million of the total was repaid in 2019 to the Atlantic Yards II investors, once the B15 parcel, once used as collateral, was leased to another developer, The Brodsky Organization.

That left Greenland obligated to repay about $286 million. It didn't so, and the debt fell into foreclosure.

Who holds the debt?

What's dismaying is that state officials, as well as the press, use bad shorthand call the USIF, led by the questionable Nicholas Mastroianni II, the "lender," though it was merely the middleman.

However, its contracts allow the EB-5 fund to be steered by the manager, a USIF affiliate, leaving the investors, most if not all from China, in a weakened position.

As I wrote, this isn't like banking at all. The "lender" doesn't face the kind of regulation banks face. It isn't even like private lending in the real-estate industry.

Rather, the "lender" is the manager of a fund created not from his own company's assets and obligations, but from the immigrant investors. It would be more precise to call Mastroianni "the guy in control of the lender."

Who else holds the debt?

Last year, The Real Deal reported that Fortress in 2020 bought a stake in the remaining EB-5 debt organized by the U.S. Immigration Fund. No more information has been shared.

I queried Fortress but did not hear back. It's an opportunistic private-equity fund, making big bets without the disclosures required by publicly traded companies, and has no incentive to talk with the press.

My best guess is that the investment was a swap of some kind, as the Atlantic Yards III investors were encouraged by the USIF in 2020 to move $50 million--half of the overall investment--to a project in Manhattan known as 1568 Broadway (aka TSX Broadway).

If so, Fortress, another investor in that project, might have taken over the Atlantic Yards debt, perhaps considering it a better deal.

The Manhattan project was complicated: demolishing the former Doubletree Hotel in Times Square for a newer hotel, part of a 46-story tower, renovating the Palace Theater onsite, building “experiential retail” and leasing valuable signage. 

However, it hasn't worked, at least financially.

What happened at TSX Broadway?

In July 2023, the Real Deal reported that the builders, L&L Holding and Fortress, had failed to pay back a $543 million EB-5 loan for the project, and Mastroianni's USIF was trying to sell the debt or bring in a new partner.

Last month, as Bisnow summarized Bloomberg's reporting, TSX Broadway was deeper in debt, and a group of investors led by Goldman Sachs had taken over the project. It's unclear if the EB-5 investors, surely on the lower end of the schedule of obligations, would be repaid.

Keep in mind that, while the USIF might seem the victim there, the company is a middleman, getting fees as manager, while the real victims, assuming the loan is not paid off, are the immigrant investors, who accepted low or no interest but expected their money back in five to seven years.

Another USIF/Fortress deal

Fortress has had a piece of other EB-5 deals involving the USIF.

Newsday's July 2021 report, NYC investment firm takes 25% stake in Nassau Coliseum operator, cited Fortress's investment "in Nassau Live, which holds the lease on the Coliseum, according to a resolution adopted Thursday by the Nassau County Industrial Development Agency."

Nassau Live, controlled by Mastroianni's USIF, gained control of the Coliseum lease after Mikhail Prokhorov walked away from the arena operator and avoided repaying EB-5 investors.

More about Fortress

Founded in 1998, Fortress, once the first large private-equity firm to be traded publicly, is now privately owned, once by Japan-based SoftBank, now "mainly by Abu Dhabi-based sovereign-wealth fund Mubadala Investment."

In 2017, SoftBank acquired Fortress for $3.3 billion in cash. Terms of the Mubadala acquisition were not disclosed. Its management, which owns 32% of the equity, controls the board.

When the acquisition was completed in May 2024, Fortress said it "manages over $48 billion of assets on behalf of approximately 2,000 institutional investors and private clients."

In a June 2015 press release, Fortress stated that it had raised $1 billion "for its latest opportunistic Credit Real Estate fund, Fortress Real Estate Opportunities Fund ('FROF') II," seeking "opportunistic investments in distressed and undervalued commercial real estate assets, primarily in the U.S. and Europe."

About half of the commitments, Fortress said, came "from public and corporate pensions, endowments and foundations." They all seek returns that beat the stock market.

Fortress co-founder Wes Edens, by the way, is a co-owner of the Milwaukee Bucks.

Making the big deals

In an August 2022 article, The Fortress real estate hall of fame, The Real Deal reported:

From Harry Macklowe’s infamous $7 billion purchase of a chunk of the Equity Office Properties portfolio, to the $5.5 billion sale of Stuyvesant Town–Peter Cooper Village, to backing Trump Tower Chicago, the private equity firm earned a reputation for getting involved in hairy projects that scared others away.

For example:

When Tishman Speyer and BlackRock fell behind on their $3 billion mortgage in 2010, the massive complex, which has over 11,000 apartments, fell into the hands of special servicer CWCapital, which got to work preparing a foreclosure auction.

Fortress, looking to expand its reach into real estate, bought CWCapital later that year for an undisclosed price. CWCapital and Fortress reportedly reaped more than $45 million in fees over six years and $566 million in default interest by the time Blackstone bought Stuy Town in 2015.

In one condo deal, as reported by The Real Deal, a Fortress executive reflected, "We stole a building in broad daylight."

With Atlantic Yards, it's surely less audacious. But it likely will be advantageous.