A group of investors from China is suing backers of the SLS Las Vegas, claiming the North Strip resort hasn’t turned a profit since opening in 2014 and is on the ‘’verge of bankruptcy’’.
The suit was filed in Los Angeles County Superior Court as a class action on behalf of sixty individuals who claim the SLS’ financial woes and pending sale to San Francisco-based Meruelo Group have jeopardized the roughly $400 million they poured into the resort’s creation and the U.S. citizenship they expected in return under the federal government’s EB-5 Pilot Program.
The EB-5 program provides permanent residency to foreign citizens and the potential for citizenship if they invest at least $500,000 in large-scale “at-risk’’ projects that create jobs. In the case of the SLS, each of the Chinese nationals committed to a five-year loan at 0.5 percent interest plus a $45,000 administration fee and an annual management fee.
The funds were invested in the form of loans in two tranches, one in 2013, one in 2014, to Stockbridge Capital Group and sbe Entertainment, the joint venture that converted the old Sahara Hotel into the SLS. Stockbridge, which has been pumping money into the SLS to keep it afloat, reached an agreement earlier this year to turn the struggling resort over to Meruelo, owners of the Grand Sierra Resort in Reno, Nev.
In the meantime, the Chinese nationals have yet to receive their green cards, according to the suit, and they’re concerned they may lose both their investment and their chance for citizenship if they don’t agree to new terms proposed by Meruelo and the SLS goes bust as a result.
Their loans come due in 2018 and 2019, but Meruelo wants to postpone that to 2023, according to the suit, and rather than receive their money back plus interest the plaintiffs would be repaid with 14 percent of the resort’s equity value.
“We either consent to the sale to Meruelo or the company will file bankruptcy―that is what we are being told verbatim,” said Jeffrey Bell, an attorney representing the group.
Moreover, the suit claims, the new deal will result in a “material change” in the structure of the business, which is not permitted by EB-5 rules.
“The plaintiffs’ investment will be completely wiped out and many of the plaintiffs will not be able to get their permanent green cards.”
They’re seeking $255 million in damages plus attorney fees and other costs from Stockbridge, sbe Entertainment, Meruelo and three entities involved in brokering and managing the loans: California-based American Dream Fund, China-based Henry Global Consulting and Celena Asset Management, based in Hong Kong.
Meruelo characterized the suit as “without merit” in a response obtained by the Las Vegas Review-Journal and said it “does not expect the litigation will deter the sale, and it does not in any way anticipate a bankruptcy filing.”
Greg Garman, a lawyer for American Dream Fund, likewise blasted the action as “baseless” and said the plaintiffs knew there was risk involved.
”It was completely unforeseeable that the North Strip would fall apart as it did.”
Garman added that they should be supporting the Meruelo deal as the best way to avoid an SLS bankruptcy and thereby ensure they get their green cards as well as some money back.
”We are optimistic that Meruelo has the track record to turn around this property,” he said.
