Vermont's EB-5 program trades cash for visas — fair deal or shady business?
It’s not the sort of weather a ski resort owner dreams about. Outside, a handful of skiers on the slopes is making do with another unseasonably warm day, forecasts of rain and just 17 open trails. But inside the resort’s massive new Pump House Indoor Water Park, Jay Peak owner Bill Stenger is enjoying a balmy 84 degrees.
“What this facility does is it gives us an insurance policy against the weather,” says Stenger, standing on a platform overlooking his 50,000-square-foot, $27 million aquatic jungle gym — or, as he calls it, his “weatherproof amenity.”
Part of a $250 million makeover of the famously low-key mountain, the water park is the pièce de résistance of Stenger’s effort to bring a little bit of Disney’s Magic Kingdom to the Northeast Kingdom. The once-sleepy border resort also boasts two new hotels, a conference center, a Nordic skiing facility and an ice hockey arena. More construction is on the way.
Fueling Jay Peak’s growth is a unique federal financing program known as EB-5, which confers permanent-resident status on the families of wealthy foreigners who invest a half-million dollars in “qualifying” projects. Read: development designed to bring jobs to rural or otherwise economically depressed areas of the U.S. Vermont has been a leading beneficiary of the program that federal officials say has brought more than $2.2 billion in foreign investment and created 43,000 jobs since 1990.
But critics contend that EB-5 is nothing more than a scheme for the wealthy elite to buy their way to the front of the immigration line. They say a lack of federal oversight has led to abuses within the program and exaggerated claims of job creation. And while Vermont projects have snagged more than $200 million in EB-5 investment, questions have emerged about the viability of some of the businesses benefiting from the program — including Jay.
For his part, Stenger says Jay Peak’s expansion simply would not have been possible without the immigration program and the 340 foreign investors from 56 countries who have ponied up a half-million dollars each for the project. In the end, he hopes to attract a total of 550 investors.
“Without capital, you can have great ideas,” Stenger says, “but without capital, you can’t implement them.”
The End of a Partnership
Jay Peak has been a perfect poster child for EB-5 investment, and Stenger is one of the program’s strongest advocates. He has testified about EB-5 before congressional committees three times and argues it should be extended or made permanent before it expires in September.
So it came as a shock when one of Jay Peak’s closest associates, Rapid USA Visas, recently disparaged Stenger and his company by publicly severing its ties with the resort and questioning its financial health.
For five years, Rapid USA had worked closely with Jay Peak to attract foreign investors. The company advertised the project internationally and helped investors navigate the byzantine process between investment and expedited visa.
That changed last month, when hundreds of immigration attorneys around the world received an email from the firm that announced, “Rapid USA no longer has confidence in the accuracy of representations made by Jay Peak, Inc., or in the financial status of and disclosures made by [it].”
Rapid USA CEO Douglas Hulme turned down repeated media requests to elaborate on his company’s claims. But his silence fueled speculation about Jay Peak’s ability to deliver on promises to investors and led one critic to claim that Jay Peak and Rapid USA were violating federal securities laws.
“Overall, we have significant concerns about [Jay Peak’s] ability to operate as a going concern,” says Michael Gibson, an EB-5 financial investment adviser who has tangled with Stenger in the past and who posted Hulme’s email on his industry blog. “We’ve had our suspicions for years. We don’t believe Jay Peak is making money.”
Stenger disputes the allegations and provided documentation showing that sales for the season are up 38 percent — or $5.7 million — over last year’s, despite the mild weather. Lift-ticket sales are down $400,000 from last year, Stenger says, but an increase in lodging options on the mountain — 1000 more beds this year alone — has more than made up the difference. For example, sales during the last week of March reached $891,000, compared with $589,000 for that same week in 2011.
State officials also have confidence in Jay Peak’s financials.
“We, of course, wanted to take a closer look, so we spent the entire day at Jay after that letter,” says James Candido, who directs the state’s EB-5 program at the Agency of Commerce and Community Development. “There was absolutely nothing that was out of the ordinary.”
Stenger acknowledges that his relationship with Hulme and Rapid USA ended badly but declines to provide a full account of what transpired.
“It came as a shock to me,” he says. “I was very disappointed in the tone.”
As for Gibson’s allegations that Jay Peak is in trouble, Stenger is less reserved.
“He does not know what he’s talking about,” Stenger says. “I’m very resentful of the way he’s conducted himself. I don’t think it’s been fair. I don’t think it’s been ethical. He is not an expert on Jay Peak or anything we do.”
Gibson has also suggested that Hulme and Stenger may have violated federal securities laws, arguing Jay paid a commission to Rapid USA for each investor recruited, though Hulme is not licensed to sell securities. Stenger argues that Hulme got an “administrative fee” — 85 percent of the extra $35,000 to $50,000 Jay charges each investor for advertising, processing and legal expenses — not a commission.
“There is absolutely no foundation to that,” Stenger says. “They do not have to be a licensed dealer-broker, because we’re not paying them a commission.”
According to Stenger, Gibson is merely retaliating against Jay Peak because the resort has refused to share proprietary information with Gibson’s firm or participate in his various business ventures.
“There is no problem,” Stenger said. “We got a kick-ass business here, and it’s because of the things we’ve done.”
An early adopter of the EB-5 program, Vermont has developed an international reputation for its hospitality toward green-card-seeking foreign investors. It’s the only state-run program to certify and monitor EB-5-qualified businesses; elsewhere in the country, for-profit regional centers do the job.
“We’re trying to use the program as much as we can as an economic development tool, to stimulate job creation and to get capital to companies that really need it,” says Candido, who directs the program that covers all of Vermont except Chittenden County. In 2011, the overall EB-5 program accounted for $82,000 in the Agency of Commerce budget.
To date, four homegrown Vermont businesses have collectively attracted more than $200 million in foreign capital, according to Candido. In addition to Jay, Sugarbush Resort financed an expansion with $19.5 million from 39 investors. Vergennes-based Country Home Products has raised $11 million from 22 investors to expand its product lines, and Windsor-based Seldon Technologies has raised $3 million from six investors to develop a water-filtration system.
Vermont has also attracted a number of outside businesses that plan to set up shop in the state. AnC Bio, a South Korean biotech company, intends to build a 40,000-square-foot plant on the shores of Lake Memphremagog in Newport, where Stenger and Burlington real estate magnate Tony Pomerleau also want to put an EB-5-financed conference center and hotel. Québec-based DreamLife is talking about 160-unit assisted-living facilities in four Vermont towns, and New Jersey-based AFCell Medical plans to relocate its corporate headquarters to Waterbury or Stowe and hire 300 Vermonters.
“Vermont pans out well,” says AFCell CEO Robin Young. “It’s probably the best-organized EB-5 organization in the United States. They really take good care of companies like us and help us get through the bureaucracy.”
Young, whose company uses discarded placenta to treat burns and ulcers, traveled to China last month with Candido to court potential investors. Also joining them was Johannes von Trapp of the famed Sound of Music family, whose Stowe-based Trapp Family Lodge is hoping to finance a planned brewery expansion with EB-5 money.
“It was just the best route for me,” says von Trapp. “It’s also nice because you’re helping some people improve their quality of life by moving to the United States … My family was fortunate enough to be able to come here. I feel good about helping others do that.”
Seldon Technologies CEO Alan Cummings says that for “a small company in the middle of the Great Recession,” EB-5 provides “an attractive way to raise capital.”
After receiving certification from Candido’s office, businesses such as Seldon form individual partnerships with foreign investors who must each commit at least a half-million dollars to an approved venture. After demonstrating to U.S. Citizenship and Immigration Services that the project will create 10 jobs per investor, an applicant and his or her family is granted a temporary green card. Two years later, the green card becomes permanent if the investor can demonstrate the jobs were, in fact, created.
Each relationship between investor and business is unique, but companies are not statutorily obligated to pay interest on the loan — or even return the principal. If the jobs don’t materialize or the project goes south, the investor is sent packing, but businesses are not held liable.
“What these investor folks were able to do for us, and continue to be able to help us with, is access to patient capital,” Stenger says.
Sugarbush president Win Smith says that when he and his partners sought to renovate their resort in 2007, “It would have been very difficult to get alternative financing or financing at a reasonable price.”
Von Trapp echoes, “What this does is gives you five years to start up a business and get cash flowing nicely before you have the interest burden and the payback.”
Sugarbush and Country Home Products both took advantage of an EB-5 provision that allows struggling businesses — those whose net worth has dropped by 20 percent — to simply save 10 jobs per investor, not create new ones.
Green Cards for Sale
Critics have long contended that EB-5 auctions off green cards to the world’s 1 percenters only to benefit a handful of domestic corporations.
“It’s a policy that rewards wealth with citizenship,” says Doug Hoffer, an economic analyst and 2010 Democratic candidate for Vermont’s state auditor. “They don’t need to wait in line like everybody else.”
Brendan O’Neill, whose Migrant Justice organization has been lobbying the legislature to grant driver’s licenses to undocumented agricultural workers, says it’s hypocritical for the state to promote EB-5 while ignoring the plight of those propping up Vermont’s dairy industry.
“They say immigration is a federal issue and we should have nothing to do with it, but this is an example of the state getting creative about how to make a lot of money off a certain type of immigration that favors rich people to buy their way here,” O’Neill says.
In recent months, national press investigations have raised questions about the program’s oversight and job-creation claims. A Bloomberg report in March stated, “Projects aren’t rigorously vetted and have been hyped by operators and brokers, and immigration authorities have botched visa claims and stranded investors and their families.”
A New York Times investigation into the financing of an EB-5-funded Manhattan high-rise development in an area gerrymandered to appear economically depressed found that “developers and state officials are stretching the rules to qualify projects for this foreign financing.”
According to freelance journalist Norman Oder, who writes a watchdog blog about the Atlantic Yards EB-5 project in Brooklyn, “There’s almost no one looking out for the public interest, to ensure that not only the letter but the spirit of the law is being met in terms of creating jobs.”
Though USCIS reviews job-creation figures provided by investors, critics say the industry is protected by a coterie of lawyers, brokers and economists who go to bat for a program that generates seemingly limitless foreign cash for anyone involved in the business.
“This is completely unregulated. USCIS is doing very little in the way of monitoring,” charges Gibson, the financial adviser. “So far as we know, there is no concerted effort by any federal agencies to monitor the securities activity of the practitioners in the EB-5 field.”
The Tail Wagging the Dog
Contrary to the EB-5 program’s mission, one firm “certified” by Vermont and featured on the state’s website appears to be a front company for a Canadian immigration firm in the business of selling visas.
Promotional materials for the company, DreamLife, suggest it plans to build four $24 million senior living facilities in Montpelier, Rutland, White River Junction and Newport — each replete with bowling alleys and bistros.
But company president Richard Parenteau readily admits that DreamLife is only entering the senior living market in order to hock EB-5 visas — and collect $17,500 in administrative fees. Parenteau’s other enterprise, Québec-based Can-Am Immigration, claims on its website to have been “instrumental in securing 25,000 work permits and/or green cards in the United States alone.”
“We have to do something with investors’ money, so what do we do with it? That’s why we decided to go into retirement homes,” Parenteau explains. “We decided to go into an industry where there’s a big need now.”
While Parenteau says construction should start in December on at least two of the 50-acre, 160-unit facilities, local officials say they have heard nothing from the firm since initial informational meetings more than a year ago.
Former DreamLife employee Douglas Littlefield says the company has reneged on numerous business commitments. “Personally, I don’t think he should have been allowed to come to Vermont,” says Littlefield, who was hired two years ago to scout potential sites. “I wish anyone who works with him good luck.”
Since the state certified DreamLife as an EB-5-qualified business, Candido has reviewed the company’s business plans and held quarterly meetings with its partners. He says he has heard “rumors” about Parenteau’s business dealings and was told the company president is not permitted to enter the United States. But Candido says it’s outside his purview to vouch for every facet of a Vermont-certified company.
“With someone like DreamLife, he could have problems outside of our project, but again, I don’t have much time to monitor his stuff outside of EB-5. Within EB-5, if there was any fraud happening, we would find it very quickly,” Candido says.
Attempts to follow up with Parenteau were unsuccessful because DreamLife’s phone number was disconnected after an initial interview.
How Many Jobs?
In his cluttered office inside a rickety, old, faux-Swiss chalet, Stenger pulls out a stack of records showing that during a peak week in 2005, he had 385 workers on staff — many seasonal — and doled out $142,500 in payroll. During the same week this year, 877 workers were employed and payroll reached $751,000.
To ensure that each of those who invested at least $500,000 in his enterprise receives a green card, Stenger will eventually have to show that the expansion created 5000 jobs. That figure can include jobs outside the company payroll; indirect jobs created through construction or the increased use of neighboring services also count.
Despite the government’s role in securing investors by providing them visas, neither those analyses nor any other reports about the projects are available to the public. That means “job creation can be claimed via an economist’s report, not a head count,” says Oder, the Atlantic Yards watchdog.
But Jeff Carr, a state economist who has established one of the nation’s leading EB-5 economic consultancies, says USCIS is plenty rigorous.
“A lot of projects nowadays trying to get approved have to be much better prepared and much more thoroughly thought through than five or 10 years ago,” he says. “My belief is the USCIS is trying hard to improve the standards of the program.”
To Stenger, who provided reports indicating that Jay Peak’s expansion has created 2820 direct or indirect jobs thus far, the proof is in the pudding.
“It’s been a profound increase of investment in our community,” he says. “We’ve been under construction for 36 months, and we’re going to be under construction for another 36 months.”
Candido describes the Jay Peak expansion as the “largest building project in the state.”
A Push for Extension
Support for EB-5 crosses the political spectrum in Vermont. Former governor Jim Douglas led two trade delegations to Asia with EB-5 business owners, in part to drum up business for certified companies. Gov. Peter Shumlin traveled to Miami in November to host a seminar for potential Jay Peak investors.
During a visit to Winooski’s DR Power Equipment in January, Shumlin and Sen. Patrick Leahy donned safety goggles to demonstrate for Vermont reporters the company’s new mechanized log splitter. The EB-5 program, they said, was providing critical support for DR Power’s parent company, Country Home Products, thereby saving the firm 200 jobs in Winooski and Vergennes.
The press release issued by Leahy’s office identified the senior senator as “the leading champion of the EB-5 investor visa program in Congress for more than a decade.” Congressman Peter Welch supports the program; Sen. Bernie Sanders’ office did not respond to a request for his position on it.
The EB-5 love goes both ways. Stenger, Cummings, Smith and Country Home Products CEO Joe Perrotto have all given handsomely to the campaigns of Vermont politicians who support EB-5.
Since its inception in 1990 as a pilot program, EB-5 has been extended several times. According to Leahy spokesman David Carle, “Sen. Leahy has long advocated ending the practice of having to lurch from extension to extension and going to a permanent authorization to improve oversight at all levels. He continues to build bipartisan support for the goal of an extension.”
If Congress pulls the plug in September, Vermont Secretary of Commerce Lawrence Miller says it would hurt Vermont — especially in the Northeast Kingdom, where Jay Peak makes its home. After September, Stenger would no longer be able to lure foreign investors into funding his next plans: new golf villas, another hotel, a mountaintop lodge.
But Stenger is confident EB-5 will be extended and confident he’ll prove wrong those who have called into question Jay Peak’s financial viability. He believes he will succeed in building a lavish vacation resort in the poorest, remotest corner of Vermont — all in the middle of a recession. With a little help from his friends.
Disclosure: Paul Heintz formerly worked for Congressman Peter Welch.