Rochester City Council members last week rejected a request from developer Robert C. Morgan's company for a $1.5 million loan on a downtown project on Court Street there.
The vote was 5-3. At least two of the five members who voted against the loan cited an FBI investigation of Morgan's companies that started in Buffalo.
"The investigation was the key factor in my vote on this loan," Council Member Matthew P. Haag told The Buffalo News. "We aren’t sure about the scope of it or its potential for a negative impact on financing or the ability to repay a loan granted by the city. Given these factors, I believe it would be imprudent to spend taxpayer dollars not fully understanding the risk we expose our taxpayers to."
Morgan said he was disappointed in the vote.
"It's unfortunate that the City Council's decision to turn it down will result in less affordable units in the city of Rochester," Morgan said.
Morgan, one of the biggest real estate developers in Rochester, has become a major force regionally, with real estate holdings in apartment buildings, retail strip centers, mobile or manufactured home parks, office and commercial buildings, and even self-storage facilities.
His Morgan Communities owns more than 36,000 apartment units in 14 states, including six complexes in the Buffalo area, plus others in which he has invested with partners. He also is teaming up with Thomas Montante's T.M. Montante Development to create a new residential neighborhood at Gates Circle, and has worked with smaller local developers like Matthew Cherry and Anthony Cutaia to buy or construct several apartment buildings in the Buffalo area.
The Buffalo News reported in September that the FBI is investigating how Morgan's companies and other developers purchase and finance their properties, with a particular focus on rent rolls and other information supplied to lenders to justify mortgage loans. Authorities, working with the U.S. Attorney's Office in Buffalo, have issued subpoenas and convened a grand jury in the probe, which extends beyond Buffalo to other cities.
In Rochester, Morgan has become a key player in the city's development community, taking on major downtown projects such as the $60 million Midtown Plaza and Parcel 5 conversions, as well as construction in the suburbs.
In this case, Morgan sought the city loan to support construction of a project along the Genesee River in downtown Rochester. The 223,900-square-foot project would feature a five-story, mixed-use building, with 111 apartments, 4,500 square feet of ground-floor commercial space and 109 underground parking spaces.
The $33.6 million project was first proposed by Morgan in 2014. It is being funded by $25 million from Buffalo-based M&T Bank, plus $7 million in developer equity.
"I like the project and believe it is a good project and one that will enhance that part of our city and further open our waterfront to our community," Haag said. "That said, we have a 'known, unknown' here in this investigation."
The project included an affordable housing component, with 10 percent of the units reserved for residents earning less than the median income. But some critics had also questioned if that was enough to justify the city money anyway.
“One of the main objectives of this administration is finding ways to create more accessible, affordable housing units, and that’s why we put forth proposals like the one that was voted down this week,” city spokesman James Smith said in an emailed statement. “This vote wasn’t for or against the project. It was solely for the affordable housing component.”
Rochester Mayor Lovely Warren or any of the council members could bring the proposal back for a second vote.