The Murky Path to Cirrus's Control of the Remaining Project
Was the key element debt regarding the B1/Site 5 parcels, or advantageous contract language in the second EB-5 loan? What about the EB-5 middleman? The explanations don't fully make sense.
The future of Atlantic Yards/Pacific Park is controlled by a joint venture led by funder Cirrus Real Estate Partners and the development firm LCOR, as other parties, once seen as key to the project, now have non-controlling, minority shares.
It all rests on murky transactions that leave lingering questions about ownership, control, and leverage.
It’s worth trying to understand them, because murky transactions more than a decade ago—involving EB-5 immigrant investors organized by the U.S. Immigration Fund (USIF), a middleman “regional center”—led to a foreclosure process that upended the project.
The background
Original developer Forest City Ratner in 2014 sold 70% of the Atlantic Yards going forward—excluding the arena company and the B2 tower—to Greenland USA, the arm of a Shanghai-based company. Together, the joint venture Greenland Forest City partners raised $349 million in low-cost financing in two tranches ($249 million and $100 million) from Chinese EB-5 investors seeking investor visas.
Once Forest City left the project almost completely, that debt—and the collateral behind it—was Greenland’s responsibility. Greenland couldn’t repay it, given project snags.
In November 2023, a Greenland subsidiary faced foreclosure of that collateral, its interests in the six development sites (B5-B10) over the Metropolitan Transportation Authority’s Vanderbilt Yard.
The collateral had been offered to the EB-5 investors, who’d each put up $500,000 in exchange for green cards for themselves and their family, and expected their money back, foregoing interest.
But USIF as manager controlled the EB-5 “company,” and had helped engineer the sale of some of those loans to Fortress Investment Group, a periodic partner. (The total had been reduced to $286 million after a partial repayment.)
The explanation
What happened?
Joseph McDonnell, Cirrus’ managing partner, told the advisory Atlantic Yards Community Development Corporation (AY CDC) at its Oct. 9 meeting (my coverage), “So this project as everybody knows has been stuck for a period of time. It was carrying a debt load which was unsustainable even when rates were lower.”
“And through really the leverage that we had over those three counter-parties, Greenland, USIF, and Fortress,” he said, “we came in to clean up the structure such that it can hopefully move forward at a quicker pace.”
In response to my follow-up questions, I was told: “USIF-Fortress was a lender secured by certain collateral with respect to the B5-B10 sites… Their loan was extinguished as part of the UCC [Uniform Commercial Code] foreclosure.” (These email responses came via Cirrus lobbyist Vanessa Figueroa.)
Where did leverage come from?
How, exactly, did Cirrus have leverage over USIF and Fortress?
Only a “permitted developer,” with a decade of experience in large projects, could exercise the development rights, so USIF-Fortress wouldn’t qualify.
So one piece of leverage, which presumably gave USIF-Fortress incentive to make the foreclosure deal, was the ability of Cirrus-LCOR to qualify as a permitted developer.
Today the USIF and Fortress, as well as but not Greenland, are minority partners in the six railyard sites, which depend on the platform. [Note update/correction.]
Also, Greenland, but not USIF or Fortress, is a minority partner in the remaining parcels, B1 and Site 5, which likely involve transfer of the B1 bulk across Flatbush Avenue to create a giant, two-tower project.
A confusing explanation
Another explanation, but a confusing one, came from a dialogue at the Aug. 6 meeting of AY CDC. Chair Daniel Kummer asked, “Going back to the platform, if Greenland’s part of that JV [joint venture], but its entities are being foreclosed, what does it have left to contribute to the joint venture?”
ESD Senior VP of Real Estate and Planning Joel Kolkmann responded, “Well, all the money--all the investment in the platform work. They’ve invested hundreds of millions of dollars.”
That total, I wrote, seemed a bit vague, but maybe it included the annual payments to the MTA, which were first made by Forest City, then the joint venture Greenland Forest City Partners, then by Greenland, and lately by a USIF entity and/or an unknown entity.
The implication was that the Greenland’s embedded investment, acquired by Cirrus, gave the latter priority over the EB-5 investors. That, however, may not be correct.
Back to October meeting
At the meeting last month, Kummer asked of Cirrus, “I understand the leverage you mentioned before that enabled you—that was from your acquisition of senior debt?”
McDonnell responded, “So we bought most of Greenland’s debt in the U.S. So you guys are probably aware that they had large developments in Los Angeles. They also had fairly substantive holdings in New York.”
He continued, “And we acquired that debt. We then went into a series of discussions around what was the best thing to do. And we basically saw the opportunity to come in and hopefully move forward this project with speed, and came to an agreement with their creditors as well as Greenland to get that done.”
Greenland’s New York holdings, as far as I know, were limited to Atlantic Yards/Pacific Park. In response to my follow-up question, I was told: “Cirrus bought various of Greenland’s US debt which included significant portions of Atlantic Yards and represented substantially all other debt secured by Atlantic Yards aside from the USIF-Fortress debt.”
That presumably included the debts associated with Site 5 and B1. However, I did not get an answer when I asked: by acquiring that Atlantic Yards debt, which development sites were then under Cirrus’s control?
Was Cirrus’s key leverage the control of Site 5 and B1, which would then make development of the remaining project easier, under one developer, even if USIF-Fortress could have negotiated a foreclosure sale to another developer?
We still don’t know, but there’s another twist, as described below.
Looking at the railyard sites
“When USIF-Fortress was a lender, they controlled the future of the [railyard] sites subject to the project documents (i.e. whether they should foreclose), but as a lender had no day-to-day control as Greenland was still the equity owner,” I was told.
That doesn’t fully make sense, because some equity—the investment in the platform and the MTA payments—was also collateral for the first round of EB-5 investors.
The notion that Cirrus’s acquisition of Greenland’s debt gave it leverage over the railyard parcels doesn’t fit with the contract some investors signed with the USIF.
According to the 2014 Private Placement Memorandum (PPM) for “Atlantic Yards II,” the first of the two EB-5 loans involving USIF, the security interest--the collateral--included the purchase of the B5-B10 development rights, the construction of the permanent railyard, and the construction of the platform.
In other words, pretty much all of Greenland’s embedded investment in the railyard development sites, as confirmed by Figueroa: “Correct, with respect to the platform sites only and not with respect to Site 5 or any of Greenland’s other US assets, which USIF-Fortress did not have debt against.”
That suggests that the EB-5 loan was not, as implied by Kolkmann, subordinate to the investment in the platform.
According to the PPM, the Loan would be subordinate to senior construction financing to develop the six towers over the railyard. Those, however, were never built.1
Who’s in charge?
“Cirrus affiliates now act as a managing member with respect to all of Atlantic Yards, allowing for control of the process, subject to the project documents, going forward,” I was told. “This was arranged through the foreclosure and concurrent restructuring.”
“The USIF and Fortress debt was extinguished at foreclosure and converted into subordinate non-controlling interest to Cirrus’ investment,” I was told.
In other words, it may have been theoretically possible for the EB-5 investors to make a deal with another developer for the railyard sites. Indeed, Related Companies was considering the project during 2024.
Did Cirrus’s purchase of Greenland’s debt for Site 5 and B1, if not formally gaining control of the railyard sites, put it in the best position to make a deal? Maybe.
Keep in mind that, thanks to advantageously drafted contract language, the USIF, as manager of the company that made the EB-5 loan, retained control of decisions, leaving the investors themselves powerless. See the link below.
Leverage from “Atlantic Yards III”?
But there’s another twist, as a different document suggests another potential piece of leverage for Cirrus.
The second EB-5 loan, known as “Atlantic Yards III,” was secured by an assignment of the developer‘s right to develop the B9 and B10 towers, which had been part of the collateral for the earlier loan. In other words, the collateral was diluted, which added project risk that state officials apparently did not consider.
Unlike the earlier loan, this one would not be secured by any interests in the permanent railyard, the platform, or any other infrastructure.
This loan was subordinated to Senior Debt and the Second Lien Debt regarding two residential buildings, including the B14 rental tower, or 535 Carlton Avenue. (The other was supposed to be a condo tower at the B13 site, but it was never built. It’s unclear whether another building was substituted.)
“The Senior Debt will be senior to the [EB-5] Mezzanine Loan,” the PPM states. Similarly, Second Lien Debt, based on financing from the New York City Housing Development Corporation, would be senior to the Mezzanine Loan.
That may have given Cirrus some key leverage. (It’s not clear how much debt even remained, as the B14 tower, developed by Greenland Forest City Partners, was sold in 2022 to Avanath Capital Management.)
First vs. second loan
The first set of EB-5 investors seemingly controlled collateral regarding all six railyard parcels, plus the platform and MTA investment.
However, the second set of EB-5 investors could exercise rights to develop the B9 and B10 towers only after the Senior Debt and Second Lien Debt regarding B14—and, perhaps, another tower—had been satisfied.
If Cirrus, by acquiring that presumably limited amount of Senior Debt and Second Lien Debt, then controlled the B9 and B10 sites, it might have had leverage over all the railyard development sites, since construction of the platform involves all six railyard sites.
The role of the EB-5 middleman
In April, I wrote about the extremely convoluted structure regarding the EB-5 debt, in Who’s the “Lender”/Creditor Now? Who Controls the EB-5 Loan Collateral? That may be relevant to the current resolution.
The two EB-5 loans were AYB Funding 100, for “Atlantic Yards II” into AY Phase II Mezzanine, a subsidiary of Greenland’s AY Phase II Development Company and AYB Funding 200, into AY Phase III Mezzanine, another Greenland subsidiary.
Note that the Managers and Administrative Agents, both affiliates of the USIF, the “regional center” or EB-5 middleman, had control of and, perhaps, a stake in the EB-5 loans, as well as fees from those loans.
The debt restructuring accomplished by Cirrus seems to have left some version of that hierarchy in place. Had the EB-5 debt been sold and repaid, the EB-5 investors from China would have had to be repaid, given that it was overdue, and the relationship with the USIF would have dissolved.
Instead, the USIF maintains the relationship. “We’ve now advanced the project so that we can develop, and the development will be the trigger for the [loan] repayment on a unit by unit basis,” USIF Founder Nicholas Mastroianni II told The Real Deal Oct. 7. “There is a light at the end of the tunnel for the return of their capital.”
Does that also mean that the USIF also can keep its financial stake, and fees, in place?
The bottom line
“By acquiring Greenland’s debt, Cirrus was engendered certain practical leverage and control over Greenland’s actions with respect to all of its assets including B5-B10,” I was told by a Cirrus spokeswoman.
Did that “practical leverage” mean control of B9 and B10? Again, I didn’t get an answer to my follow-up question about what sites were then under Cirrus’s control.
(When faced with these questions, ESD told me to ask Cirrus. That company’s answers, as noted here, were incomplete. The obligation should be on the public entity.)
This may seem an extremely granular discussion. Given the project's history, though, understanding the financial arrangements matters, as they’ve led to complications.
Is there any risk, for example, that the EB-5 investors could protest a deal that subordinates their interests and leaves the USIF in an advantageous position?
Also, we don’t know how much Cirrus and LCOR own, just a majority. And we don’t know Cirrus’s arrangement with LCOR regarding ownership and decision-making.
Today, they seem to be enthusiastic, compatible partners. So, too, seemed Forest City and Greenland, but that soured after a few years. More clarity on all this is needed.
It was also subordinate to the financing for the B15 tower, now known as 662 Pacific Street, but when Greenland sold the development lease for that site to The Brodsky Organization, about $63 million of the $249 million loan was repaid, eliminating that site as collateral.