Regulators say millions unaccounted for at Q Burke
State regulators have frozen the escrow account for the Q Burke Hotel until the developers explain what became of millions of dollars taken out of the project.
In a Feb. 16 letter to Q Burke General Partner Bill Stenger, Susan Donegan, commissioner of the Department of Financial Regulation, writes that project sponsors — Stenger and his partner Ariel Quiros — "have taken millions of dollars for construction management" from the project, yet have failed to show they paid for expenses they were obligated to cover. The state says it doesn't know where the money went.
Donegan ends her letter by stating: "There will be no further authorization of releases from the escrow account until you have addressed these questions satisfactorily."
Stenger said all of the money he and Quiros have taken from the project has been "put right back in."
"We're going to provide them with all the substantiation they want," Stenger said, referring to the state. "We're working on that. There's infrastructure, there's a host of things we've done."
The Burlington Free Press reached Stenger on Thursday in Johannesburg, South Africa, where he was raising money for the Q Burke Hotel project.
Secretary of Commerce Pat Moulton, who oversees the EB-5 program in Vermont together with the Department of Financial Regulation, said this week the state has yet to receive the documentation regulators need to consider unfreezing the escrow account.
The $50 million Q Burke project is being paid for by foreign investors through the federal government's EB-5 program, which offers foreign nationals conditional green cards and U.S. residency in exchange for a $500,000 investment in an economically depressed region of the country. If the project in question produces the required number of full-time jobs, the investors receive permanent green cards.
Part of the cost of a qualified EB-5 project, however, is supposed to be paid by developers — Stenger and Quiros in the case of Q Burke.
In her Feb. 16 letter, Donegan writes that the "private placement memorandum" for Q Burke, the information given to prospective investors, indicates project sponsors will contribute to the construction of the hotel and conference center. The amount of that contribution was redacted before the letter was released to the Burlington Free Press through a public records request. Donegan further writes that an additional amount — also redacted — is supposed to go toward utilities and common area infrastructure.
Donegan wrote that as of Feb. 16, "we have seen no indication of such contributions." The Commerce Department is working with the Department of Financial Regulation to monitor the Q Burke project — the only EB-5 project in the state receiving such scrutiny.
In addition to Q Burke, Vermont has EB-5 projects in West Dover at Mount Snow; in Middletown at SouthFace Village at Okemo; and in Stowe at Stowe Aviation and Trapp Family Lodge. Stenger also has a second EB-5 project in Newport, the Anc Bio VT biomedical research facility, which is in the early stages of construction.
As the Free Press reported two weeks ago, Q Burke Hotel and Conference Center is finished but has yet to open, because Stenger and Quiros still owe PeakCM Construction $5.5 million, and PeakCM owner Jerry Davis will not release certificates of occupancy for the hotel until he is paid.
Stenger said Thursday he would pay the outstanding $5.5 million "in the next few weeks." Moulton points out, however, that $1.281 million of that amount is yet to be authorized by the state, adding "we're not approving any new payments" until the questions about the millions of dollars the partners have taken from the project have been answered.
The Agency of Commerce and the Department of Financial Regulation took control of the money Stenger was raising for Q Burke several months after Stenger angered some of the investors in another of his EB-5 projects at Jay Peak Resort by unilaterally changing the terms of their repayment. Stenger is a general partner in both the project at Jay Peak and Q Burke with Quiros, a Florida businessman.
Following the controversy at Jay Peak, the state agencies began requiring Stenger to place the money he was raising from foreign investors into escrow for both of his current projects: Q Burke Hotel and Anc Bio VT. The money was to stay there until the Department of Financial Regulation could complete a financial review of Stenger's and Quiros' operations.
That review, launched in July 2015, remains incomplete, but the state agreed to release money from escrow to complete Q Burke, which at the time of the agreement already was well under construction. Stenger had hoped to open the hotel in November, in time for what turned out to be an awful ski season. Now the escrow account is frozen until the state's questions about money taken from the project are answered.
Speaking from South Africa on Thursday, Stenger expressed his frustration with the regulatory process surrounding Q Burke, calling it "probably the only project I've seen anywhere in Vermont that was so publicly vetted."
Stenger also said he was exasperated by the public records process, with every correspondence connected to the project released by the state.
"It's hard to conduct business when everything you do is being exposed, and it's not like there's anything that's wrong," Stenger said. "If you paid some bills today, would you like it to be everybody's business? Of course not. There's no privacy in these projects. Everything is public."
Stenger reiterated his belief that the Q Burke project would be a success, saying, "I'm proud of the fact that we're going to be paid up before you know it."
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