It’s not Kush-y deal
Why the rescue of 666 5th Ave. is legit
IF
the hate-everyone-inthe-White House claque tries to torpedo Brookfield’s proposed rescue of Kushner Cos.’ 666 Fifth Ave., it would be a disaster — as much for the city as for Kushner.
The antiquated, aluminumclad tower between East 52nd and 53rd streets stands in the heart of Midtown. Foreclosure would make it impossible to find tenants and leave the once-prized property in indefinite limbo.
But that might not matter to Kushner-bashers eager to “link” would-be savior Brookfield Asset Management to a Qatari fund — even though Qatar directly owns zero percent of BAM.
You probably have read that Kushner, with a big assist from Brookfield, wants to buy out Vornado Realty Trust’s 49.5 percent stake in 666, the obsolete, 1959-vintage office tower for which Kushner wildly overpaid in 2007 (for a then-record $1.8 billion). Kushner Cos., founded by Charles Kushner, then led by his son,
Jared, and now again by Charles, has done a masterful job of running it into the ground ever since.
The cash-bleeding property is more than 30 percent vacant, and it’s losing more than $20 million a year and facing a $1.4 billion mortgage payment next year.
The situation has left Vornado chief Steven Roth, with a watchful eye on his company’s share price and public image, eager to unload its share.
Kushner has toyed with several “Hail Mary” bailout strategies.
The looniest was a redevelopment designed by late architect Zaha Hadid, which would have replaced the 41story tower with a $7.5 billion tower twice as tall — requiring an unprecedented $4 billion construction loan.
Kushner seemed close to a deal with China’s Anbang to invest in the project. But Anbang pulled out. The Kushners also failed to lure a rescuer from in Europe, the Mideast or elsewhere in Asia.
But at last, The New York Times reported last week of a plausible strategy to save 666 Fifth Ave. A fund controlled by Brookfield Asset Management would partner with Kushner to buy out Vornado’s stake. Kushner would pay Vornado $120 million to settle the loan.
BAM affiliate Brookfield Property Partners would then redesign 666 Fifth for 21st-century office tenants, as it did with its own 5 Manhattan West — once unsightly but now handsomely reclad in glass and nearly 100 percent leased.
News reports made much of the fact that a Qatari government fund, the Qatar Investment Authority, is the second-largest shareholder in Brookfield Property Partners. Wouldn’t that raise questions about a conflicted “dual role” for Jared Kushner, who is the president’s adviser on Mideast matters?
Might a partial sale of 666 Fifth to a company “linked” to Qatar somehow benefit that country at a time when Kushner is supposed to be an honest broker in the Mideast?
Just about anything can be “linked” to anything else. This is definitely a bit confusing, so stay with us.
QIA’s “second largest shareholder” in BPP sounds significant. But BPP isn’t the same as BAM. Although both are publicly traded, BAM is the parent of BPP.
Yes, QIA owns 7 percent of BPP. But BPP owns only 20 percent of BAM. That means that a Qatar stake in 666 Fifth Ave. would be much, much less than 7 percent.
If, hypothetically, the BAMcontrolled fund put $500 million in capital — a number we plucked out of air for illustrative purposes — into the 666 Fifth Ave. project, it would cost BPP only $100 million.
Thus, the stake of QIA in 666 Fifth — as a 7 percent part-owner of BPP — would be all of $7 million.
But QIA is estimated to manage $335 billion in real estate assets globally. It doesn’t seem likely that an indirect investment in 666 Fifth worth relative pennies would somehow give it leverage over the US government.
Whatever Brookfield and Kushner pay for Vornado’s stake is likely to be criticized as a “sweetheart” price. But in fact, 666 Fifth is in such bad shape that BAM — and its very minority indirect shareholder QIA — are taking on substantial risk at any price.
Moreover, if Kushner wasn’t able to bail out 666 Fifth by tapping any source of Mideast financing, he might as well turn the building over to charity. Nearly every large New York real estate company, public and private, has partnerships or loans with many Mideast countries — including Abu Dhabi, Saudi Arabia and Israel.
Jared Kushner’s detractors say it’s his own fault for not totally divesting from his company. (Although he sold his shares in 666 Fifth to a family trust, he still owns perhaps hundreds of millions of dollars of Kushner Cos.’ real estate holdings).
They have a strong point. But a puny stake that a Qatari fund would have in 666 Fifth shouldn’t be reason to create an empty black hole in the middle of Fifth Avenue.