Chinese nationals sue Vail developer over repayment of $80 million loan | VailDaily.com

Chinese nationals sue Vail developer over repayment of $80 million loan

Investors who received green cards for their investments claim they were bilked

A group of Chinese investors who invested a cumulative $80 million in the Vail Solaris project filed a federal lawsuit against the project's developers over the way their loan is being repaid.
Daily file photo

A group of Chinese investors who helped bankroll the $375 million Solaris project in Vail say they were bilked and are suing in federal court.

Solaris developer Peter Knobel and the Colorado Regional Center, which is accredited by U.S. Citizenship and Immigration Services as part of the federal government’s EB-5 Immigrant Investor Program, are the targets of a lawsuit by 13 Chinese nationals. The plaintiffs say they’re among 160 foreign investors who loaned $500,000 each — a total of $80 million — in 2011 and 2012 to Colorado Regional Center Project Solaris LLLP, which then loaned the $80 million to an entity controlled by Knobel to help build and market The Vail Solaris Residences.

The lawsuit says the loan — five years at 5% interest — was “rigged” in such a way that it would never have to be repaid.

Solaris and Knobel bit back Friday afternoon.

“The lawsuit’s allegations of wrongdoing are legally and factually incorrect. We will respond vigorously to this meritless lawsuit,” Solaris and Knobel said in a statement.

Visas for foreign investors

Those 160 foreign investors were recruited by the Colorado Regional Center, one of a couple of hundred centers around the U.S. designated by USCIS. Those centers recruit foreign nationals to invest $500,000 a pop in American projects.

In exchange, the foreign investors can get green cards for themselves and their immediate families, if they can meet certain standards for two years. After that, they can request to become legal permanent U.S. residents, according to USCIS spokesperson Genevieve Billia.

It’s called the EB-5 visa program and was launched in 1990. USCIS issues 10,000 EB-5 visas each year, Billia said.

For the Solaris project, the Colorado Regional Center placed the $80 million in a limited liability partnership, the Colorado Regional Center Project Solaris Project LLLP.

The Colorado Regional Center Project Solaris Project LLLP loaned that $80 million to Solaris Property Owner LLC and Knobel, who used it to cover part of the $375 million price tag to develop Solaris: 79 condominiums and 70,000 square feet of commercial space.

The investors received their green cards from the U.S. government, but their money was not repaid, the lawsuit says.

“I feel deceived and confused, as if I have been robbed of my money,” Jie Yang, one of the Chinese investors said in a federal court document.

Calls to the Colorado Regional Center led to a voicemail box that said it was full and not accepting messages. Texts also went unreturned.

$80 million loan, $40 million collateral?

At issue is how that $80 million loan is being repaid.

The $80 million loan was secured by 19 Solaris condominiums, worth less than $40 million, the lawsuit says. It should have been secured with $120 million in collateral, the lawsuit says. The lawsuit says the 160 foreign investors say they thought the loan would be secured by all 79 Solaris condominiums.

The lawsuit says Solaris can repay the loan in cash or property. Solaris Property Owners and Knobel opted to repay the loan with property — 19 Solaris condominiums.

However, those condos are selling at a glacial pace and at less than the projected $4 million price, said Doug Litowitz, a Chicago-area attorney representing the Chinese nationals.

“In three years the only condo of out 19 they could sell was to Solaris Bella LLC signed by a Kyra Peno, a paralegal at Garfield & Hecht PC law firm in Avon. Strange,” Litowitz said in an emailed comment.

That sale allowed only eight of the 160 investors to get out of the transaction at fifty cents on the dollar (at best) after inflation, the lawsuit says.

“All of the others, including the plaintiffs, are stuck in this black hole of an investment,” the lawsuit says.

They say they didn’t understand

The lawsuit alleges that the Chinese nationals did not understand the terms.

“I didn’t know they could just walk away. Such a thing is unthinkable for a lender to allow,” Yang said in a court document.

Yang said he heard about the project through a broker who put him in touch with the Colorado Regional Center.

“I paid a $50,000 administration fee, but I don’t know where that money went,” Yang said in court documents.

The lawsuit also claims that Knobel has the right of first refusal for any unit the lenders want to sell, which means the lender is competing with its own borrower.

“Who wins and who loses?” the lawsuit asks. “The borrower SPO/Knobel because they got $80 million cash to use as ‘equity’ by turning over merely $40 million in collateral and walking away.”

The lawsuit says the 13 Chinese nationals hired a lawyer earlier this year. That attorney hired a valuation expert and that’s when the Chinese nationals came to understand that the loan had been “grossly under-collateralized,” that the borrower had been able to pick the collateral, and that the borrower would not pay the principal, the lawsuit says.

“This was unfathomable to the plaintiffs, both because of the language barrier and because it seemed so absurd that no rational lender would allow such a thing,” the lawsuit says.

Yang said he invested in the Solaris project from China when his English was not very good.

“I could not fully understand the paperwork,” Yang said.