EVERETT — Everett’s newest apartment building, Potala Place and Farmer’s Market, is at the center of a federal agency’s lawsuit against a local developer for alleged fraud. But the outcome of the court case likely will have little immediate effect on downtown development.
The apartment building with ground floor shopping is too close to completion and has enough economic upside that it likely will not sit idle even if the developer, Lobsang Dargey, loses in court and has to give up the property.
Similar fraud cases have resulted in bankruptcy or court-appointed overseers managing projects.
Potala Place and Farmer’s Market is an important piece of development that has given downtown Everett a facelift over the past decade. The five-story building has 220 apartments and the project includes an adjacent 122-room Hampton Inn that caters to business travelers.
With Puget Sound or farmland on three sides, the city needs to build up rather than out to attract more retail, upscale restaurants and other businesses to its downtown, said Lanie McMullin, the city’s economic development director.
The building is nearly finished. It is already 7 percent occupied and more than 20 percent of apartments are leased. Construction crews are finishing up tenant improvements to the ground-floor shops. The retail anchor — a year-round, indoor farmers market — is slated to open in November, said Bill Crosthwait, the project’s community manager.
Work on Dargey’s crown jewel project — the 41-story Potala Tower in Seattle — stopped because of the lawsuit filed Aug. 24 in U.S. District Court in Seattle by the U.S. Securities and Exchange Commission .
The court froze Dargey’s assets, as well as those of his umbrella company, Path America. That cut off the cash flow to cover construction costs on Potala Tower.
The Everett project should have enough money on hand to finish work on Potala Place because it received a construction loan before the lawsuit was filed, McMullin said.
In a few short years, Dargey, 41, has become a powerhouse in commercial real estate in King and Snohomish counties. Previously, he has told reporters that he was raised in rural Tibet, where he studied to become a monk. He emigrated here in his early 20s, and reportedly was not fluent in English.
In Everett, his companies — Path America and Dargey Development — built Potala Village, a mixed-use development; renovated the Chicago Title Building on Colby Avenue; and renovated Everett Public Market on Grand Avenue.
To pay for his developments, he has often relied on a federal program that offers a shortcut to a green card for foreign nationals who invest at least $500,000 in a qualifying project. The projects must generate or preserve 10 jobs for U.S. workers.
The program is commonly called the EB-5 immigrant investor program and is administered by U.S. Citizenship and Immigration Services. It issues roughly 10,000 visas a year.
Dargey traveled several times to China to recruit investors to put money into Potala Place in Everett and Potala Tower in Seattle. In all, he raised more than $125 million from 250 foreign nationals.
Each investor paid $500,000 for a limited partnership in one of the two projects, according to court papers. That money went into an escrow account in the U.S. They also paid a $45,000 “administrative” fee, that was wired to a Hong Kong bank account controlled by Dargey.
The SEC alleges that he misrepresented what investors’ money would be used for, and also that he misused $17.6 million.
Dargey allegedly spent $14.7 million of investors’ money on two developments that were not part of the federal EB-5 visa program — Potala Place Kirkland and Potala Place Shoreline, according to the SEC’s complaint.
The SEC also claims that Dargey used some of investors’ money to partially pay for a new $2.5 million home in Bellevue. He also allegedly withdrew $350,000 in cash from investor funds, including more than $200,000 at 14 different casinos in Washington, Nevada, California and British Columbia, according to the complaint.
Dargey has stayed silent since the lawsuit was filed. Path America said in a statement Monday that it had hired a Seattle-based law firm to “aggressively” defend the company while also cooperating with the SEC.
His attorneys at the firm, Orrick Herrington &Sutcliffe, declined to comment, and Dargey Development and Path America have not responded to requests for comment.
His wife, Tami Dargey, sister of tennis star Andre Agassi, declined to comment, too.
Critics of the EB-5 program say that qualifying projects tend to be less profitable investments, because investors are more interested in a visa than the return.
For example, foreign investors provided most of the money needed for Potala Place and Farmer’s Market, but they were limited partners and had only 20 percent ownership. They were last in line to collect on any profits, according to court documents.
They provided $41 million for the project, which cost a total of $58.8 million.
If the projects made a lot of financial sense, critics say, domestic investors would have bankrolled them.
That might be true in big markets, but not in smaller cities, such as Everett, McMullin said.
Cities with fewer than 200,000 residents often are not on investors’ radar. The EB-5 program is a useful tool for Everett and other smaller markets to encourage development, she said.
She traveled to China in 2012 to sell potential EB-5 investors on Everett. The only project was Potala Place and Farmer’s Market.
“Mostly, I spoke to the health of the city and the market area,” she said. “My whole job is to encourage people to invest in Everett.”
She is not the only public official to have participated in an overseas investor pitch organized by Dargey. Lt. Gov. Brad Owen told reporters last month that he also traveled to China and encouraged potential investors to put money into Potala Tower.
As attorneys for Dargey and the SEC exchange records and other relevant materials in a pretrial phase known as discovery, it is possible that more defendants could be named if the SEC thinks they, too, were responsible in what it alleges was fraud.
Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.
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