Madison Realty Capital has agreed to give more than $1 million in rent credits to tenants of Raphael Toledano’s East Village portfolio — once it takes over the 15 buildings.
The private equity firm settled claims that when it issued Toledano $124 million to acquire the properties, it knew or should have known that the landlord’s business plan hinged on aggressively and illegally deregulating apartments. Last year, Toledano agreed to pay $3 million to settle allegations that he coerced tenants to take buyouts and used unsafe construction to force residents out.
“Madison Realty Capital aided one of our city’s worst landlords in his unlawful scheme, but we’re holding the company to account and delivering real relief to the many victims through rent credits and housing placement,” New York Attorney General Letitia James, whose office initiated the investigation against Madison, said in a statement.
Under the settlement agreement, Madison wasn’t required to admit wrongdoing.
“We are pleased to have resolved this matter without admitting or denying any of the allegations raised, and will continue to work with the tenants and community stakeholders to continue to improve the buildings and bring positive change to the community,” a spokesperson for Madison said in a statement.
The rent credits are intended for tenants who began living in the buildings on or before April 7, 2017. A subsidiary of Madison took over managing Toledano’s portfolio that year, when Toledano filed for bankruptcy. Toledano had paid $97 million to buy the properties from the Tabak family in 2015.
The agreement also settles $5 million worth of claims brought by the AG against Toledano. Madison will instead pay $150,000. The settlement also resolves claims brought against Toledano’s business entities in bankruptcy court, allowing those proceedings to move forward. An amended bankruptcy plan was filed with the court on Tuesday.
The rent credits and the $150,000 payment are contingent on Madison acquiring the portfolio, which it plans to do as part of the bankruptcy plan. The plan must still be approved by the court. If Madison sells any of the properties before providing all of the rent credits, it will need to either distribute the remaining credits or ensure that the new owners take responsibility for them, according to the settlement agreement. Madison also agreed to provide housing within the portfolio to 10 formerly homeless families, whose rent vouchers will cover the legal rent for the apartments.
Madison and its affiliates also had to agree not to seek rent increases on any of the apartments through the state’s Major Capital Improvement program.
In January, The Real Deal reported that a bankruptcy plan had yet to be executed and that roughly half of the portfolio’s apartments have sat vacant since 2016.
Rich Bockmann contributed reporting to this story.