Bad Landlord, Bad Lending
Tenants and Elected Officials Call Out Madison Realty Capital and Signature Bank
Last week, tenants living in a portfolio of 20 buildings in the Lower East Side owned by the notorious landlord Rafael Toledano took to the streets, accompanied by elected officials and a brass marching band, and marched from the headquarters of Madison Realty Capital to Signature Bank to call them out for financing Toledano. (See press from the event in EV Grieve, The Villager, and The Bowery Boogie.)
Irresponsible multifamily lending has real consequences. Bad lending includes loans that are too large to support the current rents, and it can also include simply lending to known bad actor landlords who have a track record of harassment and neglect. Both circumstances appear to be the case for buildings owned by Rafael Toledano.
Rent-regulated multifamily housing is one of the most important sources of affordable housing in the city, and rent regulation is a key part of preserving that affordability. But our City is losing rent-regulated housing at an alarming rate – we lose over 11,000 units of rent-regulated housing every year.
Too often, unscrupulous landlords use illegal and semi-legal tactics to push out low-rent paying tenants so they can take advantage of loopholes in rent-regulation to dramatically increase rents. For a family that is evicted, losing that affordable housing can be a devastating blow, especially in our City where affordable units are already scarce and irreplaceable once gone. This alleged type of behavior by Toledano is what led tenants across these 20 buildings to come together to form the Toledano Tenants Coalition. Under Toledano’s ownership tenants have faced a lack of essential services like cooking gas, buyouts with no attempts to follow new applicable laws (local laws 79, 80, 81); irresponsible construction that has led to collapsed ceilings and high lead dust contamination; and numerous lawsuits brought against tenants.
Toledano can’t do this alone – he needs financing. In September of 2015, private equity lender Madison Realty Capital loaned Toledano $124 million to buy 16 buildings throughout the East Village. He paid just $97 million for the portfolio. News coverage has documented some of the risky lending patterns that Madison Realty Capital maintains. The Real Deal later quoted a veteran real estate investor regarding this deal, saying that MRC’s $124 million loan to Toledano left him “over leveraged,” and that Toledano is now “pushing up rents to pay off a high mortgage.” One of the mortgages Madison Realty Capital issued Toledano went as far as to require him to spend $2 million of the loan exclusively on tenant buyouts or renovations – practices which often trigger huge rent increases. As outlined above, tenants in Toledano’s buildings have faced alleged harassment and extensive building issues ever since he took ownership. Signature Bank played a role here as well. On the same day the mortgage was made to Toledano, Signature issued a loan to Madison Realty Capital with this same portfolio held up as collateral. All of this financing happened despite numerous articles about Toledano’s practices, the most public being his alleged harassment of tenants through aggressive buyouts at 444 E. 13th Street, which led to a reported $1 million settlement.
Lenders must be held accountable, especially bank lenders like Signature Bank that are covered by the Community Reinvestment Act (CRA). Under the CRA, banks can get community development credit for multifamily loans where the rents are affordable to lower-income tenants. At the same time, most regulators will not give credit if the buildings are in bad condition or if the loans lead to displacement or a loss of affordable housing, as was the case with Toledano’s portfolio. Due to the nature of the loan, Signature would likely not submit it for CRA credit; but regardless, banks should uphold both the letter and the spirit of the CRA by ensuring that the loans they make and the loans they use as collateral uphold these standards to preserve affordable housing and protect tenant’s rights.
Landlords like Toledano should not have access to financing without strong tenant protections in place. Signature should not allow these loans to be used as collateral without similar protections. Finally, bank and non-bank lenders should be monitoring their loans and collateral to ensure they are held to the highest of standards with regards to quality and tenant protections.
ANHD urges all involved parties to push Toledano to restore essential services and end his harassment of tenants through buyout offers, court cases, and aggressive construction tactics. The tenants deserve no less.