Kushners’ troubled CMBS-financed tower finds hope in Brookfield

CMBS bondholders and commercial real estate lenders are exhaling with relief following news that Brookfield Asset Management closed a lease on 666 Fifth Avenue, which is currently owned by Kushner Companies. Brookfield will pay upfront for the lease, helping Kushner Companies pay off more than $1bn in CMBS debt that helped finance the building’s acquisition in 2007.

  • By Alexander Saeedy
  • 06 Aug 2018
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The Wall Street Journal reported late last Friday that Kushner Companies closed on a 99-year lease with Brookfield Asset Management for 666 Fifth Avenue, a property it bought at the peak of US real estate bubble but that has struggled since the market turned in 2008.

Also known as ‘Devil’s Tower’ for its diabolic address, 666 Fifth Avenue has been a poster child of irrational exuberance in US commercial real estate. While it is not one of Manhattan’s tallest skyscrapers, it is considered a highly desirable property given its proximity to Rockefeller Center and other major thoroughfares.

Kushner Companies bought the tower in 2007 from Tishman Speyer, a prolific real estate developer in New York, for roughly $1.25bn — at the time, the largest ever deal for a single tower. It was primarily funded with loans which ended up in CMBS deals, including WBCMT 2007-C31 and WBCMT 2007-C33 from Wachovia and GE Capital's GECMC 2007-C1, although financing also came via other lenders including Starwood Capital, Paramount Group, and Colony Capital. 

As US property markets crashed, however, Kushner Companies struggled to keep pace with its financial obligations to CMBS bondholders. To date, the building has still been unable to attract enough new commercial tenants that are willing to pay a steep premium for renting. An appraisal of the building by Cushman and Wakefield in  October 2012 valued 666 Fifth Avenue at $710m (around 57% of its purchase price); a valuation the firm has maintained ever since.

The original deal was restructured in 2011 and saw the interest paid on the deal written down to 0% and progressively increase to 6.35% over the life of the loan. Vornado Realty was also brought on as a junior equity partner and helped recapitalise the trust responsible for paying off the mortgage.

Still, the Kushners struggled to find a future for the building once Jared Kushner became a senior advisor to US President Donald Trump, spooking some prospective foreign buyers from Qatar and China that had been courted since 2014. 

However, after several months of talks between the Kushners and Brookfield Asset Management, the latter has inked a deal to lease the building for 99 years. Rather than pay rent on an annual basis, Brookfield will give Kushner Companies an upfront sum that will allow the company to pay off its outstanding debt on the building, spelling a large payoff for the building’s lenders after several bouts of uncertainty that date back nearly a decade.

Brookfield has said that it plans a major renovation of the tower.

“With its ‘Main and Main’ location, direct transportation access and currently unrefined physical characteristics, 666 Fifth Avenue has the potential to be one of New York Citys most iconic and successful office properties. Given Brookfield’s experience in successfully redeveloping and repositioning major office assets in New York and other cities around the world, we are well placed to capitalise on that opportunity,” said Ric Clark, senior managing partner and chairman of Brookfield Property Group.

  • By Alexander Saeedy
  • 06 Aug 2018

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 BNP Paribas 10,542 20 17.55
2 Bank of America Merrill Lynch (BAML) 6,103 21 10.16
3 Citi 5,130 13 8.54
4 JP Morgan 4,681 6 7.79
5 Morgan Stanley 4,137 11 6.89

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 81,261.11 236 11.59%
2 Bank of America Merrill Lynch 66,338.04 186 9.46%
3 Wells Fargo Securities 56,344.19 164 8.03%
4 JPMorgan 53,381.65 156 7.61%
5 Credit Suisse 44,872.46 115 6.40%