Manhattan investment firm in talks to buy upstate property linked to multimillion-dollar fraud scheme

Property’s net operating income had been inflated by nearly half, to $1.83 million, according to court documents
By Georgia Kromrei | August 12, 2019 05:52PM

Morgan Management’s Robert C. Morgan and 7405 Morgan in Liverpool (Credit: Rochester Institute of Technology and Redfin)

Morgan Management’s Robert C. Morgan and 7405 Morgan in Liverpool (Credit: Rochester Institute of Technology and Redfin)

Rockport Equity is in talks to acquire one of Rochester-based landlord Robert Morgan’s properties facing foreclosure over an alleged mortgage fraud scheme.

The sprawling garden-apartment complex, known as the Brookwood on the Green, spans 340 units at 7405 Morgan Road in Liverpool. It wasn’t clear how much Rockport is negotiating to purchase the property for, but the complex was assessed at $11.5 million, according to 2018 property tax records.

Zac Thomas, an acquisitions analyst for Rockport Equity, confirmed that his firm is in talks to purchase the property, and added that “he understood Morgan Companies has had some legal issues.” Thomas declined to comment further on the acquisition.

Cushman & Wakefield is brokering the sale.

Morgan’s mezzanine lender on the properties, SteepRock, moved to foreclose on the rental buildings after the Securities and Exchanges Commission filed a complaint against owner the owner for allegedly “siphoning and misusing investor funds.”

A separate U.S. attorney indictment, unsealed in May, specifically names the Brookwood on the Green apartments as part of a “multi-million dollar mortgage fraud scheme.”

The complaint alleged that Morgan still owes investors over $63 million. In separate criminal charges, the U.S. attorney alleges that Morgan attempted to defraud banks and lenders including Fannie Mae and Freddie Mac and deceive loan servicers by concealing the real financial condition of the properties. According to the U.S. attorney charges, Morgan allegedly kept two separate copies of books for 70 properties: a real one and a fake one for investors.

One of the first New York City firms to make moves on Morgan’s portfolio was E&M Management, which bought Morgan’s Lakeshore Villas and Sunset Gardens in the Hudson Valley for $44 million in early 2018, with a $33 million loan from Kearny Bank.

An attorney for SteepRock Capital, which made loans on three of Morgan’s properties, called loans made for one property “toxic.” SteepRock filed to foreclose on three of the Syracuse properties, including Brookwood on the Green, where their attorney alleged in a memo that “net operating income was inflated by nearly half, to $1.83 million, when it was really $1.23 million. The loan-to-value ratio, similarly, was 106 percent, not 70 percent as originally stated.”

Brian Whitmer, director of Cushman & Wakefield New Jersey, said that many downstate investors are eyeing Morgan’s portfolio, which is one of just a few large multi-family portfolios.

“Bob Morgan was dominant in buying what became available each year, which could be a few assets to a dozen annually, but not terribly active. He assembled as much as he could. Now you’re starting to see Bob Morgan’s portfolio fall off and give opportunity for other investors to come into central and upstate New York and build their portfolios,” Whitmer said.

John Clark, president of Syracuse’s Cushman & Wakefield subsidiary Pyramid Brokerage, is also brokering portions of Morgan’s massive portfolio.

“It will probably not be all one buyer. It will probably be carved up,” Clark said.

The SEC case raises serious questions about how Fannie Mae and Freddie Mac guard against multifamily apartments over reporting income, a problem that plagued single-family housing in the lead up to the 2008 crisis.