Canadian Pension Fund, EB-5 Investors Take Major Losses at 1 Willoughby Square

Q: With a pension fund and immigrant investors losing millions, what hidden risks did one group miss that the other couldn't avoid?

The pension fund appears to have missed a market risk; the EB-5 investors were trapped by a structural one. La Caisse’s loss on its construction loan at 1 Willoughby Square points to a bad call on office demand and value. The tower opened into a weak office market, ended up about 40% vacant, and its appraisal fell to roughly $190 million from a development cost above $450 million. For an institutional lender, the hidden risk was not the existence of downside, but how severe the post-pandemic repricing of non-trophy office space would be and how exposed the project was to leasing weakness. The EB-5 investors faced that same market collapse, but they also could not avoid the built-in vulnerability of their position. Their money sat in mezzanine debt, below the senior construction lender in the capital stack, so losses hit them harder once the project had to be recapitalized. More importantly, EB-5 rules require capital to be “at risk,” meaning there can be no guaranteed return of principal. That makes financial exposure part of the bargain, not a flaw they can contract away. The broader lesson is that the pension fund likely underestimated a deteriorating office market, while the immigrant investors were exposed to a deeper legal and structural risk: junior status, weaker control rights, and an immigration program that requires risk-bearing capital. One group misjudged the asset; the other could not escape the terms of the investment.

2 articles · Updated · Crain's New York Business · Jul 20

1 Willoughby Square inflicted major losses on a large Canadian pension fund and on EB-5 investors tied to the Brooklyn office property.
The latest report identifies both institutional and immigrant-investor capital as hit, underscoring that the damage extended beyond a single class of backers.
The losses mark a significant setback for investors in the project and sharpen focus on the risks tied to high-profile commercial real estate developments.