What's up at Jay Peak?

Saw this in my feed. Looks like the EB-5 thing might be coming unglued?  Seemed a little too good to be true. I dont really get the deal with EB5 whats promised or expected. Not really sure what vtdigger is either:

A group of immigrant EB-5 investors are incensed that Bill Stenger, president and CEO of Jay Peak Resort, seized ownership of the Tram Haus Lodge and turned their half-million dollar equity stakes in the property into IOUs.

http://vtdigger.org/2014/07/27/vtdigger-exclusive-jay-peak-loses-trust-first-eb-5-investors/

Anyone understand this stuff?

LOL

Stenger says it pretty plainly himself:

The primary purpose of the program is to help investors obtain green cards and establish U.S. residency, Stenger said. Return on investment and repayment of capital are secondary, he said.

Ouch, pretty damn blunt. I bet that is not how he sold the EB-5 program up front!

The folks putting money into EB-5 plans weren't doing so as an investment strategy but rather as a way to bump up to the top of the line for citizenship. They probably wanted the least risky investments, not necessarily the ones that would pay out the most. Anyone investing in a ski area and hoping to recoup the investment or make a profit didn't do their research. But that doesn't excuse Stenger from selling them a steamy pile:

“I believe this decision is outrageous and has seriously jeopardized the financial futures for myself, my wife and my children,” one investor wrote in a letter to the state. “If I had known a simple $500,000, 5-year investment would turn into a 15-year investment I would NEVER have considered the EB-5 Program.”

This is the crap they sold these EB-5 folks? These folks were given indication (albeit not a promise) that they could possibly recoup $500k each in five years from a ski resort development? Good grief.

Jay for sure saw a jump in revenue but $500k bottom line income after expenses per 35 investors in 5 years? I can't believe that is the pipe dream that was sold to these folks. With 35 investors at $500k each, that would be $17.5 million operating income after taxes in five years not counting any other new investment or unbudgeted major expenses. And if I understand correctly, that is only for the first round of investors? Good grief.

The bigger issue at hand here is long term consequences for the EB-5 program. This is certainly going to give ski area EB-5 investment a big black eye and we'll probably see less investment going forward in ski areas from foreign investors, that would be my guess.

Stenger also loses some credibility though he does seem earnest in doing his best to fix a bad situation and make it right as best he can, kudos for him for that.

I got to be honest this confused me too.

We have a client selling high end real estate in the caribbean in a country that has a "Citizenship by Investment" program.  But for your $2M you get a piece of sweet real estate.

Hard to believe anyone with that much money wouldn't read the fine print.

Also I wonder why Jay felt like they had to raise so much money. They could have spent way less and still have outspent the competition.

The Feds put a clause in there saying no return of investment is guaranteed.  It's basically buying a visa.  The income level is supposed to rule out those investing their life savings types.  It's supposed to be for the really rich.  Anyone that expected a ROI on a ski investment in 5 years did not do their due diligence.

So if you do the math of the jobs supposed to be created at Jay it totals 6300.  That has got to be a huge % of workers that live within 20 miles of there.  If the VTdigger reporter was doing their job they would have reported how many jobs actually were created.  I suspect it's considerably less.

Looks like only Stengler and Jay skiers made out on the deal.  I love Jay and we go there every season in the spring but I do have some concerns about being able to maintain enough business to support all the infrastructure they have built.

“I made a mistake in not communicating with the investors, and I should have,” Stenger said in an interview Friday. “And I’ve apologized to them, rather profusely, that it was my oversight in not reaching out to them in August when that decision was made. And I was wrong. It was not intentional.”

Can this really be believed?

Harvey wrote

Also I wonder why Jay felt like they had to raise so much money. They could have spent way less and still have outspent the competition.

I think the reason for that is becoming apparent.  If he waited longer to raise money and then had not repaid the phase 1 investors the later phases would have been hard to sell.  It's like Ponzi scheme where the govt had given the blessing to not pay out even the early investors because they did get a visa after all.

Unfortunately for skiers the house of cards is falling down before they add that new terrain pod.

Coach Z wrote

Unfortunately for skiers the house of cards is falling down before they add that new terrain pod.

^ This.

They have only been promoting the West Bowl for 20 years, why not wait another 20?

Not to mention any new lifts.

Stenger's partner Quiros (Q Burke?) looks like Nosferatu.

skimore wrote

Can this really be believed?

Does seem out there.

So that's what it is? Simple Ponzi?

Somehow I have to believe there is more to it than that.  I thought Stenger and Q were doing really well before any of this.  Why jeopardize it?  No one could think this would go on forever. I guess it's possible that S+Q were in some trouble and desperate?

I don't think new terrain is within the realm of EB5. It has to be about jobs and I thought that terrain wasn't closely related to jobs enough to qualify.

Harvey wrote

I don't think new terrain is within the realm of EB5. It has to be about jobs and I thought that terrain wasn't closely related to jobs enough to qualify.

You are absolutely correct. But the faint hope of the faithful was that the projected successes of the EB5 developments might create some capital that could be used for on-slope infrastructure, as in, lifts and trails.

Now that we are getting used to having lattes at coffee time, there is a lot of momentum to maintain.

So... I just read the ENTIRE article.  

I didn't realize that EB5 started right before the economic meltdown and was to be paid in 2013. Worse timing could not be scripted.

I wonder if Bill was very optimistic about the market (who wasn't?) but knew in the end he could fall back on the provision that said he didn't have to pay if he was stuck. In 2008 that seemed probably seemed like a long shot?

Not sure there is anything nefarious.  It was an investment which is always a risk, and the green card was all that was truly promised.

If someone has $500,000 to their name and invests it in one stock, well that's just lunacy.

It doesn't seem credible that all this surprised Jay Peak, and not informing EB5ers that the deal was changing was an oversight, but that's pure speculation.

Coach Z wrote

Looks like only Stengler and Jay skiers made out on the deal.  I love Jay and we go there every season in the spring but I do have some concerns about being able to maintain enough business to support all the infrastructure they have built.

I'm not sure skiers made out that well...

...depends what you enjoy as part of your ski experience. For guys like me, all I see on the hill are more people than before and conditions that get hit faster and harder. And nice bathrooms. But those could have been upgraded without tearing down a building.

I have no doubt Jay's new revenue sources will support their base area infrastructure. My concern is whether or not the income from that base area infrastructure will ever make it back onto the hill.

Since tram haus went up I've been able to every spring get a great deal on ski and stay packages late season.  It's driven by the huge over supply of beds this has created.  It's been good for this skiers do my family at least.  My hard core skiing son also loves the water park after the lifts close.

I don't ski there all the time and I could see how in Feb Jay might be getting skied out faster.

Harv, what does Jay Peak's Explainer-in-Chief have to say?

Sick Bird Rider wrote

 
Now that we are getting used to having lattes at coffee time, there is a lot of momentum to maintain.

EXACTLY!!!

It's truly sad when the focus moves off skiing ----- it's truly NOT about skiing anymore. Pisses me off but that's the reality of it all now_A_days

When we were there during spring break the lodging was pretty full but there is so much of it now that we were still able to score a good deal.  The lift lines were longer than in the past in the morning particularly at Jet and the Tram.  In the afternoon they thinned out considerably as the water park filled up.

Link to that TR
http://forum.nyskiblog.com/Jay-Peak-April-12-14-td4039596.html

They did spend money fix the Bonnie up.

It's good to see a ski area make money but is this sustainable.  The other issue we noticed was the staff seemed overwhelmed by the crowds.  Did they really hire enough staff?  Is there enough local work force to support their growth?

Coach Z wrote

I don't ski there all the time and I could see how in Feb Jay might be getting skied out faster.

It is skied out faster all the time. If you don't ski there often, you don't know the mountain well enough to compare. Some folks like yourself may benefit from deals when they are not at capacity or those that like the water park or ice skating get that perk. But those things that draw more people just makes things more crowded and skied out faster. On mountain... we are not getting new lifts, we aren't getting terrain expansions to handle the increased traffic, and we certainly are never going to get West Bowl. More guests with the same capacity is not a situation I am fond of seeing.

I'm somewhat blown away by the anger over this.  You don't see this when this kind of stuff happens on wall street.

Skiers POV aside, ultimately isn't this is a relationship between an investor and broker?

Followup story from VTDigger:

http://vtdigger.org/2014/07/29/ethics-jay-peak-deal-scrutiny/

Investor: Here is $500k for a share in your company.
CEO: Thanks, will take that and grow the company.

Fast forward 5 years.
Company has been very successful and is on a high growth trajectory.

CEO: We have decided to turn your equity investment into a loan, you will get your money back plus a little interest. Aren't you very happy!

Investor: WHAT! I have an equity stake that is worth way more than I invested and all I get is payback as if it were an unsecured loan.

CEO: You mean you didn't read the fine print, plainly written in American/English legal jargon.

Minor thread drift: The ACR project is also planning on using EB-5 funding, if Jay Peak is seen as risky or not as rosy as predicted by Stenger what chance will the ACR guys have duping investors in?