EB-5 abuses, including Jay Peak

Sheelah Kolhatkar writes an article in the New Yorker about abuses in the EB-5 program.  She focuses on the Jay Peak project, near the Vermont border with Canada. The following is a condensed summary of the article:

The article examines the fraud scandal involving Bill Stenger’s ambitious expansion of Vermont’s Jay Peak ski resort, which was funded primarily through the EB-5 visa program.

Under this program, foreign investors and their families obtain green cards by investing $500,000+ in projects that create American jobs. Stenger and his partner Ariel Quiros raised $350 million from EB-5 investors but misused over half the money. Quiros funneled funds to himself while Stenger allegedly promoted false jobs numbers and ignored the fraud.

While the Vermont project failed, the article notes that EB-5 funding has benefited other developments when used properly. For example, it helped complete construction at Sugarbush ski resort when it ran out of conventional financing after the 2008 recession, saving 860 jobs. However, people also creatively exploited aspects of the program.

In Manhattan, Hudson Yards raised over $1.2 billion in EB-5 money for what became the most expensive real estate project ever. It qualified for cheap EB-5 financing meant for high unemployment areas through gerrymandered census tracts awkwardly connecting wealthy and poor neighborhoods. Similarly, developers completed a $150 million Waldorf-Astoria in Beverly Hills using a dubious redrawn map. In Las Vegas, nearly $1 billion in EB-5 funds built the Chinese-themed Resorts World hotel and casino complex. The article also mentions EB-5 projects involving Kushner family luxury apartment towers in New Jersey and China.

So while some worthy projects used EB-5 properly, the program’s lack of oversight and desperation of foreign investors for green cards lent itself greatly to abuse. Large fees gave middlemen incentive to downplay risks and encourage questionable deals. The Vermont officials’ failed monitoring of Jay Peak exemplified the widespread lack of governmental scrutiny. Other EB-5 fraud cases like the Chicago hotel scheme that cost Chinese investors $156 million further showed vulnerabilities.

Ultimately the article examines the difficulty of revitalizing struggling rural economies, the tendency for EB-5 projects to cluster in big cities, and questions around Stenger’s motivations. Despite raising huge sums, the Jay Peak scheme failed to deliver the promised transformation or expected returns. The resort sold for far less than what went into its expansion. While parts operate normally, its future remains financially dubious. The hole still undeveloped in downtown Newport where buildings were to arise serves as a daily visual reminder of the jobs and revival that never materialized.

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