Troubles first surfaced June 3 when Host filed a civil action against the firm and its president, Rob Koger. The Bethesda company accused its former broker of conspiring with buyers of three Host properties to surreptitiously flip the assets for a $15 million profit, instead of obtaining the highest sales price for Host.
News of the complaint rattled the hotel industry and raised red flags among a number of the Molinaro Koger’s clients and partners. Within weeks of the complaint, four separate firms filed lawsuits demanding the brokerage firm return money held in escrow by Koger, according to court records. Plaintiffs in two cases said Host’s allegations of fraud compelled them to ask for their money.
In the commercial real estate world, escrow accounts are typically established to hold funds for a potential or pending transaction. These funds must be used for the intended purpose and released to the party funding the account upon request.
All of the lawsuits assert that Koger reneged on promises to repay escrow funds totaling $4 million.
Calls to Koger seeking comment were not returned. His attorney, Charles Kimmett of Wiltshire & Grannis, said the company is in negotiations to settle the cases.
District real estate developer Cafritz Interests, in its lawsuit, questioned whether Koger “commingled Cafritz’s escrow deposits with other accounts . . . to avoid liability from potential judgement creditors in the Host lawsuit and/or bankruptcy.”
A lawyer representing Cafritz said Friday that the case was settled out of court the previous day, with the return of $2 million.
Cafritz was the first of four plaintiffs to file within 15 days of each other. Arnold & Porter attorney Randall K. Miller, who is representing Dutch real estate company Commercial Property Finance BV in one of the cases, likened the flurry of lawsuits to a run on a bank.
“Everybody started demanding the return of their funds because there was concern about the company and [Koger],” he said. “If there is a pot of money that’s less than what is owed, people want to get their place in line.”
Even one of Koger’s employees has jumped in line. Jose C. Alvarez, managing director of the New York office of Molinaro Koger, is the latest litigant to emerge in the escrow kerfuffle. According to court documents, Alvarez said his boss asked him in late April to wire $1 million for a potential investment. Alvarez said he scraped together half the amount and transferred it into an escrow account.
Koger told him the deal was encountering delays, but Alvarez became uneasy after learning about the Host case. Koger allegedly assured Alvarez on several occasions that the money was being wired back to him, but no funds were received and on July 1 the managing director sued.
In his lawsuit, Alvarez, who is still at the company, referenced Hersha Hospitality Trust’s similar breach of contract claim. The Philadelphia real estate investment trust is suing Koger for $1.5 million in an escrow account linked to a failed deal to purchase the Red Roof Inn in downtown D.C.
Molinaro Koger has engineered more than $15 billion in hotel transactions since 1959. The company, until recently, had a solid reputation in the hospitality community.