A South Korean citizen who invested with Gary Barnett under the cash-for-visas EB-5 program is accusing the developer of a $100 million bait-and-switch — taking foreign investors’ money to prop up his other struggling real estate developments.
Jung Shin invested $560,000 with his firm Extell in 2016 to help finance the development of 555 Tenth Avenue, Barnett’s 56-story rental tower in Hell’s Kitchen.
But Shin claims that Barnett deceived her and other investors in 2022 in order to move their money into a pair of Times Square hotel projects. She says the Extell chief subordinated the EB-5 investors’ position so that equity investors who joined the project later would get paid out first.
The move “effectively convert[ed] their equity into a low-interest, unsecured loan to bail out Gary Barnett’s other bad investments,” Shin alleges in a lawsuit filed January in Delaware Federal court that The Real Deal is first to report.
Shin is seeking class-action status for her lawsuit, plus damages of $560,000 for each of the 199 investors (mostly Korean and Vietnamese citizens) who put money into the 555 Tenth project.
A representative for Extell did not respond to a request for comment. The company has not yet filed a response to the lawsuit.
Barnett finished the 600-unit 555 Tenth in 2016 and by 2019 the building was stabilized. Shin said that at that point Extell should have redeployed money to investors who had obtained their conditional resident status, which she got in 2018.
But instead of redistributing the funds, Barnett redeployed the EB-5 investors’ money into a pair of development projects at 1710 Broadway and 201 West 54th Street.
Shin said the projects were underwater, dragged down by the pandemic and shifts in the market. Barnett sold 1710 Broadway in 2023 for $173 million, a loss of $95 million from the price he paid in 2017. The site at 201 West 54th Street is now up for sale.
In 2022 Barnett, along with the LLC he controls to manage the funds, sent the EB-5 group a notice saying the hotel properties were in danger of defaulting on their loans and wiping out the investors’ money, according to the lawsuit. Shin said Barnett manufactured a crisis in order to pressure the investors to keep their money in the project and slash the interest rate.
She claims Barnett inserted a poison pill into the notice that deceptively subordinated the EB-5 investors’ loan to later equity investors.
After Barnett paid off 1710 Broadway’s mortgage, he distributed $37 million to other investors, leaving nothing for the EB-5 group, Shin claims. She said there’s about $13 million unaccounted for.
She also accuses Barnett and the migration agency that advised the investors (Bether Capital Inc.) of intimidating the EB-5 group to settle for pennies on the dollar.
This past November, Barnett offered the investors a $150,000 buyout (70 percent of their initial investment) if they signed a non-disparagement clause, Shin alleges. She said Barnett and Bether Capital are leaning on Korean and Vietnamese investors’ fears that they won’t cooperate with pending visa applications to coerce them to accept the buyout.
“Put simply, Barnett and the manager committed the primary fraud and BCI helped it succeed by serving as the trusted intermediary who delivered the lies and quieted dissent,” Shin claims.
The EB-5 program, once called the “crack cocaine of real estate financing,” has long been a subject of controversy. There are many examples of investors accusing developers of tying up their money as a source of extremely cheap debt long after the program requires it.
Barnett sold a 42-percent stake in a portfolio of rental buildings including 555 Tenth Avenue in 2023 to Scott Rechler’s RXR in a deal valued around $800 million, a pandemic-era discount compared to a previous $1 billion valuation. RIU Hotels and Resorts, which bought 1710 Broadway from Extell, is currently developing the site into a 54-story, 673-room hotel.
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