Brooklyn Properties in Bankruptcy, Fraud and a Madoff-Style Property Ponzi Scheme – Clever Fraudsters

Clockwise from left: 119 Rogers Avenue, 325 Franklin Avenue, 53-55 Stanhope Street and 73 Empire Boulevard (Credit: Google Maps)

Amid fraud case, a bevy of Brooklyn properties end up in bankruptcy court

Nearly 20 limited liability companies for individual multifamily buildings that are linked to a federal fraud complaint are now bankrupt.

The filings late last month in a U.S. bankruptcy court in White Plains also relate to over a dozen foreclosure cases initiated by an affiliate of Maverick Real Estate Partners, which in court filings is seeking information on the identity of the owner behind the low-rise, residential properties, all of which are scattered throughout Brooklyn.

In April 2017, Israeli investors Jacob and Binyomin Schonberg, Binyomin Halpern and Raphael Barouch Elkaim alleged in a complaint filed in federal court in Brooklyn that Yechezkel Strulovich and Yechiel Oberlander defrauded them out of more than $20 millionin a scheme carried out “in the style of Bernie Madoff.”

Eleven properties that are now in Chapter 11 proceedings — located predominantly in the neighborhoods surrounding Williamsburg and Crown Heights — were also named as defendants in the fraud case against Strulovich and Oberlander. That case, which a judge dismissed in part and sent to arbitration in 2017, included more than 40 defendants, mostly LLCs that have not filed for bankruptcy.

The LLCs that are bankrupt and own the underlying Brooklyn properties all list David Goldwasser of GC Realty Advisors as their authorized signatory, according to court filings. GC Realty is described as a commercial real estate advisory firm, per its LinkedIn page, which notes that it is based in Boca Raton, Florida, and has offices in New York. The state’s Division of Corporations shows that GC Realty has an address in East Midwood, Brooklyn.

Goldwasser is also listed as a principal at FIA Capital Partners, which is also based out of Florida and New York, according to his apparent LinkedIn profile.

A message left with FIA was not returned by the time of this story. The firm specializes in acquiring distressed properties and portfolios, according to its website.

Questions over control

The series of bankruptcies filed in White Plains starting on May 20 show that all of the properties, which number at least 18, are also affiliated with 73 Empire Development LLC. The latter owns the ground lease on a roughly 30,000-square-foot development site — it’s currently a vacant one-story retail building — at 73 Empire Boulevard in Crown Heights.

Empire Development, which is one of the defendants in the fraud case against Strulovich and Oberlander, also filed for bankruptcy in February. The debtor’s plan, according to court records in White Plains, is to build a 58,000-square-foot, two-story retail property at 73 Empire Boulevard.

But the connection between Goldwasser’s GC Realty, Empire Development and the 18 other bankrupt properties is not yet clear. Maverick, the debt fund led by David Aviram that buys distressed mortgages, wants some clarity on the matter.

A recent filing from the debtors claims that one of Maverick’s affiliates, Brooklyn Lender LLC, took on 13 notes and mortgages — totaling $36 million — on 26 properties that originated with Signature Bank. As a result of the Chapter 11 filings, Maverick wants a judge to allow a full examination into who controls the various debtors, pointing to Goldwasser’s name in court documents.

“To Brooklyn Lender’s knowledge, Goldwasser was not previously involved with the Debtors, and understanding his new role and responsibilities with respect to these Bankruptcy Cases and the Debtors’ management is of paramount importance,” Maverick said in a recent filing.

Maverick noted that when the Signature Bank loans were made, Strulovich maintained that he was the 100 percent sole member of the debtor entities. In the fraud case, however, he admitted this was not the case. In October 2017, Maverick’s Brooklyn Lender filed 14 foreclosure cases against the now bankrupt properties, alleging that the loans were in default, in part due to misrepresentations by their owners.

The petition made by Maverick in bankruptcy court now asserts that a further examination is needed to determine who actually owns the Brooklyn properties, citing a guilty plea by Goldwasser to defrauding two banks in the early 2000s. Goldwasser was sentenced to 27 months in federal prison — Federal Bureau of Prisons records show he was released in September 2005 — and ordered to pay $2.8 million in restitution. A judge also ordered that Goldwasser “is not to be employed in any position requiring fiduciary responsibilities.”

All of the debtors in the bankruptcy cases, except Empire Development, have opposed the motion by Brooklyn Lender, claiming that its parent Maverick has an “unspoken agenda” and that they are working on a plan that includes paying back Maverick. Lists of unsecured creditors in the various bankruptcy cases show that Brooklyn Lender is owed between $2.7 million and nearly $5 million, while the New York-based law firm Abrams Fensterman is owed a little more than $150,000.

Mark Frankel, an attorney with New York’s Backenroth Frankel & Krinsky representing the debtors in bankruptcy proceedings, declined to comment, as did Maverick’s Aviram, which is being represented in bankruptcy court by Stroock & Stroock & Lavan. Strulovich and Oberlander could not be reached and their lawyers did not return requests for comment.

Unresolved fraud claims

In the fraud case against Strulovich and Oberlander, the defendants said that the money they received from the plaintiffs would be invested in Brooklyn properties that they would buy, develop and rent out, with returns on those investments coming in six to seven months. The plaintiffs also would receive 45 percent of the profits from the multifamily purchases.

But plaintiffs claimed that Strulovich, Oberlander and other defendants inflated the value of that real estate and used their money to acquire and develop properties for their own personal benefit, pay off personal debts and support their “lavish lifestyles,” according to the civil complaint filed two years ago. The Brooklyn sites purchased with their funds were “left to languish, undeveloped and dilapidated,” alleged the plaintiffs.

“The entire process was nothing more than an elaborate fraud to personally enrich the individual defendants,” said their lawsuit.

Court filings in that litigation claim that Oberlander allegedly approached the plaintiffs in early 2012 about investing in a project with him and Strulovich at 908 Bergen Street in Crown Heights. Oberlander sent prospectuses for 19 properties between 2012 and 2014 that were meant to entice the plaintiffs into make more investments, they asserted in the dispute.

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2000 Pages, a Political Power Broker,$26M in Faulty Rent Assumptions and de Blasio

City overvalued Podolsky portfolio by $26M, uncovered docs show

The city’s $173 million purchase of 21 buildings from the Podolsky brothers has attracted scrutiny because of the sellers’ past, their political connections and the price tag itself. A late Monday document dump is poking even more holes in the official version of events.

According to 2,000 pages of documents subpoenaed by City Comptroller Scott Stringer, City Hall overvalued the buildings by $26 million using faulty rent assumptions, the New York Post reported.

The city’s $173 million purchase of 21 buildings from the Podolsky brothers has attracted scrutiny because of the sellers’ past, their political connections and the price tag itself. A late Monday document dump is poking even more holes in the official version of events.

According to 2,000 pages of documents subpoenaed by City Comptroller Scott Stringer, City Hall overvalued the buildings by $26 million using faulty rent assumptions, the New York Post reported.

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All Year Management Bondholders, Allegations of Misappropriations of Funds

Bondholders accuse Yoel Goldman’s All Year Management of breaching securities law in suit

A view of Denizen Bushwick at 54 Noll Street (Credit: Denizen Bushwick and Pixabay)

Yoel Goldman’s Israeli bondholders are alleging he misappropriated company funds, which they say caused their bonds to lose value, according to a lawsuit filed in Israel.

The suit accuses Goldman of putting $3.7 million worth of funds that should have gone to his company All Year Management into different company accounts that he controls.

The Israel Securities Agency — Israel’s equivalent of the Securities and Exchange Committee — had required All Year to correct financial statements with the Tel Aviv Stock Exchange earlier this month over this. The firm filed a notice concerning a “material error” in its second and third quarter financial statements linked to $3.7 million that was moved to Goldman’s personal account from the company’s account by mistake.

The value of All Year’s bonds fell sharply after Goldman acknowledged this, according to the lawsuit.

All Year did not respond to requests for comment. Commercial Observer first reported news of the suit.

The company’s bonds were downgraded on the TASE at the end of 2018 following steep declines in their value.

Other American firms have recently had issues on the TASE as well. Allen Gross’ GFI Capital Resources made hundreds of changes to its year-end report from 2017, including dropping its 2015 net operating income from $28 million to $8 million, and Boaz Gilad’s Brookland Capital announced in November that it would not meet its upcoming debt obligations. The firm’s Israeli bondholders moved to appoint someone else to oversee its BVI holding company soon after.

To read the article in its entirety click here.

 

Yoel Goldman and All Year – Allegations of Securities’ Law Breaches in Israel

Here’s Why Yoel Goldman’s All Year Has Run Into a Buzzsaw on the Israeli Bond Market

 

Why has Yoel Goldman’s All Year Management taken such a beating on the Tel Aviv Stock Exchange?

Over the last two months, the largely veiled Brooklyn-based developer has seen the bonds that he issued in Israel downgraded; investors have begun shorting All Year; and the company has come under the spotlight from Israeli regulators.

It all started after the company revealed a $3.7 million error in November 2018, triggering a weeks-long decline in their bonds on the Tel Aviv Stock Exchange (TASE), and heightened scrutiny from investors and regulators. As of last Friday, All Year’s four bond series had fallen between 6 and 23 percent since the beginning of 2019.

In the wake of that revelation more questions were raised, among them All Year’s practice of reporting income from developments that have not been fully leased yet, which have spooked Israeli bondholders, who have bankrolled much of Goldman’s empire, according to discussions with several investors and other stakeholders familiar with the Israeli market.

On Jan. 15, a group of bondholders filed a class-action lawsuit against All Year in a Tel Aviv court, arguing that the company had breached securities laws by failing to disclose certain details about the $3.7 million transfer, and claiming damages of at least NIS $2.5 million, or $680,000, according to the complaint.

All Year’s troubles come amid a tumultuous period on the Tel Aviv bond market that began in November, and all of the American companies who raised money in Israel were affected. Companies like GFI Real Estate, Starwood Capital, Spencer Equity and Delshah Capital have been trading at double-digit yields since December, and an index that tracks primarily American companies on the TASE fell by 3 percent since the beginning of 2019.

“All Year was one of the triggers that sent the market down, because that’s what made people realize that the corporate governance was lacking,” said one finance lawyer who works with foreign bond companies in Israel.

In the beginning….

Four years ago, Goldman, then a rental landlord and budding developer, made his first pitch to the Israeli bond market. He came to the Tel Aviv with a portfolio of mostly Brooklyn rental properties worth roughly $450 million in assets, according to public documents from All Year.

Goldman’s offer was perfectly timed to the height of the real estate frenzy in Brooklyn. Prices in the borough had risen astronomically in a decade and were continuing to climb at an astonishing pace. Everyone wanted to get in on the ‘next Williamsburg’ before it became the ‘new Williamsburg.’

Goldman was well-positioned to capitalize on the market because of his history in the borough, and when the option to issue debt in Israel opened up, he seized it. Since his first bond offer in 2015, Goldman’s All Year has nearly quintupled, with assets totaling $2.2 billion, according to the company’s latest financial statements, and he has become one of the more high-profile developers in Brooklyn. His projects include The William Vale hotel and The Azure at 436 Albee Square, which he developed with partners, 1040 Dean in Crown Heights and a massive, two-phase rental complex in Bushwick named Denizen, at 54 Noll Street and 123 Melrose Street, which is still under development.

A large portion of that development activity is funded by debt raised in Israel. Since 2015, Goldman has raised roughly $650 million in five bond series, issued by a corporate entity called All Year Holdings, which is incorporated in the British Virgin Islands, and owns a portfolio of over 150 properties. Two of All Year’s bonds are secured by properties in Brooklyn, and all of them are backed by the corporate entity.

“When he came to Israel he was a small player,” one investment executive said about Goldman. “The Israeli bonds made him an empire.”

Then All Year’s uninterrupted gold streak floundered.

Torkian Group and Airbnb Rentals in NYC

City sues Torkian Group over alleged illegal short-term rentals

As part of an effort to crackdown on Airbnb, the city is now taking aim at the Torkian Group, claiming the landlord has continued to market and lease illegal short-term rentals despite previous warnings from officials.

In a new lawsuit, the De Blasio administration claims there were 1,029 short-term rental deals in the landlord’s buildings between February 2015 and October 2018. The transactions involved 13 different apartments in 110 Greenwich Street, 311 West 50th Street and 488 Seventh Avenue, which generated more than $1.1 million in revenue, according to the complaint filed in New York Supreme Court on Wednesday.

The city alleges that the landlord had at least 44 illegal listings during that period, most of which appeared on Airbnb, though a handful were also on HomeAway and TripAdvisor. In New York, the vast majority of landlords are prohibited from renting apartments for less than 30 days in homes where the host is not present.

According to the lawsuit, from 2015 to September 2018. the city filed 23 violations and imposed $64,800 in fines against the landlord for doing just that. Though Torkian filed certifications of correction, the landlord has “shown they will not stop the illegal transient occupancy unless ordered to do so by the court,” the complaint alleges.

Representatives for the landlord did not return multiple requests seeking comment.

The lawsuit also names Bedrose — a brokerage and property manager that specializes in short-term rentals — as a defendant, alleging the company illegally advertised short-term rentals at the Torkian buildings as well as at approximately 19 other buildings.

According to the complaint, Bedrose hid its illegal short-term rental business in various ways, including using fake host names on Airbnb and changing the addresses of the buildings slightly. The company also allegedly instructed guests to sign fake leases and instructed them to lie to city officials if questioned about the terms of their stay at the apartments.

David Tordjman, executive vice president of Norman Bobrow & Co. and a broker with Bedrose who is named as a defendant of the lawsuit, could not be reached for comment.

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Brooklyn Landlord Allegedly Also Brothel Owner…. And then There’s Lakewood

THE REAL DEAL

Brooklyn landlord with $87M portfolio charged with running prostitution ring out of his buildings

Isaac Schwartz, who owns 48 properties through shell corporations, was arrested last month for enterprise corruption and conspiracy.

UPDATED, Wednesday, Nov. 14 at 11:16 p.m.: One Ditmas Park resident thought he had it bad enough after enduring bed bugs, bulging walls and a hole in the ceiling. But then he learned his building was being used to service an illegal brothel.

Another Park Slope resident also learned there were apartments being used for prostitution in her building.

Both residents had the same landlord, Isaac Schwartz, a regular on the New York City public advocate’s “worst landlord” list who was arrested last month after police discovered a prostitution ring operating in his buildings, according to The New York Times.

Schwartz’s arrest highlighted the role complicit landlords play in enabling illegal prostitution rings to operate in residential buildings. Police alleged that four of Schwartz’s Brooklyn properties,

2007 Foster Avenue, 483 4th Avenue, 880 Gates Avenue and 203 Onderdonk Avenue, had housed brothels, as part of a prostitution ring run by a former police detective. The landlord pleaded not guilty and was released without bail on his own recognizance. According to the Times, Schwartz’s portfolio numbers 48 buildings valued at about $87 million.

Citing housing court documents, The Times reported that Schwartz, who works as an EMT in Borough Park, runs his rental company with Mendy Lowy and a contracting firm, Powerful Electric, with his brother-in-law Shalon Seelfreund. Schwartz and Lowy were also connected to a strange kidnapping ring in Lakewood, New Jersey. Schwartz and Lowy paid $2 million in bond to secure the release of a rabbi and another man charged with abduction and assault related to divorces in the Orthodox community, the Times reported.  [NYT] — David Jeans

Correction: An earlier version noted Schwartz was the developer behind a project in Bedford-Stuyvesant, Brooklyn; it’s a different developer with the same name. 

The California Bank Backing Hasidic Developers…. AND 199 LEE AVENUE

199 LEE AVENUE, GLOBAL PROPERTY ASSET MANAGEMENT, SECTION 8 HOUSING, 421A TAX ABATEMENTS, LIQUIDITY AND THE TAGWORDS FOR THE  MONEY THAT FINANCES HASIDIC DEVELOPERS

199 Lee Avenue is really little more than a building with thousands of PO Boxes. Most of the PO Boxes represents another company. Most if not all of which are Hasidic owned and some of which are the actual registered addresses for assorted companies which may or may not be real companies.

In fact, 199 Lee Avenue was also tied to the late Menachem Stark and properties that he owned.

We think it no coincidence, however, that in 2016 there was an investigation into the PO Boxes and some of the connected LLC’s; an investigation that appeared to end with Kushner and the White House, though the article below suggests that to credit Kushner in the White House is a stretch. Perhaps.

We will say this. It is not the first time 199 Lee Avenue has been on our radar and will likely not be the last. But rather than try and tell you to entire story again, we have highlighted the relevant passages of the articles below in Red. That should tell it all.

We believe that the authorities, Federal and State Tax authorities, the SEC (think REIT’s) and the FBI should still be paying attention, not only to 199 Lee but to a number of connected addresses, some of which are listed below. Please pay attention to the below wherein it states that the Hasidic communities are some of the largest recipients of Section 8 Housing. We also presume that Medicare and Medicaid go hand-in-hand with that, a logical conclusion. But if you take a look at he numbers, particularly as they stand today, it simply does not make logical or reasonable sense. 

 

It’s 1999. AOL is how most people receive email, and computers everywhere could soon succumb to the Millenium bug. It’s also the year when a new lender emerges and quickly gains a reputation for catering to wealthy clients with “complicated” personal finances. Its name? Bank of Internet.

Flash forward to 2018. The bank has rebranded to BofI Federal, emerged unscathed from a Securities and Exchange Commission investigation, and has made a major bet on a niche corner of New York commercial real estate — backing projects from some of Brooklyn’s most prolific Orthodox Jewish developers. It does this mostly by acquiring senior notes on loans originated by other funds.

Lately, the bank has been in the headlines for a pair of real estate loans tied to Kushner Companies, as ProPublica reported. At Toby Moskovits’ Bushwick office redevelopment at 215 Moore Street, BofI refinanced the last-known Brooklyn development loan held by Kushner Credit Opportunities Fund, a debt vehicle Kushner Companies founded in 2016. At One Journal Square in Jersey City, BofI put up funds to finance Fortress Investment Group’s $57 million bridge loan to Kushner Companies. That two-tower project has been plagued by problems, both political and financial, and it’s unclear if the company will be able to see it through.

In an interview with The Real Deal, Gregory Garrabrants, BofI’s CEO, said it was misleading to draw any connection between his firm’s business with Kushner Companies and the fact that the SEC investigation was dropped.

“There’s a political agenda behind talking about Kushner,” Garrabrants said. “I don’t know Mr. Kushner, but I don’t have to because we know Fortress.”

Deep Brooklyn

Though BofI, a San Diego-based company with $8.9 billion in assets, has long been active in single-family lending in New York, it only recently got into commercial real estate. Sources said it started to appear as a financing option in “warehouse lending,” in which a bank issues a loan to a warehouse owner and funds that loan with debt from a secondary lender, such as BofI. Essentially, it’s a way for lenders to issue loans without having to use their own money. This type of deal is often referred to as loan hypothecation, in which the original loan is the collateral for the debt a lender seeks from a bank.

“It’s more of a West Coast thing,” said David Eyzenberg, a debt broker, on the hypothecation structure. “Where we really got to know [BofI] was in providing leverage to hard-money lenders.”

The bank’s services have been especially appealing to developers in Brooklyn, specifically the middle-market investors and luxury rental builders hailing from the borough’s ultra-Orthodox communities, according to an analysis of property records by TRD. The analysis found that of Bofl’s 10 largest loans backed by real estate in the last three years, eight were tied to assets owned by Brooklyn developers, including a number from Williamsburg’s Hasidic community.

Hasidic developers commonly prefer to finance in smaller loan increments over several stages, allowing them to revise design plans or recapitalize with additional partners and then restructure the financing, sources said. The approach stands in contrast with Manhattan’s development giants, which traditionally shoot for a large institutional loan up-front.

“There is a certain type of sponsor turning to this bank for land and development deals, which have a higher cost of capital and are harder to finance,” said an investor familiar with the bank who requested anonymity. “And so the bank has largely been serving as a bridge lender to the same players.”

The list includes prominent Hasidic builders such as Simon Dushinsky’s Rabsky Group, Abraham Leser’s Leser Group, Cheskie Weisz’s CW Realty and Zelig Weiss’ Riverside Developers. Public records show Dushinsky has the most debt on BofI’s books, with more than $80 million spread across three loans.

The model means BofI has little to no interaction with the sponsors themselves. Scott Barone, whose firm Barone Management secured $15.8 million from BofI via Emerald Creek Capital in 2016, said he “never had any actual dealings with them.”

Sources identified Sal Salzillo as one of the main point people leading lender financings on development deals for BofI in New York. However, Salzillo left in March for Sandhills Bank, a South Carolina-based bank owned by the Kalikow real estate family. He could not be reached for comment.

Garrabrants wouldn’t reveal the names of his New York real estate team members and said the firm does not target any specific community for its business.

“There’s no specific marketing or any kind of specific targeting of any particular group of borrowers,” he said.

The wide web

In 2016, the SEC started hitting the bank with subpoenas, after a whistleblower filed a lawsuit in 2015 alleging the bank might have been lending illegally to certain foreign nationals  in possible violation of federal money laundering laws. The suit also alleged the bank failed to fully disclose certain loan practices to regulators. The SEC dropped its investigation in June 2017 without taking any legal action. Garrabrants attributed the lawsuit and subsequent inquiries to the machinations of angry short sellers who watched the bank’s stock continue to climb. In a January 2017 earnings call, he called the allegations “fake news.”

But some have questioned whether the SEC dropping its investigation and the bank’s lending to a major Kushner Companies development project is too much of a coincidence. Jared Kushner joined the White House last January as a senior adviser, and although he has resigned from company positions, he still retains ownership in much of the company portfolio. Garrabrants dismissed these questions as part of a “tin-hat conspiracy” and said the SEC cleared the investigation months before it began talks with Fortress — Kushner’s lender at One Journal Square — about acquiring the senior interest in the loan.

Kushner Companies has faced a series of challenges at the project and it appears unlikely that Jersey City Mayor Steven Fulop, a Democrat, will grant the company building permits or tax abatements, though he denies it has anything to do with opposition to the Trump administration. Garrabrants was critical of Fulop, but said BofI will make money in the deal regardless. If Kushner Companies can’t build it or if it defaults, someone else will get the project done, he said.

“With respect to any kind of hurdles that arise as a result of any kind of issues related to some of the things that I’m sure people who are motivated in certain in manners put in place,” Garrabrants said in a statement apparently directed at Fulop, “hurdles in respect to [Kushner] in particular, and essentially punish him for his political affiliation, those are more difficult.”

However, he continued, “If we ended up with an ownership interest. … There will be people lining up to make sure that we don’t lose money on that project.

 

THE REAL DEAL ARTICLE TO FOLLOW: