666 5th Avenue, ironically, has been a curse of Jared Kushner ever since he purchased the tower for a then-record $1.8 billion in 2007. It was supposed to be a signature move that signaled Kushner's intention to expand beyond his family's extensive holdings in suburban apartments to more prestigious urban properties in Manhattan.
Unfortunately, Kushner's market timing couldn't have been worse with the 'great recession' paralyzing the commercial real estate market just months after his trophy purchase. Four years later, with the property on the verge of insolvency, Kushner was forced to sell a 49.5% stake in the skyscraper to Vornado for an $80 million capital injection. Voranado later invested even more in the tower in 2012, purchasing the retail spaces at the building’s base from Kushner and others for $707 million.
Now, some 10 years after the original investment, the Kushner family looks set to receive a $400 million windfall from an unlikely, or perhaps not so unlikely depending on who you ask, new Chinese partner, Anbang Insurance Group. Per Bloomberg, the potential deal is raising some eyebrows in Washington DC due to, among other things, Anbang's murky links to the Chinese power structure which raised national security concerns over its previous U.S. investments as well as some favorable debt relief terms contemplated in the transaction.
Anbang will pay for most of the building and take out a construction loan of more than $4 billion to convert the property’s higher floors into luxury residential units. The Kushners have agreed to invest $750 million in the retail portion of the building and will end up with a one-fifth stake in a project that the deal document says would be valued at $7.2 billion when completed. In addition to the $400 million from Anbang, the Kushners will receive another $100 million from other investors.
An unusual consideration in the refinancing plan is the proposal to pay off a part of the mortgage known as a "hope note," which was for $115 million when Kushner Cos refinanced its debt in 2011. The loan, which was made by Barclays Plc and has since been sold off to investors, is now valued at more than $250 million because of compounded interest. But according to the deal documents, the Kushners will settle the debt for just $50 million. The Kushners declined to discuss the agreement. LNR Partners LLC, which currently oversees the debt, declined to comment.
The plan also relies on the government program known as EB-5, which grants two-year visas and a path to permanent residency to foreigners who invest a minimum of $500,000 in projects that create jobs in economically distressed areas.
Supporters argue that the program, which is overwhelmingly used on deals involving Chinese investors, attracts foreign capital and creates jobs at no U.S. taxpayer cost. But some Homeland Security officials and the General Accounting Office have warned that lax vetting has threatened to turn the program into a mechanism for the government to sell visas to wealthy foreigners with no proven skills, paving the way for money laundering and compromising national security.
The deal currently contemplated would value the 41-story tower at $2.85 billion, the most ever for a single Manhattan building, including $1.6 billion for the office section and $1.25 billion for the retail section. Of course, the sheer size of the transaction combined with a questionable foreign partner and the curious timing, coming just months after Trump took over the White House, have certainly raised some conflict of interest concerns in Washington DC.
"This is a huge, huge exit strategy for an office building," said Joshua Stein, a New York real estate lawyer. "It does sound like a home run of a transaction for Kushner and his group.”
"At the very least, this raises serious questions about the appearance of a conflict that arises from the possibility that the Kushners are getting a sweetheart deal," said Larry Noble, general counsel at the Campaign Legal Center. "A classic way you influence people is by financially helping their family."
The transaction would allow the Kushner Cos.’ investment in the tower to be salvaged by lenders and businesses that could have extensive dealings with the federal government, while also permitting the Kushners to buy back into the building’s more lucrative retail spaces and maintain a 20 percent stake.
Meanwhile, adding fuel to the conspiracy theory fire are rumors that Jared Kushner played a 'key role' in setting up Trump's recently announced meeting with Chinese President Xi Jinping which has been set for next month at Mar-a-Lago.
hear Kushner playing key role in setting up Xi-Obama Mar A Lago meet. So what is the status of the Kushner-Anbang deal? News soon?
— Bill Bishop (@niubi) March 13, 2017
Of course, Kushner's company has downplayed conflict of interest concerns saying that he sold his financial interest in the building to families members. That said, we suspect that won't be enough to alleviate the concerns of his political opposition who are all to eager to exploit any hint of impropriety.
Kushner Cos. declined to discuss details of the plan or name the potential lenders or investors it is courting, saying the deal is not finalized. A company spokesman, James Yolles, said that Jared Kushner sold his ownership stake in 666 Fifth to family members so the transaction poses no conflict of interest with his White House role.
“Kushner Companies has taken significant steps to avoid potential conflicts and will continue to do so," Yolles said in a written statement.
Asked for comment, a White House spokeswoman said Kushner will recuse himself from any matter where his impartiality could be reasonably questioned, including an examination of the EB-5 program. Anbang declined comment.
Meanwhile, Scott A. Singer, president of the Singer & Bassuk Organization, told Bloomberg the terms struck him as “aggressive but not absurd,” based on the net income and square footage metrics. He said they were along the lines of what might be expected for a trophy asset at a prime location.
So what say you? Conspiracy theorists run amok or blatant abuse political power for personal financial gain?