Jay Peak bombshell

[BenedictGomez]

One very interesting fact he disclosed is that less than 25% of investors in their program are Chinese. This is in stark contrast with the overall numbers - and I wonder why. To see why this was a somewhat shocking revelation, just take a look at this chart:
View attachment 13054

I find that hard to believe, maybe he mi-spoke or maybe he was only speaking of those first 35 investors?

Put it this way, (also via a 20 second Linkedin search) one of the highest people at the Vermont EB-5 board (link below) is named Becky Fu who is the "Foreign Investment Specialist".

Ms. Fu is Chinese, a lawyer certified in the Chinese Bar, went to Guangdong University in Guangdong, China, is fluent in both Chinese and Cantonese, and went on the aforementioned Jay Peak overseas trip to China late last year (pictured with Stenger in the link below).

I'm sure that's all just a big coincidence though and Chinese investors aren't targeted. I mean, I know when I lived up in Vermont I knew TONS of native Chinese people up there, most of whom had government jobs.

Oh.....wait.....no, I didn't.

http://accd.vermont.gov/business/relocate_expand/eb5

 

[BenedictGomez]

As to the BFP, they've really downsized. I've stopped reading them because their reporting really started having a political bias.

Started?

I personally cannot recall a time when it didn't feel like I was reading press releases from the DNC. Whatever issue is currently promoted as the hot-topic on MSNBC or Huffington Post, will surely soon be coming to the BFP.

VT Digger has recruited the good journalists and provides good content IMHO. They also have been reviewing the EB-5 projects all along.

From the little I've read, I have to agree. Pretty impressive groundwork so far, and I'd definitely be a regular reader if I still lived in Vermont.

 

[thetrailboss]

Started?

I personally cannot recall a time when it didn't feel like I was reading press releases from the DNC. Whatever issue is currently promoted as the hot-topic on MSNBC or Huffington Post, will surely soon be coming to the BFP.

OK, maybe I was being too generous.....there was a time where I felt as if they did report on (local) issues with some good analysis. Lately it has been pretty much whatever one side thinks with no real pushback or questioning.

From the little I've read, I have to agree. Pretty impressive groundwork so far, and I'd definitely be a regular reader if I still lived in Vermont.

Agreed.

 

[WWF-VT]

Fortune magazine has a cover story "Citizenship for Sale" that's all about the EB-5 program. Jay Peak is listed as one of the notable projects that have been funded via the visa program:

http://fortune.com/2014/07/24/five-by-eb-5/

 

[DoublePlanker]

I don't understand why the investors expect a full return given that they get the citizenship. Surely, there is a value in the citizenship. They are giving up some expectation in the investment in order to gain the value of the citizenship. These investments are risky. They are so risky that conventional financing is not available. So, for citizenship, they make highly risky investment with the return diminished by the value of the citizenship.

 

[fbrissette]

I don't understand why the investors expect a full return given that they get the citizenship. Surely, there is a value in the citizenship. They are giving up some expectation in the investment in order to gain the value of the citizenship. These investments are risky. They are so risky that conventional financing is not available. So, for citizenship, they make highly risky investment with the return diminished by the value of the citizenship.

I'm with you on this. However, it appears it was not exactly presented as is. Nonetheless, it should be fairly obvious to anyone remotely knowledgeable about the ski industry and northern Vermont, that only morons would be expecting all of their money back after 5 years. The jobs created have to be permanent. That means that the investments have to minimally cover the operating costs of the built infrastructures, and, hopefully generate profits from which the EB5 investors can see some of their money back. If the profits are not there, there is no way they can get their money back AND keep their visas. If I was an investor, my biggest fear would be to lose my money and not get my visa.

From all I hear and see, JPR seems to be doing OK but I don't think money is overflowing.

 

[VTKilarney]

I don't understand why the investors expect a full return given that they get the citizenship. Surely, there is a value in the citizenship. They are giving up some expectation in the investment in order to gain the value of the citizenship. These investments are risky. They are so risky that conventional financing is not available. So, for citizenship, they make highly risky investment with the return diminished by the value of the citizenship.

Here is why they expect a full return:
1) There is quite a bit of competition for EB-5 projects. Investors can now cherry pick the investments that they perceive to carry the least amount of risk.
2) Jay Peak appears to have led the investors to believe that they would own a piece of real estate (or a fractional share thereof) that they could sell on the open market. If an investor was induced with this representation, it stands to reason that they assumed that they could sell this asset and get something back.

This isn't charity. Just because the investment is risky does not mean that people will just sit by idly if they feel that they have been screwed over. Whether or not they have is certainly debatable - but the point is that rich people like to keep their money if at all possible.

 

[BenedictGomez]

Jay Peak appears to have led the investors to believe that they would own a piece of real estate

Which also makes sense that they would go for Chinese investors, because demographically & culturally, the Chinese are heavy real estate investors.

Also, the timing makes sense as the domestic Chinese real estate market has been believed to be way overvalued for some time now (bubble fears), and they've been investing heavily in California, Nevada, British Columbia / Vancouver, and even Australia.

 

[VTKilarney]

From all I hear and see, JPR seems to be doing OK but I don't think money is overflowing.

That's pretty much my gut feeling. My hunch is that they are doing much better in the winter thanks to EB-5, but that they have yet to figure out how to break even during the rest of the year. I highly doubt that they have sufficient profits to pay back $300 million in a reasonable period of time - if ever.

What I've never really understood is how the multiple corporations (one for each EB-5 project) plays into the overall financial picture. We keep talking about Jay as a single entity, but in reality it is now a conglomeration of many different LLCs.

 

[BenedictGomez]

What I've never really understood is how the multiple corporations (one for each EB-5 project) plays into the overall financial picture. We keep talking about Jay as a single entity, but in reality it is now a conglomeration of many different LLCs.

Decrease risk/liability.

 

[AdironRider]

Decrease risk/liability.

This.

Just like how an LLC protects a sole proprietor, an LLC can be used to protect parent companies and the like as well.

Also, this isn't really funny business, I would do it as well if I owned something that large.

 

[VTKilarney]

Decrease risk/liability.

I knew that, for sure. I just am not sure if Jay is keeping solid walls around these companies, or are the profitable ones propping up the non-profitable ones?

 

[VTKilarney]

Also, this isn't really funny business, I would do it as well if I owned something that large.

I guess I wasn't clear. I know WHY they did it (and agree they should have), I just don't know how the money is flowing knowing that they have all of these LLCs up there.

 

[AdironRider]

I guess I wasn't clear. I know WHY they did it (and agree they should have), I just don't know how the money is flowing knowing that they have all of these LLCs up there.

You would most likely need some accounting experience to make rhyme or reason of it.

Quick thought/question - Is Jay still considered privately held even with EB-5 investment?

 

[thetrailboss]

You would most likely need some accounting experience to make rhyme or reason of it.

Quick thought/question - Is Jay still considered privately held even with EB-5 investment?

I'd say yes. They are dealing with private placement memos, etc.

 

[BenedictGomez]

I guess I wasn't clear. I know WHY they did it (and agree they should have), I just don't know how the money is flowing knowing that they have all of these LLCs up there.

Another great question for VTDIGGER to pose --> How often have financial reviews taken place per individual entity, and that schedule per entity? Still total non-clarity here between "none" and "all the time".

And of course, WTH comprises a "financial review" in their eyes.

A question best posed to the Vermont EB-5 Regional Center given it's a public entity and (theoretically) must disclose that. I'd start asking some REALLY tough questions at this point and pin them. There's enough smoke for me to suspect fire here.

 

[VTKilarney]

I wonder if the documents filed with the regional center would fall under the public records act. My hunch is that they would be exempt under this exemption:
a tax return and related documents, correspondence and certain types of substantiating forms which include the same type of information as in the tax return itself filed with or maintained by the Vermont Department of Taxes or submitted by a person to any public agency in connection with agency business;

 

[WWF-VT]

From the article in Fortune:

The EB-5 program isn’t overseen by a financial regulator but by the U.S. Citizenship and Immigration Services (USCIS), part of the Department of Homeland Security. Accustomed to processing visas and conducting immigrant background checks, USCIS is ill-equipped to review business plans, job- creation studies, and securities offerings.
Like banks and Wall Street firms, regional centers sell securities and handle millions. Yet there are no rules on who can own or run a center, and no audit requirements. A regional center doesn’t have to report publicly on its performance, identify its principals, or disclose any financial, legal, or regulatory problems they have encountered.

Creation of a center requires the submission of economic studies and an array of other paperwork to USCIS.

 

[DoublePlanker]

This.

Just like how an LLC protects a sole proprietor, an LLC can be used to protect parent companies and the like as well.

Also, this isn't really funny business, I would do it as well if I owned something that large.

Isn't this common practice for corporations to use a separate LLC for each and every real estate holding? I know Walmart does that. The risk and liability is contained to the LLC. It seems like smart business.

 

[AdironRider]

Isn't this common practice for corporations to use a separate LLC for each and every real estate holding? I know Walmart does that. The risk and liability is contained to the LLC. It seems like smart business.

It can go even further than that. It's not uncommon for a hotel to be a couple different llcs. One for f&b, one for rooms, etc.