BY DENNIS LYNCH | Almost as quickly as he burst onto the East Village real estate scene, notorious landlord Raphael Toledano is on his way out of the neighborhood. The 26-year-old’s lenders filed court papers to foreclose on all 15 of his properties there this week.
Madison Realty Corp. is foreclosing to recoup $140 million — of which just under $125.1 million is in loans against the properties — according to the foreclosure statement. Toledano’s Brookhill Properties bought the properties from their longtime owners, the Tabak family, for $97 million in fall 2015. Madison lent him the funds — with high interest rates — for the purchase and future renovations.
The foreclosure isn’t exactly a surprise to the parties involved or anyone else familiar with New York real estate, according to a source familiar with the industry. It’s merely business as usual for Madison Capital, which often operates on a “loan-to-own” philosophy, said the source, who requested anonymity. It’s a win-win for Madison — either Toledano pays back his loan at the huge interest rates he signed up for, or they walk away with more than a dozen new properties in the East Village.
“They are lending money,” the insider explained, “but fully anticipate that the loan may not be paid back and are happy to go through the foreclosure process to own the properties for the money they lent.”
On top of that, Toledano “did all the dirty work” of clearing and renovating apartments, the source said. In other words, it’s Toledano’s name plastered in The Villager and other local media outlets for allegedly strong-arming rent-regulated tenants out of their apartments — not Madison’s.
Employees at Brookhill Properties did not return requests for comment on the foreclosure, and automated responses from two employees said they were no longer working there.
Real estate experts said in the past that Toledano was overleveraged from the beginning and that his success depended largely on how quickly he could raise the rents in his buildings. He became extremely unpopular with his tenants over the last year and a half, as he allegedly took to various tactics to boost revenues.
Many of his rent-regulated tenants accused him of putting them in danger and threatening them. They even formed the Toledano Tenants Union to confront him as a united force. Toledano settled for $1 million with tenants of one of his E. 13th St. buildings after they sued him for allegedly harassing them.
He was also known among his tenants for his bizarre behavior. There are reportedly taped conversation in which Toledano threatened to tenants to “drop dynamite” in one of his E. 13th St. apartments, according to Gothamist. And he sent gift baskets with wine and fruit to tenants of a building that went without gas or hot water for more than a month.
Craig Smith, a tenant in a Toledano building on E. Fifth St. sued him last year after the owner didn’t renew Smith’s family’s lease for their apartment. The case rests largely on whether Smith’s apartment is actually determined to be rent-regulated or not. Smith is technically suing the limited-liability company that Toledano created for the property — setting these up is a common landlord practice in the city — so the suit could continue if Madison chooses to pursue it.
Toledano has had some of these buildings on the market since last summer, even though he wrote in a 2015 Villager talking point that he was “determined to become a part of the fabric of the neighborhood.” He also told The Real Deal that he wanted to eventually hand his East Village buildings to his future children. In December, The Villager reported that he was shopping 13 buildings around for a rumored cool $160 million.
Another young real estate investor, Joseph Sutton, had reportedly signed a contract to buy Toledano’s portfolio for around $145 million just a few days before Madison filed to foreclose on them, according to The Real Deal. Sutton is the son of veteran investor Jeff Sutton. The fate of that deal is now unclear. Sutton did not return requests for comment.
Toledano’s exit from the Village doesn’t mean locals won’t be seeing more of him in the future, The Villager’s real estate source said. The real estate industry operates much differently than any other, he noted, and even after a colossal defeat, investors can rise from the ashes of a disaster like Toledano’s.
“The beauty and horrors of real estate is that it’s more forgiving than Jesus,” the insider said. “You can screw up or screw people any number of times and bankers will still throw money at you if they think they can make a buck.”