Kushner Evicting Times Square Tenant, Endangering Loan Payments

(Bloomberg) -- Kushner Cos. has begun evicting its second-largest tenant from a Times Square tourism property, endangering at least $285 million of loans backed by rents there.

Lenders approved the termination of the lease for the tenant, Gulliver’s Gate, at the end of last year, according to debt filings. The attraction, which exhibits miniature models of Manhattan and other world cities and landmarks, accounted for more than a fifth of the property’s rent-roll but hadn’t been paying since November, the filings show.

Kushner Cos. -- owned by the family of Jared Kushner, the White House senior adviser and son-in-law of President Donald Trump -- is seeking tenants for the space, but “there have been no firm” letters of intent, according to the records.

Kushner Evicting Times Square Tenant, Endangering Loan Payments

For retail properties, the eviction process sometimes results in space or rent reductions rather than removal. Any loss may affect Kushner Cos.’ ability to keep up with debt payments on the Times Square property, one of the company’s most valuable in the city.

The building’s debts have already been on lender watch-lists for potentially troubled loans for more than a year. A similar mixture of debt and vacancy posed years of problems for a Kushner Cos. office tower at 666 Fifth Avenue before the company sold its interest in that building last year.

A lease with the largest tenant, an ocean-themed exhibit called National Geographic Encounter, was also terminated after months of disputes, according to the records. A spokeswoman said the attraction, managed by New York-based SPE Partners, has a temporary arrangement after ownership changes and has no plans to leave.

“We have completed a management buyout, entered into an interim agreement with the landlord and are currently paying rent,” Shin-Jung Hong, a spokeswoman for National Geographic Encounter, said. “This does not impact the day-to-day operations.”

Michael Langer, the co-founder of Gulliver’s Gate, declined to comment.

Karen Zabarsky, a spokeswoman for Kushner Cos., didn’t return calls or emails seeking comment. Laurent Morali, the company’s president, and Emily Wolf, the firm’s general counsel, didn’t respond to emails.

As a result of the changes, Kushner Cos. has drawn on accounts holding nearly $10 million as security to lenders, according to the records. Most of the property’s debt was issued by Deutsche Bank AG before being bundled and sold with other loans to investors.

A spokesman for Deutsche Bank declined to comment.

The building, at 229 West 43rd Street, may not make enough to cover its debt payments without Gulliver’s Gate or a replacement tenant, a review of financial records shows.

Kushner Cos. owed more than $10 million of interest on the Deutsche Bank portion of the debt last year, the filings disclose. Another tranche of higher-interest debt would cost $6 million annually, according to Bloomberg estimates. Both debts mature in 2026, according to the documents. The building had net operating income of $13.5 million in 2017. A smaller tenant dropped out amid a legal battle early last year.

Deutsche Bank issued its share of the debt -- $285 million -- to Kushner Cos. a month before Trump’s surprise victory in the November 2016 presidential race. The bank is the president’s largest lender. Jared Kushner ran the company at the time the loan was issued.

Kushner Cos. took out $59 million of the outsize loan as cash. The inflow came at a crucial time. The company was losing money on 666 Fifth Avenue and its executives were traveling the globe looking for investors to help rescue it.

Bloomberg reported in November that the tenants were showing signs of financial stress. Gulliver’s Gate faced several lawsuits for nonpayment of various fees, and the National Geographic exhibit had been fighting with Kushner Cos. over payments since August.

Together, those top two tenants were expected to account for nearly half of the building’s rent inflows, according to a 2016 estimate disclosed to potential investors in Deutsche Bank’s share of the debt. Kushner Cos. took out more than $370 million of debt against the six-floor property, which it had bought for $296 million a year earlier.

When the debt was sold, investors were shown disclosures describing the property as 100 percent leased. Kushner Cos. made a bet on tenants that offered experiences, rather than products, and the property was considered by analysts to be especially risky because it had no blue-chip anchor tenants, as many retail buildings do.

©2019 Bloomberg L.P.