Business & Economy

VTDigger exclusive: Jay Peak loses trust of first EB-5 investors

Bill Stenger stands before the future Stateside Hotel at Jay Peak in September 2013. File photo by Hilary Niles/VTDigger

Bill Stenger stands before the future Stateside Hotel at Jay Peak in September 2013. File photo by Hilary Niles/VTDigger

© Copyright, VTDigger 2014

A group of immigrant EB-5 investors are incensed that Bill Stenger, president and CEO of Jay Peak Resort, seized ownership of the Tram Haus Lodge and turned their half-million dollar equity stakes in the property into IOUs.

Investors had no knowledge of Stenger’s actions until five months after they were executed.

Stenger and his partner at Jay Peak, Miami-based Ariel Quiros, dissolved the company on Aug. 31, 2013, turned the investments into unsecured loans and “waived” investors’ legal rights, according to documents obtained by VTDigger. Stenger says he sent an email to investors with the promissory note on Jan. 24 of this year, but he did not mail official, paper copies until May.

After the investors sent letters of complaint to Stenger and the state, Jay Peak agreed to change certain terms of the IOU in a take-it-or-leave-it offer earlier this month.

In an interview, Stenger said he did not need to consult with the 35 limited partners in Jay Peak Hotel Suites LP before he dissolved the company, because Jay Peak had the legal right to do so under the limited partnership agreement with the investors.

Stenger said he regrets not communicating better with both investors and state officials, and he takes full responsibility for the “big mistake.”

“I made a mistake in not communicating with the investors, and I should have,” Stenger said in an interview Friday. “And I’ve apologized to them, rather profusely, that it was my oversight in not reaching out to them in August when that decision was made. And I was wrong. It was not intentional.”

About half of the Tram Haus investors in the state’s first EB-5 project, however, say they have lost faith in Jay Peak and the state-run Vermont EB-5 Regional Center, which oversees all EB-5 developments in Vermont. One investor said he had his life savings invested in the Tram Haus, and most fear they will never recoup their investments in the property.

The dissolution was legal under the limited partnership agreement, Stenger says. Regional Center director Brent Raymond agrees, though he said the transaction’s execution did not meet state standards.

Under accepted industry standards set by the Institutional Limited Partners Association, any amendment to such an agreement should require the approval of a majority interest of the limited partners.

Ariel Quiros at the opening of Jay Peak Resort's Stateside Hotel. Photo by Hilary Niles/VTDigger

Ariel Quiros at the opening of Jay Peak Resort's Stateside Hotel. Photo by Hilary Niles/VTDigger.

According to best practices promulgated by the Association to Invest in America, a trade group that represents EB-5 regional centers, of which Stenger is a board member, limited partners in EB-5 projects must be informed of substantive changes to limited partnership agreements.

Unilateral authority to dissolve the partnership without investor consultation was provided for in the agreement, Stenger said. As a general partner, his sole discretion broadened after the immigrant investors achieved permanent residence.

“Once that’s done, we can do what we want,” Stenger said.

Stenger said he dissolved the partnership because a few of the investors were asking for an “exit strategy,” and he felt compelled to develop a schedule for repaying investors. In a letter to investors dated July 14, Stenger apologized for the “unintentional delay” in communication.

“My objective was and is, to guarantee a repayment of the full investment of $500,000,” Stenger wrote (emphasis his).

Stenger said he originally told immigrant investors there was no guarantee they would recoup their investments after five years because he wasn’t allowed to offer such a commitment under U.S. Customs and Immigration Service rules.

The primary purpose of the program is to help investors obtain green cards and establish U.S. residency, Stenger said. Return on investment and repayment of capital are secondary, he said.

“Every investor that got involved in the EB-5 program knows that there is no guarantee of any return, and no guarantee when they’ll get their investment back,” Stenger said. “We’re making a good faith effort on Phase I. We have committed ourselves, contractually, to pay them back 100 percent of their investment by 2018. And that’s a pretty good outcome. Is that the best outcome? If the real estate market after 2008 had been progressing the way it might have from 2005 or 2006 and didn’t have this, I mean, you know what happened. We’re recovering.”

Last September, Stenger told reporters Jay Peak would repay the investors $50,000 a year over 10 years.

"And our partners are thrilled," Stenger said at the time.

Yet the terms of the Aug. 31, 2013, promissory note Stenger and Quiros signed just weeks before specify that investors would receive a 1 percent interest rate and payments on their $500,000 principal over a nine-year period: $21,500 each year for eight years and a check for $343,697 on Jan. 31, 2023.

The Vermont EB-5 Regional Center, which oversees the immigrant-funded projects in the state, was aware of the dissolution of Jay Peak Hotel Suites, LP, around the time the papers were signed. But Stenger did not inform regional center director Brent Raymond about the terms of the deal, nor did Raymond ask for specifics.

Raymond said Jay Peak representatives verbally informed him the resort had agreed on an exit strategy for the immigrant limited partners. He assumed the investors were being paid off, and that they were satisfied.

“I guess I can blame myself for making assumptions,” Raymond said.

Disgruntled investors sent formal letters of complaint to the Vermont Regional Center in May. Several say that instead of investigating their complaints, Raymond directed them back to Stenger for answers.

Investors who communicated with VTDigger asked not to be identified for fear of retaliation.

Fifteen of the investors then sent letters to a different state department over the July Fourth weekend. A week later, Stenger sent the 35 investors a new, take-it-or-leave-it IOU with a five-year payback period.

In a letter sent with the second promissory note, Stenger said the second offer would “omit any reference to waiving legal rights,” and he guaranteed their loans against the full value of the entire Jay Peak Resort facility. The letter says he would “re-evaluate the plan at the end of each fiscal year to determine if the payment can be further accelerated.”

Bill Stenger (right) presides over the ribbon-cutting ceremony to open Jay Peak's Stateside Hotel and Baselodge in December 2013. Photo by Hilary Niles/VTDigger

Bill Stenger, right, presides over the ribbon-cutting ceremony to open Jay Peak's Stateside Hotel and Baselodge in December 2013. File photo by Hilary Niles/VTDigger

Tram Haus: The first part of a grand plan

The Tram Haus, which was built in 2008, is the stepping stone Jay Peak used to launch a sweeping, $600 million interconnected set of developments in Vermont. The Northeast Kingdom Economic Development Initiative included developments at the Jay Peak and Q Burke ski resorts, improvements to a local airport, and developments in Newport, including an office building, a window factory, a biotechnology research and manufacturing campus, and a marina, hotel and conference center.

What is EB-5?

EB-5 is a federal program that offers green cards, and eventually permanent residency, to immigrants who invest $500,000 or $1 million in pre-approved development projects in the U.S. Each investment must generate 10 jobs.

The plan, publicly lauded by state officials, including Gov. Peter Shumlin and Sen. Patrick Leahy, D-Vt., promised to bring thousands of jobs to the poorest region of the state. The ambitious development plan has also received national media attention.

Plans to bring the German window manufacturing company Menck to Newport fell through in September 2013. The buildout of the state-owned Newport State Airport was pulled from the EB-5 pipeline in favor of private equity. The mixed-use Renaissance Block in downtown Newport and a waterfront marina, hotel and conference center on Lake Memphremagog remain in limbo months after real estate complications surfaced this spring.

Jay Peak's Tram Haus Lodge. Photo by Justin Cash/

Jay Peak's Tram Haus Lodge. Photo by Justin Cash/

The Northeast Kingdom initiative continues to be touted by state officials as a showpiece of the EB-5 program. Vermont’s EB-5 Regional Center is overseen by the state’s Agency of Commerce and Community Development; it was long the only state-run program in the United States, until Michigan formed its own regional center earlier this year.

Gov. Peter Shumlin and the state’s congressional delegation have endorsed the EB-5 program in general, and the Northeast Kingdom initiative in particular. In 2012, Leahy successfully pressed his colleagues in the Senate for an extension of the national EB-5 regional center pilot program. Shumlin has traveled to Asia to promote the Vermont Regional Center’s work, in an effort to help the state recruit more immigrant investors. His travel expenses were paid for by Jay Peak Resort.

Mounting investor expectations

The Tram Haus, also known as Phase I, was the first EB-5 project for both Jay Peak and the state. Like the other developments, Tram Haus is heavily leveraged by EB-5 monies. Stenger and Quiros put in $6 million in private equity and $17.5 million from 35 immigrant investors to build the $23.5 million property.

Congressman Peter Welch, D-Vt., Gov. Peter Shumlin and Ary Quiros, CEO of Q Burke Mountain, joke at a groundbreaking ceremony for the ski resort in June 2014. Photo by Hilary Niles/VTDigger

U.S. Rep. Peter Welch, D-Vt., Gov. Peter Shumlin and Ary Quiros, CEO of Q Burke Mountain, at a groundbreaking ceremony for the ski resort in June 2014. File photo by Hilary Niles/VTDigger

The Tram Haus is also the first project in which payments for EB-5 investments have come due. Stenger and Quiros are trying to manage expectations as they develop an exit strategy, not only for the first 35 investors in Phase I, but also for the 150 investors in Phase II who will likely expect an exit plan next year. In all, Stenger and Quiros have completed five separate EB-5 projects, with about 500 investors. A sixth, Stateside Hotel and Baselodge, is near completion. Two more, AnC Bio and Q Burke, are under preliminary construction.

Northeast Kingdom Economic Development Initiative

These numbers are approximate and the project costs do not include additional private capital. Job numbers reflect the estimated value of direct, indirect and induced employment (combined) generated by the investments.

Granting of conditional visas comes first, and indicates USCIS has signed off on the business plan and job creation projections. Granting of permanent residency indicates USCIS has recognized a project has met job creation targets.

Jay Peak Hotel Suites Phase I
Tram Haus
$17.5 million EB-5 money
35 investors
350 jobs (total)
Project complete

Jay Peak Hotel Suites Phase II
Hotel Jay and water park, ice arena, golf course, club house and commercial conference center
$75 million EB-5 money
150 investors
1,500 jobs (total)
Project complete

Jay Peak Penthouse Project
55 suites on the top floor of Hotel Jay
$32.5 million EB-5 money
65 investors
650 jobs (total)
Project complete

Jay Peak Phase III-A
Golf & Mountain Suites
$45 million EB-5 money
90 investors
900 jobs (total)
Project complete

Jay Peak Phase III-B
Lodge & Townhouses
$45 million EB-5 money
90 investors
900 jobs (total)
Project complete

Jay Peak Phase III-C
Stateside hotel and base lodge
$67 million EB-5 money
134 investors
1,340 jobs (total)
Hotel and baselodge built, condos incomplete

AnC Bio
$110 million EB-5 money
220 investors
2,200 jobs (total)
Project pending Act 250 and other permits

Q Burke Mountain Resort
Hotels, conference center and recreation facilities
$120 million EB-5 money
240 investors
2,400 jobs (total)
Ground broken for initial construction. Conditional green cards have not yet been approved.

◊ ◊ ◊

A few other projects intended for EB-5 funding are on hold: Newport's waterfront marina, hotel, conference center and Renaissance Block, and Jay Peak's West Bowl buildout and village development. The state already has signed MOUs with Jay Peak on the latter endeavors in Jay. The developers have not yet signed an MOU with the state for the Newport projects, which may or may not be rolled into one. The MOU is necessary before EB-5 investors can be solicited.

Stenger said on Friday that Jay Peak is looking at a fractional ownership program to pay back investors in both the Tram Haus and subsequent EB-5 projects. Such business decisions are at the sole discretion of the companies’ general partners, he said.

Dissolving the Tram Haus limited partnership was in the best interest of the limited partners, in his view.

But many of the investors disagree. About half of the limited partners have complained.

“I believe this decision is outrageous and has seriously jeopardized the financial futures for myself, my wife and my children,” one investor wrote in a letter to the state. “If I had known a simple $500,000, 5-year investment would turn into a 15-year investment I would NEVER have considered the EB-5 Program.”

The investors allege, in letters sent to the state earlier this month, that they expected full repayment by 2013. Over the course of the past five years, they have each been paid a small return on their $500,000 investments.

USCIS regulations prohibit EB-5 developers from guaranteeing investors will get their capital back; investments must be at-risk. Stenger said the company is vigilant in following this rule, and he doesn’t know where the investors would have gotten such an impression.

“Our intent has always been after a certain period of time we would evaluate the market,” Stenger said. “And if we could pay back or begin paying back after five years, we would. And indeed we have.”

Stenger said he’s doing “everything in his power” to improve the situation for investors -- accelerating the payment, shortening the timeframe, developing a fractional program, and “setting up a structure for future projects so that we can continue to have a more predictable repayment program.”

“I don’t want to be sitting here having a conversation about unhappy customers,” Stenger said. “I’m in a business where 85 percent of our customers are repeat people. This is not something I’m comfortable with, the fact that we’ve got some unhappy people. I do not like this. And I’m doing everything in my power to improve it.”

The five-year loan agreement issued July 14 specifies payments of $21,500 for the first four years and a balloon payment of $434,311 in the final year. Stenger has asked the investors to agree to the second promissory note in writing.

In their complaints to state officials, many investors scoffed at the original promissory notes, which were “unsecured.” The second note uses the Jay Peak Resort as collateral. The resort’s infrastructure was expanded largely with other EB-5 investments.

“I have many hundreds of other investors who are expecting at some point an exit strategy,” Stenger said. “And I want a positive one. So I’m working my ass off right now to implement and keep our businesses here successful, jobs continuing to perform well, the businesses growing, and also set up a situation where there can be a predictable inflow of capital, maybe from a new real estate product line, that will be a multi-year conduit for the repayment of these investors.”

Vermont Regional Center inaction

Investors also allege that the Vermont Regional Center has not adequately responded to formal complaints and pleas for assistance. The center, which is part of the Agency of Commerce and Community Development, has an oversight role, including the authority to cancel agreements with developers.

One Tram Haus investor describes ACCD officials as uncooperative and indifferent to their plight. He says Raymond has “reflexively sided with Jay Peak,” failed to act on their complaints and refused to provide documents they have requested. The investor said he and others feel abandoned by the Vermont Regional Center, which has represented its role to the world as the “EB-5 police.”

Raymond said Friday he takes “great pains” to respond immediately to investor concerns, but the center has no authority over the private placement memorandum. The Tram Haus agreement was signed by investors, and it gave the general partner the legal right to dissolve the company, he said.

“Obviously, we had concerns that a document dated in August was delivered sometime in May,” Raymond said. The timing of the second, revised promissory note didn’t surprise him because it followed after Raymond received complaints and pursued the issues with Jay Peak.

“I also had concern about whether or not it was legitimate for the general partner to dissolve the partnership,” Raymond said. He and the agency’s lawyer examined the documents and concluded it was allowed, he said.

The center has no ability to intercede in private legal contracts, he said, but it is making more of an effort to hold Jay Peak accountable. Company management now copies the center on all communications with investors. Raymond also has asked Jay Peak to submit weekly written updates. As of Friday, the first deadline the company agreed to had been missed by a day.

Patricia Moulton, the new ACCD secretary, said she couldn’t comment on the details of the relationship between Jay Peak and the investors, nor on the current dispute over the dissolution of the company and conversion of equity stakes into loans.

Brent Raymond, director of Vermont's EB-5 Regional Center. File photo by Hilary Niles/VTDigger

Brent Raymond, director of Vermont's EB-5 Regional Center. File photo by Hilary Niles/VTDigger

“If this is a provision within the agreement the investors have with Jay, these kinds of conversions can happen,” Moulton said. “It doesn’t reflect on the regional center if they exercise something within their rights to do.”

Moulton said Friday the center has been monitoring Jay Peak “right along.” Recently, the center put the resort “on notice,” and is now requiring the company to submit quarterly reports. Before now, the regional center did not require any formal reporting, even though MOUs with all the EB-5 projects include a clause that quarterly reports are to be submitted.

Moulton and Raymond said there is little the regional center can do to help investors who are already invested in projects.

“We’ve advised investors that if you feel something is wrong you should get counsel but it’s not our purview in the regional center,” Moulton said. “As long as it’s in compliance with the SEC and USCIS, the rest is up to investors and the company. I don’t think it reflects poorly on the regional center. We have been doing our due diligence.”

With the regional center’s limited requirements and abilities to intercede, however, it’s unclear how far its diligence and authority, even when fully exercised, can go.

Some investors say Brent Raymond, for example, directed investors back to Jay Peak with their complaints. They allege that Raymond said they would need to provide him with proof of fraud in order for him to take action.

The Tram Haus allegations focus on a lack of transparency from Jay Peak — a charge Stenger denies. He said Jay Peak provided quarterly reports and required documentation throughout the limited partnership, and the company is now responding to requests for detailed financial accounting.

But investors, kept in the dark about the status of their own $500,000 equity investments, fear that without partnership status, they’ll lose legal rights to access the documents they would need to prove fraud.

Copyright 2014 All rights reserved. This material may not be published, broadcast or rewritten.

A sunset silhouette of Jay Peak from the nearby town of Troy illustrates the magnitude of the resort's development. The building that receives the tram up the mountain has altered the skyline. Photo by Hilary Niles/VTDigger

A sunset silhouette of Jay Peak from the nearby town of Troy illustrates the magnitude of the resort's development. The building that receives the tram up the mountain has altered the skyline. File photo by Hilary Niles/VTDigger

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Anne Galloway

About Anne

Anne Galloway is the founder and editor of VTDigger and the executive director of the Vermont Journalism Trust. Galloway founded VTDigger in 2009 after she was laid off from her position as Sunday editor of the Rutland Herald and Times Argus. VTDigger has grown from a $16,000 a year nonprofit with no employees to a $2 million nonprofit daily news operation with a staff of 25. In 2017, Galloway was a finalist for the Ancil Payne Award for Ethics, the Al Neuharth Innovation in Investigative Journalism Award and the Investigative Reporters and Editors FOIA Award for her investigation into allegations of foreign investor fraud at Jay Peak Resort.

Email: [email protected]

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