SouthFace Village At Okemo Re-approved For EB-5
The Vermont Department of Financial Regulations has re-approved the SouthFace Village development, a large-scale condo project located adjacent to Okemo Mountain that is using EB-5 immigrant investor funds for construction.
The green light from the state, which came late last week, followed a request from DFR regulators in May for the developers to update an agreement with investors and accept new state oversight measures aimed at mitigating weaknesses in federal EB-5 requirements.
The federal EB-5 program allows overseas investors to move to the United States in return for creating jobs. A minimum investment of $500,000 is required in exchange for a visa, which is subject to approval by the United States Citizenship and Immigration Services.
Negotiations between the state and SouthFace Village focused on new oversight measures for the project’s escrow account, which holds investor funds until they are approved for a visa by USCIS. The money from the account is then used by developers for construction costs.
Under the agreement with the state, developers must use a third party administrator to review and approve payments made out of the escrow account in an effort to ensure that the investor money is used properly, and at the right time. Additionally, regulators said the new oversight would ensure that escrow accounts have enough cash on hand to refund investors who are denied visas.
“We are asking existing projects for greater protections, so that there are adequate funds in escrow so that if an investor is not approved, they can quickly be refunded,” said Patricia Moulton, secretary of the Agency of Commerce and Community Development.
Moulton said the mandatory escrow account reserve will be based a formula that takes into account average visa denial rates in Vermont.
The state is imposing more stringent standards on EB-5 projects in the wake of fraud allegations at Jay Peak and Burke Mountain ski resorts in the Northeast Kingdom. The Securities and Exchange Commission alleged in April that developers Bill Stenger and Ariel Quiros misused $200 million in immigrant investor funds and defrauded more than 700 investors from 74 countries in a “Ponzi-like” scheme.
Both Quiros and Stenger have denied the charges.
The fraud took place in spite of the state’s role in overseeing EB-5 projects. The Vermont EB-5 Regional Center, a division of the Agency of Commerce and Community Development, is one of two state-run regional centers in the nation. State officials were required to monitor the projects but failed to require the Jay Peak developers to submit quarterly reports.
In January 2015, the agency agreed to cede regulatory control of EB-5 projects to the Department of Financial Regulation. The department is now retroactively tightening up the rules and requiring other EB-5 developers in Vermont to adopt stricter practices.
Moulton said a version of the escrow oversights agreed to at SouthFace Village would be imposed on all future EB-5 projects.
She said the new escrow formula will be used to calculate the amount of money required to be held in a development’s escrow account. The amount would change depending on the size of the EB-5 investor pool.
Federal rules do not require escrow accounts in EB-5 developments. The state has developed stricter standards in the wake of the Northeast Kingdom scandal.
The SouthFace Village develpers were also required to update the project’s private placement memorandum, a document stating risks and objectives to potential investors.
The beefed up oversight role of the state, which also includes compliance reviews by DFR, was also reflected in an updated memorandum of understanding between SouthFace and the state.
As the state negotiated with SouthFace over a period of months, the developers were required to stop soliciting investors.
Moulton said the process of updating the documents is part of the new normal and will now be “an ordinary requirement of our process.” She added that SouthFace was “very reasonable in acknowledging that things had to change.”
Moulton said the developers are in good standing, and have resumed marketing activity for EB-5 money.
Douglas Hauer, the lawyer for South Face Village, said his client had gone above and beyond the required federal requirements. He said his client understood the need to impose stringent standards following the alleged fraud in the Northeast Kingdom.
“It won’t surprise me at all if the model that DFR, the Vermont Regional Center, and SouthFace village worked so hard to create becomes a model that is replicated nationally,” Hauer said. “It was a really very good effort.”
Andrew Becker, vice president of the South Face Village project, acknowledged some frustration with the negotiation process, which has been documented in emails obtained by VTDigger and VPR. But he said he understood the need for greater escrow oversight on EB-5 projects.
“I had some frustrations, any developer in the world would prefer not to be regulated, not to be told that I have to have a quiet period,” Becker said. “But I have to tell you, it hardly matters in the greater scope of the project. The result was an excellent result, my relationship with DFR and the regional center remains very strong.”
Becker said condo sales of the project are going well, adding that his team is on schedule to have the first residence ready for the owners in time for the 2016-2017 ski season.
- Vermont Agency of Commerce and Community Development RC
- Vermont EB5 Regional Center
- Jay Peak - Q Burke Mountain Resort, Hotel and Conference Center L.P.
- U.S. Citizenship and Immigration Services
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION
- Ariel Quiros
- Bill Stenger
- State of Vermont vs Bill Stenger & Ariel Quiros
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Ariel Quiros & Bill Stenger
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