Ground Zero Project Trouble, Issues for NYC EB-5 Visa Projects?
One World Trade Center will reach 105 floors and 1776 feet upon its completion. Photo Credit: Mark Lennihan, AP
From the Associated Press comes this story about building construction that developers may have to end after only 7 of the planned 80 floors are complete. The news from New York is that unless Silverstein Properties can line up more tenants, they will have to cease construction at the podium level of Three World Trade Center.
Silverstein needs tenants for the first 10 floors says the Port Authority of New York and New Jersey. Otherwise, the only option is to quit now and resume construction at a later date. Without the leases, the Port Authority will not guarantee the financing that Silverstein Properties is counting on.
Patrick Foye speaking at a meeting of the New York Building Congress. Foye is the Executive Director of the Port Authority of New York and New Jersey. Photo Credit: Mark Lennihan, AP
According to the AP:
Many companies in New York are reluctant to invest in new offices because of the poor economy, and dozens are negotiating lower rents as five-year leases signed before the housing crash begin to expire. But both Silverstein and the Port Authority said they are confident the developer can get enough tenants lined up. 'We are currently speaking with a number of potential tenants and remain fully optimistic that we will sign a lease in time to complete the tower as scheduled in 2015,' Larry Silverstein, the company’s chief executive, said in a written statement.
Mayor Michael Bloomberg said that he would be disappointed if Three World Trade did not go higher, but that the city would not extend any aid to keep it going. The most important part of the project, he said, is laying the infrastructure for future construction. “If you did that and you couldn’t keep building up, I think that’s a shame,” Bloomberg told reporters. “But there are things that should depend on the marketplace and investors. That should be up to them.”
The 10-story “pre-lease” requirement is included in a 2010 agreement between Silverstein and the Port Authority. The difficulty in finding tenants comes amid other problems that have dogged the project.
This illustrates a problem for many large city developers that are claiming both job creation and a return of principal to investors based on speculative building without first obtaining pre-leases. It also demonstrates why EB-5 visa investors should exercise caution before investing in large-scale projects that may not be economically feasible or able to support the underlying EB5 job creation projections as outlined in the I-924 or I-526 business plans submitted to USCIS.
Additional issues include the reliance on public sector funding, which may not be available if certain conditions – a percentage of the property being leased before public funds can be released is just one example – are not met by the developer.