Jared Kushner and his family company seemed close to striking a deal in 2016 to transform their aging, money-losing 41-story Manhattan office tower into a new and profitable Fifth Avenue skyscraper twice as tall.
A team led by Kushner and his father, Charles, courted global investors and prospective tenants.
Then Donald Trump became president and Kushner became his father-in-law's senior White House adviser. Problems ensued.
Kushner met in December with a Russian banker, leading to questions about whether he was mixing his role in the coming Trump administration with his business. A Chinese insurance fund and a former Qatari foreign minister backed away from a potential $900 million investment in the skyscraper. Another foreign funding stream was disrupted when Kushner Cos. came under federal scrutiny for its use of a controversial federal visas-for-investment program at another project.
Today, 666 Fifth Avenue appears to be the most troubled of the projects Kushner left behind for his family to manage. With one-fourth of its offices empty, lease revenue does not cover monthly interest payments, according to lending documents. A $1.2 billion mortgage, with escalating interest rates, comes due in 18 months. A ratings agency has classified a $115 million portion of the loan as "troubled," and company officials decline to say whether it will be fully repaid.
"They were crushed by this," said Thomas Barrack, a friend of Trump and Kushner's and former project investor. Kushner's move to the White House "just about completely chilled the market, and [potential investors] just said, 'No way — can't be associated with any appearances of conflict of interest,' even though there was none."
Laurent Morali, who became president of Kushner Cos. last year, said in an interview that he is marketing a 60-year-old aluminum-clad building "that is not competitive" with more-modern properties. He said the company will decide soon whether to proceed with its ambitious redevelopment plan or scale back.
Morali said the company is current on its loans. The company says it has a strong national portfolio of properties, including 20,000 residential apartments and 13 million square feet of commercial space.
"This is one asset owned by Kushner [Companies], Morali said, describing 666 Fifth Avenue. "It is a small fraction of our assets."
Kushner divested his stake in the property in January, selling it for an undisclosed amount to a trust controlled by his sister, Nicole Kushner Meyer.
Kushner declined to be interviewed. White House spokesman Josh Raffel said in a statement that in the lead-up to the election, Kushner focused on winding down his real estate work.
"Throughout the campaign, Jared gradually reduced his day-to-day-role in Kushner Companies," Raffel said. "Starting several weeks before the election until he fully resigned, his focus at the company was on transitioning over his responsibilities and relationships."
The Manhattan skyscraper is not the only Kushner project to draw attention since the election. The company has acknowledged that federal prosecutors in the Eastern District of New York have subpoenaed documents about use of the EB-5 visa program at One Journal Square, a planned Jersey City development. Meyer touted her brother's White House position in courting Chinese investors under the program, which offers temporary visas in exchange for $500,000 investments.
Meyer later apologized, but the Jersey City project lost a state tax break and is parting ways with co-working start-up WeWork.
The family's network of federally subsidized apartments has come under fire from congressional Democrats over the company's hard-nosed pursuit of delinquent renters.
In his White House role, Kushner appeared before Senate committees to explain meetings with foreign officials that he said he inadvertently omitted from his security clearance questionnaire. And special counsel Robert S. Mueller III, who is investigating whether Russia colluded with the Trump campaign, is examining Kushner's dealings, The Washington Post has reported.
As investigations proceed, pressures at 666 Fifth Avenue are building. The problems trace back to a brash decision Kushner, then 26 and a Manhattan real estate novice, made a decade ago.
Manhattan commercial real estate was booming when Kushner bought 666 Fifth Avenue in 2007 for $1.8 billion — the highest price paid at that time for an office tower in the United States. Experts speculated that Kushner had vastly overpaid.
Kushner had taken over the company because his father, Charles, had just served time in federal prison for tax evasion, illegal campaign contributions and witness tampering. Eager to re-brand their company, the Kushners had sold much of their New Jersey real estate holdings to make the Manhattan gamble.
To back up a colossal loan package, the Kushners had a $2 billion appraisal, based largely on the premier retail space fronting Fifth Avenue, but months after buying the building, the Great Recession pummeled values.
By 2010, Kushner risked losing the building. He was delinquent on payments, according to a report by Trepp, which analyzes real estate transactions, and he entered debt restructuring negotiations. He sold the retail portion at a profit, which helped cover the Kushner family's investment, but the office portion was hemorrhaging, according to losses outlined in lending documents.
Kushner was under extraordinary pressure from other investors. Kushner, who had married Ivanka Trump in 2009, turned to two friends of his father-in-law for help.
Barrack, who ran a California investment company called Colony Capital, had met Donald Trump in the 1980s when he negotiated on behalf of a client for the sale of the Plaza Hotel.
In 2010, Barrack's company acquired part of the distressed debt on 666 Fifth Avenue. He invested $45 million and eventually made a profit, he said.
In 2011, Trump called Barrack to arrange a meeting for Kushner. As Barrack recalled it, "Donald called and said: 'Look, I have no idea what's going on. Jared has some deal you have an interest in.' "
Kushner flew to California and told Barrack about his plan to salvage the project. He came alone, without lawyers, and Barrack was impressed. Kushner told him that investors should accept a restructuring plan to keep the project afloat — even though some of them would get less than they expected from their investment.
After 75 minutes, Barrack agreed to help, concluding that "it seems like it is in everyone's interest to restructure this." He said he called Trump and told him: "You should get down on your knees that your daughter found this kid. He is out of central casting. He was respectful, he was totally up to date on the facts and the numbers and had a very persuasive demeanor."
Kushner also turned to Steve Roth, Trump's partner in another Manhattan office building. Roth's company is Vornado Realty Trust. Its ties to Trump attracted attention recently when it bid on a new FBI headquarters building, a project the administration later canceled. Roth declined to comment for this article.
In 2011, Roth's company bought 49.5 percent of the office portion of 666 Fifth Avenue, enabling Kushner to restructure the debt and extend the $1.2 billion loan to 2019, according to lending documents. Vornado announced in late 2012 that it paid $707 million for the retail portion.
Other investors were not as lucky. Area Property Partners held $105.4 million of Kushner's debt, according to lending documents, and objected to the restructuring terms. The Post reported in May how Kushner, as owner of the New York Observer media outlet, urged reporters to pursue a negative tip about Area Property's chief executive. The Observer reporters said the tip was unfounded and no story was published. Area declined to comment. Kushner has declined to comment when asked about the Observer matter.
At the time, Kushner was optimistic about 666 Fifth Avenue and his ability to attract new tenants.
Since then, the occupancy rate has plummeted to 70 percent, far short of expectations, according to lending documents. Citibank, a primary tenant when Kushner bought the building, has vacated the property except for a small retail space. Phillips Nizer, a law firm that has been a tenant for 22 years and occupies two floors of the building, is leaving at the end of this year, according to managing partner Marc Landis.
Revenue has declined. When Kushner Cos. took over the property in 2007, the net operating income was $61 million. That dropped to $41 million in 2016 because of the sale of the retail portion and declining office occupancy, according to Trepp.
Morali said that the building struggles to compete in a soft commercial market in which office leases have shifted to trendier Manhattan spaces such as Hudson Yards.
The strain on the Kushners is hard to quantify. The company is privately held, and it declined to provide an independent financial report.
The company has taken steps to bolster its finances. In 2016, just before Trump's election, it refinanced its portion of the former New York Times building, including a $285 million loan from Deutsche Bank, giving it $74 million more than Kushner had paid a year earlier, according to securities filings. The company declined to specify how the $74 million has been used.
The company's biggest challenge was finding a way to turn 666 Fifth Avenue into a moneymaker before the debt came due.
The plan for turning 666 Fifth Avenue into an 80-story office tower was distributed to prospective investors and greeted with skepticism when it became publicly known last year. The Real Deal, a New York real estate publication, described it as a "tower of hubris" for the Kushners.
The plan called for vacating the building and constructing the taller tower, including hotel rooms and luxury housing, under a design by famed architect Zaha Hadid, who died last year. Much of the proposal is conceptual, but a rendering showed a structure with a squat base with top-flight retail and a tall, thin tower for luxury residences. While financing details have not been disclosed, a key component of the plan would be to have new investors foot much of the bill, enabling the Kushner Cos. debt to be retired or renegotiated and giving the company a stake in the new property.
Kushner Cos. valued the renovation at $7.5 billion. A number of New York City's biggest real estate firms that preferred quick returns declined to get involved, according to New York real estate executives and analysts. The plan relied partly on raising money from foreign investors through the EB-5 program. The company has said that applying for such funds was allowed under the rules.
Kushner and his company also recruited deep-pocketed global investors who might see the building as a way to make a distinctive mark in Manhattan. But the effort posed ethical questions as Kushner moved into his role with Trump. In 2016, Kushner simultaneously helped run Trump's presidential campaign and served as president of a company seeking billions of dollars from foreign entities.
One deal that came close to fruition was with Anbang, a company closely affiliated with the Chinese government that considered investing $400 million, according to Bloomberg News. Anbang had just bought the landmark Waldorf Astoria hotel when Kushner met with its representatives there a week after the election, according to the New York Times. Anbang later issued a statement saying that "there is no investment" and declined to comment further.
Another potential investor was a fund run by the former prime minister of Qatar, Hamad Bin Jasim al-Thani, one of the world's wealthiest men, who would have lent $500 million, according to the Intercept. Hamad did not respond to a request for comment. Kushner Cos. has confirmed the China and Qatar efforts. Neither effort succeeded.
Concerns about Kushner's business dealings intensified when it was disclosed earlier this year that he met in December with the top executive of the Russian bank Vnesheconombank, or VEB. The bank has said that the executive, Sergey Gorkov, who is close to Russian President Vladimir Putin, discussed "promising business lines and sectors" with Kushner. VEB is Russia's economic development bank and is considered an arm of the Kremlin.
Kushner assured Congress in a July 24 statement that the meeting did not involve "any discussion about my companies, business transactions, real estate projects, loans, banking arrangements or any private business of any kind." Democrats have demanded an investigation.
Kushner's family company said that as of January it had not sought investments from entities connected to foreign governments, although that does not rule out taking money from wealthy foreigners who also have business before the U.S. government. A person close to the company said that company officials continue to meet with potential investors from the United States and other countries.
Morali said that excluding foreign government funds will not preclude him from finding investors. "We happen to be at a point where we've explored a lot of different options and I'm pleased with the progress we've made on them," he said, "so I can anticipate that over the next couple of months the partnership is going to make a decision."
Nonetheless, steering clear of foreign government funds could narrow his options.
Of the 10 priciest office-building purchases last year in Manhattan, two were made by a sovereign wealth fund in China (China Investment Corp.) and a third was by the central bank of Hong Kong. Three of the other purchases came from private entities in Saudi Arabia, Canada and Spain, sometimes investing public money.
New York real estate consultant Arthur J. Mirante II, who advised the Kushner family on the original deal, said 666 Fifth Avenue could probably be re-leased as an office building with modest investment. Redevelopment is more difficult, he said.
"If they have to forget about that market because of Jared being in the White House, they're going to have to look elsewhere," Mirante said.
Meanwhile, the interest rate on the Kushner company's principal loan rose to 5.5 percent from 5 percent this year and will continue to rise to a maximum of 6.3 percent, according to Trepp. The loan is held by a group of investment banks and investors led by General Electric and Wells Fargo.
That, in turn, has created an opportunity for Kushner's partner, Roth's Vornado. Unlike Kushner Cos., Vornado's central business is leasing New York office buildings. Some analysts expect Roth to wait out the Kushner redevelopment plan and, if it fails, try to take over the property — despite what Roth has said publicly.
Earlier this year, Roth told shareholders that 666 Fifth Avenue "is an ongoing, complex, dynamic and unpredictable situation . . . and it is the rare case when we may be sellers."
Barrack said that when Kushner went to the White House, his father, Charles — who had helped devise the redevelopment proposal — must have known that his efforts would be undermined. Charles Kushner did not respond to a request for comment.
"This was [Charles's] dream and his baby," Barrack said. "When Jared decided to go to Washington, he probably had a heart attack."
As a result of the Kushner focus, Barrack said, investors have to ask themselves, "Are they willing to take the scrutiny of what comes along with" investing with Kushner Cos.?