Developing Real Estate by Selling Green Cards

One of the recurring themes for this blog is going to be that bankruptcy filings can be a rich source of information about businesses, how they are conducted and financed.

The largest single case real estate case that filed in the second quarter of 2017 was AINA LE’A, Inc.  The case involved multiple parcels of development land on the western side of the island of Hawaii totaling more than 1,050 acres.  The company has been working for the past eight years on a development plan for the properties which involved significant litigation with the Hawaii State Land Use Commission, neighbors, and the County of Hawaii.

In the debtor’s Motion to Approve Debtor in Possession Financing (copy available here), the company outlines a complicated financing structure including more than 500 shareholders, significant seller financing, and various construction and working capital loans.  This is not particularly surprising.  Any large development project is going to have a complicated structure especially one that has been delayed for a long time.

What did catch our eye was that much of the equity in the project is derived from the sale of more than $44 million “Undivided Land Fractions” to investors “primarily in Asia and Australia” and a $34 million term loan from a group called Whales Point Fund that is “to be funded by an EB-5 investor program.” The DIP motion did not provide any information about the how the EB-5 program works and we could not find any information online about the provider of the loan, Whales Point Fund.  We suspect that somehow the ULF would be the entry point to the process.

While EB-5s are well known (there is even a website and a magazine dedicated to the program which provides a helpful explanation of the process), we were surprised to see the scale of the program and its sophistication.