Will Rafi Toledano’s ban kill his real estate career?

Other outlawed investors went on to second acts, but his penalty is far worse

Shaya Boymelgreen, Rafi Toledano and Yair Levy (Getty/Illustration by Kevin Rebong for The Real Deal)
Shaya Boymelgreen, Rafi Toledano and Yair Levy (Getty/Illustration by Kevin Rebong for The Real Deal)

For a city with a bad-landlords list and a steady drumbeat of real estate horror stories, it’s extremely rare that an industry figure is banned from the business.

So when badboy landlord Rafi Toledano was exiled for five years this week by Attorney General Letitia James, it was a strong rebuke to one of the industry’s most controversial figures. The few who have received the punishment have, for the most part, failed to recover or have sought second acts in other states.

But Toledano, a high school dropout with a criminal record who by age 26 had built a $500 million rental portfolio, has shown incredible persistence and a willingness to push the limits.

For the volatile young mogul, the ban could be just another obstacle to overcome. Or it could be akin to the NCAA’s “death penalty” — a punishment so severe that offenders can’t bounce back.

Toledano’s lawyer, the high-profile criminal defense attorney Ben Brafman, emailed, “Mr. Toledano fully intends to honor the agreement.” The brief, humble reply stood in stark contrast to Toledano’s brash words in a 2016 interview with The Real Deal, which included the memorable boast, “I’m worth a fuckload of money, bro.”

The rebuke by James was unprecedented. In the handful of cases rivaling this level of punishment from New York attorneys general, developers were forbidden from selling co-ops, not shut out of real estate entirely.

“Banning someone wholesale from an industry is a pretty extreme response,” said Kirk Brett, a litigation and bankruptcy specialist at Duval & Stachenfeld. “You don’t get many of these stories for a reason.”

Developers who faced harsh punishments in the past have found ways around it. Some got family members to buy properties. Others rebuilt their portfolios in New York’s “sixth borough,” Miami, a haven for second acts.

Storybook narrative

Toledano’s rise and fall in New York real estate was like few others.

Raised in the Orthodox community of Lakewood, New Jersey, Toledano proved ill-suited for formal education. “Never made it through ninth grade, baby,” Toledano said in his 2016 sit-down with TRD.

But despite dropping out and getting two years of probation for beating two teenagers with a crowbar in an incident involving his sister, Toledano made his name as a broker in Brooklyn and Long Island and began buying small, multifamily properties.

His big break came in 2015 when he acquired a portfolio of rent-stabilized buildings in the East Village from the Tabak family, with whom he had a relationship, and scored two mortgages totaling $124 million from Madison Realty Capital.

Trouble soon followed. The debt service on some of his properties required more revenue than they had been producing, and under rent stabilization rules at the time, the key to quickly increasing income was getting low-paying tenants out.

Tenants filed lawsuits accusing Toledano of trying to scare them off with unlivable conditions and rent increases so he could convert their units to market-rate. Toledano’s uncle Aaron Jungreis, one of the city’s top multifamily brokers, sued him for cutting him out of a $97 million purchase, before the two settled.

And in 2015, The Real Deal found that Toldeno had used a fake law firm to solicit new business.

“When you go from zero to 60 in three seconds, sometimes you exceed the speed limit,” he later explained.

In 2019, the attorney general’s office found Toledano was indeed harassing tenants. The probe led to a $3 million settlement that banned him from interacting directly with tenants and subjected his business to an independent monitor. If Toledano violated the agreement, he would face a lifetime ban from the industry and a $7 million fine.

Toledano’s history of pushing boundaries had made him rich, but this time it was his undoing. He soon violated the order by failing to properly disclose his investments to the monitor.

“The original 2019 stipulation was a tough stipulation,” said Steven Wagner, a real estate attorney at Adam Leitman Bailey P.C. “It allowed him to continue, albeit with many controls and fail-safe systems to identify if he was not being a good boy. And he was not a good boy.”

In late 2020, James filed an 85-page document detailing the ways in which Toledano was violating the consent order. The violations do not relate to the East Village portfolio, which is now controlled by Madison Realty Capital. A spokesperson for the lender did not respond to a request for comment.

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The properties James cited include 449 Broome Street in Soho, 449-451 Court Street in Carroll Gardens and 495 Amsterdam Avenue on the Upper West Side, according to court filings.

In the Amsterdam Avenue case, the attorney general said Toledano engaged in a series of actions leading to the sale of the property in 2019, but only alerted the monitor about the deal on the day it was scheduled to close. With 449-451 Court Street and 499 Broome Street, Toledano either said nothing until after the deal closed or did not provide the monitor with all of the information required by the consent order.

Toledano’s excuse to James’ office for the lack of documentation was that he “conducts all of his business in person or over the phone and has no written communication.”

Other violations include a stop-work order at one of his properties. Toledano was also in arrears for the payments due in his consent order.

His five-year ban is written broadly, to cover any real estate activity in New York state. It prohibits Toledano from investing in or owning real estate, other than for his personal use. He can’t participate in any other activities related to real estate, including anything that would require a broker’s license.

Violating the agreement would trigger a lifetime ban and a $7 million. In five years, Toledano will be eligible for reinstatement, with a judge’s approval. Lawyers say he will be closely monitored.

“He is going to be under quite a microscope,” said Claude Szyfer, a litigation attorney with Stroock.

In addition, Toledano must liquidate his remaining property holdings in New York. He has not commented beyond Brafman’s statement.

Past punishments

Other investors have been barred from some activities in New York real estate.

In 2011, developer Yair Levy, who rose to prominence doing high-profile condo conversions in the early 2000s, was banned for life from selling condos and co-ops in the state.

The punishment stemmed from his conversion of the rental building at 225 Rector Place in Battery Park City in 2008. A state judge found Levy had drained the condo’s reserve fund and used the money for personal and business expenses.

The attorney general who imposed the penalty, Eric Schneiderman, declared, “Yair Levy is out of business.” He wasn’t.

Levy tried to make a comeback in 2014, believing he had found a loophole that allowed him to sell condo units through his family trust. He planned to focus on small fixer-uppers and commercial renovations.

“Most people went through tough times in 2008,” Levy told Crain’s in 2014. “People think I have a bad name, and that’s why I am trying to explain this story. [People are] mistaken as far as what happened in the past.”

He moved on to Miami, where he is seeking to revive the downtown jewelry district and is leading a $50 million renovation of an abandoned property.

In 2016, another product of the early 2000s market boom, developer Shaya Boymelgreen, was banned for two years from selling apartments after the attorney general alleged he refused to finish work and fix construction defects at half a dozen buildings in Manhattan and Brooklyn.

Boymelgreen had spent the boom times partnering with Israeli businessman Lev Leviev and became one of the city’s highest-profile developers before the recession left him with a mess of failed condo projects.

Facing mounting lawsuits, Boymelgreen basically disappeared. But like Levy, he resurfaced in Miami. A company controlled by his wife, Sarah, son, Shmuel, and another relative, won approval to build 49 residential units in Miami Beach before selling the project in 2017 for $31 million.

The terms of Toledano’s order, however, go well beyond those of Levy and Boymelgreen’s, Wagner noted.

“He is banned from real estate and he had to divest himself of … everything other than his personal home,” the attorney said.