Commercial real estate investor Raheel Bhai’s twisted legal saga finally came to an end in a federal courtroom in Texas recently when he pleaded guilty to one count of wire fraud for allegedly obtaining a $149 million loan dollars from lender Benefit Street Partners by falsifying or falsifying dozens of documents, Encore now reported.
During his hearing, Bhai admitted to inflating the length and amount of lease terms his IBF company had with 24 Walgreens in 10 states to secure the loan, which Bhai said was to be used to refinance the properties as well as to create a new REIT.
As part of the loan agreement, Bhai established an account into which rent from all Walgreens leases would be deposited monthly.
Bhai prepaid $2.3 million, three months’ rent, into the account, telling Benefit Street Partners it was so he could iron out some difficulties he was having with Walgreens over rent payments, according to the point of sale. But the prepayment was actually intended to cover the actual amount of rent Walgreens was paying, which was less than he told the lender.
Instead of setting up a REIT, Bhai funneled around $21 million to family members through a shell company.
When Benefit Street Partners discovered the scheme, Bhai and several of his family members and associates fled the country, Bis Now reported. It was later revealed that $5 million of the loan proceeds were converted into cryptocurrency to help Bhai flee, according to Bis Now, citing a lawsuit against Bhai’s alleged co-conspirator Di Hao Zhang.
An IBF employee said she found bags at Bhai’s office and private residence containing shredded documents related to the scheme.
Bhai eventually returned to the United States to face criminal charges. He faces a prison term of up to 20 years and a fine of up to $250,000, the outlet reported.
As well as producing a few criminal indictments and several lawsuits, the case represents a cautionary tale for the commercial real estate industry, which has received huge infusions of cash from lenders eager to provide loans and perhaps overlooking fraud in the process.
“The purpose of the fraud is that there is some kind of cover-up,” attorney Bonnie Hochman Rothell, of Morris, Manning & Martin, told Bis Now. “With a smart fraudster, it might not be so obvious. Despite really diligent underwriting, a lot of lenders will miss something because they, too, have been defrauded.
Benefit Street Partners, for its part, said it did its underwriting properly, including its due diligence.