Vornado’s Hint at Selling Kushner Tower Is Just a Tactic to Some

(Bloomberg) -- When Vornado Realty Trust hinted that it might unload its 49.5 percent stake in Kushner Cos.’ troubled Manhattan office tower, it seemed like odd timing for a company that had just started throwing its weight around at the property.

It isn’t, close observers say -- just more sharp elbows.

Vornado’s Hint at Selling Kushner Tower Is Just a Tactic to Some

In its annual report Monday, Vornado recategorized how it accounts for the property, 666 Fifth Ave., because “we do not intend to hold this asset on a long-term basis.” People familiar with the matter say that’s simply Chief Executive Officer Steve Roth’s way of keeping all his options open for impending negotiations ahead of a February 2019 deadline to pay off the $1.2 billion mortgage.

“We wonder if this isn’t just a negotiating tactic,” Alexander Goldfarb, senior analyst at Sandler O’Neill & Partners, wrote in a Tuesday morning note. Vornado “has the financial sponsorship to get the debt holders to restructure,” he said.

The building has recently been 30 percent vacant and has been losing money after interest payments. A plan to make it profitable would be a prerequisite to a refinancing or restructuring.

Spokeswomen for Vornado and Kushner Cos. declined to comment.

Walking Away

Many believe that Vornado, which also owns much of the retail space at the foot of the building, is interested in owning all the office space by itself. Still, the company could just walk away. It bought its share for $80 million and the assumption of half the debt, and could forfeit its stake with little financial cost, said two people with knowledge of the matter, who asked not to be named because of the sensitive partnership.

The outcome would be more painful for Kushner Cos., which purchased the property for $1.8 billion in 2007, before making Vornado a partner in a 2011 restructuring.

“We have a relatively small investment in the property that we expect to get back,” Roth said in a Tuesday morning call with investors, on which he pushed back at the idea that there was anything new to report about its intentions for the building. 

“There’s no new news on 666 Fifth Avenue,” he said, adding that the changes in disclosures of how Vornado accounts for the property were merely a formalization of thoughts he offered on an earlier call. “We would rather exit than stick it out,” he said, citing returns, timing and deal structure.

Raze and Rebuild

The 2011 refinancing agreement forgave a fraction of the debt and temporarily lowered interest payments to give Kushner Cos. and Vornado time to improve the situation. Instead, the property continued to lose money as Kushner Cos. sought investors for a new plan. That plan was to knock the building down and build another, twice as tall, in its place, with a mall, hotel and luxury condos. No investors have been announced for the effort, described by many as prohibitively expensive.

Late last year, Vornado poured cold water on the proposal when it started telling brokers to plan for 666 Fifth to remain an office building. Roth later described Kushner Cos.’ raze-and-rebuild effort as “not feasible.”

Jared Kushner, a senior adviser to President Donald Trump, his father-in-law, is the former chief executive officer of Kushner Cos. To avoid conflicts of interest, he transferred some of the company’s assets in joining the White House. The effort has drawn criticism because the transfers were mostly to close family members.

©2018 Bloomberg L.P.

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