[NYguy]

https://www.nytimes.com/2017/04/03/n...enue.html?_r=0

At Kushners’ Flagship Building, Mounting Debt and a Foundered Deal





By CHARLES V. BAGLI
APRIL 3, 2017

.....On Wednesday, the Kushners announced that talks had broken off with a Chinese financial conglomerate for a deal worth billions to redevelop the 41-story tower, at 666 Fifth Avenue, into a flashy 80-story ultraluxury skyscraper comprising a chic retail mall, a hotel and high-priced condominiums.

The official announcement said the company remained “in active, advanced negotiations” with a number of investors, whom it declined to name.

There is no question that the Kushner Companies — Jared has moved to Washington to serve as an adviser to his father-in-law, President Trump — needs to reach a deal soon, either to bring in a fresh infusion of cash or a well-heeled partner willing to foot the bill, if it wants to hold on to the building. Whomever it brings on as an investor would also have to buy out Vornado Realty Trust, the family’s partner in the tower.

More than a quarter of the office space in the building sits vacant. According to an analysis by Trepp L.L.C., a data and analytics firm that tracks bank lending, 666 Fifth Avenue has not generated enough money to pay its debts for several years, forcing the owners to cover the shortfall — at least $10 million in 2015. And that gap is growing. The interest-only $1.2 billion mortgage comes due in less than two years.

“This building has had financial issues for years now,” said Joe McBride, a senior associate at Trepp. “How much longer can they sustain it? Occupancy is at 70 percent, more leases are expiring, and they’re going into their own pocket to pay the debt.”

.....But the spokesman, James Yolles, said Charles Kushner remained optimistic that he would secure fresh investors who would not only pay off the existing debt on the building but also finance the demolition of the current structure and the construction of a 1,400-foot tower designed by Zaha Hadid. Jared Kushner sold his stake in the building to a family trust in January when he moved to Washington.

“We are well on our way to lining up the $2.5 billion in equity needed to get this deal done,” Mr. Yolles said, “and we’re confident that we’ll get there.”

.....The Kushners have not filled space as it opens up because they plan to demolish the aluminum-clad building. More than two years ago, when the market for superluxury condominiums and high-end retail was hot, they commissioned Ms. Hadid, a star architect who died last year, to design a residential and hotel tower sitting atop a base of high-end shopping to replace it.

The demolition and construction is projected to cost $7.5 billion. The Kushners are looking for a partner or partners to invest $3.3 billion, including $500 million from the Kushner family and others, who would own a 20 percent stake, according to Mr. Yolles, the company spokesman. Then they would need to borrow a staggering $4.2 billion.

To attract investors, developers typically put together an offering plan. The Kushners’ version is lavishly illustrated with renderings of the building by Ms. Hadid’s firm and rosy financial projections that show the retail and residential spaces commanding spectacular prices that, seven years from now, when the building is completed, would total more than $12 billion.

.....A year ago, a developer who owned the nearby Sony Building abandoned his very similar plan to convert that Madison Avenue office tower into a luxury mall, hotel and condominiums and sold it.

The Kushners’ spokesman said they were working with other potential investors to raise $2.5 billion. But Charles Kushner must offer a high enough price to also persuade Vornado to sell its stake in the building, buy out the remaining tenants and get Zara to vacate its space until the new tower is completed.