Kushners Unload 666 Fifth Ave. to Brookfield in 99-Year Lease

(Bloomberg) -- The Kushner family’s real estate company has secured a crucial investment in its over-leveraged New York skyscraper, reaching a deal to lease the building’s office space for 99 years to a Canadian asset manager.

The arrangement with Brookfield Asset Management Inc. may let Kushner Cos. -- run by the family of presidential son-in-law Jared Kushner -- salvage its biggest single investment, a marquee tower in midtown Manhattan known simply by its address, 666 Fifth Ave. Terms weren’t disclosed.

The Kushner family’s years-long hunt for a partner has at times drawn intense public scrutiny, as talks opened with overseas investors, then ultimately collapsed.

Rather than pay the rent on an annual basis for the so-called leasehold, Brookfield will give Kushner Cos. an upfront sum that will allow the company to pay off outstanding debt on the building, according to people with knowledge of the matter who asked not to be identified because the details are private.

The Toronto-based investor is prepared to inject up to $700 million in equity and will essentially take control of the building unencumbered with a 100 percent leasehold, the people said. A Brookfield representative declined to comment.

The deal provides relief to Kushner Cos., which bought the 41-story tower for a record-setting $1.8 billion in 2007, making a splashy entrance to the Manhattan real estate scene. The transaction was funded with more than $1.7 billion of loans, and rapidly ran into trouble when property markets cratered following the financial crisis. In 2011, Vornado Realty Trust took a 49.5 percent stake as part of a deal to rework the massive debt load and stave off foreclosure.

Read more: The troubled history of the Kushners’ tower

Kushner Cos. has sought other partners since at least 2015 to help it untangle the ill-timed bet. Potential investors have included Anbang Insurance Group and an investment vehicle controlled by a member of Qatar’s ruling al-Thani family. Both firms had considered an ambitious and expensive plan to knock the tower down and build another twice as tall in its place. But talks fell apart.

The building lost $25 million last year and has almost always been unprofitable. As a first step in its latest restructuring plan, Kushner Cos. said in June it would buy out Vornado. Vornado continues to own the retail portion of the property.

The cash infusion from Brookfield comes just in time, with a $1.2 billion mortgage on the property coming due in February.

Jared Kushner, who’s married to the daughter of President Donald Trump, stepped aside from managing his family’s company when he became a senior White House adviser. The search for partners has been led by Charles Kushner, Jared’s father.

Airier Offices

Brookfield said it was making the investment through one of its private funds, and its Brookfield Properties subsidiary will operate the building and launch a major redevelopment program and upgrade it.

The company intends to update the aging property with lighter and airier offices that would command higher rents, the people familiar with the matter said. The update would be similar to those Brookfield has made to properties including Manhattan’s old Daily News Building, they said, adding that the Kushner Cos. would not participate in gains from the work until Brookfield earns a return on its investment.

“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,” Ric Clark, Brookfield Property Group’s chairman, said in a statement Friday.

The two companies have done deals before, investing in a New Jersey mall redevelopment and putting up loans to buy floors of the former New York Times building.

Brookfield’s Spree

It’s been a busy week for Brookfield and its affiliates. On Monday, the company agreed to acquire Forest City Realty Trust Inc. for $6.8 billion. That was followed by the $3.3 billion acquisition of Canadian furnace, water heater and air conditioner provider Enercare Inc. by the publicly-traded infrastructure arm of the company, Brookfield Infrastructure Partners.

Brookfield has also been seeking partners on some of its New York properties. On Aug. 1, the asset manager’s real estate arm said it sold a 28 percent stake in a group of its office and apartment properties in the city, giving it proceeds of about $1.4 billion.

--With assistance from Caleb Melby, Sarah Mulholland and Noah Buhayar.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, David Scheer, Christine Maurus

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