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NEW YORK CITY— Vornado has informed shareholders that it reached an informal agreement to sell its 49.5% stake in the office tower at 666 Fifth Ave. to its partner, the Kushner family. But on Monday night,The New York Times reported that Charles Kushner who leads the family company, declined to share details stating, “We’re finalizing a contract, which we’re negotiating now.” It remains undisclosed where the financing is coming from and if the Kushners have found a new partner.
But Kushner did say that the company has abandoned plans to tear down the building and construct an 80-story, Zaha Hadid-designed, ultra-luxury skyscraper in its place.
On Monday afternoon, a Vornado spokesperson told GlobeSt.com that the company was not commenting beyond chairman and CEO Steven Roth’s letter to the shareholders filed on April 6 with the Securities and Exchange Commission.
In the letter on page 22, Roth wrote:
“I have telegraphed our intention to exit the 666 Fifth Avenue office partnership. I believe we now have a handshake to sell our interest to our partner at a price which will repay our investment plus a mezzanine type return. The existing loan will be repaid including payment to us of the portion of the debt that we hold. Since we deducted losses along the way there will be a special capital gain dividend requirement which will be offset by a portion of the Toys ‘R’ Us loss. While not the income we expected going in, it’s now the appropriate outcome for us and for our partner. The situation continues to be fluid—there can be no assurance that a final agreement will be reached or that a transaction will close. We will, of course, continue to own 666 Fifth Ave. retail.”
The building has been bedeviled with its own unique financial, business and political complications.
As recorded in Real Capital Analytics, in 2007, Kushner Companies bought the 1.5 million square-foot, aluminum-clad tower, originally constructed in 1957 for $1.8 billion. This made headlines as a record-setting price for an office building. However, the subsequent financial crisis in 2008 triggered by the real estate bubble led to a loss in the building’s tenants and revenue. The New York Times reported that fearing default the lender appointed a “special servicer” for the building.
In December 2011, the Kushners restructured their debt and as noted in Real Capital Analytics sold a 49.5% interest to Vornado.
The paper also reported that the property has a $1.4 billion mortgage including accrued interest due in February 2019. Vornado purchased the retail space along Fifth Ave. from investors Crown and Carlyle for $707 million, which Roth’s letter indicates it intends to keep.
Talking Points Memo reported Vornado wanted to maintain an office building but the Kushners were pushing to convert it into a luxury residential and retail property. In October 2017, The Washington Post stated that 25% of the offices were vacant. On Monday night, The New York Times reported a 30% vacancy rate.
The Washington Post article also reported Jared Kushner had a $7.5 billion redevelopment plan to tear down the structure and build a hotel, condominium and retail project, doubling its height. The paper quoted Roth saying that rumors or “more than rumors” about razing the building and constructing a grand development were likely “not feasible.”
On Monday, in The New York Times interview, Kushner nixed the ground-up construction idea, with anonymous sources saying the renovations will probably include an upgrade to office spaces and conversion of upper floors to condominiums.
Hugh Kelly, Ph.D. CRE, special advisor to Fordham University Real Estate Institute, who is not involved with the 666 Fifth Ave. transaction, notes in reviewing the fact pattern, it’s often advisable to get out of problems rather than to stay embroiled in them.
Betsy Kim is the bureau chief, East Coast, and New York City reporter for Real Estate Forum and GlobeSt.com. As a lawyer and journalist, Betsy has worked as the director of editorial and content for LexisNexis Lawyers.com, a TV/multi-media journalist for NBC and CBS affiliated TV stations in the Midwest, and an associate producer at Court TV.
The Chase Center is a 18,064-seat sports and entertainment arena set to open in fall 2019 in time for the first tip-off of the 2019-2020 NBA season, and will anchor an 11-acre mixed-use complex in Mission Bay.
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