EB-5 fund alleges Schrager, Witkoff siphoned money from Public Hotel

first_img Email Address* Full Name* Steve Witkoff and Ian Schrager in front of the iconic PUBLIC hotel escalators. (PUBLIC, Getty)A fund managed by a controversial EB-5 regional center has filed a lawsuit against Ian Schrager and the Witkoff Group, alleging that the developers siphoned millions of dollars from the Public Hotel on Manhattan’s Lower East Side.The lawsuit, filed last week in New York State Supreme Court, is claiming breach of contract. The plaintiff alleges that Schrager, Witkoff and their affiliates took in more than $100 million for themselves, but have not repaid the EB-5 fund.The lawsuit also alleges that the developers “engaged in a fraudulent shell game” by misrepresenting their equity in the project to lenders and overloading the hotel with debt, including taking on about $62 million in mezzanine debt.That debt is now so substantial that the EB-5 fund, which is managed by the New York City Regional Center, alleges it will never get repaid on its $79.5 million preferred equity stake. It also claims that the total debt is now likely worth more than the hotel itself.ADVERTISEMENTThe suit names a spate of real estate bigwigs as defendants, in addition to Schrager and Steve Witkoff. Howard Lorber, the executive chairman of Douglas Elliman, and HFZ Capital Group’s Ziel Feldman are also named, along with Schrager’s brother Bernard and several executives at the Witkoff Group.PincusCo first reported the lawsuit.Stephen Meister of the law firm Meister Seelig and Fein, an attorney who is representing most of the defendants (with the exception of HFZ’s Feldman), said the allegations are frivolous and false. He also said that the EB-5 investors were not supposed to get paid back for five more years.“If they believed that the money was due to them now, then someone misrepresented them and it wasn’t anyone who I am representing because we have had no contact with them,” said Meister.A representative for HFZ did not respond to a request for comment.The lawsuit is another black mark against the EB-5 program, which helps foreign nationals obtain green cards in exchange for investing in American businesses.Real estate developers flocked to the program to obtain cheap financing at the end of the last recession for major megaprojects like Hudson Yards and smaller infrastructure projects in states like Delaware. In most cases, EB-5 funding is structured as a loan, but occasionally the investment is structured as preferred equity, which can be paid back over a longer period of time.In recent years, the program has come under scrutiny due to myriad fraud claims and lawsuits. In one case, a condo-hotel developer in Palm Beach, Florida used EB-5 money to pay for a 151-foot yacht and falsely told investors that former Presidents Donald Trump and Bill Clinton would be members of his project’s advisory board.Other lawsuits have focused on regional centers, which act as the middleman between investors and developers. Last year, a group of Chinese investors sued the New York City Regional Center, along with Schrager and Witkoff, claiming that they were misled on their investment in the Public Hotel. The center was later dropped as a party in that lawsuit.The 28-story Public Hotel at 215 Chrystie Street, which opened in 2017, includes 11 luxury condominium residences at the top of the building. One of those, a 4,200-square-foot, four-bedroom penthouse, is for sale with an asking price of $32 million.The hotel has been closed since last March but plans to reopen in April, according to Scott Alper, the chief investment officer of Witkoff Group.Schrager closes Public hotel amid coronavirus outbreakA Korean lender, Shinhan Investment, previously tapped Cushman & Wakefield to sell a $60 million mezzanine loan tied to the project. That loan is no longer for sale, according to Alper.Contact Keith Larsen Commercial Real EstateEB-5ian schragerReal Estate LawsuitsSteve Witkoff Share via Shortlinkcenter_img Tags Message* Share on FacebookShare on TwitterShare on LinkedinShare via Email Share via Shortlinklast_img read more