Kushners' Loan for Troubled N.J. Site Backed by Web Lender
(Bloomberg) -- The company owned by the family of presidential son-in-law Jared Kushner says Jersey City, New Jersey, a Democratic stronghold, is blocking its plan to build two towers because of politics and hinted a lawsuit is possible. Behind the fight there’s another struggle: paying for the project.
The Kushners obtained temporary funds from a web-based lender that specializes in risky loans shunned by other financial firms, Bloomberg has learned. Earlier plans for the project at 1 Journal Square collapsed when WeWork, the workspace startup, left. Much of the development’s financing had been tied to its participation.
The lender, BofI Federal Bank, formerly known as Bank of Internet, has advertised that it issues loans to newly drafted professional athletes, self-employed artists and others with intricate finances and uneven cash flow. The company provided much of the money behind a $57 million bridge loan issued in October, loan documents show. Kushner Cos. and KABR Group, its partner at the project, have sought both public financing and construction loans to build two 56-story towers on the site.
Calls and emails to Johnny Lai, BofI’s vice-president for corporate development and investor relations, weren’t returned.
City Funds Needed
People familiar with the project say the combination of WeWork as a tenant and fundraising in China would have made it succeed. But WeWork is out, and the family has sworn off using Chinese money after pitches in the country triggered a public outcry over conflict of interest. City funds are now needed, the people said. Kushner Cos. decided not to do the project with WeWork because “it was not the right fit for the project,” said Chris Taylor, a spokeswoman for Kushner Cos.
Municipal financing is the focus of increasing tension between Jersey City and Kushner Cos., lawyer letters and other documents reviewed by Bloomberg show. The Kushners accuse Jersey City, whose residents voted overwhelmingly for Hillary Clinton, of hobbling the project because of their ties to President Donald Trump. The Associated Press earlier reported on the letters.
The city denies this, saying the company should have broken ground more than a year ago and has failed to submit “evidence of firm commitments for financing and any equity capital necessary.” But many in New Jersey real estate say the economics of Jersey City would make it difficult for any developer to get financing without a commitment for a tax abatement. Last week, the city declared Kushner and KABR in default for paying an administrative fee nearly a year late. It added that the default and changes to the development’s scope raise concerns about Kushner’s ability “to see the project through to fruition.”
A Different Partner?
“Hopefully this will now move to a different partner that can complete the project,” Jersey City Mayor Steven Fulop tweeted April 18. The Democrat and former ally of Charles Kushner, Jared’s father, formerly supported the effort.
Kushner Cos. says it’s the victim of discrimination.
“Mayor Fulop has expressly acknowledged to several people on the phone and in meetings that Kushner Companies is being unfairly and blatantly discriminated against by Jersey City simply because its former CEO works in the Trump administration,” Taylor said, declining to name the people. “He even referenced another case of discrimination which the city lost in litigation. Mayor Fulop also stated that the city would not defend such discriminatory action in a litigation.” She added that Fulop “did an about-face when he was up for re-election to get the anti-Trump vote.”
A spokeswoman for Fulop didn’t directly respond to questions about Kushner’s allegations.
BofI Federal has attracted the interest of short-sellers such as Bronte Capital Management’s John Hempton, but its bets have so far paid off. Net income has soared in the past five years, sending shares up 335 percent -- more than triple the return of financial firms in the S&P 500 Index. The company owns much of the $57 million loan issued by Fortress Investment Group in October.
Charles Kushner told CNN in an interview published Monday that what’s happening is “like me telling you I’m not giving you a loan because you’re a woman or because you’re Jewish."
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