Eighteen months ago, the network of companies run by Robert C. Morgan was one of the fastest-growing apartment owners in Western New York.
The Morgan companies had a stake in four out of every 10 new apartments under construction or planned around Buffalo.
Now, with two executives pleading guilty to federal charges and another under indictment, the once-rapidly growing business appears to be shrinking, as it sells properties, faces the loss of others to lenders and seeks a buyer for the entire portfolio.
The Rochester developer's real estate business – built over two decades of investing and development in his hometown – continues to be under investigation by the FBI and U.S. Attorney's Office. Morgan's son faces charges of mortgage fraud, and his nephew pleaded guilty. His brother is suing him for not sharing the proceeds of sales. His former chief operating officer just pleaded guilty for insurance fraud on some of the Morgan properties.
And the real estate developer has been selling pieces of the portfolio, raising cash to fund the company's needs.
Those sales included some individual properties, as well as some clusters in upstate New York, Pennsylvania, North Carolina, Texas and Louisiana. Locally, the companies are seeking a buyer for the property where a Chick-fil-A restaurant opened in Cheektowaga last October, and they are marketing a portfolio of eight apartment properties in Albany, Syracuse and Rochester, with 1,038 units among them.
Some of the sales appear part of the normal course of business.
But the Morgan companies are also facing the loss of other properties to loan defaults and foreclosures, as lenders rein in their exposure by citing the fraud charges as justification to call in the debt. That's the case with the Raintree Island and Paradise Lane apartment complexes in Tonawanda, among others.
Morgan has not been charged with wrongdoing, but both his nephew and former deputy pointed their fingers at him in their court statements. And, last week, he put his four-bedroom house in the Rochester suburb of Pittsford up for sale, for $990,000.
Last year, Morgan took steps to distance himself from the billion-dollar real estate business he had built by creating a new property management company owned and run by his executive team. That separated the day-to-day operations of the business from Morgan "due to a pending governmental investigation of certain aspects of the Morgan businesses," according to an affidavit by Morgan's niece, Lindsay, who owned 5 percent of the family business and worked as an asset manager for the company.
But the new venture, Grand Atlas Property Management, had the same offices and was led by the same managers. Last week, Scott Cresswell, Morgan's former COO and now the CEO of Grand Atlas, pleaded guilty to insurance fraud for inflating damages on Morgan properties in Rochester, Pennsylvania and Indiana by $2.99 million.
Under increasing pressure from lenders and investors, Morgan is reportedly preparing to jettison much of the property management business to another firm, according to a Wall Street Journal report.
The potential sale to Harbor Group International of Norfolk, Va., would involve the vast majority of the company's apartments – about 33,000, the Journal reported.
That would more than double the size of Harbor, a privately owned firm that handles more than 30,000 apartments and 3.5 million square feet of commercial space in a dozen states.
HGI spokeswoman Morgan McGinnis said the firm would not comment. Morgan did not respond to a request for comment or confirmation.
Meanwhile, Morgan is trying to sell his 6,145-square-foot home, with six bathrooms, three fireplaces and a first-floor master suite and luxury bath. Cresswell put his custom-built executive home in Ionia on the market a month ago, for $989,000.
Morgan, who ventured into real estate after he was paralyzed in an armed robbery of his family's Rochester fish shop, assembled a portfolio of more than 36,000 apartments in 14 states over the past dozen years. That includes more than 3,500 apartments in Buffalo Niagara, some of which the Morgan companies acquired with partners such as Brett Fitzpatrick's Somerset Properties, Matthew Cherry's Glendale Development and Anthony Cutaia's Rane Management.
He also expanded into commercial investments and real estate development, and he partnered with TM Montante Development on the planned remake of the former Millard Fillmore Hospital at Gates Circle into more than 500 residential units. That project has been on hold while Montante works to buy out Morgan.
The Buffalo News first reported more 18 months ago that the Morgan companies were being investigated by the FBI and the U.S. Attorney's Office in Buffalo over the information provided to lenders to justify commercial mortgages, and whether executives misled lenders into extending bigger loans. Subpoenas were issued, the FBI raided the Morgan offices in suburban Rochester in May 2018, and the indictments followed days later.
Since then, Morgan has faced new constraints on the business.
The loans on the Morgan properties cannot be easily refinanced because lenders – under the direction of Fannie Mae and Freddie Mac – will not extend credit until the legal woes are resolved. Local projects in the Rochester and Syracuse areas have been held up or are under review because local government agencies are hesitant to continue dealing with Morgan, according to reports by Syracuse.com and the Watertown Daily Times. And some corporate actions – such as selling the stake in the Gates Circle project – now require the prior consent of the U.S. Attorney's Office, according to Montante officials.
Morgan's family has said in court documents that Morgan and other family members sold Morgan Management last June to the rest of the firm's leadership team, led by Cresswell. They renamed it Grand Atlas Property Management and took responsibility for managing nearly 200 properties in 15 states in the Northeast, Southeast and Midwest – including upstate New York.
The properties are largely still owned by affiliates of Morgan Communities, of which Morgan is the owner and CEO. So the team also formed another new company, Grand Atlas Residential Realty Trust, to raise money and purchase the properties.
The websites for those two companies are currently down. But according to versions that were active late last year, Grand Atlas Residential Realty Trust was negotiating to buy 18 Morgan apartment complexes, with the deals expected to close alongside the completion of its first private placement offering of common stock to "accredited investors." Those properties – all but three located in New York – would make up its "initial portfolio," according to the website at the time.
The firm, which describes itself as a "private, non-traded real estate investment trust," said it was formed to invest in multifamily properties in "stable, non-gateway markets." It filed limited preliminary documents with the Securities and Exchange Commission for a private stock offering, of an unspecified amount.
Morgan said in court filings that he and his family no longer have any ownership in Grand Atlas. But according to the SEC documents, the new firm's executive team consists entirely of Morgan's executives. Its offices are located in the same building in the Rochester suburb of Pittsford as Morgan's other businesses.
Cresswell is president and CEO of Grand Atlas, while Paul R. White is chief financial officer, Sean M. Depew is senior vice president of asset management, and Michael J. Tremiti is senior vice president of finance.
They are also the new owners of the company, according to Lindsay Morgan's affidavit in the July 2018 lawsuit by her father, Herbert Morgan, against his brother, Robert. That lawsuit, which accused Robert Morgan of keeping profits from a property sale that were owed to Herbert Morgan, sheds further light on the new organizational structure and transition.
According to the affidavit by Herbert's daughter, Morgan Management was historically "controlled" and majority owned by Robert Morgan. The firm handled administrative and record-keeping functions for properties owned by the Morgan family, and it employed more than 1,000 workers. But because of the ongoing investigation, "it was decided that Morgan Management should become an independently owned and operated property management company," the affidavit by Lindsay Morgan said.
"It was decided that all Morgan family members should dispose of their interests," Lindsay Morgan said in her affidavit. She had owned 5 percent of the company and had been "slated to become a vice president," but the Morgans "transferred their interests to the managerial employees" of the company in June, when it was renamed Grand Atlas.