KABUL (Reuters) - Stalled luxury hotel and apartment projects next to the U.S. Embassy in the Afghan capital may have lost American taxpayers $85 million and left the partially constructed buildings as security threats, a government watchdog said on Thursday.

The projects were partially funded by the Overseas Private Investment Corporation (OPIC), a U.S. government agency that aims to help foreign investment.

But both now appear to have been abandoned in a climate of increasing concern over security, according to a letter to OPIC from the Special Inspector General for Afghanistan Reconstruction.

A suicide bomb attack on Wednesday killed four people in Kabul, illustrating the precarious security involving not only Islamic State and a Taliban insurgency but also a wider breakdown in law and order as government control has weakened.

“The $85 million in loans is gone, the buildings were never completed and are uninhabitable, and the U.S. Embassy is now forced to provide security for the site at additional cost to U.S. taxpayers,” the letter said, accusing the developer of possible fraud and OPIC of lax oversight.

Ground was first broken for the hotel in 2004 by then-Afghan President Hamid Karzai, with the project financed in part by an OPIC loan of $40 million that U.S. officials at the time called the “largest U.S. private investment in Afghanistan since the fall of the Taliban” in 2001.

It was initially to be run by Hyatt International Corporation and finished in 18 months, according to news reports at the time, but that never happened.

By 2007, a group of companies received a new loan of $60 million to complete the hotel and Marriott International had agreed to manage it, the letter said. It is not clear what happened to the initial $40 million in loans.

“FALSE ASSURANCES”

In 2013, construction was dragging on, but the developer, incorporated in the British Virgin Islands, promised it would be complete by the end of the year and OPIC approved the disbursement of the last funding, SIGAR reported in the letter.

Marriott reportedly withdrew from the hotel and right after receiving the final loan funding, the developer told OPIC it was stopping all work on the project, SIGAR said.

“Based on our inspections it is clear that the assurances made to obtain the final loan disbursement were false and misleading,” investigators said. “We are currently determining whether earlier representations made to justify the prior disbursements were also false and misleading.”

To this day the hulking building sits empty, overlooking the U.S. Embassy which pays an untold amount of money to secure the structure, according to SIGAR.

The same developer was also involved in a related project to build a neighboring apartment complex with $27 million in OPIC loans, but construction there was also halted after the company received the last funding, SIGAR reported.

“As with the hotel, we found that the apartment project was never finished and appears to be abandoned, and that representations made to OPIC that the building could open by August 2013 were blatantly false and unrealistic.”

In a response to SIGAR, released along with the letter, OPIC said it was aware of “issues” with the building, but that at the time it believed the developer was making “good faith efforts” to complete the project.

“As a lender, OPIC does not control the project, but has encouraged the project developer to find a third party to either purchase the project or provide additional funds to complete it,” the agency said in its response.