New EB-5 rules targeting abuse may be eased

Sen. Lindsey Graham and the Hudson Yards development (Credit: Getty Images, iStock)

Sen. Lindsey Graham and the Hudson Yards development (Credit: Getty Images, iStock)

EB-5, the federal visa program that helped fund development projects like the massive Hudson Yards in New York, has been fading recently and on the ropes, a result of fraud and its own popularity. But it still has supporters, and they are now looking to U.S. Sen. Lindsey Graham, Chuck Schumer and other powerful elected officials to help ease newly-passed rules, according to the Wall Street Journal.

The rules took effect in November, and were meant to crackdown on abuse and pull the 30-year-old program into the 21st century.

Sen. Graham of South Carolina and Sen. Schumer of New York are its co-sponsors; its sponsor is Sen. Mike Rounds of South Dakota. The bill would lower the minimum amount that foreign investors have to pour into some projects in order to receive a green card. It would also allow some investors to stay in the U.S. as they wait for their visas, according to the Journal.

EB-5 allows foreign investors the ability to obtain a green card in exchange for investing and creating jobs in the U.S. Developers latched onto the program as a way to obtain cheap financing for ground-up construction, but investor demand has waned due to visa backlogs and fraud and misuse in the program.

Under the new EB-5 regulations, investment requirements rose to $900,000 from $500,000 for a project in a low employment zone, which are known as targeted employment areas. The investment amounts also climbed to $1.8 million from $1 million in all other areas.

The new rules also prohibit developers from what had become a common practice of tacking on a sliver of a targeted employment area to a project that is in a wealthier area in order to qualify for the lower amount.

But opponents of the new rules say that it will discourage investment and ultimately cut down on development. A Florida regional center recently went to federal court to seek in order to halt enforcement, alleging the new rules violate the U.S. Constitution, were not property reviewed for potential fallout and would end up killing his business.

Nicholas Mastroianni II, chief executive of U.S. Immigration Fund — an EB-5 regional center — gave Graham a $5,000 campaign contribution in September and Aaron Grau of the EB-5 trade group Invest in the USA, donated $2,000 to the senator, according to the Journal, citing the Center for Responsive Politics. [WSJ] — Keith Larsen

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Developer of failed Palm House Hotel pleads guilty in EB-5 fraud case

Robert Matthews once claimed that Donald Trump and President Bill Clinton would be on the project’s advisory board

Bob and Mia Matthews (Credit: PRWeb)

Bob and Mia Matthews (Credit: PRWeb)

Robert Matthews, the developer of the Palm House Hotel, pleaded guilty on Thursday in federal court to money laundering and tax evasion charges for defrauding foreign EB-5 investors in the Palm Beach condo-hotel project.

Matthew’s wife Maria “Mia” Matthews also pleaded guilty Thursday to tax evasion in federal court in Bridgeport, Connecticut.

Matthews was the developer of the project at 160 Royal Palm Way that began soliciting EB-5 investment in 2012.

EB-5 is a federal program where investors can get a green card in exchange for investing at least $500,000 in a U.S. enterprise and creating at least 10 jobs. The development group was able to solicit more than $40 million of EB-5 money for the Palm House development.

The development group assured investors that the project would be completed in less than a year and that their money would be protected in an escrow account with a bank. It also claimed that Donald Trump, Bill Clinton and Celine Dion would be on the condo-hotel’s advisory board.

In reality, no such advisory board existed and much of the money was instead diverted for the personal use of the Matthewses, according to federal prosecutors.

The Matthewses used the funds to pay off their credit card debts and to purchase two properties located in Washington Depot, Connecticut. One of the Washington Depot properties was a property that Robert Matthews had previously lost in foreclosure, according to federal officials.

The case became a key example of the problems and challenges facing the federal EB-5 program. Forty-four investors have filed a lawsuit in Palm Beach County Circuit Court alleging fraud against Robert Matthews along with the EB-5 Regional Center for the project, the South Atlantic Regional Center, and its director, whom they claim misled them into investing in the project.

About 80 EB-5 investors, largely from China and Iran, lost their entire $500,000 investment in the project and never received a green card.

Robert Matthews pleaded guilty to one count of conspiracy to commit bank fraud and wire fraud, which has a maximum sentence of 30 years; one count of illegal monetary transactions, that has a maximum sentence of 10 years; and one count of tax evasion, that has a maximum sentence of five years.

Maria Matthews pleaded guilty to one count of tax evasion.

In their guilty plea, Robert and Maria Matthews also said they sought to evade paying federal income tax they owed for the 2005 and 2007 years.

Both are currently released on bond, awaiting sentencing.

Others involved in the case have already pleaded guilty. Gerry Matthews, Robert’s brother, pleaded guilty to one count of conspiracy to commit wire fraud. The contractor of the project, Nick Laudano of Boynton Beach, pleaded guilty to one count of conspiracy to commit bank fraud and one count of illegal monetary transactions.

In March, a federal judge approved the sale of the still unfinished Palm House Hotel to a U.S. affiliate of London + Regional Properties for $39.6 million.

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44 EB-5 investors sue PNC Bank over Palm House Hotel losses

44 EB-5 investors sue PNC Bank over Palm House Hotel losses

The bank allegedly set up fake escrow accounts for the investors

The Palm House Hotel

Forty-four EB-5 investors from China, Iran and Turkey who lost money in the still unfinished Palm House Hotel project are now suing PNC Bank and a South Florida branch executive, alleging the defendants aided and abetted fraud.

The investors in the condo-hotel project in Palm Beach filed the civil suit in Palm Beach County Circuit Court earlier this month, alleging that PNC promised their investment would be protected in an escrow account until they secured their green cards. The plaintiffs were part of the federal EB-5 cash-for-visa program, which gives investors a green card in exchange for investing at least $500,000 in an American business and creating at least 10 jobs.

The suit also names Ruben Ramirez, a vice president at PNC Bank’s Boynton Beach branch.

In actuality, the investors claim that PNC Bank never held the money in an escrow account, but rather in a “fake escrow account” that operated as a business checking account.

By putting this money into the checking account as opposed to an escrow, the investors allege that the Palm House Hotel’s developer Robert Matthews and the South Atlantic Regional Center’s director Joe Walsh, were able to take money out when they pleased for personal expenditures such as a 151-foot yacht and luxury homes.

An attorney for PNC Bank and Ramirez did not immediately respond to a request for comment.

The beleaguered Palm House Hotel project has now become a poster child for the risks of investing in an EB-5 project. After soliciting more than $40 million beginning in 2012, the project still remains unfinished and federal officials allege its developer Matthews defrauded investors by using the money to pay for personal expenses. Now, investors have lost their investment and are unable to receive their green cards because the project never met its job goals.

“None of the plaintiffs’ EB-5 investment funds were used to develop the project,” the complaint states.

Matthew’s development group allegedly went to great lengths to gain foreign investment. In marketing materials, it allegedly claimed that famous celebrities and politicians such as Bill Clinton, Donald Trump, Celine Dion and Bill Koch would serve on the Palm House’s advisory board. Other marketing information also said the project was receiving interest from Tommy Hilfiger to become a Hilfiger-branded project.

The new lawsuit shines a light into how investors can be attracted to EB-5 projects. Unlike some other EB-5 projects where the investor’s money is not protected in an escrow account, investors were assured through documents that their initial investment was safely tucked away in an escrow account, according to David George, an attorney at George Gesten McDonald, who represents the plaintiffs.

“That was one of the most important representations to cause them to invest [in the project],” since EB-5 legislation does not require that developers keep the money in an escrow, George said.

While the EB-5 investors are still looking to get their money back, a bankruptcy judge recently approved the sale of the project to a U.S. affiliate of London + Regional Properties for $39.6 million.

London + Regional Properties, a U.K.-based luxury hotel and resort company, beat Related Cos. to buy the former failed EB-5 project in Palm Beach, according to the Palm Beach Daily News.

Bankruptcy judge approves sale of Palm House Hotel for $40M

Bankruptcy judge approves sale of Palm House Hotel for $40M

The sale to London + Regional Properties ends the bidding for the unfinished EB-5 project

March 11, 2019 05:30PM

Palm House Hotel

A bankruptcy judge finally approved the sale of the troubled Palm House Hotel to a U.S. affiliate of London + Regional Properties for $39.6 million.

London + Regional Properties, a U.K.-based luxury hotel and resort company, beat Related Cos. to buy the former failed EB-5 project in Palm Beach, according to the Palm Beach Daily News.

The judge declined to accept a last minute bid by Wellington developer Glenn Straub whose lawyer said the developer was prepared to pay $40.6 million for the property, according to the Daily News. But the judge ruled it down, saying it came too late in the process. The bankruptcy judge also previously ruled down a “credit bid” by Straub, which would allow him to make an offer without putting down any cash for the condo-hotel project at 160 Royal Palm Way, according to the Daily News.

London + Regional Properties is a private real estate investment firm with almost $12 billion in assets. The company owns the 453-room London Hilton hotel on Park Lane in London’s Mayfair neighborhood.

Some of the proceeds of the sale would go toward paying EB-5 investors who invested $500,000 in the project in order to get a green card. The investors have not yet been paid back.

Federal officials have charged the former developer of the Palm House, Robert Matthews, with multiple counts of wire and bank fraud and money laundering over the development.

[Palm Beach Daily News] — Keith Larsen

EB-5 funded office condo in Doral opens at 92 percent sold

Riviera Point Business Center in Doral
A new EB-5 funded, Class A office condominium in Doral has opened at 92 percent sold. 
The Riviera Point Business Center Doral, a $9.5 million, 41,000-square-foot office center at 1500 Northwest 89th Court, marks the second EB-5 funded project for the Riviera Point Development Group in the region, of which the developer has $145 million of investment planned in three projects.
County records show Riviera Point Business Center Doral filed a declaration of commercial condominium on March 25, about four months behind schedule. Nineteen foreign investors bought into the LEED-certified Doral office building, according to a press release. The sales have not yet cleared county records.
The 44-unit project was priced from $275,000 to $495,000, according to a spokesperson.
The EB-5 program grants visas to investors who contribute at least $500,000 to projects in the U.S. that employ 10 workers or more, with a preference for areas with high unemployment. And the demand for EB-5 visas is greater than ever: the number of applications for the controversial investments-for-visas program climbed to just under 17,791 in 2015, up from just over 11,744 in 2014 and 6,554 in 2013, according to U.S. Citizenship and Immigration Services in March.
The lakefront project was designed by Boca Raton-based Corrales Group Architects and built by Design Management & Builders Corp. of Miami. The developer, led by Rodrigo Azpúrua, paid $1.6 million for the 2.4-acre lot in 2013, property records show. In the release, Azpúrua said the Doral market lacks new office condo space.
He also completed the Professional Center at Riviera Point in Miramar last year, marking the first EB-5 funded office complex in Broward County, and is working on a third, also in Miramar. Thirty-four South American investors put $17 million into the business park.

Source: The Real Deal Miami