The Real Deal New York

New York Wheel delays could spell disaster for project’s EB-5 investors

Investors will have trouble getting green cards if project remains unfinished, experts say
By Eddie Small | July 21, 2017 12:00PM

Rendering of the New York Wheel

Staten Island’s embattled New York Wheel recently hit another major setback when the developer fired its design and construction team, delaying the project indefinitely. It’s a huge blow not just for the city’s Ferris wheel enthusiasts but also for the project’s EB-5 investors, who experts say could face deportation if the wheel doesn’t quickly get back in gear.

“This is potentially a disaster for the investors,” said Jim Butler, an attorney at Jeffer Mangels Butler & Mitchell, who represents developers on EB-5 issues.

“Right now,” he continued, “the simple answer is, they’re screwed.”

The New York Wheel has long been plagued by infighting and rising costs. Back in 2011, the development team estimated that building the world’s largest Ferris wheel would cost them just $250 million, but that price tag has since ballooned to about $600 million, which includes $206 million in EB-5 funding from regional center Canam Enterprises, according to Canam’s website.

Experts on EB-5, a controversial program that requires overseas investors to contribute $500,000 or more on job-creating real estate projects in exchange for a green card — agree that the situation looks bleak for these investors. Canam’s website projects that the wheel will create 5,844 jobs, and if these jobs do not arrive—a strong possibility, given the project’s delays—it is very unlikely that the investors will be able to get their green cards and stay in the country, Butler said.

“If their jobs are not created, that’s the end of the story,” he said. “It’s not like horseshoes, in that it’s close, and you tried, and it was good faith, and it didn’t work out. The jobs must be created.”

Canam’s website says there are 429 EB-5 investors in the wheel project, contributing a $206 million loan that matures in February 2021.

Canam did not respond to requests for comment. On its website, the company says it’s also raised $153 million in EB-5 funds for Tishman Speyer’s Gotham Towers in Long Island City, and $60 million for JEMB Realty and Forest City Ratner’s One Willoughby Square office project in Brooklyn.

EB-5 investors generally have two years after getting their temporary visas, normally issued after their money is put in escrow, to show that the project has been completed and the jobs have been created, according to Butler. He expects there to be lawsuits from the EB-5 investors in the wake of the drama that has surrounded the New York Wheel but stressed that lawsuits will not help them stay in the country.

“It’s just a civil right that they have,” he said, “and maybe they will find some other way to stay here—maybe they will go into another EB-5 project—but no, that doesn’t help them at all.”

Reaz Jafri, a partner and head of immigration at law firm Withers Bergman LLP, said his advice to EB-5 investors in the project would be simple: if you can get out, get out.

“I’d pull money out of it if I could,” he said, “and I would tell investors that if you want a green card, which is why you’re doing this whole thing to begin with, find kind of conservative sounding projects that are being led by experienced developers.”

Former Mayor Michael Bloomberg first unveiled the New York Wheel plan to the public in 2012, saying it would be an attraction “unlike any other on the planet.” However, it has since been bogged down by a wide variety of issues, most recently a drawn-out conflict between the development team and the design team beind the London Eye, Mammoet-Starneth.

Mammoet-Starneth walked off the New York Wheel’s job site in St. George in May over concerns that the soil would not be able to support the massive project, and the developers have since fired them and are looking for new contractors.

Mammoet-Starneth declined to comment on the project, deferring to their legal filings in a federal case between them and the developer.

Anne Champion of the law firm Gibson Dunn, which is representing New York Wheel, said in a statement that the developer and Canam are both committed to finishing the Ferris wheel and that, despite their firing of Mammoet-Starneth, the project’s subcontractors are still at work building the wheel’s parts.

“Due to this ongoing fabrication, the developer hopes that the termination of Mammoet will not lead to significant delays,” Champion said.

[NOTE: Following the publication of this story, the developer of the New York Wheel and Canam Enterprises reached out to The Real Deal to reiterate that they were committed to finishing the project. They maintained it has already created qualifying jobs under the EB-5 program and will create more going forward.]