A major New York City EB-5 regional center has filed suit against entities affiliated with Dermot Company for allegedly failing to pay interest on $77 million in loans granted for its planned redevelopment of the Battery Maritime Building downtown.
The New York City Regional Center, which manages funds on behalf of EB-5 investors, provided the developer with $77 million in loans in 2011 and claims the Dermot affiliates haven’t paid rent to the New York City Economic Development Corp. since March, or paid interest on the loans since July. They also haven’t paid taxes, insurance premiums, security fees, utilities and other expenses since July, the suit alleges.
Dermot holds a 99-year lease on the property and pays rent to EDC.
EB-5 investors paid $500,000 a piece to access the project in return for a green card. It wasn’t immediately clear if the lawsuit would impact their ability to secure citizenship.
Representatives for EDC, Dermot and the regional center did not immediately respond to requests for comment.
The regional center’s loans were slated to go toward the rehabilitation of the government-owned building, a historic landmark ferry terminal that had fallen into disrepair. The new facility was designed to include a new hotel, restaurant, and public community space along the waterfront. But the project soon ran into problems, thanks in part to changes in a tax-abatement program designed to fund projects impacted by Superstorm Sandy. The change in the program resulted in a $10 million financing deficit for Dermot.
Construction costs have also shot up, from $100 million to $125 million, according to news reports.
Dermot indicated earlier this year that it might abandon the project after declining to shell out additional equity. Stoneleigh Capital reportedly came close to an agreement with EDC to replace Dermot as the developer for the 140,000-square-foot building but that deal did not go through, a spokesperson for Stoneleigh told The Real Deal. More recently, developer Steve Witkoff had been in talks to step in, according to reports. He wasn’t immediately available for comment.
The maritime building is just one in a string of Manhattan EB-5 projects facing problems. If EB-5 projects collapse, investors typically are not awarded their green cards.
The controversial program was recently renewed until the end of the year so that legislators could debate whether it should be renewed in its current form or reformed to fill gaps in reporting and stamp out fraud and abuse. Regional centers, otherwise known as the “sponsors” of EB-5 projects, act as intermediaries between EB-5 investors and the developers looking for capital.