[NYguy]

https://www.bloomberg.com/news/artic...ked-by-partner

Kushner Plan for Fifth Avenue Tower Is Being Blocked by Partner

By David Kocieniewski and Caleb Melby
October 16, 2017

An ambitious plan by Jared Kushner’s family to recast its indebted Fifth Avenue office building as a luxury architectural trophy is collapsing, setting off a chain of events that may imperil the Kushners’ ownership of a property central to their real estate empire.

Their partner, Vornado Realty Trust, is telling brokers to plan for a much more mundane renovation that would leave the property as an office building, according to three people familiar with the matter. Vornado Chairman and Chief Executive Officer Steve Roth was never enthusiastic about the Kushner plan although until now he hadn’t stood in its way.

Putting an end to the Kushner effort -- to salvage their overpriced investment by turning it into a Midtown jewel with expensive condos, a hotel and five-floor mall -- could have profound ramifications for the family. Vornado, which owns 49.5 percent of 666 Fifth Ave., is unlikely to invest further in the property without first being reassured of its future, said three people familiar with Roth’s thinking. That means returning to the negotiating table with lenders -- a battle that could result in Kushner Cos.’ losing control of the building, said the people, who asked not to be named discussing private deals.

A Kushner Cos. spokesman said nothing has been decided.

“As equal partners, Vornado and Kushner have been exploring a range of options for the future of 666 Fifth Avenue,” he said in an email. “All options are still being assessed, and no decision has been made about which option to pursue. Any implication that an agreed upon path has been reached or that there is contemplation of an outcome that would be to the sole benefit of one party over the other would simply be wrong.”

A spokeswoman for Vornado didn’t return several requests for comment outside of normal business hours Sunday.

It’s a sharp reversal. As recently as March, both Vornado and Kushner were looking at a massive windfall from Anbang Insurance Group. The Kushner family stood to gain a $400 million cash payout from a deal being discussed with the Chinese insurer, while realizing their dreams of building a glamorous skyscraper. But Anbang, which had previously bought up several major U.S. properties, including the Waldorf Astoria hotel, pulled out of the negotiations amid a public outcry in the U.S. over conflict-of-interest concerns and a crackdown by the Chinese government on overseas investments.

.....Pressure is mounting because a $1.2 billion mortgage is due in February 2019, while losses make it unattractive to lenders who might refinance the debt. The building lost $14.5 million in 2016 and is on track to lose $24 million this year after a boost in the loan’s interest rate, according to data compiled by Bloomberg. A 30 percent vacancy rate, as of June, has deepened the losses as Kushner Cos. prepared to demolish the property and replace it -- a process that would have required buying out existing leases. Vornado’s plans are designed to fill the building at market-rate rents and stanch the bleeding, three people said.

.....While Kushner and Vornado have shared interest in the building’s success, that means different things to each firm. Roth has recently renewed his focus on operating Manhattan office properties, after spinning off Vornado’s Washington properties and retail malls. Vornado’s stable of large, profitable office buildings produces plenty of cash to purchase under-performing ones to modernize and fill with new tenants.

Kushner Cos.’ portfolio is less valuable and it has many expensive redevelopment projects ahead. Company president Laurent Morali told Bloomberg only six weeks ago that there were a number of potential investors in the grand redevelopment plan. He said he didn’t consider it prohibitively expensive, as many have, but rather “ambitious and creative.” Modernizing and re-leasing the building, as now seems the more likely path, was only a contingency plan.