Receiver finds Potala Place 'in chaos' with no viable business plan

Receiver finds Potala Place 'in chaos' with no viable business plan

EB-5 Visa, EB5 Visa, EB-5 Investment

Local developer Lobsang Dargey's latest Everett project — Potala Place and Farmer's Market — promised to add a hipster touch to downtown's gritty reputation with its street-level market featuring an artisan bakery and farm-to-fork dishes.

But a court-appointed receiver says that the project has no viable business plan, and his development consultant told a federal judge that the project “was in chaos,” according to statements filed Thursday in U.S. District Court for Western Washington.

Dargey lost control of Potala Place and Farmer's Market and other developments projects last fall after federal authorities filed a lawsuit against the 42-year-old for allegedly defrauding foreign investors.

Despite the project's disarray, the receiver, Michael Grassmueck, told U.S. District Judge James Robart that finishing the ground-floor retail space is vital to the entire development, which includes 220 apartments above the shopping area and an adjacent 120-room hotel.

Earlier this month, he asked the judge to sign off on a plan for developing a viable business plan, finishing construction work and leasing out the market space.

Closer inspection of Dargey's plan for the market, however, revealed that it was “built upon a story and a blank check,” Grassmueck wrote.

Dargey's approach “assumed an unlimited budget for the development, as well as the operation of the business,” he said in court papers.

Wieland-Davco, a construction and development consulting firm hired by Grassmueck, reached the same conclusion, Brian Lucas, a vice president at the firm, told the court in a separate filing Thursday.

The market project “was in chaos,” he said. There was no oversight, and no one was really leading efforts to finish tenant improvements, move businesses in or set up the actual year-round farmers market — the anchor for the entire development.

Tom French had been leading the retail development. The Whidbey Island-based chef's company, Farms & Market, would lease and manage the commercial space independent of Dargey.

French has not responded to multiple requests for comment, including after the pleadings filed Thursday. A message sent to his email account bounced back with the note that no such address exists. And Farms & Market's Facebook page has not been updated since November.

People “critical” to the success of the farmers market are “distancing themselves from the project,” Lucas told the court.

Local farmers, and city and county officials, “expressed dissatisfaction in the management” and said they “would not want to work with them in the future,” Lucas said.

All this threatens the development, he said.

The market is a big draw for Potala Place renters, who are paying about 25 percent above market rates. If the Farms & Market piece doesn't move ahead, it could drive down the value of the apartments and put the project at risk of losing a tax break from Everett worth $5.8 million over 12 years, Lucas said in court papers.

The building's 220 apartments are 80 percent leased out and about 70 percent occupied, said Bill Crosthwait, who works for Allied Residential, a third-party company hired to manage the residential side.

Most apartments should be leased by late April, several months ahead of schedule, he said.

“We've even pulled back on rent concessions, and people are still leasing like this,” he said Friday as he snapped his fingers.

Still, he said he would like to see the market moving forward by September.

That is just after renewals come up for the first apartment leases signed last year.

Dargey pushed back against Grassmueck's proposed plan. It would take too long and cost too much, his attorney, Peter Ehrlichman of Dorsey & Whitney, said in a court filing.

He blamed the receiver for delays.

“Now, for a project that was within two months of completion, the receiver proposes months of further study, using expensive out-of-state consultants, before commencement of completion of the retail space,” Ehrlichman said.

Instead, Dargey asked Robart to tell Grassmueck to finish the retail space by the end of May. The “need for continued delay is unexplained and unwarranted,” his attorney told the court.

The market's opening date has been pushed back several times over the past year.

When he first proposed what would become Potala Place and Farmer's Market, Dargey was a rising star in the area's real estate market.

After landing in the U.S. from his native Tibet in 1997, he worked in the telecom industry before moving into real estate development. Along the way, he married the sister of tennis superstar Andre Aggassi.

In downtown Everett, he refurbished several properties and, in 2011, opened a smaller apartment building with ground-floor shops, Potala Village. From there, his projects grew in scope, including ones in Shoreline, Kirkland and a would-be 42-story skyscraper in Seattle called Potala Tower.

Using a federal visas-for-investments program, Dargey turned to Chinese citizens to bankroll the projects. The program, known as the EB-5 program, allows foreign nationals quicker residential visas if they invest at least $500,000 in an approved project that creates jobs in the U.S. The projects have to be OK'd by U.S. Citizenship and Immigration Services, which runs the EB-5 program.

Dargey raised more than $100 million from Chinese investors eager to move to the U.S., including 79 who put $39.6 million into Potala Place and Farmer's Market.

But he allegedly moved investors' cash between his web of development companies, using it on projects not approved for the EB-5 program. He also used the money to pay for shopping sprees and trips to casinos, according to the civil lawsuit filed by Security and Exchange Commission attorneys last August in the U.S. District Court for Western Washington.

At the same time, the FBI raided Dargey's office on Grand Avenue. A criminal investigation is ongoing, according to court documents.

Dargey has denied any wrongdoing, blaming bad bookkeeping, not fraud or deception.

The developer's assets have been frozen, while he and the SEC fight in court, and a trial date has been set for next year.

Meanwhile, immigration officials have moved to end his companies' role in the EB-5 program.



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