Tag Archives: Signature Bank

This is What a Bad Loan Looks Like

Tenants, community advocates and policy makers have been ringing the alarm bell about bad mortgage lending in mutlifamily buildings. Over the past few years, we have opened up an important dialogue with regulators and banks who understand that bad lending is a direct threat to our neighborhoods. Based on our research and analysis, we define “bad lending” as mortgages that may be speculative because they appear to be underwritten based on the assumption that rent-regulated tenants paying modest rents will leave at an unusually high rate. We also define “bad lending” as loans to developers with a documented history of harassment and displacement of tenants as a business model.

Sometimes, the warning signs of a bad loan are subtle. Sometimes, the warning signs are obvious. Here is an obvious example of what we believe is “bad lending”:

The Real Deal recently reported on a new loan by Signature Bank to Icon Realty to enable them to purchase a building in Manhattan. Even the industry raised an eyebrow at the deal, saying “More than half of the apartments at 199 W. 10th St. are rent-stabilized, though the high price would not seem to reflect low rents.”

Here are two obvious warning signs that make us concerned about the loan:

• The Underwriting: Signature loaned Icon $9.5 million towards a total purchase price of $17.5 million. From the existing publicly available data, this price looks to be nearly 40 times the rent roll. This is more than triple a commonly accepted rule of thumb for a responsible rent-roll multiplier. From what we can determine from the publicly available information, the total debt service coverage ratio of the building may also be significantly below 1.2X, a commonly accepted standard for responsible underwriting indicating that the current income on the property can pay off the mortgage without improperly or quickly raising the rents. The concern is clear: this loan appears to be underwritten based on the assumption that the low-rent paying rent-regulated tenants will be quickly pushed out of the building.

UPDATE as of April 23, 2018: On April 12th, Representatives from Signature bank and Icon Realty told tenants directly that the loan was underwritten to the in-place rents, with a commitment to protect in-place tenants and not charge MCIs.  We and the tenant organizers will be vigilant in holding the bank and landlord to those commitments

• The Borrower’s History: The press reported this year Icon was under investigation by the Tenant Harassment Prevention Task Force, and in late September, they reached a $500,000 settlement in response to their alleged tenant harassment and the hazardous living conditions they created. This joint task force is comprised of the Governor’s Tenant Protection Unit, the New York State Attorney General (NYAG), and New York City’s Department of Housing Preservation and Development (HPD) and Department of Buildings (DOB). Icon was the first landlord they investigated together.  

Prior to the investigation by the Governor’s Joint Task Force on Harassment, tenants across Icon buildings combated these practices collectively as Icon Community United, which is supported by Cooper Square Committee and St. Nicks Alliance. As one Icon tenant in a “construction as harassment” poster-child building told a community organizer: “Icon purchased my building in March of 2015. Since then, my neighbors and I have lived through a constant barrage of demolition construction, causing insurmountable noise, frightening vibrations, and incessant, unconquerable dust. In my home, I’ve experienced extensive water damage and multiple ceiling collapses; in one instance, an entire load of construction debris, which hadn’t been properly disposed of during renovations, fell through my bathroom ceiling. In my eyes, and in speaking to other ICON tenants, their practices since the Attorney General’s investigation remain unchanged.”

As one of the largest multifamily lenders in the city, Signature’s lending practices matter and have consequences when not done responsibly. The tenants in buildings owned by landlords whose poor treatment of tenants have made headlines – including Raphael Toledano, Icon Realty, Ved Parkash, and others – know this first-hand. They have reported facing aggressive buyout offers, lack of heat and hot water, dangerous construction and lead poisoning, rats, vermin, and more.

The principals of best practices for responsible multifamily lending are straightforward: responsible underwriting, appropriate vetting of borrowers, and responding to issues in buildings when problems arise. ANHD and our member groups have been meeting with Signature Bank to discuss these issues, and we appreciate the genuinely meaningful effort the bank has put into these open and productive conversations about best practices in mutlifamily underwriting and lending.

But the recent loans by Signature Bank to Icon Realty and Ved Parkash fly in the face of best practices. ANHD and our member groups call on Signature Bank to commit to the full set of best practices. And where “bad lending” has already occurred, we call on the bank to proactively ensure that tenants in these buildings and others they hold are protected from any future harassment or displacement.

Jaime Weisberg, ANHD’s Senior Campaign Analyst

The “Bad Boy” Carveout

What the Attorney General’s Court Filing Says About Signature Bank, Madison Realty Capital, and the Business of Tenant Harassment

There has been a growing drumbeat of public criticism of tenant harassment in buildings with mortgage loans from Signature Bank, culminating last month in a tenant picket in front of Signature Banks’s Annual Investors Conference. Tenants have been telling the bank and the media that the harassment they are experiencing is both severe and intentional and that the bank should be aware of the damage their lending is enabling.

Now, a new court filing by New York State Attorney General Eric Schneiderman has exposed subpoenaed documents that appear to validate the tenants’ concerns: Signature Bank and Madison Realty Capital underwrote loans where the cost of the debt-service payments were far higher than the landlord could afford unless he kicked out the low-rent paying tenants. In fact, the landlord had an explicit plan that was understood by the lenders to do just that.

While tenants have raised concerns about a number of different buildings with Signature Bank loans (Read the letter tenants delivered to Signature’s board), the Attorney General’s filing focused on a portfolio of 15 rent-stabilized buildings in the Lower East Side that were purchased in 2015 by the now notorious Raphael Toledano. The Attorney General’s May 15^th filing focused primarily on the role of the primary lender on the buildings, a non-bank lender called Madison Realty Capital, objecting to a proposed bankruptcy order involving the Toledano buildings.

The Attorney General argued that internal, subpoenaed documents show that Madison Realty Capital was engaged in a predatory “loan to own” scheme that was both financially irresponsible and designed to displace rent-stabilized tenants. Ultimately, the buildings fell into foreclosure when Toledano was unable to pay his debts to Madison Realty Capital. The Toledano-related entities that own these 15 buildings subsequently filed for bankruptcy and worked out an agreement that would allow Madison Realty Capital’s  management arm, Silverstone Property Group, to  manage the buildings during the bankruptcy.  The Attorney General argues that Madison Realty Capital’s predatory scheme leaves them with “unclean hands”, and that the proposed bankruptcy order would unfairly allow them to maximize their own profits at the expense of the tenants and other unsecured creditors.  The bankruptcy judge nonetheless disregarded the Attorney General’s objections and adopted the proposed order. While we are disappointed by this decision as a technical matter in the bankruptcy case, it does not change the underlying facts that were revealed in the AG’s filing about the lenders’ predatory approach.

The subpoenaed documents and the Attorney General’s filing clearly suggest that Signature Bank also has “unclean hands”.

On the same day that Madison Realty Capital originated their loan to Toledano, Signature issued a loan to Madison Realty Capital with this same building portfolio used as collateral. The Signature Bank Loan data file makes clear that Signature Bank was complicit with Madison through their collateral loan “to provide capital for funding of the underlying loan,” together financing Toledano’s plan to displace and remove long-term tenants.

Rent-regulated multifamily housing is one of the most important sources of affordable housing in the city, but our City is losing rent-regulated housing at an alarming rate, with over 156,000 units of rent-regulated housing lost from 2007 to 2014 alone. Too often, unscrupulous landlords, like Toledano, 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. In fact, the Attorney General filing describes the harassment tactics the Toledano Tenants Coalition has been reporting for years: aggressive, fraudulent, and improper buyout offers; frivolous lawsuits; and unlawful, hazardous renovations that resulted in losses of essential services and elevated lead levels. They also note that some of the “market-rate” apartments targeted to vacate may have been improperly removed from the rent-stabilization system.

Lenders should not be enabling this growing crisis with bad lending, but Signature Bank did exactly that.

ANHD has a set of common-sense best practices for responsible multifamily lending, but Signature Bank has rejected the need to follow them. The Toledano deal illustrates what can happen to low- and moderate-income New Yorkers when these guidelines are not followed.

• Best Practice #1: Lenders should underwrite to a minimum Debt Service Coverage Ratio of 1.2, based on current, in-place rents and realistic maintenance costs.

But, Signature and Madison underwrote the loans to a Debt Service Coverage Ratio of 0.83, meaning that Toledano would only have 83 cents in income for every $1 in debt he owed, unless and until he could rapidly increase the income, presumably by pushing out low-rent paying tenants. In fact, Signature Bank’s underwriting report explains that the Debt Service Coverage would rise to 1.27 when 41 rent-regulated tenants accepted buyouts, nine vacant units were occupied, and extensive renovations were completed.

One of the four mortgages Madison Realty Capital issued Toledano required him to spend $2 million of the loan exclusively on tenant buyouts or renovations. And the Attorney General filings revealed that a $4.3 million mortgage was specifically for tenant buyout payments and other “soft costs.”

From Pages 1 and 3 of the Signature Bank Loan Data File:

• Best Practice #2: Lenders should ensure realistic appraisal values, based on current rents, building conditions, and maintenance costs.

But, both Signature and Madison’s loan documents demonstrated that the Net Operating Income (NOI) was insufficient to cover just the interest payments on the loans and there was virtually no way he could pay off the loans within the two year term. The Attorney General asserts “Toledano and Madison’s Impossible ‘Plan’ for Increasing Property Values Relied on Unlawful Conduct and Tenant Harassment”.

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 Debtors’ unlawful conduct – including, but not limited to, illegal and unsafe construction; tenant harassment; and the failure to operate these properties properly for tenants who chose not to vacate – was a consequence of these unaffordable loan terms. [Paragraph #79 of AG’s Objection to Final Consent Order]

From Signature Bank Corporate Credit Offering Memorandum:

Signature files reveal that the bank knows and trusts Madison’s business model and had no problem supporting them in making these loans. In fact, this led them to lower the risk assessment in relation to this particular loan.

According to the HPD’s analysis, the parties overvalued the properties and drastically underestimated the maintenance costs. In fact, HPD estimated that the true maintenance costs would be four times the amount in the loan documents. [Paragraph #45 of AG’s Objection to Final Consent Order] The filing also noted that the planned renovations to add bedrooms and drive up the prices included illegal bedrooms that would be too small and lack required windows.

Signature Bank, for example, has engaged in numerous transactions with Madison, including by purchasing a $70 million share of Madison’s debt on the East Village Portfolio. According to internal documents provided to the NYAG, Signature agreed to accept Madison’s loan to Toledano as collateral for its own $70 million loan to Madison, in part because Signature recognized that Madison “would have no problem foreclosing and or owning” the Portfolio when the loan to Toledano entered into default. … Signature also observed that Madison had significant experience with the type of scheme proposed by this deal, and that with many of the buildings Madison owned it had “purchased the buildings, gut renovated units and re-leased them at substantially higher rents.” [Paragraph #32 of AG’s Objection to Final Consent Order]

• Best Practice #3: Lenders should consult multiple sources to evaluate the record of landlords and property managers, including their record of managing properties that are not within the bank’s portfolio.

Toledano’s background check should have raised major red flags for any potential lender. He is a convicted felon and known for fraudulent behavior. He had very little experience as a property manager and one of his first deals led him to pay a reported $1 million settlement for harassment of tenants. Rather than turn the lenders away, Madison and Signature loaned him $124 million and Madison gave Toledano another $1.1 million mortgage to pay this settlement. [See Paragraph #37 of AG’s Objection to Final Consent Order]

In fact, Signature Bank’s underwriting documents refer to their “standard recourse ‘bad boy’ carveouts” in the loan documents. While the term is especially poetic, this may actually be a relatively standard mortgage clause. But, if Raphael Toledano doesn’t trigger the “bad boy’ clause, who does?

ANHD also recommends that banks hold regular information sessions with tenant organizers, hire a point person to meet with tenants and organizers when problems arise, take proactive steps to address issues in buildings, and decline to make loans that don’t meet the above criteria.  Banks should also participate in a “first look” program to transfer buildings with distressed loans to responsible preservation-minded developers.

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. Banks should uphold both the letter and the spirit of the CRA by ensuring the loans they make and the loans they use as collateral uphold these standards to preserve affordable housing and protect tenant’s rights. ANHD urges Signature to commit to these best practices. 

Likewise, non-bank lenders like Madison are not licensed by the New York State Department of Financial Services and are not covered by the CRA. ANHD believes that regulators should explore how they can license and regulate non-bank lenders in order to create protections for tenants in buildings they finance.

Tenants Take Demands for Responsible Lending to Signature Bank Shareholders Meeting

Tenants living in buildings financed by Signature Bank complain about poor conditions and indifference from the bank

NEW YORK — This morning, tenants from 10 community organizations and their allies, including Senator Brad Hoylman, Senator Gustavo Rivera, and a representative from Public Advocate Leticia James’s office filled the sidewalk with a picket line outside of Signature Bank’s annual shareholders meeting in Manhattan. At the rally, the tenants and elected officials tried to hand-deliver a letter to the board of directors to demand responsible lending practices to protect their rights and health, and preserve our stock of affordable rent-regulated housing.

Tenants living in properties financed by Signature Bank have been complaining about alleged harassment, unsafe construction activities, poor housing conditions and questionable rent increases. They expressed concerns about multiple landlords who have Signature loans, including Ved Parkash, Raphael Toledano, Ink Properties, Icon, and A&E. Advocates also noted that Signature has made loans on buildings formerly owned by Marolda Properties, which is under investigation by the Attorney General’s Office.

“I lived at 750 Grand Concourse for 15 years, in the basement. I never knew it was an illegal apartment. In February, I was evacuated after we found out about the disease that rats brought into the building because my landlord, Ved Parkash, never did enough about the rats,” said Carlos Chavez, a tenant leader from CASA. “All these troubles are due to the negligence of the landlord. But, I can’t believe he is still getting loans from Signature.”

Chavez lived in the South Bronx building where the rat infestation was so severe it led to the illness of a tenant earlier this year from a rat-urine-borne disease. When eight illegal basement apartments were cleared, those tenants were displaced. Chavez lived in a hotel in Queens until last week, when he was forced to leave. He still has no home. Additionally, advocates report that rat infestation and other poor conditions have persisted for years — and are ongoing — in this and other buildings owned by Ved Parkash.

Elected officials also expressed concerns over Signature’s actions. Several joined tenants in their demand for responsible lending.

“By providing him with significant financial support, Signature Bank has not only allowed Mr. Parkash to continue purchasing buildings across our City, but they have also aided in him subjecting thousands of New Yorkers, in particular Bronxites, to unacceptable living conditions,” said State Senator Gustavo Rivera. “I urge Signature Bank to reconsider its relationship with such a careless landlord and I remain committed to working with the North West Bronx Community and Clergy Coalition (NWBCCC) and the other coalition members as we stand in support of those tenants who continue to be subjected to nefarious and inhumane living conditions.”

“Time and again we see unscrupulous landlords not only subjecting New Yorkers to inhumane conditions, but using discriminatory and illegal tactics in an effort to force tenants out of affordable homes,” said NYC Public Advocate Leticia James. “It’s time to stand up to the banks that finance the worst landlords and stop the flow of money. We will always stand with tenants, and will never stop fighting for the right for every New Yorker to have a safe and decent home.”

“Signature Bank is not only failing to be a good neighbor, but is choosing to support several of the bad neighbors and bad actors in our community who are a part of the problem and not the solution,” said New York City Councilmember Vanessa L. Gibson. “On behalf of my district, I am proud join with ANHD, CASA, Northwest Bronx Community and Clergy Coalition, Urban Justice Center and all of the housing advocacy organizations in calling on Signature Bank to commit to the best practices included in this letter and I strongly urge them to reconsider their partnerships with negligent landlords who profit by taking advantage of their tenants. We aim to work with those who always have the best interests of our constituents and see people over profits in the collective work we do to build and maintain quality housing for all New Yorkers!”

Tenants and their allies want Signature to adopt policies that safeguard tenants and communities. They contend that negligent and malicious landlords cannot operate without financial backing from banks.

“We have serious concerns about Signature Bank’s lending practices in New York City, particularly on more affordable rent-regulated housing,” said Jaime Weisberg, Senior Campaign Analyst at the Association for Neighborhood and Housing Development. “Signature Bank is financing some of the worst actors in the city, who have contributed to displacement, hazardous construction, dangerous living conditions and a loss of essential services for tenants.”

When tenants from Raphael Toledano’s buildings asked Signature to commit to a set of best practices, the bank refused. So they took their demands directly to Signature’s board of directors and shareholders. In the letter they presented at this annual meeting, they asked the bank to adopt multifamily lending best practices, including the following measures:

• Responsible underwriting based on current, in-place rents (including preferential rents) and realistic maintenance costs
• Realistic appraisals
• Consult multiple sources to evaluate the record of landlords and property managers
• Hold regular information and engagement sessions with tenant organizers and tenant leaders
• Hire a point person who will visit buildings and meet with tenants
• In cases where the loan has already been made, work with borrower, community organizations, tenants and the government to address issues
• In cases where the loan is under consideration, proactively address issues or decline the loan application
• Use the same standards for collateral loans and loans made through a mortgage broker
• Participate in the First Look Program to transfer buildings with distressed loans to responsible preservation-minded developers

A letter to demand immediate action was delivered to Signature officials attending the meeting. The letter, signed by tenant organizations, was also sent to regulators, city council members and other allies. The group awaits a response from the bank.

“For years, our organization has partnered with community groups to represent tenants across Signature Bank’s multifamily portfolio in court,” said Rajiv Jaswa, a staff attorney at the Community Development Project of the Urban Justice Center. “In most cases, it seemed everyone but Signature Bank ultimately paid a price: Tenants suffered in unsafe homes; landlords eventually paid for repairs and fines; taxpayers paid for inspections. Signature apparently still turned a profit. Today, we stand with our clients and ask Signature Bank to take responsibility.”

“Signature Bank needs to stop propping up slumlords like Toledano and Icon Realty,” said State Senator Brad Hoylman. “Do their shareholders understand that Signature is lending to developers whose apparent goal is the displacement of rent-regulated tenants? These slumlords have shown they will stop at nothing to force our long-time community members out of their homes and small businesses.”

Click here to see more photos from the demonstration.

Bad Landlord, Bad Lending Continued

Signature Bank continues to finance known bad-actor landlord Ved Parkash

A bad landlord damages a community, sometimes with serious consequences. In the case of Ved Parkash’s 750 Grand Concourse, the building’s long-term rodent infestation problems recently flared up into a major public health scare. Tenants in Parkash’s buildings have been dealing with problems for years, including poor conditions, vermin, and scores of potentially meritless eviction proceedings for nonpayment of rent. He is a regular on the Public Advocate’s Worst Landlord List. Then things got much worse. Last week, newspapers reported that the building is stricken with a rare rat-transmitted illness that sickened two people and killed one.

But conditions like these are nothing new with Ved Parkash. His lender – Signature Bank – should have known better.

Tenant organizers at New Settlement Apartments Community Action for Safe Apartments (CASA) and the Northwest Bronx Community and Clergy Coalition (NWBCCC), along with legal support from the Urban Justice Center (UJC), have long been working with tenants in multiple buildings owned by Ved Parkash. Tenants from these organizations publicly announced the formation of the Parkash Tenants Coalition in June 2016, which includes residents in over 10 buildings who are working collectively to address issues in their homes.  The coalition is currently suing Parkash in housing court over four buildings where Signature Bank holds the mortgage, including 750 Grand Concourse, 1530 Sheridan Ave, 2454 Tiebout Ave, and 315 East 196^th St.

But, as we’ve said before, bad landlords cannot do it alone: they need financing. Signature Bank made an $11.6 million loan to Ved Parkash for 750 Grand Concourse in March of 2016. At that time, Ved Parkash was named number one on the NYC Public Advocate’s List of 100 Worst Landlords, which “according to the list, the worst buildings in the Bronx include 2075 Wallace Ave., 750 Grand Concourse, 20 West 190th St. and 875 Longwood Ave.”

In addition to being on the list, conditions at 750 Grand Concourse and other Parkash buildings were covered by the press before this loan was made, including a January 2016 Bronx News 12 story. “At another of Parkash’s buildings, this one on Grand Concourse, another tenant’s ceiling is falling apart due to a leak,” the story reported. “Alice Funmilayo, 70, says that the damage returns every winter. Nothing, she says, is permanently fixed.” Signature Bank was notified about both of these buildings in ANHD’s letter to the bank and its federal regulators at the time of their 2016 Community Reinvestment Act (CRA) exam. One month later, the bank made the loan.

Tenant organizers at CASA have been working in 750 Grand Concourse since September 2015.  Organizers have witnessed serious leaks, rampant vermin, paint peeling (including lead paint), bathroom appliances detached from the walls, and shoddy repair work.  One woman’s toilet and sink were removed and dumped in her bathtub in order to “replace tiles,” where they remained for several days. While holes get loosely patched over, tenants have been without access to their laundry room for over a year because Parkash has not fixed a gaping hole there.

An April 2016 Daily News article about a tenant-led housing court lawsuit leads with the rat problem; “Inside a building on the Grand Concourse blocks from Yankee Stadium, Rico Moreno hears rats scratching at his rotting bathroom tiles when he tries to take a shower,” the article read.

While the number of HPD violations may have gone down in recent months, especially after tenants sued Mr. Parkash for repairs, this February 2017 New York Times article about the recent tragedy outlines longstanding issues in the building, as well as the fact that the Department of Buildings Commissioner reported 750 Grand Concourse as having “some two dozen open violations against the property.” The article also describes how tenants have suffered through his behavior for years.

Yet, Signature ignored the problems, and even continued to work with him by financing his most recent purchase of 2905 Kingsbridge Terrace and 2988 Kingsbridge Terrace with a $16.5 million mortgage. UPDATE: And in early February, Signature made another $5 million loan to Parkash to finance his latest purchase of 11 West 172 Street.

The Toledano Tenants Coalition has also asked Signature Bank to be accountable for their lending. They represent tenants from buildings owned by known bad-actor landlord, Raphael Toledano. Signature made a collateral loan to Madison Realty Capital backed by these buildings.

Lenders must be held accountable for the impact their lending to bad-actor landlords has on communities. This is especially true for lenders like Signature Bank that are covered by the CRA since banks can get CRA credit for loans on apartment buildings where the rents are affordable to lower-income tenants. But regulators are becoming increasingly aware of the problems caused by bad landlords and bad underwriting, and will sometimes not give CRA credit if the buildings are in bad condition or if the loans lead to displacement or a loss of affordable housing. This is clearly the case with 750 Grand Concourse and other Parkash loans. It is time for Signature Bank to reform its practices and make a stronger commitment to responsible multifamily lending in New York City.

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. 13^th 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.