Kushner Partner Vornado To Sell Stake in 666 Fifth Ave.

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.

With exiting the partnership, “Whatever transpires in the future at 666 Fifth Ave., Vornado will not be subject to further downside,” says Kelly. However, he notes with the deal, the devil will be in the details.

Politically, Jared Kushner’s being both the son-in-law and special advisor of President Donald Trump has attracted scrutiny to the family’s financial dealings focusing on the conflicts of interests issue. Jared Kushner was CEO of Kushner Cos. He stepped down when he joined the Trump administration and divested some of his interests to family members. However, The New York Times reports he retains holdings estimated to be worth at least $761 million.

The Kushners reached out to seek financing from investors in China and Qatar. The talks reportedly fell through due to scrutiny and attention to conflicts of interests, in evaluating Jared’s political and business roles. In addition, questions arose regarding Jared’s meeting with a Russian banker in December 2016 during the Trump administration’s transition. Jared has repeatedly denied that he discussed Kushner Cos. business at the meeting.

Nonetheless, various news sources reported loans to Kushner Cos. from foreign investors have dried up due to a reluctance to get involved in transactions with even an appearance of conflicts of interests.

Kelly says the high profile repeated lack of success in obtaining financing provides the market with an unambiguous label of “troubled asset” for the property. Even prior to Kushner revealing the updated upgrade plans, Kelly had noted, “The analytical narrative typically highlights the building’s deficiencies, such as functional obsolescence and dated design. Although Fifth Avenue and 53rd Street is a stellar location, there is no way that a $1.4 billion price can be converted to land value (with demolition costs tacked on) for a super-tower that would be in any way economically feasible to construct.”

In a New York Times interview earlier this month, Kushner stated the family has done nothing wrong and has cooperated with investigators. He said the banks remain loyal and investments are plentiful, dismissing any notions of financing problems.