Kushner Family Closes Deal to Unload 666 Fifth Avenue

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The Kushner family has closed on a deal to unload its office tower at 666 Fifth Avenue, a building it bought at the top of the market that was ailing financially.

In a larger-than-expected deal, the New York real-estate family has agreed to lease the building to

Brookfield Asset Management

for 99 years, according to a Brookfield statement that confirmed earlier reporting by The Wall Street Journal.

The tower has been under scrutiny because

Jared Kushner

is married to President Trump’s daughter,

Ivanka Trump,

and is a senior adviser to the president. The $1.8 billion investment by Kushner Cos. was a record at its 2007 purchase and was made when Mr. Kushner was taking a leadership role in the business. It remained precarious for years, and potential deals became complicated after Mr. Kushner took the senior White House job.

Talks between Brookfield and Kushner Cos., the family company, about Brookfield possibly purchasing a stake in 666 Fifth were reported earlier this year. Several possible deal structures were contemplated until the two sides opted on Kushner’s sale of the 99-year lease, a fairly common commercial real-estate structure in Manhattan.

Terms of the deal weren’t disclosed. People who have been involved in the talks have said that the proceeds would give the family enough to pay off the more than $1.1 billion of debt on the building and buy out its partner, Vornado Realty Trust, for $120 million so it can transfer 666 Fifth to Brookfield unencumbered.

Brookfield, which is buying the property through one of its private-equity funds, also plans to invest more than $600 million in overhauling the 39-story building, giving it a new lobby, facade and mechanical systems, according to a person familiar with the matter. The building currently has a relatively high vacancy rate but is viewed in real-estate circles as having potential due to its prime location on Fifth Avenue between 52nd and 53rd Streets.

“With its ‘Main and Main’ location…666 Fifth Avenue has the potential to be one of New York City’s most iconic and successful office properties,” said

Ric Clark,

chairman of Brookfield Property Group in a written statement.

The structure of the deal is different from what Brookfield and Kushner Cos. discussed in the spring. Back then, Brookfield was considering a deal in which it would essentially acquire Vornado’s 49.5% stake in the property and become partners with the Kushner family.

The Kushner sale of the 99-year lease gives Brookfield complete operational, leasing and development control. Unlike many 99-year leases, Brookfield won’t pay annual ground rent. Rather, it will pay all the rent upfront, giving Kushner Cos. the money it needs to exit from the investment, according to people familiar with the matter.

The sale means that the Kushner family won’t lose much money from its investment in 666 Fifth Avenue, but it isn’t clear whether the family will have made much either. In recent years, the building hasn’t been generating enough money to pay its debt service.

The property has taken numerous twists, both financial and political. Kushner Cos. sold a controlling stake in the retail space for more than $500 million a few years after it purchased the tower in 2007, using most of the proceeds to repay debt.

But that wasn’t enough to shore up the property in the postcrash years. In 2011, Kushner Cos. renegotiated what was then $1.2 billion in debt and brought in Vornado as a 49.5% partner.

In 2017, soon after Mr. Trump took office, Mr. Kushner’s father,

Charles Kushner,

was negotiating with Anbang Insurance Group, a Chinese insurer with connections to Beijing government. The elder Mr. Kushner’s plan at the time was to use Anbang’s capital in a $7.5 billion plan to convert 666 Fifth Avenue into a 1,400-foot-tall mixed-use skyscraper with retail, hotel and condominiums.

Jared Kushner had already sold his stake in 666 Fifth to a trust controlled by other family members to avoid potential conflicts. Still, the talks between Anbang and his father ignited criticism that Mr. Kushner might use his position to help his family salvage its investment.

The Anbang talks soon collapsed. Since then, Kushner Cos. has steered clear of any deals with sovereign funds, a decision that has made the firm rein in its ambitious plans for the site. The family also faced a deadline: the debt on the building needs to be repaid next year.

The latest round in the family effort to exit 666 Fifth began earlier this year when Kushner and Vornado began discussing Kushner buying Vornado’s stake. That deal, announced in June, made it easier for Kushner to talk to Brookfield and other interested buyers.

One of the uncertainties about the Brookfield purchase of the 99-year lease is how much of the current debt on the building is going to be repaid. In the 2011 restructuring, the debt was carved into two pieces—a senior piece and a junior piece. The senior piece is worth $1.1 billion and the junior piece has increased since 2011 to over $300 million, because interest on it has been accruing.

Kushner executives have been arguing that only the senior debt on the building has to be repaid, partly because 666 Fifth isn’t worth the total $1.4 billion of debt on the building.

A spokesman for LNR Partners LLC, the special servicer that has been representing creditors of 666 Fifth, declined to comment.

Write to Peter Grant at [email protected]

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