NoMad Ritz-Carlton secures $125M in EB-5 funds — but not from where you’d think

Rafael Viñoly Architects is designing Flag Luxury's project

The development site and renderings of Ritz-Carlton Hotel at 1185 Broadway with Flag Luxury Group CEO Paul Kanavos (Credit: Getty Images)
The development site and renderings of Ritz-Carlton Hotel at 1185 Broadway with Flag Luxury Group CEO Paul Kanavos (Credit: Getty Images)

UPDATE, April 19, 2019, 1:30p.m.: If Flag Luxury Group’s recent deal is any indication, EB-5 financing is alive and well — just so long as the investors aren’t Chinese nationals.

Last week, the hotel and resi developer finalized a $125 million preferred equity investment using capital raised using the EB-5 investor visa program for its upcoming $500 million Ritz-Carlton hotel in NoMad. Flag’s founder, chairman and CEO Paul Kanavos declined to comment on questions on the structuring of the detail, but noted “China is not a large source of funding.”

Angel Brunner, who founded the Maryland-based company, EB5 Capital, which raised the $125 million through its New York regional center, said their top markets include investors from Russia, Vietnam, South Korea and India. Latin American countries, including Mexico, Brazil, Colombia and Venezuela, are also popular. She declined to answer where the 250-room NoMad hotel’s investors are based.

The temporary EB-5 program was once known for providing cheap, fast cash for some of New York’s biggest projects. Under the EB-5 program, foreign investors deploy between $500,000 and $1 million into a qualifying project that creates full-time jobs. In theory, at the end of a project, investors would a receive a green card and their money back. For years, China was the best spot to raise EB-5 capital, but, lately, interest in the program has waned.

In November, investor applications hit a five-year low as the program’s annual quota system led to long wait times. Chinese investors, in particular, faced a wait as long as 15 years before receiving their green cards. Last spring, potential investors in China were also reportedly “alarmed” by the Securities and Exchange Commission’s investigation of Kushner Companies’ use of the EB-5 visa program.

Meanwhile, last fall, one of New York City’s most prominent projects using the program, the New York Wheel, collapsed for good, and a wave of investors are seeking legal counsel to extract themselves from notable projects, such as Harry Macklowe’s One Wall Street and Maefield Development’s Edition hotel at 701 Seventh Avenue.

But Kanavos says the headlines don’t worry him. “I don’t have any concerns about any of that,” he said. “I only focus on my own projects.”

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He may have his hands full with the Ritz-Carlton NoMad. The 250-room hotel is Flag Luxury’s “first high-rise project” in New York City, and it’s also the first time the developer is tapping EB-5 financing.

Kanavos said law firm Greenberg Traurig introduced him to EB5 Capital and Marriott International (the owner of the Ritz-Carlton brand) vouched for the firm. He said he views the hotel as a test to see whether EB-5 capital would be a good fit for future projects. The NoMad hotel will be Flag’s fifth project with the Ritz-Carlton brand. EB5 Capital has worked with Marriott on four other projects, but this is the firm’s first in New York City.

Flag snagged a $250 million senior construction loan for the $508 million project last July from Atalaya Capital Management.

EB5 Capital’s $125 preferred equity investment is “better characterized as debt,” according to Brunner. When “the project refinances or sells” EB5 Capital will exit to “repay the investors,” she explained. The length of the investment is a fixed five-year term.

Brunner declined to disclose the interest rate on the deal but said “it’s certainly competitive to non-EB-5 sources.”

EB5 Capital claims to have a raised $600 million via EB-5 since Brunner founded the company in 2008. She claims the company has repaid investors on six projects to date, and noted that “this is a big project for us.”

The Ritz-Carlton at the northwest corner of Broadway and West 28th Street will include 16 one- and two-bedroom condo residences on the top four floors of the tower, an exclusive Ritz-Carlton Club Lounge, spa and rooftop bar. Rafael Viñoly Architects is designing the building, which is expected to open in 2021. Construction began last July.

Editor’s Note: This story was updated to clarify that dozens of investors approached a lawyer regarding Macklowe Properties’ One Wall Street and Maefield Development’s Edition hotel, but the investors are not known to have initiated legal action at this time.