KCP Releases Special Report: Robert C. Morgan – CMBS Exposure Update

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases its Robert C. Morgan – CMBS
Exposure Update special report, in which we examined the latest
developments in the ongoing investigation of Robert C. Morgan and
affiliated entities and the resulting impacts to CMBS transactions with
exposure to Robert C. Morgan.

On May 22, 2019, the US Attorney’s Office for the Western District of
New York issued a press release announcing a 114-count superseding
indictment charging four individuals, including 46 counts against Robert
C. Morgan himself, with conspiracy to commit wire fraud and bank fraud.
The indictment states that the object of the conspiracy was to induce
financial institutions to issue mortgage loans based on false pretenses
and to provide false information to mortgage loan servicers to conceal
such misrepresentations for personal gain. The superseding indictment
came several days after the COO of Morgan Communities and Morgan
Management, Scott Cresswell, pleaded guilty to fraud charges that
implicated Robert C. Morgan’s involvement in an insurance fraud
conspiracy.

Concurrent with the criminal charges against Robert C. Morgan, the
Securities and Exchange Commission (SEC) filed an emergency action
charging Morgan with defrauding investors with a Ponzi-like scheme
related to two of his entities, Morgan Mezzanine Fund Manager LCC and
Morgan Acquisitions, LCC. The civil charges include requests by the SEC
to freeze Morgan’s assets and appoint a temporary receiver over the
relevant investor funds. Permanent receivership is being sought over the
entities named in the complaint as well as permanent injunctions. The
SEC complaint also requested final judgments ordering Morgan to disgorge
ill-gotten gains and pay civil monetary penalties.

KBRA Credit Profile (KCP) has been monitoring the Robert C. Morgan
investigation since the fall of 2017 at which time we published a
special report examining CMBS exposure to identify more than 150 loans
affiliated with Morgan and related entities as a sponsor. KCP published
updates on the investigation in May 2018 and December 2018 highlighting,
among other developments, loans that transferred to special servicing
and loans that were secured by properties specifically referenced in the
May 2018 indictment. The superseding indictment re-alleges conspiracy
charges in connection with the properties originally named in the May
2018 indictment and requires forfeiture of the assets upon conviction.
KCP identified six CMBS transactions with exposure to properties that
would be subject to forfeiture in the event of a conviction. As of the
May 2019 remittance period, a total of five loans with an aggregate
unpaid balance of $134.3 million have transferred to the special
servicer.

As the criminal and civil cases against Robert C. Morgan progress, we
will continue to monitor the proceedings with regards to potential asset
forfeitures as well as the workouts for loans with the special servicer.
We will incorporate any developments as we complete our monthly analysis
for each of the respective transactions. Our updated Robert C. Morgan
exposure list identified 170 loans totaling $1.79 billion across 81
transactions. Approximately 58% of the exposure by balance, or $1.04
billion, comprises loans securitized across 35 Freddie K transactions.
The remaining balance of $747.7 million (42%) is made up of loans
securitized in 46 post-crisis conduit transactions.

For subscribers of the KCP platform, an updated loan list as of May 2019
is available by clicking here.

To access the full report, click here.

The KCP platform is a subscription-based surveillance service that
covers roughly 1,000 commercial real estate (CRE) securitizations with
an aggregate balance of over $600 billion. For each deal, monthly
reports are posted to our website that contain color and commentary for
CMBS transactions and their underlying loan collateral. Unlike other
sources of valuation and loss data, which primarily rely on models, the
service is supported by a dedicated team of analysts, who can more
readily appreciate the non-homogeneous nature of CRE, loan, and
transaction structures, as well as imperfect servicer information.

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S.
Securities and Exchange Commission as an NRSRO. In addition, KBRA is
designated as a designated rating organization by the Ontario Securities
Commission for issuers of asset-backed securities to file a short form
prospectus or shelf prospectus. KBRA is also recognized by the National
Association of Insurance Commissioners as a Credit Rating Provider, and
is a certified Credit Rating Agency (CRA) by the European Securities and
Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is
registered with ESMA as a CRA.

Contacts

Analytical Contacts:

Daniel Levit, Analyst
(215) 882-5891
[email protected]

Marc McDevitt, Director
(215) 882-5857
[email protected]

Steve Kuritz, Senior Managing Director
(215) 882-5866
[email protected]

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