Keelan: The curse of large real estate projects in Vt.
When it comes to sizable real estate development projects in Vermont, it seems that trouble follows. Trouble takes on several forms — from the misuse of funds to misrepresentation.
It was not too long ago that officials at the predecessor institution to what is now the University of Vermont Medical Center, misled state officials when it filed its Certificate of Need (CON) with the state. A massive amount of construction work was incurred, but never brought to the state's attention. Several officials at the hospital were charged with criminal misrepresentation.
A short distance from the hospital was once the Catholic Diocese of Burlington's headquarters. In 2010, Burlington College purchased the property from the Diocese for $10 million with no money down. This was accomplished by funding $6.5 million of the purchase with a mortgage to People's Bank, secured by state bond funding. The balance of the purchase was a second mortgage of $3.5 million given to the diocese by the college.
The lenders bought into the message from college officials that the college's student population would grow from 150 students to over 500. What had further persuaded the lenders was the representation that the college had millions in pledges to support the mortgages repayment. This was all smoke and mirrors and, in 2016, the college was forced to close its doors. The FBI's investigation is still ongoing.
Meanwhile, as the above was being played out, some 50 miles to the northeast, an alleged massive fraud was underway. As it turns out, the fraud was the largest in Vermont history. It took place in the Northeast Kingdom where 800 foreign investors had invested close to $400 million under the EB-5 program, only to see that over half of their funds were misused and stolen.
While this project is still under investigation, it is not unreasonable to state that significant conflicts of interest, misrepresentation, and lack of oversight by state officials were, in part, a major reason the project's fraud was allowed to continue for the years that it did.
A blatant conflict of interest existed when the state's top official, with responsibility for oversight, used the developer's New York City's posh condominium for weekly stays in the city. And what was a major misrepresentation was informing the investors that the projects they would invest in were being audited by the state, when in fact they never were.
And southern Vermont has not been immune to financial disasters impacting large real estate projects. Only recently, the Vermont State tax department issued an order closing down the Hermitage Club project at Haystack Mountain. This hundreds-of-million dollar project has seen a number of financial issues impacting its operation.
Recently, the owners called upon its Members (the project is a private ski resort) to contribute additional capital - over and above their initial capital contribution, to help with cash flow issues. Several towns have shut off or threatened to shut off utilities to the project for failure to make payments. And if that was not bad enough, the project's major mortgage lender has moved for foreclosure.
There is a common thread that seems to have taken place in all of the above mentioned projects - government officials and boards of trustees, with oversight responsibility, were too gullible. They wanted to have the projects advanced without ever checking to see if what was been planned made sense and what controls were in place to oversee the operations.
What has been so disappointing has been the silence of the Vt. State Legislature. This body has turned a "blind eye" at any attempt to determine how Vermont laws might have been ignored. Also, even though much has been written on how the previous Administration engaged in serious conflicts of interest, this has meant nothing to our legislative leaders. It is only a matter of time before the next sizable real estate project fails.
Don Keelan writes a bi-weekly column and lives in Arlington
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