Brookfield and Vornado Save Kushner Cos. from 666 Fifth Avenue's Looming Debt

NEW YORK CITY—Kushner Companies received relief for its aluminum-clad albatross of 666 Fifth Ave. Brookfield Asset Management purchased a 99-year, 100% leasehold interest in the 1.5 million square-foot Midtown Manhattan office building. Although the financial terms were not disclosed The New York Times reported Brookfield paid approximately $1.1 billion in upfront rent, and that Charles Kushner, who’s now heading the company, negotiated to pay lenders substantially less than what was owed on the building. The paper previously had reported that the property had a $1.4 billion mortgage with accrued interest due in February 2019.

The funds from Brookfield’s leasehold would come in handy for another transaction involving the same asset.

Kushner Companies purchased the 49.5% interest in 666 Fifth Ave. from its partner Vornado Realty Trust for approximately $120 million. That deal was originally announced in April with Vornado CEO Steve Roth’s letter to shareholders filed with the SEC.

Along with Vornado’s sale of its interests, the existing mortgage loan on the property was repaid. Vornado will receive net proceeds of approximately $57 million and will recognize an $8 million financial statement gain in the third quarter for the participation it held in the mortgage loan. Vornado will continue to own the property’s retail space which currently houses Uniqlo, Tissot and Hollister with 125 feet of frontage on Fifth Avenue between 52nd and 53rd streets.

Previously, to pay off debt in July 2008, the Kushners had sold the controlling interest in the building’s 90,000 square feet of retail space to the Carlyle Group and Crown Acquisitions for $525 million. In July 2012, Vornado acquired the retail component from Carlyle and Crown for $707 million.

Brookfield is planning major renovations to upgrade the office condominium. The 115-year-old global alternative asset manager with $285 billion in assets under management is banking on turning around the building’s fortunes.

“With its ‘Main and Main’ location, direct transportation access and currently unrefined physical characteristics, 666 Fifth Ave. has the potential to be one of New York City’s most iconic and successful office properties,” says Ric Clark, senior managing partner and chairman, Brookfield Property Group. “Given Brookfield’s experience in successfully redeveloping and repositioning major office assets in New York and other cities around the world, we are well placed to capitalize on that opportunity.”

In 2007, with Jared Kushner at the helm, Kushner Companies bought the 1957, 41-story Midtown tower for $1.8 billion from Tishman Speyer Properties and TMV Real Estate. The transaction attracted a great deal of attention due to its staggering price tag. Subsequently, with the financial crisis, the property did not generate its projected revenues. With Kushner’s becoming a special advisor to his father-in-law, President Donald Trump, the building received even more negative attention. This included conflicts of interest questions when foreign and domestic investors were sought to help alleviate the real estate’s heavy financial burdens.