Jay Peak bombshell

VTKilarney · Jul 28, 2014

I've been speculating that something has gone off the rails regarding Jay's EB-5 fundraising. My assumption was that it was largely due to competition from more urban projects. I also had a suspicion that part of the problem was due to the dissatisfaction of early investors. I had stated earlier that Jay's advantage of being an early EB-5 player could be coming back to haunt them because people can now look at the rate of return early investors are receiving.

Well... things were worse than I through in that regard. Take a look at this:
http://vtdigger.org/2014/07/27/vtdigger-exclusive-jay-peak-loses-trust-first-eb-5-investors/

Folks, the EB-5 gravy train has come to a screeching halt.

One major question: What does this mean for the partially funded Burke hotel?

deadheadskier · Jul 28, 2014

Well this is disappointing. I read bombshell and was expecting something totally different.

Abubob · Jul 28, 2014

All kinds of legal mumbo jumbo. Boils down to an exit strategy gone awry.

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.

thetrailboss · Jul 28, 2014

The basic summary was that JPR quietly changed the terms of the deal...from 5 year exit to 15 year exit plan. The internal limited partnership documents, apparently, allowed them to make this change without notice or consent of the EB-5 investors. The investors are pissed.

VTKilarney · Jul 28, 2014

Keep in mind that even if it was legal to do this, potential future investors are going to draw their own conclusions when they do their due diligence. To me, that's one of the most important aspects of this story and why I've suggested that the Jay/Burke EB-5 train may have just imploded.

If I am reading the article correctly, here is what it boils down to:
1) Jay, while not guaranteeing a specific ROI, painted a much rosier picture than reality.
2) To hedge against any risk, the investors were led to believe that they would have an equity interest in the hotel.
3) The investors, without any knowledge, had their equity interest taken away and became unsecured creditors.
4) The exit strategy requires the investors to believe that they will get a huge balloon payment down the road. Investors are skeptical of that promise.
5) The new shit-has-hit-the-fan deal gives them an equity interest, but what did they have to give up to get it? The article does not say. Do they have to give up their right to sue? And even if they do re-establish an equity interest, are they now BEHIND other secured creditors? And what exactly is their equity interest in? The article suggests that it's in the resort itself. With aging equipment and potential senior creditors, does that really provide a substantive equity interest?

Another key element to this story is that investors may lose confidence in Vermont's Regional Center itself - which will screw all sorts of other proposed EB-5 projects.

It will be interesting to see how this plays out.

Smellytele · Jul 28, 2014

The investors should have read the fine print stating that there was NEVER a guarantee that they would get any money back. This is actually a better deal where they will get ALL their money back. If they don't realize what investing means then too f'n bad for them. They wanted to come to the US they got that plus they will get their money back. If they don't like it oh well. Will it make future EB-5 green card getters read English? Maybe.

thetrailboss · Jul 28, 2014

VTKilarney said:
Keep in mind that even if it was legal to do this, potential future investors are going to draw their own conclusions when they do their due diligence. To me, that's one of the most important aspects of this story and why I've suggested that the Jay/Burke EB-5 train may have just imploded.

If I am reading the article correctly, here is what it boils down to:
1) Jay, while not guaranteeing a specific ROI, painted a much rosier picture than reality.
2) To hedge against any risk, the investors were led to believe that they would have an equity interest in the hotel.
3) The investors, without any knowledge, had their equity interest taken away and became unsecured creditors.
4) The exit strategy requires the investors to believe that they will get a huge balloon payment down the road. Investors are skeptical of that promise.
5) The new shit-has-hit-the-fan deal gives them an equity interest, but what did they have to give up to get it? The article does not say. Do they have to give up their right to sue? And even if they do re-establish an equity interest, are they now BEHIND other secured creditors? And what exactly is their equity interest in? The article suggests that it's in the resort itself. With aging equipment and potential senior creditors, does that really provide a substantive equity interest?

Another key element to this story is that investors may lose confidence in Vermont's Regional Center itself - which will screw all sorts of other proposed EB-5 projects.

It will be interesting to see how this plays out.

I think that the larger message is clear: they are very ambitious and are having a hard time getting the money. That is no surprise considering the fact that they are now facing stiffer competition for EB-5 money. It also explains they recent issue with Pomerleau and the airport. I know that folks argue that the projects are siloed, that there is no need for concern, etc., but I think that the theme is clear...they are having trouble getting money to make things happen.

As to the Regional Center, folks will be skeptical with that as well. I think the "turning of the head" issue is part of a bigger issue with Vermont politics and business right now though.

thetrailboss · Jul 28, 2014

Smellytele said:
The investors should have read the fine print stating that there was NEVER a guarantee that they would get any money back.

I think the issue is the change and how it was done.

This is actually a better deal where they will get ALL their money back. If they don't realize what investing means then too f'n bad for them. They wanted to come to the US they got that plus they will get their money back. If they don't like it oh well. Will it make future EB-5 green card getters read English? Maybe.

The plan assumes that JPR will be able to make that big balloon payment. I'm always skeptical of those.

WWF-VT · Jul 28, 2014

Do the EB-5 investors get a discount on tickets for the Pump House ? Throw in a couple of Party Packages and everyone should be happy.

thetrailboss · Jul 28, 2014

WWF-VT said:
Do the EB-5 investors get a discount on tickets for the Pump House ? Throw in a couple of Party Packages and everyone should be happy.

:lol: Yeah, there you go! And a free EB-5 investor ski day......in August!

VTKilarney · Jul 28, 2014

I think it's a little harsh to have no sympathy for the investors. While it is correct to say that they should have known there was a risk, what you are presuming is that they were given accurate and complete information when doing their due diligence.

One has to wonder when we have seen marketing material such as this:
http://jaa.org.za/documents/docs/EB-5_International Ad_SA.pdf

If you look at it, you can see that it states: "Return of investment after 5 years"

Is someone a fool for believing that? Probably. But regulations are designed to prevent fools from being taken advantage of. I am, therefore, also interested in whether or not all regulations were followed - especially the prohibition of suggesting a guaranteed return on investment. The marketing material I have linked to makes me think that the issue should at least be explored. It's a good thing for Vermont to have a ski industry that is as squeaky clean as possible.

VTKilarney · Jul 28, 2014

thetrailboss said:
I think the issue is the change and how it was done.

The other HUGE issue is the impact this will have on upcoming projects that are not fully funded - both at Jay and at other Vermont recreational destinations.

A secondary issue is whether or not Jay will be involved in litigation over this matter. Keep in mind that investors in the later phases have to be shitting a brick right now. Some of them may pursue legal action as a preventative measure.

LONGBOARDR · Jul 28, 2014

Sad news for Jaypeak, but in reality many of us were waiting for the devil in the details to emerge.

I remember an early warning back sign in 2012 where the Jay eb-5 broker trashed the accuracy of their representations

http://eb5news.com/categories/12-pr...a-agent-broker-rapid-visas-denounces-jay-peak

thetrailboss · Jul 28, 2014

VTKilarney said:
The other HUGE issue is the impact this will have on upcoming projects that are not fully funded - both at Jay and at other Vermont recreational destinations.

A secondary issue is whether or not Jay will be involved in litigation over this matter. Keep in mind that investors in the later phases have to be shitting a brick right now. Some of them may pursue legal action as a preventative measure.

True and true.

BenedictGomez · Jul 28, 2014

I've been telling people this EB-5 situation (and writing here) will end poorly for several years now. Not only am I not shocked, I expected this, and more.

The worst is yet to come. Not only has the **** not hit the fan yet, I dont believe the fan has even been turned on.

BenedictGomez · Jul 28, 2014

thetrailboss said:
As to the Regional Center, folks will be skeptical with that as well. I think the "turning of the head" issue is part of a bigger issue with Vermont politics and business right now though.

This was for me the most amazing part of the article (if true).

It makes it sound like the Vermont-run Regional Center hasnt a clue what's going on, doesnt know how to investigate entities finances (or worse perhaps the desire to), or even what it is their fiduciary responsibility is. It sounds like a local-yocals club more interested in Jay Peak's success than protecting the EB-5 program and the investors from wrong-doing and harm. Were I Brent Raymond, I'd probably be updating my resume.

This was my favorite part, it's almost not believable:

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.

You've gotta' be friggin' kidding me?

bobbutts · Jul 28, 2014

So correct me if I'm wrong, the tldr version goes something like:
1. Existing investors are having conditions changed and payback timeline pushed back
2. Jay Peak, and probably the entire VT region have now gained a poor reputation as an EB5 investment

Which means:
1. Existing plans not yet completed likely to be on slower timeline or cancelled.
2. Future projects much less likely to be funded.
3. Chance of consequences for people who may have broken the law.

Do people think the finances of JPR may be in trouble too? Are we headed towards a change of ownership or bankruptcy or something of that nature?

Smellytele · Jul 28, 2014

bobbutts said:
So correct me if I'm wrong, the tldr version goes something like:
1. Existing investors are having conditions changed and payback timeline pushed back
2. Jay Peak, and probably the entire VT region have now gained a poor reputation as an EB5 investment

Which means:
1. Existing plans not yet completed likely to be on slower timeline or cancelled.
2. Future projects much less likely to be funded.
3. Chance of consequences for people who may have broken the law.

Do people think the finances of JPR may be in trouble too? Are we headed towards a change of ownership or bankruptcy or something of that nature?

You forgot about the part that states no guarantee of getting any money back from the investment now they are getting the original investment back (well until they change that part of it :slap:

)

BenedictGomez · Jul 28, 2014

Were I in charge, at this point, I'd give Jay Peak a limited amount of time to come up to date with the reporting that they're supposed to be doing in the first place.

If they miss that date, I'd order a full forensic accounting of Jay Peak's entire business (and I mean from soup to nuts). And that job would be outsourced out-of-state (Boston, NYC, etc..), because it's pretty damn obvious the State of Vermont either doesn't have the professional capacity for that work or the "desire" to do so.

thetrailboss · Jul 28, 2014

BenedictGomez said:
This was for me the most amazing part of the article (if true).

It makes it sound like the Vermont-run Regional Center hasnt a clue what's going on, doesnt know how to investigate entities finances (or worse perhaps the desire to), or even what it is their fiduciary responsibility is. It sounds like a local-yocals club more interested in Jay Peak's success than protecting the EB-5 program and the investors from wrong-doing and harm. Were I Brent Raymond, I'd probably be updating my resume.

You've gotta' be friggin' kidding me?

I think that this is just a larger part of the "special rules for special people" climate in Vermont that has really come out over the past four years or so. If you follow the news from there you get what I mean.

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