Predatory Equity—A Blight on Our City

As a rent-stabilized tenant at 325 East 12th St. in the East Village, I have seen predatory equity in action. When I moved there in 1973, the building was owned by Morton Tabak, who had bought it in 1971 for $58,000. Tabak’s family inherited the property in 2012. Three years later, they sold it to Raphael Toledano for $6.5 million. It was one of 15 buildings he acquired with a $124 million loan from Madison Realty Capital, a hedge fund worth more than $2.5 billion. 

In the two years that Toledano owned the building, rent-stabilized tenants were subjected to a harassment campaign that included hazardous demolition and renovation of vacant apartments, aggressive buyout offers, and frivolous lawsuits over succession rights and claims that the apartment was not the tenant’s primary domicile. There has been no cooking gas since May 2016, irregular heat and hot water, and one superintendent serves all 15 buildings in the portfolio. (The state Multiple Dwelling Law states that in buildings with 13 or more apartments, either the owner or a superintendent must live on site, in a connected building, or within 200 feet of the building.) 

Most of the remaining tenants are seniors, some in apartments that still have bathtubs in the kitchen. Many reported respiratory problems because of the construction dust. Some new tenants have been given short-term leases for four months at market rate. The rebuilt apartments often had illegal bedrooms without windows.

According to court papers filed by state Attorney General Eric Schneiderman in May, Madison Realty raised the loan’s interest rate to 24 percent after Toledano missed an interest payment in July 2016. It began foreclosure proceedings on the 15 buildings in late February. On March 28, David Goldwasser filed for Chapter 11 bankruptcy protection on behalf of the limited-liability companies that technically owned them. According to the document, Goldwasser now owns a controlling interest in the buildings, while Toledano has only 2 percent, and Yonah Halton owns the rest. 

Schneiderman alleges that Madison was using a predatory “loan-to-own” business model, creating a deal that “ensured that the debtors would default on these loans at the earliest possible date, because there was not enough income coming into these properties to cover the monthly debt servicing obligation.” The only way Toledano could even hope to pay back the loan on time, he wrote, was to “embark on a hyper-aggressive plan to drive up the rents in these buildings,” by evicting or buying out the rent-stabilized tenants, renovating the vacant apartments “often without regard to applicable housing and safety laws,” and raising rents to the point they were deregulated. Toledano also ran up more than $1 million in unpaid bills for taxes, insurance, utilities, and more costs. 

“Madison’s plan from the outset assumed that the debtors would engage in unlawful conduct in an effort to meet Madison’s loan terms,” the Attorney General wrote. Letting the fund take over the properties, he argued, would reward it for bad behavior, and would also preclude selling them to a new landlord “who would correct the unlawful conduct that has characterized the debtors’ management of these properties.”

Despite filing for bankruptcy protections on this portfolio, Toledano has made substantial profits quickly by flipping buildings in the area. According to The Real Deal real-estate newspaper, he bought 58 St. Mark’s Place for $3.8 million in November 2015 and sold it for $12.3 million in November 2016; 221 East 10th Street was bought for $3 million in November 2015 and sold for $10 million in October 2016; and 218 and 220 East 27th Street were bought for $4.6 million in July 2015 and sold for $13.1 million in December 2016. EV Grieve, an East Village/Lower East Side news blog, reported on May 4 that Toledano had purchased a $200 million portfolio in the West Village because “tenants are less organized there.”

Madison is now managing the 15 buildings under its Silverstone Property Group subsidiary. We, the tenants, are trying to ensure that our homes are salvageable. With help from the dedicated work of the Cooper Square Committee and the Urban Justice Center’s Community Development Project, we feel certain that we will reclaim our homes and stop predators from using our homes as money-making machines.