Brookfield Asset Mgt (NYSE:BAM)
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6 Months : From Apr 2018 to Oct 2018
By Peter Grant
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 18, 2018).
The real-estate arm of Brookfield Asset Management is in advanced talks with Kushner Cos. to purchase roughly a 50% stake in 666 Fifth Ave. and invest hundreds of millions of dollars in the Manhattan office tower, which has been at the center of a controversy over possible conflicts of interest involving President Donald Trump's son-in-law and top adviser, Jared Kushner.
A deal could be reached this spring, according to people familiar with the matter.
But a number of issues still need to be resolved, including how much of the $1.4 billion of debt on the building is going to be repaid and how disagreements within the partnership would be worked out, the people said.
If the deal is finalized, the venture would use the hundreds of millions of dollars of new capital from Brookfield to overhaul the property, which is about 30% vacant. Built in the 1950s, it lacks the modern features and designs needed to compete against newer buildings.
Brookfield, one of the world's largest commercial real-estate companies, has teamed up with the Kushners on other projects in the past, including redevelopment of the Monmouth Mall in New Jersey. Brookfield also has experience in overhauling and modernizing Manhattan office buildings, such as 450 West 33rd St., which was renamed Five Manhattan West.
The 39-story building at 666 Fifth has been a financial headache for the Kushner family ever since it purchased the tower for $1.8 billion in 2007. A year later, the global financial crisis sent property values and office occupancy rates tumbling. In 2011, the Kushners sold a 49.5% stake in 666 Fifth to Vornado Realty Trust and restructured the debt on the property.
The building lately has come under scrutiny because of concerns that Mr. Kushner, who is married to Mr. Trump's daughter, Ivanka Trump, might use his position in the White House to help his family salvage its investment in 666 Fifth Ave. Those concerns persisted after Mr. Kushner sold his stake in the property to a trust controlled by other family members.
Last year, Mr. Kushner's father, Charles Kushner, was in talks to sell a stake in the property to Anbang Insurance Group, a Chinese insurer with connections to the government in Beijing. Under that $7.5 billion plan, the building would have been converted into a 1,400-foot-tall mixed-use skyscraper with retail, hotel and condominiums.
After that deal collapsed, Charles Kushner decided to steer clear of controversial financing sources such as sovereign government funds and the federal program known as EB-5, which grants green cards to foreigners who invest in job-creating ventures. But limiting financing sources in effect ruled out his ambitious conversion plan.
At the same time, pressure was mounting on Kushner and Vornado to do something because the $1.4 billion in debt on the building matures in February. Also, the high vacancy rate at 666 Fifth has forced the owners to pay millions of dollars of debt service out of their pockets every month.
The deal with Brookfield, reported earlier by the New York Times, would essentially be structured as Brookfield purchasing Vornado's stake in the property, people said. Vornado's chairman and chief executive, Steven Roth, told Vornado shareholders in April he had a "handshake" deal to sell the company's stake in the property back to Kushner Cos.
Brookfield Asset Management is planning to make its investment out of private real-estate funds that it manages, according to the people familiar with the matter.
Brookfield Asset Management also is the largest single shareholder in Brookfield Property Partners, a public real-estate company that has the Qatar Investment Authority as one of its largest shareholders. The authority has an investment that could be converted into a roughly 7% stake in Brookfield Property Partners under certain conditions.
A spokeswoman for Brookfield Asset Management said in an email: "No Qatar-linked entity has any involvement in, investment or even knowledge of this potential transaction. They are in no way involved."
It isn't clear how much of the debt has to be paid off. When it was restructured in 2011, it was carved up into two pieces, an "A-note" and a "B-note," known as a "hope note" because it is much riskier and carries a higher interest rate. The modification agreement at the time described how proceeds of a "capital event" like a refinancing or a sale would be distributed to the partners and debtholders.
But the wording of the restructuring is open to interpretation about what would happen in the event of the type of transaction Kushner and Brookfield are now contemplating, according to people familiar with the loan documents and a loan document reviewed by The Wall Street Journal. In certain cases, there is a chance that B-note holders may not get paid what they would be owed under other scenarios.
A spokesman for LNR Partners LLC, the so-called special servicer of the debt on the property, declined to comment.
(END) Dow Jones Newswires
May 18, 2018 02:47 ET (06:47 GMT)
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