EB-5 money up in the air after Greenland agrees to sell Pacific Park site
More than $60M will have to be redeployed at a time when EB-5 investors face long wait times for visas
UPDATED, Feb. 21, 11:07 a.m.: Another EB-5 loan has hit a snag — this time at Brooklyn’s 22-acre Pacific Park megaproject.
Roughly a quarter of a $249 million mezzanine loan that Chinese EB-5 investors pooled together for the next phase of the project will have to be redeployed after one of the development sites traded hands, sources told The Real Deal.
A joint venture between the U.S. arm of China’s Greenland Group and Forest City Realty Trust announced last September that it would sell 664 Pacific Street, dubbed B15, to the Brodsky Organization, along with another two sites to TF Cornerstone.
But Brodsky chose not to assume the EB-5 debt on the property, where a 300-unit rental project was planned, a source told TRD. In order to go through with the sale, Greenland asked the U.S. Immigration Fund – the regional center that arranged the loan – to release its lien against the property. For investors, that means a piece of the loan proportional to the value of the site, $63 million, will be paid back.
That money will have to be redeployed, which could pose a challenge for USIF and the project’s 498 EB-5 investors.
“Due to the status of the EB-5 program today and the waitlist that some of you are facing, we understand there are a number of you who may be facing age-out issues or have personal/family reasons for wanting to terminate the EB-5 process,” Nicholas Mastroianni’s USIF wrote last month in a letter to investors, which was reviewed by TRD. “We are happy to cooperate with you to process a proportionate return of your capital contribution based on the amount of the EB-5 Loan.”
USIF told investors that the joint venture had repaid $41 million of loan and expects to pay back an additional $22.2 million by Feb. 28. A representative for Brodsky was not immediately available for comment.
USIF said that the Pacific Park project has created enough jobs so that 491 of the investors have successfully received their conditional green cards, and some will begin filing their petitions toward the end of this year for their permanent status.
But as the EB-5 green card backlog grows, it’s taking longer for the United States Citizenship and Immigration Services to issue permanent-visa status for the program’s participants.
“Redeployment has become an important topic due to visa backlogs for Chinese and Vietnamese investors,” Richard Haddad, an attorney for USIF, said in a statement. As a result, redeployment “is required for most investors working with any regional center.”
That’s created problems for the regional centers that have to keep investors’ money “at risk” in order to fulfill the program’s requirements.
USIF last year faced a lawsuit filed by 124 investors who wanted to stop the center from redeploying funds from the Times Square hotel development at 701 Seventh Avenue into a similar hotel project across the street at 702 Seventh Avenue known as TSX Broadway.
The investors in September withdrew their lawsuit, and in December USIF announced it successfully redeployed the 701 money into a $494 million mezzanine loan for TSX Broadway.
As for the $186 million remaining on the loan at Pacific Park — which was meant to cover a $1.2 billion chunk of the development — investors have yet to be paid back because that financing has yet to expire. The letter from USIF states that the loan carries a maturity date of Dec. 31, 2020 with two one-year extension options.
In the meantime, Forest City Realty Trust saw its own shakeup, resulting in its $6.8 billion purchase in December by Brookfield Asset Management.
President Trump last week extended the EB-5 program until Sept. 30 as part of the newly-signed federal spending package. It marked the latest short-term extension in the last few years.
Update: This story has been updated to include a comment from USIF that was provided after the time of publication.