The transaction could be structured any number of ways, with components -- such as preferred equity with an outsize guaranteed return -- that could sweeten the deal for Brookfield while allowing Kushner Cos. to hold a nominally larger stake, two of the people said. When Vornado purchased its stake for $80 million in 2011, it secured a guaranteed 11 percent return on the funds, deal documents from the time show.
In the end, Vornado and Kushner Cos. couldn’t agree on how to manage the property. Vornado wanted a modest update to the building, while Kushner Cos. favored a plan to knock down the tower and build one twice as tall in its place.
Vornado “is going to walk away from this getting a net $120 million,” Longua said. “I’d go back to my shareholders and say, Look at what I did.”
Trophy, Anyone?
Brookfield now has the opportunity to bring the offices up to top standards and charge premium rents. “They are going to come in, give Vornado an exit, and they are going to take advantage of the tremendous run-up in value going forward,” Longua said. Brookfield has said it would follow a plan similar to one executed at the onetime home of the New York Daily News at 5 Manhattan West, stripping off its sides and re-cladding it in floor-to-ceiling glass.
After a successful turnaround, Brookfield could sell the refurbished tower. It could go to “an international buyer who wants a trophy property in a dead-center location on Fifth Avenue,” said Lynne B. Sagalyn, a real estate professor at Columbia Business School.
A partnership with Brookfield would be a great relief for the Kushners. The 41-story building, which the family bought at the height of the real estate boom in 2007, lost $25 million last year and has almost always been unprofitable. Over the last few years, the tower has been a source of controversy as company executives scoured the globe for capital. They approached investors in Saudi Arabia, Qatar, Israel, China, France and South Korea.
Before he became a senior White House adviser, Jared Kushner was involved in many of those conversations. Since then, he has stepped aside from the family business. In his role in the administration, he has taken on a foreign policy portfolio that includes talks with the leaders of several of those countries. Lawyers for Kushner have frequently said that he follows all ethics guidelines and doesn’t mix private business with his government work.
This article was provided by Bloomberg News.