Ongoing Lawsuit Stalls Maryland EB-5 Visa Project, Promotion Persists

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A government office building at the site of Maryland's State Center project

Lawsuits are time-consuming – not to mention costly. And while an ongoing legal dispute in Maryland would not mark the first time a lawsuit delayed an EB-5 visa project, the case is significant because of the large scope of the offering and the fact that the project's promotion to EB-5 investors continues in spite of the litigation.

In 2005, developers, the City of Baltimore, and the State of Maryland announced plans to redevelop a 28-acre site, State Center, which is currently home to several state government office buildings and 3500 state employees.

But a little over a year ago, progress reached an impasse when nearby commercial property owners filed a lawsuit against the developer and two state agencies. According to the Daily Record in Baltimore, plaintiffs charge that the State of Maryland "failed to follow its own procurement rules in hiring a developer for the project by not opening the process to competitive bidding in 2005," which was when the state chose the developers.

The suit also claims that "the proposed State Center project would prompt an exodus of state government jobs" which would "[render] the central business district with more vacancies." As of December 2011, the number of vacancies in the district stood at 25%, a harrowing figure that reflects the current economic recession.

Despite the lawsuit, EB-5 promoters are are still raising funds for the project, which they present as a public-private partnership with the full support of state and local government, including the current Governor of Maryland, Martin O'Malley. 

A lofty vision

Artist's rendering of the new State Center campus

State Center is a big project – $1.5 billion all told.

To finance the construction of two office towers that are part of the development, the project's officers will combine $30 million from the State of Maryland and $10 million from the developer with other private funds to raise a total of $230 million. We know that EB-5 investments will help finance at least this part of the construction and that the DC Regional Center is handling the EB-5 funding element.

According to a promotional video targeting prospective EB-5 investors, the two buildings will occupy 605,000 square feet of space with an underground parking garage beneath. The State of Maryland has already pre-leased 515,000 square feet for 20 years. The remaining space will accommodate street-level retail establishments, including a grocery store.

The video states that State Center Phase 1 will create 2428 new jobs – 1200 more than the minimum required by the project's EB-5 investment dollars. That suggests that roughly 123 EB-5 investors would need to prove creation of 1228 jobs to receive green cards.

The project promoters' overarching message seems to be this:

• State Center has government support.
• The project will create more than enough jobs necessary for its immigrant investors to receive green cards.
• The government followed a sound process when choosing a developer and choosing a plan for the new State Center site.
• Re-development of the State Center site is something the community wants.

All of these points, of course, will help convince investors that the State Center project presents a great opportunity to obtain a U.S. green card.

Hurdles and opposition

But not everybody in the surrounding community wants the project to succeed. The DC Regional Center's promotional video appeared online last July, the same month a Baltimore circuit court denied the state's motion to dismiss the suit against State Center.

"The entire project is a house of cards built upon enormous public subsidies" an attorney for the plaintiffs told local press. "With over 2.2 million square feet of vacant office space in downtown Baltimore, it makes no sense to build another 1.5 million square feet less than a mile away from the downtown district subsidized by the taxpayers." 

Following the circuit court's denial to dismiss, the State of Maryland filed a countersuit against the plaintiffs. That suit, which seeks $100 million in damages, states that the plaintiffs' claims are wholly without merit and exist for no other reason than to delay the project. Despite complaints that the government failed to adhere to a truly competitive bidding process, the state notes that the plaintiffs are not developers themselves and would not be eligible to compete for the State Center contracts.

Although two of the four plaintiffs, including the lead plaintiff, settled with the state last month, the project remains in litigation. 

Headlines from Baltimore, Maryland media outlets, December 2011

Around the same time the state filed its countersuit, the city's comptroller, Peter Franchot, withdrew his support for the project. He now claims that financing State Center risks "[plunging] Maryland taxpayers into deeper debt and threaten[s] the state's fiscal health."

"I must respectfully inform you that I cannot and will not support further efforts to complete this project as currently proposed," Franchot wrote last week to the secretaries of the Maryland Department of General Services and the state Department of Transportation. "It is difficult, for example, to justify the willingness of state agencies to rent space at above-market rates at a time when Maryland's structural budget deficit continues to exceed one billion dollars."

Previously, Franchot cast more than a dozen votes in favor of the project. It seems that spending taxpayer money on an enormous development no longer appears as feasible as it did in 2006 – back when the economy was booming and new development seemed like a far better bet.

Local news sources frequently refer to the project as "controversial" and lament its having "flown mostly under the public's radar."

Promotion continues despite litigation

Although legal wrangling persists and it remains to be seen whether the project will proceed as intended, foreign promoters continue to recruit investors.

On September 16, 2011, the Artisan Business Group announced its selection by investment immigration agency MICON International to be the Asian market entry consultant for the State Center project. The announcement is significant because it suggests that MICON is promoting the project despite the ongoing litigation – something a quick visit to the company's Website confirms.

The above screenshot was captured on February 22, 2012. Since MICON International is not a registered broker-dealer in the United States, it also seems curious that the company would promote the State Center project on its U.S. Website.

Of course, none of the marketing by MICON or the DC Regional Center mentions the lawsuits, the alleged lack of public dialogue about the project, or the withdrawal of support from at least one key public official. Presumably, the marketing that occurs in China and elsewhere is also omitting these significant and possibly game-changing facts.

None of this means there isn't a lot to like about the project. It has won accolades and at least one high-profile award for its innovative, "smart growth" approach.

Furthermore, there is a push in Maryland to prevent similar lawsuits from stalling state-supported development projects. Sources tell us that Governor O'Malley, a Democrat, recently introduced a bill in the state's Democrat-controlled legislature that would reduce so-called "nuisance lawsuits" from stalling P3 projects like State Center.

Such lawsuits can bring progress to a standstill. What's more, public-private partnerships don't always work out in the best interest of communities or immigrant investors just because they're public-private partnerships. Until the courts render a decision that is favorable to State Center, no developer will break any ground and no EB-5 investment dollars will create any jobs.

Image Credit: Baltimore Blog & Mithun