Without Jared, Kushner Cos. Is Cutting Back on Brooklyn

SOURCE: Power Broker by Power Broker

August 2, 2018

In the past decade, Kushner Cos. vigorously expanded beyond its native New Jersey into New York City, taking on a portfolio of development projects in booming Brooklyn.

Now, it’s scaling back in the gentrifying borough.

Ever since Jared Kushner, the family’s chief Brooklyn booster, left to join the administration of President Donald Trump, his father-in-law, Kushner Cos. has sold out of several of the high-profile properties. Meanwhile, Charles Kushner, Jared’s father, has reverted to what he knows best: buying suburban apartment complexes in his home state.

In the near term, the maneuver has clear benefits for Kushner Cos., allowing the firm to shed expensive projects with far-away payoffs in favor of steady income from occupied residential buildings. In the long term, it narrows the family’s plan — first put in place as the elder Kushner prepared to end a two-year prison sentence — to move beyond New Jersey and evolve into a major player in New York development.

“Having had some prior experience working with Jared, it doesn’t surprise me that, without his involvement, there’s less appetite for seeing these projects to fruition,” said Tim King, managing partner of SVN CPEX Real Estate, who worked with Kushner on some of the Brooklyn buildings. “He was focused like a laser beam, and had strong and clear vision for these properties. Now that he’s in a different role, and unable to continue as a point man for the project, it’s sensible that they pass the baton to someone else.”

Exit Brooklyn

Across the river, the company still has an office tower at 666 Fifth Ave., apartment properties and the Puck Building in Soho. In Brooklyn, it has sold stakes in five properties since Jared Kushner, 37, became a senior adviser to Trump. The latest are two of the most notable about-faces. The Watchtower building and 85 Jay St., deals that closed less than two years ago with price tags north of $300 million, are slated to become offices and a new 21-story tower.

The Watchtower building, locally famous for its since-removed sign visible from the Brooklyn Bridge, was the crown jewel of a real estate portfolio owned by the Jehovah’s Witnesses. When a group including Kushner purchased it, the young real estate scion commanded top billing. But his company’s role tended to be overstated. Kushner Cos. owned less than 5 percent of the projects, a December analysis by Bloomberg found. CIM Group, a comparatively press-shy firm happy to allow Kushner the spotlight, owned far larger stakes in the properties.

Now CIM is buying Kushner out of the projects, allowing the family to recoup its initial investments, and perhaps more, according to two people familiar with the talks, who asked not be identified discussing the private transaction. The New York Post first reported the two latest Brooklyn deals.

Representatives for Kushner Cos. and CIM declined to comment on the transactions. Kushner Cos. also declined to comment on its broader Brooklyn strategy.

Near the Gowanus

The latest sales follow the March 2017 disposal of most of Kushner Cos.’ interest in 175 Pearl St., which it sold to an investor group that included a firm whose largest shareholder is the Japanese government. The deal allowed Kushner Cos. to increase its stakes in four nearby properties, which they still own. The company also owns smaller apartment buildings in Brooklyn Heights and Williamsburg.

In February, Kushner Cos. sold its 5 percent interest in a development site abutting the Gowanus Canal. Charles Kushner, 64, has said that local resistance to that project was political, and akin to religious discrimination because of his familial ties to the Trump White House. Kushner Cos. also backed out of a partnership with Aby Rosen’s RFR Realty LLC to redevelop a hotel tower near the Watchtower building.

Balancing the sales in Brooklyn have been acquisitions in New Jersey. Last year, Kushner Cos. teamed up with Israel-based Psagot Investment House to buy Quail Ridge, a 1,032-unit complex in Plainsboro that the Kushner family had owned until a 2007 sale. In April, Kushner Cos. bought 360-unit Prospect Place in Hackensack.

Power Broker

It was managing this type of property that made Charles Kushner rich, and a power broker in New Jersey Democratic politics. His rise caught the attention of then-Attorney General Chris Christie, a Republican, who launched an investigation into Kushner’s political donations. When Kushner found out members of his family were cooperating with Christie’s inquiry, he hired a prostitute to seduce his brother-in-law, and a former policeman to videotape the tryst at a roadside motel. Kushner sent the tape to his sister on the day of a family party, which would later lead to his conviction for witness tampering.

Kushner Cos.’ management of similar apartment complexes in Maryland has recently led to lawsuits, which claim that the company added fees to rent bills in attempts to evict tenants. Kushner Cos. has said it will respond to the complaints in legal proceedings. The company asked to change the jurisdiction of the proceedings after it was told in federal court to reveal its investors.

Gentrifying Borough

While Charles Kushner has always been his company’s de facto leader, it was Jared, then a young Harvard graduate who’d just purchased the New York Observer newspaper, who most strongly advocated for a push into Brooklyn, which was experiencing rapid gentrification and redevelopment. In 2013, the two made their first big play, teaming up with RFR and Invesco Ltd. to purchase six buildings, including 175 Pearl, for $375 million.

Kushner Cos. launched its New York expansion with the 2007 purchase of 666 Fifth Ave., a Manhattan office tower, which they bought for a record-setting $1.8 billion. But the financial crisis hit and they were soon losing millions annually servicing the building’s debt. They sold the property’s retail spaces, and brought in Vornado Realty Trust as a co-owner of the offices in 2011. But the companies’ efforts to turn around the property failed.

Kushner Cos. now has an agreement to buy Vornado’s stake and is in talks to sell the interest to another company, Brookfield Asset Management Inc., to mount another turnaround attempt.

Insights August 2018