Marin fraudsters’ scheme drives $437 million property sale

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The fallout from a massive fraud scheme by Marin investment managers has resulted in a $436.5 million North Bay property sale.

The sale involved 60 sites previously controlled by Professional Financial Investors Inc. and its associated fund, Professional Investors Security Fund Inc. The director, Ken Casey of Novato, died in 2020.

The properties, totaling more than 1.4 million square feet, were sold last month in federal bankruptcy court. Properties range from 3,500 square feet to 85,000 square feet, including 935 residences and approximately 680,000 square feet of commercial space.

“It’s one of the largest portfolio sales in our county’s history,” said Haden Ongaro, executive vice president of real estate firm Newmark Knight Frank.

At the height of the scam, Casey and his business partner Lewis Wallach had amassed 80 large properties: 29 in Novato, 10 in Sonoma, and the rest spread throughout Marin.

Wallach pleaded guilty to federal fraud charges in 2020. He admitted to being aware that the companies had ceased to be profitable, but continued to obtain properties and assure investors of their financial stability. The companies accepted new investors whose payments were used to pay interest to existing investors.

The 60 properties sold in bankruptcy went to two Bay Area-based affiliated national real estate firms, Hamilton Zanze and Graham Street Realty, and a New York-based investment firm, Davidson Kempner Capital Management.

“We expect to invest more than $50 million of capital in these properties, which are located in our own communities,” said Ashlee Cabeal, Hamilton Zanze’s chief financial officer.

More than half of the $50 million is slated to be invested in the portfolio’s residential properties.

The bankruptcy sale disappointed some of the 1,300 investors in the Ponzi scheme, most of whom are Marin residents.

“There have been a lot of questions that have been asked and never answered about the marketing of the property portfolio,” said Betsy Alberty, who lived in Marin before retiring to Port Angeles, Washington, in 2018.

Alberty said that as of July 2020, the remaining assets were estimated to be worth $555 million.

“That’s more than $100 million that evaporated in a year,” he said.

Prospective buyers of the property were selected to submit a so-called “stalking horse offer.” In bankruptcy sales, one entity is typically chosen from a group of bidders to make the first offer on the remaining assets. This stalking horse bid is used as a minimum valuation with the expectation that subsequent bids will be higher. In this case, however, there were no higher bids.

Some investors have also questioned the wisdom of bundling commercial and residential properties into one package, particularly as commercial property values ​​have been hit so hard due to the COVID-19 pandemic.

Alberty, who invested $250,000 in Casey’s scheme, said she was one of the smaller investors.

“A large number of investors are seniors who are no longer able to work, who have lost large portions of their retirement savings,” said Alberty.

Alberty said investors were also surprised by how professional fees associated with bankruptcy have piled up.

“At first we were told the fees were going to be $10 million to $15 million,” Alberty said. “At the end of the process, we are considering $30 (million) to $40 million in fees for the professionals.”

Alberty said that some investors, including herself, also believe that people other than Casey and Wallach were complicit in the conspiracy.

“We have unindicted co-conspirators who are still living high up,” Alberty said. “They are living in houses that were bought by the company.”

“Basically, they haven’t had to give up their lifestyle,” he said, “whereas many of the 1,300 investors have lost their homes. They are gone on food stamps. There are people who have died from the trauma of this Ponzi scheme.”

Andrew Hinkelman, senior managing director of Troy, Mich.-based FTI Consulting, who was director of restructuring in the bankruptcy proceeding, declined to comment.

But a legal statement from Gregory Gotthardt, also a senior managing director at FTI, detailed the portfolio sale process and marketing efforts.

Gotthardt wrote that “FTI logged more than 70 hours of direct telephone contact with more than 80 potential buyers.”

“Many investment groups rejected the portfolio as ‘non-institutional,’ meaning the properties were insufficient in size and quality to meet their investment criteria,” he wrote.

Gotthardt said other investment groups lost interest due to adverse conditions, such as low occupancy due to COVID-19, deferred maintenance and flooding issues.

“FTI’s analysis indicated that the likely market price of the portfolio was significantly less than that indicated by a series of pre-bankruptcy broker price opinions obtained by the previous restructuring director,” which set the value of the portfolio. portfolio between $543 million and $567 million, he wrote.

“It became apparent that the firms issuing the broker price opinions had little or no detailed information on the true operating performance of the properties,” he wrote.

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