Stenger pushes on with EB-5 projects despite setback

It was bad news for Bill Stenger when two months ago, Burlington real estate developer Tony Pomerleau axed a deal to sell his waterfront shopping center in Newport to Stenger for a new hotel and conference center. But today, Stenger appears more determined than ever to continue his ambitious $500 million makeover of Newport, Jay Peak Resort and Q Burke Mountain Resort.

Stenger and his partner, Ariel Quiros, are paying for the unprecedented multi-million dollar economic development projects at their two ski resorts — Q Burke and Jay Peak — and in Newport with money raised through the federal government's EB-5 program. The program offers green cards to foreign investors in return for $500,000 investments in depressed regions of the country.

While the Waterfront Plaza deal with Pomerleau appears to be dead, Stenger said he is moving forward with two other EB-5 projects, AnC Bio in Newport and a new hotel and lodge at Q Burke. Stenger and Quiros broke ground at the 120-room lodge at Q Burke in June, and Stenger said demolition has begun at the AnC Bio site overlooking downtown Newport. AnC Bio will manufacture and market innovative medical devices, offer clean rooms for university and private research, and develop medical treatments from adult stem cells.

Pomerleau said he pulled his offer to sell the prime site on Lake Memphremagog to Stenger after four years of discussions failed to seal the deal. In May, he said he couldn't wait any longer, having earlier returned a check for $100,000 in earnest money to Stenger.

Before Stenger can start raising EB-5 money for a project such as the marina and hotel in Newport, he needs approvals from both the U.S. Citizenship and Immigration Services and the Vermont EB-5 Regional Center, beginning with the Vermont Regional Center.

The Vermont Regional Center has approved both the AnC Bio and Burke Mountain projects, and about a month ago, Stenger received USCIS approval for AnC Bio. He expects approval for Burke "any time now."

Stenger said he has about 75 percent of the $120 million he needs to build AnC Bio and expects to raise the balance in the next 60 to 90 days. For all of their EB-5 projects, Stenger and Quiros contribute about 10 percent of the total cost with their own funds.

An Act 250 hearing for AnC Bio is scheduled for Monday in Newport. Stenger hopes to have a good idea of the status of the Act 250 permit within 30 days, when he hopes to begin mobilizing for construction, which will take 18 months.

AnC Bio will be three businesses in one, Stenger said, with the manufacturing and distribution of medical devices, such as a portable dialysis machine; a stem-cell product line using adult stem cells for medical treatment; and about 50 clean rooms that will be built and made available for colleges, universities and private companies to do research in an FDA-approved facility.

There will also be a line of cosmetics produced at the facility that Stenger said is very successful in Asia. AnC Bio is a joint venture with a South Korean company of the same name. Quiros has deep and long-standing business connections in South Korea.

"We've made very good progress, we're very pleased about the evolution of the project," Stenger said. "There will be substantial job creation once it's built, on site between 400 to 500 jobs in manufacturing and assembly as well as technology."

A project in flux

Pomerleau's public announcement that he was pulling out of the deal on the lakefront was one of few real setbacks for Stenger in the Northeast Kingdom, where his successes have put him and the Vermont EB-5 Regional Center on the map in EB-5 circles nationally. Stenger has raised some $250 million through the federal program for construction at Jay Peak, including the Hotel Jay, Tram Haus Lodge, Pump House Indoor Waterpark and Stateside Hotel and Baselodge.

Still, Stenger acknowledged this week that the waterfront hotel project is "in flux."

"We're looking at various sites around the community that could be suitable for the hotel project we originally planned," Stenger said. "The fact that we're looking at alternative sites is because Tony has chosen to not continue the project as originally proposed."

Tony Pomerleau's son, Ernie, who is president of Pomerleau Real Estate, said he and his father had to move aggressively to protect their "huge" investment in the Waterfront Plaza, addressing deferred maintenance and removing uncertainty from leases with tenants including Rite-Aid, Wendy's, and Vista Foods.

"We had long-standing leases we had to move forward on and solidify," Ernie Pomerleau said.

Pomerleau said he and his father have the "ultimate regard and admiration" for what Stenger has already done in the Northeast Kingdom, but now that they've decided to fully commit to the future of their shopping center, it is not likely to be included in Stenger's plans.

"We have a lot of people spending a lot of money renovating, including ourselves, solidifying their premises," Pomerleau said.

Brent Raymond, director of the Vermont Regional Center, said Stenger has not submitted plans for either the waterfront marina and hotel or a connected project in downtown Newport that involves demolishing the Spates Block that Stenger and Quiros own, now empty, to replace it with a "Renaissance Block" of new businesses and residences.

Stenger said the final business design for the downtown Newport project is "still a work in progress."

"I'm hopeful by the middle of September we have a document to submit to the state of Vermont," he said. "They have to review and approve it first, then it goes into USCIS with the first applicant for a green card."

An empty storefront with peeling sheets of paint is commonplace in the current Spates Block of downtown Newport. Bill Stenger, President and CEO of Jay Peak Resort, wants to see growth both in jobs and businesses in the area and plans on building new retail, office space and residences with a targeted opening date of summer of 2015. 

A pig in the python

The USCIS approval process begins with the first investor petition for a conditional green card, known as an I-526. The agency looks mainly at the investor, who must show that the $500,000 investment is coming from legitimate sources, but also at the business plan for the proposed project.

The investor receives a permanent green card, through an I-829 application, only after the conditions of the EB-5 program have been met, including the requirement for an approved project to create 10 full-time jobs within two years of launching.

Stenger said when he first started raising EB-5 money in 2007, there were 35 or 40 regional center projects across the country. Now there are nearly 500. He said there are 9,000 I-526 applications in the queue in Washington, with just 75 adjudicators to handle them.

"There's an administrative backlog and it is having some impact, but I think they are getting their arms around that in Washington," Stenger said. "They've jacked up efforts to speed their approvals, but we've got a pig in the python here. A year or two ago it was a six month process for approval. Now it's every bit of 14 to 18 months."

USCIS Spokeswoman Anita Moore confirmed that as of May 2014, the average processing time for an I-526 application is 13.2 months. Moore was unable to confirm the total number of applications waiting for approval or the number of adjudicators.

But Brent Raymond said that 13.2 month average is misleading, because the processing time for that first I-526 application for a project — the one that determines whether or not the entire project is approved — is much longer. Responding to scandals surrounding the EB-5 program, the USCIS has beefed up the review process, hiring a contingent of economists to go over proposals in great detail.

The latest scandal in Chicago last year involved an EB-5 developer, Anshoo Sethi, who claimed he had building permits and deals with major hotel chains he didn't have, collecting more than $145 million in securities and $11 million in administrative fees from more than 250 investors, primarily from China, according to the U.S. Securities and Exchange Commission.

Sethi settled with the SEC in March, agreeing to pay $15 million in damages. He is also banned from selling securities for 20 years, and has been ordered by the U.S. District Court in Chicago to repay nearly $150 million to bilked investors.

"The USCIS's new economists are looking very, very carefully at the initial I-526 application because they know once they approve it, they have to maintain that approval," Raymond said.

Backwater peasants

Raymond said the explosion of interest in the EB-5 program has brought fierce competition for investors. Projects in Vermont are up against projects in major cities. In New York, EB-5 funds are being raised for a hotel going into the Freedom Tower being built at One World Trade Center, and in Las Vegas, EB-5 investors are being invited to buy into casinos, according to Raymond.

"It's always been competitive, now it's extremely competitive," Raymond said.

Raymond, who is leaving this week for his fourth trip to China in the past year, said Vermont also suffers from being so small. In Shanghai, a city of 20 million people, the idea of an entire state — what the Chinese think of as a province — with 620,000 people does not inspire confidence.

"It causes them to hesitate, and to think, 'You're backwater peasants,'" Raymond said. "A third tier city in China is a couple million people."

But Raymond says Vermont is still attracting foreign investors, and has a nearly unequaled track record of success in terms of meeting the requirements for investors to receive their permanent green cards.

"Close to 200 investors have gotten their green cards out of Vermont projects," Raymond said. "Out of 400 regional centers maybe five come close to that."

Raymond gives most of the credit to Stenger.

"He has brought in over $250 million since 2007, in my mind at no cost to taxpayers besides my time," Raymond said. "It's creating a lot of capital investment in the state of Vermont that wouldn't have happened."

A section of Newport’s waterfront is home to a shopping center featuring a grocery store and a Wendy’s restaurant. Developer Tony Pomerleau recently pulled out of selling the property.  

Jobs, jobs, jobs

On his latest trip to China, Raymond will accompany Dick Deutsch, principal owner of Mount Snow in West Dover, which received approval in January to raise $52 million for several hundred new units of lodging at the base of Carinthia Mountain. Deutsch has submitted his initial I-526 application to the USCIS for approval of the project.

"The question is whether processing times will be down," Raymond said. "It's now 13 months, I've seen as high as 22 months."

The Vermont Regional Center has also approved a $20 million EB-5 project by Stowe Aviation to upgrade the Morrisville airport and add hangars and facilities to train and license pilots. Stowe Aviation has not yet submitted its initial I-526 application to USCIS.

Bill Stenger is planning a trip this fall to Pakistan, India and Dubai to talk to potential EB-5 investors.

"There are tens of thousands of Pakistani Americans who live and work in the United States and they have family at home interested in emigrating to the United States, and they have the resources to do it," Stenger said.

The globe-trotting Stenger has been steadily broadening his horizons beyond China, fully aware that while it remains one of the richest hunting grounds in the world for investors, it could top out in terms of the number of EB-5 applications USCIS will accept from that one country. The agency limits the total number of annual applicants from all nations to 10,000.

Nigeria has also popped up recently on Stenger's EB-5 radar. Nigerians concerned about the safety of their children are looking for a way to send them to school in the United States in a "secure environment," Stenger said.

"Nigeria is a very vibrant economy in Africa," Stenger said. "It has a very large investor group associated with the petrochemical industry. A lot of families have homes in Texas and are interested in investing in the United States."

Stenger said his far-flung travels have one primary goal — to bring jobs to Newport, where he has lived for 30 years, and Orleans and Essex counties.

"If you're trying to change the economic outcome of the poorest county in Vermont and the second poorest, it's all about job creation," Stenger said. "That's what all of us are committed to."

http://www.burlingtonfreepress.com/story/money/2014/07/17/stenger-foreign-investment-vermont/12747335/

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