On December 29, 2015

Investors help Sugarbush Resort return to profitability

By Matthew Cox, VTDigger.org

A controversial federal visa program that offers permanent U.S. residency to foreigners willing to invest $500,000 or more in at-risk companies has helped Sugarbush Resort return to profitability, while also benefitting the 40 foreign investors who loaned the Warren, Vt., resort $20 million, both sides say.

The 40 investors—from Canada, Mexico, and 18 countries in Europe and Asia—have all obtained green cards, allowing them to live and work in this country, and 18 have exited the program by accepting Sugarbush’s offer of cash and real estate as repayment.

The repayment “gets them pretty close to the $500,000 they invested,” said David Morris, a Washington, D.C., immigration lawyer who represents the 40 investors. He declined to be more specific. The other 22 investors are not yet eligible for repayment.

Meanwhile, Sugarbush has returned to profitability, using the foreign funds and other money to repay high-interest loans, build three new base lodges, install three chair lifts and two surface lifts, and improve snowmaking, the resort’s president and majority owner said.

The foreign lenders helped preserve 400 jobs at the year-round ski, mountain-biking, and golf resort, which has a $10 million payroll and about 155 full-time, year-round workers. During ski season, Sugarbush’s payroll rises to about 1,000 employees.

“The improvements allowed us to keep the skiers we had, and to regain the skiers we lost” when the resort fell on hard times, said Win Smith, president of Sugarbush Resort and its majority owner.

“Foreign capital comes in, and it helps the resort go from a troubled business to a profitable one,” added Morris, the lawyer representing investors. “What a success story, right?”

Sugarbush expects to make a cash repayment offer to some of the remaining 22 foreign investors as early as next year, Smith said, following completion of a 16-unit condominium project called Gadd Brook. Workers broke ground in June on the condos, which will have two to four bedrooms and be priced at $688,000 to $1.25 million. Construction is scheduled to be completed by May 2016.

About $20 million of the work at Sugarbush was funded through a program known as EB-5, which takes its name from the visa foreign investors receive. Under EB-5, foreigners who invest $500,000 or $1 million in U.S. ventures that create or save jobs can obtain green cards and permanent U.S residency. Congress created the program in 1990 to stimulate job creation, and last year more than 10,000 foreigners—most of them Chinese—used it to obtain green cards, according to the U.S. Department of State.

Critics say the program administered by U.S. Citizenship and Immigration Services allows wealthy foreigners to “buy” their way into the country, and the program has come under increasing scrutiny recently. VTDigger reported in June that the Securities and Exchange Commission was investigating Jay Peak ski resort’s use of $545 million from more than 800 EB-5 investors to expand the facility, to improve a second Northeast Kingdom ski resort, and to assist a biotech company in Newport, called AnC Bio Vermont.

ABC News “Nightline” reported separately this year that federal agencies have conducted criminal investigations of 30 EB-5 projects in the United States, looking for evidence of narcotics sales, money laundering, fraud and espionage.

Sugarbush’s $20 million EB-5 investment has attracted none of that attention. Smith said he and his partners turned to the program during the Great Recession, when Sugarbush was losing money and banks were unwilling to extend loans. Smith said Morris, whom he’d never met, contacted him “out of the blue” in 2006 and asked if the resort would be interested in borrowing from EB-5 investors.

Until then, Smith and a group of fewer than 10 people had been funding improvements at Sugarbush. Smith and his partners bought the resort in 2001—around the time of the Sept. 11 terrorist attacks—from American Ski Corp. At the time, Smith was wrapping up a nearly three-decade career on Wall Street, including 10 years as chairman of Merrill Lynch International.

“We needed to modernize the entire base area,” said Smith. “The lodging was old, and too small, the kitchens were wrong, and the kids’ ski school was inadequate.” The resort also faced high costs related to deferred maintenance.

Smith said he knew very little about the EB-5 program and was initially skeptical. But the better he got to know Morris, an immigration lawyer at Visa Law Group in Washington, D.C., the more interested he and his partners became. Sugarbush was Morris’ first venture as an EB-5 entrepreneur. Since then he has assembled five other EB-5 investor groups for real estate projects in the D.C. area.

It took Morris about two years to round up 40 investors, who contributed $500,000 each to fund $20 million worth of work at Sugarbush.

“There would not have been a bank to lend us that money,” Smith said. “Our creditworthiness was terrible.”

Sugarbush had come close to seeking bankruptcy protection in the 1990s, and the resort was still losing money in 2006, Smith said. In addition, the subprime mortgage crisis had created “the worst (lending) environment I’d experienced” in 28 years on Wall Street.

“I could not have funded the remaining $20 million in improvements by myself,” Smith said. “It was fortuitous that they came along.”

Morris said his clients so far are satisfied with their investment. All 40 investors have green cards now, he said, allowing them to live and work in the United States, and the 18 who cashed out concluded the resort’s repayment offer of cash and condo shares at Sugarbush was fair. Morris would not say how close to $500,000 the repayments were, and he declined to make investors available for interviews.

Only 18 were eligible to accept a settlement because EB-5 rules require investors to wait at least five years for repayment. “Everyone [who was eligible] took the offer,” Morris said. Sugarbush will offer settlements to the remaining 22 foreign investors as their loans mature, Smith and Morris said.

The EB-5 program was created 25 years ago, but it has grown in popularity only recently. Eight years ago, it granted visas to about 700 foreigners. Last year the number rose to 10,692. Eighty-five percent of those EB-5 visas (9,128) went to investors from mainland China, according to EB5 Investors Magazine, followed by South Korea (162), Taiwan (99), Vietnam (92), and Iran (63).

Authorization for the program was due to expire Sept. 30; Congress passed a last-minute continuing resolution extending it through Dec. 11.

“There’s an idea that these investors are mega-wealthy people, that $500,000 means nothing to them and that all they care about is getting their green card,” Smith said. Although obtaining U.S. residency is an important goal for investors, “the $500,000 is important to them,” Smith said. “If they lost it, they would feel it.”

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