Jay Peak bombshell

[VTKilarney]

Here is my take with one caveat: It is my interpretation only of publicly available information discussed in this forum and it's probably wrong.

My gut feeling is that Quiros and Stenger have known for a long time that they cannot pay back the investors. The money just isn't there. I was at Jay Peak this past weekend, and it's very obvious to me that the summer business just isn't there to pay back the massive amount of money they have raised. We drove by Stateside to take a peek at the Jeezum Crow Festival. I didn't get a great view, but what I did see looked VERY lackluster. I suspect that it did not draw many people. This is supported by the fact that their Facebook page shows photos of pre-event sound checks, but has no photos at all of the actual event.

Even if the resort was firing on all cylinders, was it reasonable to believe that they could pay back $250 million in a few years?

So if they can't pay back the investors, what do they do? They protect the resort from those investors. If the investors go from an equity interest to an unsecured interest, there isn't anything they can do if they are stiffed. IMHO, that's what we see at work here. Quietly restructure things to build a wall to keep the angry horde at bay.

But here is where things may get tricky. It is possible that the litigation costs alone may drive Jay into a deep hole. I find it hard to believe that 500 investors, putting up $250 million, are going to go away quietly. It is certainly possible that they have no recourse - but they won't leave any stone un-turned before they admit that fact. Litigation expenses are more affordable when divided by a couple hundred people.

And who knows what other fallout there may be. I'd hate to be an immigration attorney who reviewed a contract with the provision that allowed this change in ownership to happen. No doubt there are other players in the process that should be worried.

And depending on how this plays out, Jay (and by association Vermont) could become one of the oft-cited examples of projects that left EB-5 getting screwed over.

 

[Tin]

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?

I don't know how the hell they can afford what they've built in recent years. Hockey tournaments and a few vacation weeks can't foot that bill.

 

[mbedle]

Wow - that document is not good. It is completely illegal to offer a guarantee of return on your investment in the EB-5 program. Another thing people need to understand is a lot of these investors may not care to get their money back. They might be happy just paying the fee to get into USA. I would assume that the ones that are complaining, never hired a lawyer to review all the documents they signed. If they did, I would guess they were made aware of the financial risks associated with this transaction.

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.

 

[56fish]

Not sure if I'm lazy, stupid or, both......is there a guaranteed ROI doc anywhere in this thread? Investors were/are buying a green card or, at least jumping the immigration process line. Anyone that can afford to drop $500k should have the intelligence or, resources to employ someone capable of finding a safer investment. If making $ is the objective.

Glossy mktg materials have been around since the technology to print them was discovered.

 

[noreasterbackcountry]

I'd be interested in knowing more about the supposed security interest that these investors claim to have possessed. As I understand them, the EB-5 rules do not permit the people providing money in that program to have the money secured by the assets of the new company (in this case the Base Lodge).

In other words, if you get a security interest on the money you fork over it is a loan and not an investment- and only investors qualify for the EB-5 program

Either Jay Peak wasn't in compliance with the rules or the investors didn't fully understand their arrangement, or both.

In any event, this combined with the QBurke PR mismanagement doesn't help for future investment.

 

[VTKilarney]

Here is what a recent marketing document stated:
An investor would be purchasing a limited partnership interest and once subscribed will receive a certificate of ownership for that interest. The limited partners as investors would collectively own 100% of that Partnership equity and thereby 100% of that Partnership assets. Limited Partners are entitled to 100% of the net capital proceeds after closing costs and realtor commission.

The document is an interesting read. It can be found here: http://www.shenlaw.net/cn/eb5_info14.pdf

 

[VTKilarney]

One of the bands playing at the Jeezum Crow festival posted a photo of their performance on Facebook. Ladies and gentlemen, I present to you the four season resort known as Jay Peak:

 

[noreasterbackcountry]

Okay, I think I'm reading it correctly, now. I thought the article was suggesting they held secured loans which were converted to unsecured loans... but its that their unsecured ownership interests were converted to unsecured loans- which would be permissible under the EB-5 program after they have their greencards (and the EB-5 oversight is out of the picture).

 

[thetrailboss]

One of the bands playing at the Jeezum Crow festival posted a photo of their performance on Facebook. Ladies and gentlemen, I present to you the four season resort known as Jay Peak:

View attachment 13039

Ouch. What happened there?!

 

[VTKilarney]

Okay, I think I'm reading it correctly, now. I thought the article was suggesting they held secured loans which were converted to unsecured loans... but its that their unsecured ownership interests were converted to unsecured loans- which would be permissible under the EB-5 program after they have their greencards (and the EB-5 oversight is out of the picture).

My impression was that the limited partners owned the partnership assets, which included the building itself. As owners of an asset, they had some protection if the business venture fails. The asset itself is worth something even if the business fails.

I understood what happened to be that they went from actually owning the business assets to being an unsecured creditor of the business.

Am I wrong? This is not my area of expertise by any stretch.

 

[dlague]

One of the bands playing at the Jeezum Crow festival posted a photo of their performance on Facebook. Ladies and gentlemen, I present to you the four season resort known as Jay Peak:

View attachment 13039

This is not very telling! I was at a concert last weekend that had five bands/artists. The first two bands hardly had anyone there the two better known bands are when people started flowing in!

In this case this band could have been a lesser desired band.

As far as this whole mess - I am bummed out since i grew up there and never really like the whole idea. I grew to be ok with it and those who do not know better love it, This is a dark cloud hanging over the Jay Cloud!

 

[VTKilarney]

It may not be tellng for sure. It's just all I could find. Jay Peak hasn't posted any photos other than pre-event photos. One other band posted photos, but only stage shots. I did find one attendee's photos, which were consistent with the one I already posted, but they could have been taken around the same time.

 

[noreasterbackcountry]

My impression was that the limited partners owned the partnership assets, which included the building itself. As owners of an asset, they had some protection if the business venture fails. The asset itself is worth something even if the business fails.

I think you would only own the property in the collective sense with the other owners. You are only in a better position if you have a security agreement. Without it, you're subject to the same priorities in distribution of the assets if it goes belly up as other unsecured creditors. In other words, you only get paid once the secured creditors, administrators of the estate and the tax man get paid.

I think where you would lose out, however, has to do with the payment schedule. If your share of the annual net disbursement was more than the $20k figure they mentioned (the yearly repayment figure on the new notes), then you could have received a faster return on your investment.

Also, if you are really dreaming big, I suppose your particular share in the business could be sold for much more than your initial investment. But all of that would be controlled by the Partnership Agreement, which apparently allowed for the GP's to convert the ownership interest into an unsecured note without the permission of the limited partners.

If the agreement allowed for this, then the investors really don't have an argument- or a legitimate beef--- other than that they should have gotten a snailmail letter instead of an email to inform them of the change. But the manner of notice seems pretty tangential to their beef. If they didn't like that deal, then they shouldn't have signed an agreement for that deal.

Now I'm sure the expectations were different five years ago (Most people thought we would pull out of the recession by now), and they were given rosy projections based on those expectations... Given the climate in the leisure industry its a miracle Jay has managed to weather the storm this long before having some disgruntled investors. (As there always are when reality meets expectations)

That said, they're still knee deep in some of these projects (our beloved QBurke being one of them), and still need investor $$$$$ which means public perception is everything. Let's hope they find a way to turn it around quickly.

 

[VTKilarney]

In other words, you only get paid once the secured creditors, administrators of the estate and the tax man get paid.

My understanding was that the investors were led to believe that there would be no secured creditors or mortgage holders. This makes sense since the investors were providing the funds rather than a lender.

 

[VTKilarney]

I was able to find a photo of the main act at the Jeezum Crow festival. It's hard to make much out of it since it's dark, but it appears that more people showed up for the main attraction.

 

[dlague]

It may not be tellng for sure. It's just all I could find. Jay Peak hasn't posted any photos other than pre-event photos. One other band posted photos, but only stage shots. I did find one attendee's photos, which were consistent with the one I already posted, but they could have been taken around the same time.

However, I would not be surprised if there were small crowds! Summer disperses people (beaches, hiking, biking, boating etc.) where winter brings many together due to few sports opportunities and many of them require a resort.

 

[dlague]

I was able to find a photo of the main act at the Jeezum Crow festival. It's hard to make much out of it since it's dark, but it appears that more people showed up for the main attraction.

View attachment 13040

Wonder how that feels being a warm up band with hardly anyone there? The the bigger names show up and people come out of the wood work.

 

[xlr8r]

All I'm gonna say is:

ASC 2.0

 

[VTKilarney]

All I'm gonna say is:

ASC 2.0

Except that ASC's creditors had some recourse.

 

[HowieT2]

This is not surprising. That was a lot of money and hard to understand how they were going to make it back. When I went up there last year in March they were practically paying us to stay at the tram house. I think we got 2 nights in 2br unit for $400, which included 3 days lift tickets and water park for 4 of us.