Chicago Autograph raises $20M through EB-5 program

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A hotel that broke ground over the weekend in the Streeterville neighborhood of Chicago is the latest to raise funds through the federal EB-5 program, which allows foreigners to become U.S. residents if they invest in certain business ventures.

Scott Greenberg, president and co-owner of developer ECD Company, raised $20 million through the program for the 195-room hotel from 40 people who invested $500,000 apiece in the hotel, which will be part of Marriott International’s Autograph Collection, according to Chicago Real Estate Daily. About 75 percent of the investors are Chinese, with the rest coming from places including Canada, India and Dubai, Greenberg said.

He also is financing the project with a $36 million construction loan from Associated Bank and Inland Bank, he told CRED. The project includes equity investors, including Greenberg, but he declined to provide specifics or disclose how much the project would cost.

Greenberg told CRED he’s trying to limit his risk by raising a large chunk of money through the EB-5 program and limiting the size of his construction loan.

To receive a conditional EB-5 green card, applicants must invest between $500,000 and $1 million in a U.S. business, depending on its location, and create or preserve at least 10 jobs. There are about 10,000 visas awarded annually, and while caps on how many applicants can receive EB-5 visas from each country, it’s popularity resides mostly in China. Chinese nationals accounted for about 85 percent of EB-5 visa recipients in 2014, according to the U.S. State Department.

The foreign-investment program, which has been in existence since 1990 and has been overhauled several times, expired Sept. 30, 2015. But in December Congress granted a 10-month extension with no changes, meaning it will run through Sept. 30, 2016.

Program problems

Also in December, the Securities and Exchange Commission announced a series of enforcement actions against lawyers across the country charged with offering EB-5 investments while not registered to act as brokers.

In one case, the lawyer and his firm are charged with defrauding foreign investors in the program.

“Individuals and entities performing certain services and receiving commissions must be registered to legally operate as securities brokers if they’re raising money for EB-5 projects,” said Andrew J. Ceresney, director of the SEC Enforcement Division.  “The lawyers in these cases allegedly received commissions for selling, recommending, and facilitating EB-5 investments, and they are being held accountable for disregarding the relevant securities laws and regulations.”

Project failure

Another black eye for the program is the fallout from the failure of the O’Hare Hotel and Convention Center in Chicago. More than two years ago, the Securities and Exchange Commission sued Anshoo Sethi, the developer of the failed development, accusing him of scamming more than 250 people who had invested in the development through the controversial EB-5 program. Many of these investors were from China.

Now, a venture led by Sethi is suing 15 firms or individuals who helped him raise backing for the project. Sethi is reportedly demanding that they return commissions they collected during fundraising for the planned 995-room hotel near O’Hare International Airport that never came to fruition.

Chicago Business reported that the project’s investors recovered about $147 million of the $160 million invested in the project. A new lawsuit filed in Cook County Circuit Court claims that some of the brokers that raised the funds have not returned their commissions, which average about $40,000 for each investor for a total of $2.9 million. The suit accuses the brokers of tax fraud and evading Chinese laws.

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