REPORT FROM THE U.S.—Nearly six years ago, the largest and most iconic hotel in downtown Pittsburgh, the Hilton Pittsburgh, commenced a desperately needed renovation.
The 712-room property that welcomed visitors as they exited the Fort Pitt Tunnel into Pittsburgh subsequently was plagued by controversy, including work stoppages due to unpaid bills, which eventually led to a bankruptcy, a sale and a change of flags.
Kiran Patel, a Tampa, Florida-based cardiologist and philanthropist, bought what is now the Wyndham Grand Pittsburgh out of bankruptcy in May 2011. He consequently inherited massive amounts of debt, legal fees, bank notices and contractor invoices.
But a lifeline came earlier this summer when Patel received not one but two offers to purchase the property well beyond what he had invested.
According to court records, the first offer of $87.5 million came from a man named Rick Thompson. Thompson allegedly claimed to have placed a bid on a promissory note secured by Patel’s hotel and was going to foreclose on the property unless Patel placed a $2.5 million deposit into a trust account.
Patel wired $2.5 million to Thompson via an attorney’s trust and signed a letter of intent to sell.
Then a second, less hairy offer of $125 million—nearly $40 million more than the first offer—came from a man named John Stern, who claimed to be a member of the wealthy Mellon family from Pittsburgh.
That’s when things got weird.
Around the same time Thompson—the first bidder—wrote Patel to demand a $15-million “breakup fee” in order to get out of the initial deal, Patel also was contacted by a special agent of the FBI regarding the potential sale.
As it turned out, the FBI agent had reason to believe that neither Rick Thompson nor John Stern existed. Instead, according to an affidavit from the FBI agent, both men were false identities being portrayed by the same man: Robert Timothy Koger, a well-known hotel broker who has been in and out of court since early 2011. Koger, the FBI says, was acting as two separate potential buyers in an attempt to extort a $15-million breakup fee from an unsuspecting real estate investor trying to flip a poorly performing hotel.
“I have several reasons to believe that Koger is posing as both ‘Thompson’ and ‘Stern,’” the FBI agent says in his affidavit, filed in U.S. District Court in Alexandria, Virginia. “At my request, Patel invited Stern to Florida for a 29 August 2013 meeting, which was covertly videotaped. Based on my review of surveillance video from Patel's office, I have determined that Koger, whom I have met on multiple occasions, was posing as Stern.”
Further: “The telephone number Patel uses to contact Thompson is Koger’s iPhone, which Koger had in his possession when I executed a search of his residence in June 2013.”
Consequently, the sale never happened, and Patel remains in possession of the reinvigorated Wyndham Grand Hotel. Attempts to reach him were unsuccessful.
Based on evidence presented by the FBI special agent in his affidavit, Koger, 47, was arrested 9 September and, according to court records remains detained in a jail cell, facing initial charges of federal mail and wire fraud.
Koger could face up to 20 years in prison if found guilty. A federal judge has labeled him a flight risk based on the fact that he is alleged to have continued illegal brokerage practices even after recent judgments against him.
And what happened to Patel’s $2.5 million wired to “Rick Thompson” as a deposit on the initial sale? BlackRock Financial, holder of the hotel’s promissory note, says they never received an offer from Thompson, according to the affidavit. And one week after the deposit, approximately $2.4 million of the funds were wired to RBC Royal Bank in the Bahamas. Amid several lawyer accounts, the affidavit says $25,000 eventually ended up in a bank account held by Koger.
How Koger got here
Koger and his partners had built a well-known brokerage firm outside of Washington, D.C., that, until 2011, was considered highly credible and trustworthy. Molinaro Koger engineered more than $19 billion in hotel transactions dating to 1959, when C. Joseph Molinaro founded Joseph Molinaro Associates. Koger was hired in the early 1990s. In 2010, the company sold 56 hotels worth $1.5 billion, according to the most recent data on its website.
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But the company’s troubles began in April 2011 when the first of several clients, Innovative Hospitality Management, filed a complaint in U.S. District Court, alleging Molinaro Koger failed to return remaining escrow payments from deals done during the two years prior.
Since then, nearly a dozen other private and public hotel investors have filed suit against Koger, most of which claim he did not return between $500,000 and $2.1 million in escrow owed to them. The laundry list of clients who believe they were ripped off and raised the issue in court includes Jose C. Alvarez, who was one of Koger’s employees, as well as HEI Hotels and Resorts, Hersha Hospitality Trust and Host Hotels & Resorts—three of the largest and well-known owners in hospitality.
In Host’s case, Molinaro Koger had served as the real estate investment trust’s exclusive broker since 2001 until discovering Molinaro Koger employees were using money that was being held in escrow to pay the salaries of employees at the brokerage firm, according to judgment from a Maryland state court that awarded Host $22.8 million in July 2012. That award was vacated after the parties settled the case in late 2012.
Koger was president of Molinaro Koger at the time of the Host settlement.
“They caught (Koger) red-handed, posing as both the buyer and the seller,” Jim Butler, partner at Jeffer Mangels Butler & Mitchell, told Hotel News Now.
As part of the Host investigation, Molinaro Koger employees Jonathan Propp and Todd Lawyer pleaded guilty to conspiring to commit fraud. As part of a plea, Propp admitted to conspiring with others to illegally sell Host’s hotels to straw buyers, who would then sell the properties to another buyer at a higher price and pocket the difference. He and Lawyer admitted to acting as straw buyers, illegally obtaining driver’s licenses to do so.
According to the affidavit, Propp told the FBI agent that Koger used or directed others to use the following aliases: Stan Jenkins, Mike Mason, John Lovell, Robert Stern and David Miller. He also told the agent that to facilitate the fraud, Koger “conducted transactions in the name of one of his deceased employees,” the affidavit says.
Butler, whose firm did not work on any cases involving Koger, said: “I’m not a criminal judge, and I’m not applying criminal standards, but it’s really pretty remarkable to have this so well documented.”
Host executives this week told Hotel News Now they are glad Koger is currently being detained.
“The decision of federal authorities to arrest Robert Koger for fraud and Judge Anderson’s decision to keep Mr. Koger in jail pending his trial will prevent Mr. Koger from further abusing his trusted position as broker to defraud clients,” a spokeswoman for the company said via email. “Mr. Koger’s fraudulent conduct led to a string of legal actions. … Host is gratified by the efforts taken by federal authorities.”
U.S. Department of Justice spokesman Zachary Terwilliger declined to comment on the open case, saying it is DOJ policy not to comment on ongoing investigations.
Last of Koger?
Koger was last heard from via a news release issued days after Host’s lawsuit was filed in June 2011.
"This whole event seems like the plot of a John Grisham novel, where we are the victims. I am puzzled and disappointed by Host’s baseless accusations,” Koger said in the release.
Officials at Molinaro Koger said the company was “taken aback” by the lawsuit in the same statement.
In an earlier release dated 25 February, Koger alleged Host had funded a series of crimes that had been committed against Molinaro Koger in the investigation process, including illegally accessing the company’s accounts to obtain financial records and breaking and entering Molinaro Koger’s office to steal files.
“It was interesting to me, when Koger put out his (news release), his take on what was being said,” JMBM’s Butler said. “He said Host had used illegal means to obtain the evidence, but he didn’t deny the evidence.”
In the release, Koger also shed light on the glamorous lifestyle he lived, detailing gifts sent to clients that included fine wines and trips on private jets, as well as annual visits to gentlemen’s clubs during industry conferences.
Koger’s attorney, Peter Greenspun, did not return multiple requests for comment.
A number of the 12 companies that took Molinaro Koger to civil court over the past few years have settled with the brokerage firm. Judgment was reached in the favor of at least three: Host; HEI Hotels and Resorts, which was awarded $1.8 million in escrow funds; and NJ Hotel Management, which was awarded $300,000 in escrow funds after the court found that Koger initiated a “Ponzi scheme” and “made false representations regarding (a) proposed hotel transaction, namely that there was a legitimate potential real estate transaction and Molinaro Koger would act as escrow agent,” according to court documents.
A civil case against Koger brought on by CHNJ Investors in February 2012 remains open, with the latest update coming from Koger, who claimed in a countersuit last month that he lost out on nine transactions totaling $9.3 million as a result of the case.
Butler said that while hotel brokers are sometimes accused of not doing their homework or “puff a bit” when marketing a property, he “firmly believes” Koger’s alleged actions are an anomaly.
“This is extreme conduct. It’s grossly unethical,” he said.
In terms of whether potential hotel buyers and sellers should trust their brokers, Butler said they should do their due diligence but ultimately trust that “by-in-large the brokerage community is ethical, honest people that you wouldn’t expect this kind of conduct from.”
“If you see that somebody has a significant number of cases alleging bad acts, you have to really think twice about whether you want to do business with that person,” he said. “There are a lot of other people to do business with.”