Some EB-5 investors furious about failure to get their $500K repaid now sued for harassing Related CEO. How ethical is Related's business practice?
Related CEO Jeff Blau sues to stop harassment by EB-5 investors, the Real Deal reported yesterday, with the subheading "Blau says his family is being threatened by protesters outside their Upper East Side residence."
Still, it--and the Real Deal's article--downplay the triggering issue, in which Related gained $500,000 each from more than 2,000 Chinese investors under the EB-5 investor visa program starting in 2014 and apparently has paid little of the money back.
The lawsuit describes some indefensible behavior, disavowed by other investors, and, if corroborated, worthy of some sanction.
(The first article, as noted by Bisnow, was in the subscription-only site PincusCo, with the more precise headline Related’s Jeff Blau accuses frustrated EB-5 investors of aggressive harassment.)
That kind of business practice, though apparently legal thanks to a contractual structure that advantages a sophisticated party (Related) against some far less sophisticated people (the Chinese investors), is hard to defend ethically.
Bisnow quoted Jingxu He, an investor named in the lawsuit, as claiming she wasn't part of the protests and that she'd asked to be removed as a defendant, stating that she would only pursue legal means. From the article:
"Defendants... having obtained their green cards, are demanding the immediate return of their $500,000 capital investments, despite not having any right or entitlement to such payments ahead of other investor," the lawsuit states.
These aren't the only EB-5 investors to raise a ruckus. See this Change.org petition, Urge Related Companies to Repay Immigrants in the Hudson Yards Project:
That kind of business practice, though apparently legal thanks to a contractual structure that advantages a sophisticated party (Related) against some far less sophisticated people (the Chinese investors), is hard to defend ethically.
Chicago attorney Douglas Litowitz, who has been consulted by some EB-5 investors in Hudson Yards (but is not cited in this case), last year talked about Related in a YouTube video. "You've been put into an investment that's now a roach motel that you can never get your money out of," he stated. "That was not something that you anticipated."
Related and Atlantic Yards
Ironically enough, Related Companies is set to step into Atlantic Yards/Pacific Park in a joint venture to develop six sites over the Vanderbilt Yard, thanks to the foreclosure of EB-5 debt incurred by developer Greenland USA. (We may learn more at a meeting Thursday.)
The latter two loans totaled $349 million and were partly repaid, with about $286 million remaining, but became overdue. The debt is controlled by the affiliates of the U.S. Immigration Fund, a regional center that recruits investors (and is not quite "the lender," despite common rhetoric), and Fortress Investment Group, which are expected to partner with Related.
In other words, the EB-5 structure for Atlantic Yards meant that the master developer was vulnerable to losing the collateral.
By contrast, the different EB-5 structure for Hudson Yards, an equity investment, is what Litowitz has called "a horizontal ponzi scheme where it shuffles sideways from one tower to another and never comes out to you."
So, had Greenland and original developer Forest City Ratner devised a similar scheme, the EB-5 debt for Atlantic Yards/Pacific Park would never have entered foreclosure.
From the article
Some defendants disavow
In response to queries from The Real Deal, one defendant claimed to be working on a settlement with the company and another denied demonstrating outside Blau’s home.
The Real Deal, unsurprisingly, is sympathetic to real estate moguls. From the lead:
Real estate developers face many risks when turning to the cash-for-visas EB-5 program to finance their projects.Indeed, the lawsuit describes some intimidating behavior:
But Related Companies CEO Jeff Blau is facing one he could never have predicted.
Blau alleges seven EB-5 investors in Related’s Hudson Yards development regularly surround his Upper East Side home, directing threats against him and his family, according to a lawsuit Blau filed last week. The investors say they will continue until Related returns their $500,000 investments.
Beginning in February 2024, Defendants escalated their efforts to demand payment by implementing a series of threatening disturbances at Plaintiff’s place of business, Hudson Yards, and outside of Plaintiff’s home. Defendants have also repeatedly contacted Plaintiff via text message and email wrongfully demanding full and immediate “return” or “repayment” of $500,000 each. In the course of their disturbances, Defendants have pounded on Plaintiff’s front door, incessantly rang Plaintiff’s doorbell, and used megaphones and pots and pans to generate loud and disruptive noise outside Plaintiff’s residence...
As Defendants’ behavior escalates, their actions have even necessitated police presence onsite to ensure the safety of Plaintiff and his family. Defendants have protested on Plaintiff’s front steps—sometimes approaching the door and shoving things inside Plaintiff’s residence—and regularly position themselves within a few feet of Plaintiff’s front door, waving large signs, yelling, and engaging with Plaintiff and his family at close proximity.
Page 13 of Blau lawsuit EB-5 updated
In response to queries from The Real Deal, one defendant claimed to be working on a settlement with the company and another denied demonstrating outside Blau’s home.
The lawsuit notes that "actions taken by this group have reached such extremes that even some of its own members are appalled," with some members of the group withdrawing to "oppose and condemn the words and actions taken by other members."
Those individuals, the lawsuit states, acknowledged "that their $500,000 investment was an equity investment and not a loan."
Bisnow quoted Jingxu He, an investor named in the lawsuit, as claiming she wasn't part of the protests and that she'd asked to be removed as a defendant, stating that she would only pursue legal means. From the article:
But, she wrote, the firm that collected the investments from immigrants on behalf of Related promised “risk-free” returns and guaranteed that their capital would be returned within five years. That changed when the pandemic hit, but more than a decade after investing in the project, he is still waiting to be repaid.
Note that investor visa recruitment firms, as shown with Atlantic Yards, often make extravagant promises that are not backed up in the fine print. From Bisnow:
“Our investment funds have not been returned, and we have lost normal contact with the immigration company,” she wrote. “Through communication with other investors, I learned that there may be problems with the project, which made our $500,000 unable to be recovered.”
That sounds like a CYA statement, to avoid legal trouble, because it all depends on how the "project"--Hudson Yards? the particularly structured EB-5 investment--is defined.
About that equity investment
That seems to mean that, as long as others aren't repaid, nobody gets repaid--even after ten years. (Litowitz told me a handful had been repaid.)
Litowitz talked about Related in another YouTube video. "The other thing that attracts me to this case," he said, "is that it seems that this LLC structure goes against the entire concept of a business organization. Now remember business organizations in general are considered a voluntary associations and they're created so that people can make investments and get out."
"What it seems to me is," he said, "you're buying a unit that doesn't have a date on it. You're buying a unit that goes into a pot of money that either makes a loan or makes an investment and there's no time trigger for your money to come back. That strikes me as a violation of the basic idea of a business association."
Apparently the only resolution, given the underlying documents, is an attempt at arbitration.
Other complaints
Since 2013, each of us invested nearly an ordinary family's entire savings in Related Companies to build the Hudson Yards project.
Over the last 10 years, despite the success of Hudson Yards, valued at $25 billion, we have received neither a repayment nor any schedule for repayment. Despite communication through email, social media, and legal channels, Related Companies has completely ignored us.
Also see the numerous comments under this LinkedIn post citing a Commercial Observer ranking of Related leaders Blau and Stephen Ross. Here is one, from Eli Gong:
For those of you who don't know, Related Companies created Hudson Yard EB-5 project to attract investors since 2014, promised to borrow 500K from each investor for 5 years to create 10 full-time jobs in the US per investment, in return of lawful permanent residence to the investor. After almost 9 years, despite the success of Hudson Yard project, Related Companies decided to not keep their promise and refuse to return money to EB-5 investors, they do not respond to emails from EB-5 investors and postpone the refund indefinitely. Related Companies' wrong doing has made thousands of families suffer, and we will never give up until the capital is returned.
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