Robert C. Morgan, the embattled Rochester developer who faces federal mortgage fraud charges, has transferred about half of his properties to a joint venture with a Pennsylvania company, according to court documents.
An affiliate of the joint-venture partner also has taken over management of at least one of the properties, according to the documents.
The joint-venture partner is Morgan Properties of King of Prussia, Pa. – a family-owned company founded and led by Mitchell L. Morgan, who is not related to Robert C. Morgan. As of the July 12 closing of the deal, the joint venture holds 90 multifamily apartment properties previously owned solely by Rochester-based Morgan Communities, owned and led by Robert Morgan.
The companies and families are not related, "despite the coincidental similarity in names," according to a July 16 letter from Phillips Lytle attorney Jeffrey D. Coren to Monroe County Supreme Court Justice Matthew Rosenbaum.
The affected properties represent about half of Robert Morgan's empire of 180 properties and 36,000 units in 14 states, including in the Buffalo area, where he owns or controls several thousand apartments. The future of the other properties remains uncertain.
Robert Morgan, who built up his real estate empire over the last 28 years after being paralyzed by an armed robber, has been charged with mortgage and insurance fraud in a 114-count federal indictment, following a multiyear probe by the FBI and U.S. Attorney's Office in Buffalo.
His son, Todd; Buffalo mortgage broker Frank Giacobbe; and Morgan's finance director, Michael Tremiti, are also charged in the indictment. Morgan's nephew, Kevin; Giacobbe's former deputy, Patrick Ogiony; and Morgan's former chief operating officer, Scott Cresswell, have all pleaded guilty and are cooperating with authorities.
Disclosure of the joint venture sale came in a letter to the court arguing that receivership for one Rochester-area apartment complex – sought by a lender in a foreclosure lawsuit – is no longer necessary because the complex is part of the joint venture and will be managed by the Pennsylvania Morgan firm. Also, according to the court document, the Pennsylvania firm will refinance nearly $627 million of debt on 53 properties within the next 90 days, resulting in a full repayment of the defaulted mortgage debt on that complex.
Lawyers also filed court documents arguing against two other government efforts to seize or force the sale of Morgan properties.
Eden Square Apartments in Cranberry Township, Pa. The property was cited in both the indictment and a separate lawsuit against Robert Morgan by the Securities and Exchange Commission.
Lawyers for Morgan argued that the government lacks the authority to force a sale and that the government's own actions created the situation. He noted that Morgan had reached a deal to sell Eden Square and use the proceeds in part to pay off investors. But a planned June 6 sale was delayed after authorities insisted that the U.S. Marshals Service hold all proceeds "until the resolution of the criminal action or further court order." The failure to complete the deal led to Morgan's loan default and the accumulation of new fees.
A court hearing before Justice Elizabeth A. Wolford is scheduled for July 22 at federal court in Rochester.
Union Square Apartments, Chili, N.Y. The CEO of Rochester-based Spoleta Construction and Development, Michael M. Spoleta, is seeking to block a possible government foreclosure or seizure attempt against the project, which is being developed by Spoleta and four other investors.
According to a declaration by Spoleta filed with the court, Robert Morgan previously owned 50% of a limited liability company that owned the company that is developing the project. But he sold that stake to Spoleta in August 2018, Spoleta's documents stated. Spoleta also said neither he nor any current investors were involved in the project when the alleged fraud against Canandaigua National Bank occurred. And he asserted that the bank, through its own internal investigation, did not find any "irregularities or fraud" in the construction loan or ownership agreements.
Construction will likely stop by the end of the month "without further loan advances," Spoleta's filing states. "The government's actions ... may kill the project, which has been highly successful to date, resulting in millions of dollars in losses to innocent parties and, potentially, the government itself," Spoleta wrote.