A federal bankruptcy court judge granted approval Friday for Madison Realty Capital to replace Raphael Toledano as the property manager of 15 troubled East Village rental buildings while both parties work out a deal to transfer ownership.
Madison, the lender on the properties and secured creditor, is negotiating a deal to acquire the deeds from Toledano’s Brookhill Properties. Sources close to both firms said they have signed a term sheet outlining a deal in which Madison would pay a sum of less than $10 million, which Toledano would use to pay off other creditors.
Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York approved a motion directing all forthcoming rents and managing rights to Silverstone Property Group, the property management arm of Madison, effective immediately.
An affiliate of Brookhill had filed for Chapter 11 bankruptcy protection on the multifamily properties March 28, more than a month after Madison filed to foreclose on the package of buildings acquired by Toledano in 2015.
As part of the order, the judge prohibited Silverstone from renovating the vacant apartments for the time being aside from emergency repairs.
“Through its initial visits with the properties, [Silverstone] has determined that many of the issues are related to the prior manager’s elimination of staff from the properties, which in [Silverstone’s] opinion are crucial to the smooth operation of the properties,” Silverstone managing director Phillip Lavoie wrote in a court document.
Lavoie added that Silverstone will act to remove the building violations. The firm manages 40 buildings holding more than 2,000 units, Lavoie said.
Representatives for Madison and Brookhill declined to comment.
Toledano had been in contract to sell the buildings to Joseph Sutton, Jeff Sutton’s son, for about $145 million, but that deal was called off.
Madison, which has been accused of loan-to-own practices in the past, claimed in its foreclosure filing that Toledano owes roughly $140 million, including $125 million in loans against the 15 properties, plus interest and attorneys’ fees. Madison, an investor-lender led by Josh Zegen, Brian Shatz and Adam Tantleff, had provided the financing for Toledano’s $97 million purchase of the buildings in September 2015 from the Tabak family. The loan, which critics called overleveraged, was intended to cover future renovation costs in addition to the acquisition.
In recent months, Toledano made quick profits selling a few buildings outside of the 15-building portfolio. He sold 58 St. Mark’s Place in November for $12.3 million after having bought it for $3.8 million in November 2015; sold 221 East 10th Street in October for $10 million after having bought it for $3 million in November 2015; and sold 218 and 220 East 27th Street in December for $13.1 million after having bought them for $4.6 million in July 2015, records show.