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The seller is accused of masterminding a $500M mortgage fraud, the buyer is hunting for opportunities. Here’s how the Chicago-area deal got done

Lender Greystone visited the property in person before providing financing

New York City-based investor Cyclone Investment has picked up a multifamily complex in the south suburbs of Chicago from Robert C. Morgan, the alleged mastermind of a $500 million mortgage fraud scheme. And Cyclone’s lenders took unusual steps to ensure it was a safe investment.

Cyclone acquired Cedar Ridge Apartment Homes, a 192-unit garden complex in Richton Park, for $16.2 million, The Real Deal has learned. Managing director of Newmark Knight Frank’s Chicago office Susan Lawson brokered the sale, while Meridian Capital Group brokered the financing. Greystone originated a loan through Fannie Mae.

The property was not among the 12 multifamily complexes specifically named in a wide-ranging federal indictment that accused the Rochester, New York-based property mogul of duping investors through a “multi-million dollar mortgage fraud scheme.”

A federal court ruled earlier this month that Morgan’s firm Morgan Management was free to sell or transfer his properties without interference from government prosecutors.

Still, the lenders were sufficiently rattled to take some extra precautions — loan officers from Greystone inspected leases to ensure they weren’t doctored to inflate the occupancy (which Morgan is accused of doing elsewhere), an analyst for Cyclone said. Representatives from Greystone even made a personal visit to the property to see it for themselves.

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“It happens that this was not one of the properties mentioned in the indictment. Nevertheless, we did a much more extensive audit,” the analyst added.

The U.S. Attorney General’s indictment, unsealed in May, accuses Morgan and his associates of keeping separate copies of books, inflating operating costs and properties’ net income, and crafting false loan documents. Separate charges from the Securities and Exchanges Commission alleged that Morgan used investor funds as a “single, fraudulent slush fund,” and allege that Morgan still owes lenders at least $63 million. Several former employees of Morgan have already pleaded guilty to federal fraud and money laundering charges.

Mezzanine lender SteepRock Capital has filed to foreclose on three of Morgan’s other properties in upstate New York, where New York City-based investment firms are already eyeing portions of the 36,000-unit portfolio that stretches across 14 states.

Harbor Group International had been interested in acquiring Morgan’s 34,000 apartments, but a deal collapsed, the Buffalo News reported.

Meanwhile, Cyclone, led by Archie Eichorn and Charles Aryeh, is looking to expand in the Illinois area, where they are on the hunt for large value-add opportunities, company reps said.

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