Could Bob Zangrillo’s legal troubles imperil Magic City?

(Illustration by Pablo Lobato)

Bob Zangrillo walked out of federal court on a rainy day in Boston in late March 2019 wearing a black heavy coat, a charcoal suit and a blue tie. His face was drawn, forehead furrowed.

The gloomy scene was a far cry from Zangrillo’s carefree days as a playboy in Los Angeles just a few years ago, when he roamed shirtless at Burning Man-themed birthday parties and hosted Coachella after-parties attended by hordes of models and so-called influencers. Zangrillo claims to have made a fortune investing in companies like Facebook and Uber, and had presented himself as the youthful Silicon Valley investor and a Gatsby-esque figure in an Instagram age. And he’s a major stakeholder in Miami’s sprawling Magic City project.

But if the 52-year old looked sober and sullen walking out of court a year ago, he had every reason to be. As part of the sprawling federal investigation nicknamed Operation Varsity Blues, which led to charges against celebrities like Felicity Huffman and Lori Loughlin, Zangrillo had just been charged with mail fraud. He pleaded not guilty.

And while the Norwalk, Connecticut, native faces jail time over the college admission scandal, the Federal Trade Commission (FTC) is also after him, bringing civil charges in January. The FTC alleges Zangrillo chaired a company that ran scam websites set up to look like government agency portals. Zangrillo pleaded not guilty, with his lawyers arguing that he was just a passive investor.

When investors get themselves into the kind of legal trouble that ends up in a chyron on cable news, the developers on projects they’ve funded often quickly distance themselves out of fear that the project will struggle to score financing. It is unclear how much money Zangrillo has put into Magic City, but he and his family were the largest equity backers as of last year. His current legal troubles have developers practicing the art of social distancing.

Bob before the big time

A graduate of the University of Vermont and Stanford Business School, Zangrillo moved to New York in 1995. There he became the CEO of InterWorld, an e-commerce software supplier that worked with Nike and FedEx. At InterWorld, he also started UGO Networks, an entertainment company focused on gaming, which InterWorld sold to Hearst for an estimated $100 million, according to Forbes.

Zangrillo founded his private investment firm Dragon Global in 2008 and moved the company to Miami in 2010. The company says its current and predecessor funds have managed $1 billion in companies with over $500 billion of market value. Zangrillo also claims to be one of the last late-stage venture growth investors in Facebook as well as an investor in Uber, Jet.com and Twitter, according to his company’s website.

For his part, Zangrillo certainly plays the role of a Silicon Valley venture capitalist to his 10,800 followers on Instagram. On some days he is taking ice baths and practicing the Wim Hof method; on others he is showing off his water jetpack or meeting with Los Angeles megamansion developer Mohamed Hadid.

Many of his posts also show off his 11,508-square-foot waterfront estate on Miami Beach’s Di Lido Island. Zangrillo paid $7 million to acquire the property before building a house there for his primary residence in 2016.

Zangrillo, who has shied away from the media attention, declined multiple interview requests through a spokesperson, who did offer one comment: “Mr. Zangrillo’s commitment to fostering a positive and ethical workplace has never wavered, nor has his commitment to the city of Miami and its opportunity to be a global hub of innovation.”

Burning Man

Part of the vision for Magic City had its origins in the desert of Nevada. Zangrillo is a “Burner,” an enthusiast of Burning Man, the annual festival in northwest Nevada  known as much for its ecological message and art installations as it is for its thrill-seeking, power scooter-riding hedge funder attendees.

It was at Burning Man that Zangrillo and his business partner Tony Cho first displayed a silver-colored, 12-foot-high wooden structure spelling out the word “Magic,” which would ultimately become the entrance to the Magic City Innovation District in Little Haiti. The pair, who met through a mutual friend, agreed that Cho, who owns the brokerage Metro1, would be the face of the project, while Zangrillo would help recruit tech companies for it.

In December 2017, Zangrillo and Cho brought on Miami-based development group Plaza Equity Partners along with Lune Rouge, a company led by Guy Laliberté, co-founder of Cirque du Soleil. As the plans solidified, the group attempted to get a Special Area Plan (SAP), which allows property owners who control more than 9 acres of land to apply for zoning changes.

Renderings of the Magic City Innovation District

Under the SAP, the development would include 2,630 residential units, 2 million square feet of office space, 432 hotel rooms and 340,000 square feet of retail, in addition to a pop-up park and sculpture garden at the site in the middle of Little Haiti, at 6001 Northeast Second Avenue.

The development group turned to Miami’s favorite construction lender, Bank of the Ozarks, now known as Bank OZK, for its first round of financing — a $32 million loan issued in February 2018. By that time, the regional bank out of Little Rock, Arkansas, had become one of the most active condo construction lenders in Miami, New York and Los Angeles.

The news hit in March 2019 that Zangrillo was named as part of the college admissions scandal. Later in the month, Zangrillo backed out of his role as managing board member of Magic City. He was replaced by Zach Vella of the New York-based Vella Group.

“He doesn’t have any involvement,” said Vella in an interview with The Real Deal in March 2020. “All decisions are made by the board members, and Bob is completely passive.”

“He needs time to focus on current issues,” Vella added.

Some aren’t convinced that he’s distanced enough from the project.

“Just because they filed that paper in March that he’s no longer the principal in the project doesn’t mean that he is not benefiting from the project,” said Meena Jagannath, an attorney with Community Justice Project, which has filed a lawsuit against the development group for Magic City.

Zangrillo’s still doing some business for his own company, Dragon Global, though it’s unclear if that work intersects with the interests of Magic City. In May, he sought permission from  federal court to go to Montreal for a planned trip that “involved meetings with a large current Dragon Global investor and negotiations to invest in at least two such companies.” The motion did not disclose who he was meeting with, but it’s notable that his colleague on the Magic City project, Guy Laliberté has his company headquarters in the Canadian city.

An ownership chart first revealed by Miami blogger Al Crespo showed that MCD Dragon held the largest equity stake the Magic Innovation District Project, at 35 percent.

Zangrillo personally held a stake of 54 percent in MCD Dragon, while a trust that lists Zangrillo’s daughters, Ashley, Alexa and Amber, held 42 percent, and Los Angeles billionaire investor Neil Kadisha owned 3 percent.

Zangrillo also still has some role, at least, in picking out the artwork for Magic City. Twice in August the investor posted about the project on his personal Instagram account. In early December, he tagged graffiti artist Tristan Eaton in a post that read, “New Art acquisition. Cannot wait to collaborate on Art for the Magic City Innovation District The original @tristaneaton.”

OnPoint Global

Zangrillo is more than a backer of the Magic City project. He was chair and one of the lead investors for OnPoint Global, one of Magic City’s first anchor tenants, which leased a warehouse near the heart of the development last June.

OnPoint Global had the largest lease out of the first five tenants to sign at Magic City, taking up 12,000 out of 18,650 square feet. OnPoint was also featured prominently in marketing materials and in interviews that the development group conducted with the Miami Herald.

The company describes itself as a “leading worldwide data-driven, online publisher and service-based e-commerce provider with offices in the United States and Latin America.”

But federal officials allege, in charges filed in December, that OnPoint Global was operating a scheme to defraud people who were seeking government services. The scam allegedly included using sites like DMV.com (instead of .gov). In some cases, the FTC  claimed, OnPoint would charge people to buy information that was already publicly available.

The feds alleged the money man for the operation was Zangrillo, who they claim chaired, co-owned and invested in the company and personally received more than $2 million in distributions and salary from OnPoint Global and its subsidiaries. A federal court in Florida ruled in January that “the websites were patently misleading,” granting an injunction and freezing assets tied to the scheme.

Zangrillo’s lawyer Matthew Schwartz of Boies Schiller Flexner said that Zangrillo was not involved in the day-to-day operation of the company.

“In his role as an investor and limited partner in numerous organizations, Mr. Zangrillo monitors his investments under his companies’ investor rights but has no role in the day-to-day operations of his portfolio companies,” said Schwartz.

Jeff Schneider of Levine Kellogg Lehman Schneider + Grossman, who has acted as a receiver in other FTC cases and is not involved in the OnPoint Global case, said it is significant that the FTC brought the charges against someone as high-profile as Zangrillo. 

“It is surprising to take on so much of a public figure,” said Schnieder. “Even tangentially, these cases are generally 25-year-olds operating in boiler room spaces.”

Former OnPoint Global CFO Bob Bellack said that Zangrillo was not involved in the day-to-day decisions at the company and described his role as being dedicated to bringing investors to the company and providing mentorship to employees.

“His role was pretty typical of any VC [venture capitalist] with a company,”  said Bellack.

Yet one former employee of OnPoint Global told The Real Deal he would often see Zangrillo around the office and disputes the notion that Zangrillo was not aware of what was going on.

“I saw Bob Zangrillo walking through the offices at least once a week for 52 weeks,” said Ryan Marshall, who worked at OnPoint Global for a year as head of talent acquisition. “He was involved in major decisions … he invested a lot of money into the company.”

Cho said in an interview with The Real Deal that Magic City has no immediate plans to remove OnPoint Global as a tenant and will let the case play out.   

On the horizon

At issue right now is how much the college admissions case and the FTC case have hurt Zangrillo and the rest of the development group at Magic City. Miami is rife with developers, investors and brokers who have faced accusations of fraud. It is a city known for giving second chances.

But for now, Zangrillo is backing off. Last month, Avra Jain, developing a $200 million mixed-use project near the Miami River with Zangrillo, said that he was no longer involved in the project.

“Bob Zangrillo was not a managing partner, nor has he been involved in the day-to-day,” Jain said, declining to comment further.

Even when distanced from Magic City, Zangrillo’s troubles could impact the project’s ability to secure permanent financing beyond the loan from Bank OZK. 

David Eyzenberg of the commercial real estate investment bank Eyzenberg & Company, who helps arrange financing for real estate projects, said Zangrillo’s legal troubles will make it more difficult for the group to get financing from a traditional bank.

“If you are a traditional lender you are trying to avoid noise. If you have shareholders, you don’t want noise,” said Eyzenberg.

Andrew Ittleman, an attorney with Miami-based Fuerst Ittleman David & Joseph who is an expert on money laundering, said Zangrillo’s criminal and civil charges could also cause the other developer partners to take on personal guarantees for the project.

“There is not another way to put it; it does not make things easier for the borrower,” he said.

Especially in a world facing extreme upheaval in the wake of the novel coronavirus, what is the appetite for lending to an ambitious development like Magic City? Time will tell. But for now, it appears the project is scrubbing its ties to Zangrillo, who is set to face trial in October for the college admission scandal charges.

Based on his Instagram posts,  Zangrillo doesn’t seem too concerned.

“Life is about balance,” Zangrillo wrote in an October 2019 post. “Too much money or knowledge may not allow you to see the entire picture of life.”

The post Could Bob Zangrillo’s legal troubles imperil Magic City? appeared first on The Real Deal Miami.

from The Real Deal Miami & Miami Florida Real Estate & Housing News | & Curbed Miami - All https://therealdeal.com/miami/2020/03/26/could-bob-zangrillos-legal-troubles-imperil-magic-city/
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