Developer Already Under Investigation By FBI, SEC Hit With $30M Lawsuit Over Stalled Philly Development
A real estate company with holdings all over Philadelphia and multiple pending criminal investigations is now faced with a lawsuit over a long-vacant waterfront site in South Philly.
Local developer U.S. Construction filed a lawsuit for breach of contract against National Realty Investment Advisors in federal court on March 29, claiming nearly $29.7M in damages, court records show. At issue is the pair of parcels owned by an affiliate of NRIA at 1401 and 1401R South Christopher Columbus Blvd. totaling over 22 acres, which USC had agreed to develop for NRIA in 2017.
The suit, filed in the Eastern District Court of Pennsylvania, alleges that NRIA continued to pay fees and promised reimbursement to USC for a proposed three-building complex of apartment towers before abruptly severing the agreement this past December, refusing to pay several outstanding fees and reimbursable expenses that had already accrued or would accrue from then on.
USC had made all the necessary preparations to break ground at the property in the fourth quarter of 2021 for the first phase of what was to be called the Philadelphia Water Club, a 370-unit multifamily building, according to a timeline repeatedly affirmed by NRIA in the suit. The latest iteration of the plan called for nearly 1,000 apartments across three phases.
USC lined up all the necessary entitlements, obtained a 10-year tax abatement on the property, arranged partnerships with various services firms and contractors, and even hired extra staff to assist with project management, before NRIA informed USC that the project would no longer be sufficiently profitable if USC was involved, the suit alleges.
Seeking an alternative, USC lined up a buyer that would have paid $40M for the site, but NRIA didn't respond to news of the offer despite repeated follow-ups from USC in the ensuing months. The site is already fairly well known in the Philadelphia area for a plan to develop a Foxwoods casino that was scuttled when the Pennsylvania Gaming Control Board revoked Foxwoods' gaming license in 2010.
Since December, communication has been scarce and unrelated to the agreement, said John Palladino, a partner at Hankin Sandman Palladino Weintrob & Bell P.C., which is representing USC in the suit. Aside from a confirmed receipt of the summons on April 8, NRIA has not responded to the lawsuit, and it did not respond to requests for comment from Bisnow.
The agreement's collapse could be related to a story published by the Philadelphia Inquirer at the end of September reporting that NRIA is under investigation by the FBI, the Securities and Exchange Commission and state financial authorities for misleading investors. A former executive at NRIA separately stands accused of fraud for actions he committed under the guise of raising money for NRIA — and, in an unusual twist, that executive's son is USC's chief financial officer.
In ads that ran frequently on Fox News and talk radio, NRIA claimed to guarantee a monthly return of at least 10% and as much as 21% from a real estate development and investment fund. But the company admitted in its investment prospectus that part of that return was being paid for with cash from new investors, the Inquirer reports. To pay returns this way isn't inherently illegal unless investors are misled about the source, a form of fraud known as a Ponzi scheme.
Even if above board, requiring constant new investment in order to pay back previous investors risks leaving little capital left over for the business of real estate investment and development. Assisting NRIA in executing the high-risk strategy was Thomas Nicholas Salzano, also known as Nick Salzano, who acted as a major executive at the company, though NRIA said he was never an official employee, the Inquirer reports.
Salzano had been accused of fraud, arrested and fined several times in the early 2000s over the collapse of multiple telecom companies, which NRIA said it was not aware of when bringing Salzano on as a consultant in 2006, the Inquirer reports. Salzano's son Dustin serves as USC's CFO and has worked at the company since 2008, Palladino confirmed to Bisnow. A December article by NJ Advance Media about NRIA's legal troubles said that Dustin Salzano had served as a board adviser for NRIA since 2007. Palladino denied the connection.
"Dustin has never been a member of NRIA, never was and never will be," Palladino said, adding that Nick and Dustin Salzano's relationship "has nothing to do with the business end of it."
In March, Nick Salzano was arrested on federal charges of wire fraud and identity theft for allegedly falsifying documents with NRIA founder Rey Grabato's signature on them to procure a $150K investment for the company. The SEC filed civil charges against Salzano over the same allegation in July, around the same time NRIA severed its relationship with him.
