Developers settle SEC charges over EB-5 funding for Houston-area project

The unbuilt project in Pearland, Texas, drew almost $50M of EB-5 funds, including $20.5M the developers diverted to other projects, according to the SEC

TRD NATIONAL /
Jan.January 12, 2019 02:55 PM

(Credit: iStock)

Foreign investors seeking U.S. green cards put nearly $50 million into what was supposed to be a massive mixed-use development in a suburb of Houston.

But the Securities and Exchange Commission charged the developers of the Houston-area project with diverting $20.5 million to other investments in real estate.

In December, without admitting or denying any wrongdoing, the developers settled the SEC charges and agreed to pay a penalty plus reimbursements to investors totaling $51.4 million. None of the investors has received a green card, and none of the developments they funded has advanced to construction.

The SEC civil action is the most recent sign of problems with the EB-5 program, which has provided more than 100,000 visas to foreign investors who put at least $500,000 in job creating U.S. businesses, often real estate developments.

The EB-5 immigration process was created in 1990 and scheduled to end three years ago, but Congress has granted a series of short-term extensions to keep the program alive.

Critics increasingly complain that the EB-5 program has led developers to improperly use funds, defraud investors and fund projects that fail to meet the economic goals of the program.

Flaws in the EB-5 program were exposed by the mixed-use development planned in Pearland, Texas, a suburb just south Houston.

The Wall Street Journal reported that the developers of the EB-5 project in Pearland and the firm that recruited the foreign investors are owned by the same company in Hong Kong, Modern Land (China) Co. Ltd.

Sen. Chuck Grassley (R, Iowa) raised questions about that type of arrangement in a 2016 letter to the Department of Homeland Security.

Grassley noted that the arrangement allows foreign companies to offer U.S. green cards to investors and to sell homes built with EB-5 funds to the same investors, negating the economic impact that Congress wanted the program to produce.

Nevertheless, Congress will keep extending the EB-5 program on a short-term basis, experts predict.

The planned development of senior housing, luxury residential buildings and retail space in Pearland drew $49.5 million of capital from 90 foreign investors, according to the SEC.

The money went to three development companies with common ownership, but they moved $20.5 million of the money to two unrelated real estate projects, according to the SEC.

The federal agency said the corporate owner of the three development companies “eventually replaced” the improperly diverted $20.5 million. [Wall Street Journal]Mike Seemuth


Related Articles

arrow_forward_ios
Southland Mall, 20505 South Dixie Highway in Cutler Bay with JLL's Tom Hall and Danny Finkle (Google Maps, JLL)

Southland Mall’s troubled $65M CMBS loan for sale

Southland Mall’s troubled $65M CMBS loan for sale
Alan Ojeda and 8894 NW 44 Street in Sunrise (Google Maps)

Rilea Group scores $46M construction loan for Sunrise apartments

Rilea Group scores $46M construction loan for Sunrise apartments
Yard 8 and Wood Partners CEO Joseph Keough (Courtesy of ACRE)

Wood Partners lands $86M refi for Midtown Miami apartments

Wood Partners lands $86M refi for Midtown Miami apartments
Masoud Shojaee and a rendering of Shoma Village 

Shoma Group scores $67M loan for mixed-use Hialeah project

Shoma Group scores $67M loan for mixed-use Hialeah project
Housing Trust Group CEO and president Matt Rieger and Hudson Village renderings

HTG scores financing for Hollywood affordable housing project

HTG scores financing for Hollywood affordable housing project
 Rendering of Father Marquess-Barry Apartments with Matt Rieger

HTG scores financing for senior affordable housing in Overtown

HTG scores financing for senior affordable housing in Overtown
Fortune International Group’s Edgardo Defortuna, Château Group’s Manuel Grosskopf and a rendering of the project

Fortune and Château score $119M refi for Sunny Isles condo project

Fortune and Château score $119M refi for Sunny Isles condo project
Rendering of the project and from left: Vince Signorello, Ricardo Caporal and Greg West

Zom Living, partners score $57M loan for Ludlam Trail project

Zom Living, partners score $57M loan for Ludlam Trail project
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...