Moneybox

The Most Important Questions to Ask About the Kushner 666 Fifth Ave. Deal

The outside of 666 Fifth Ave.
666 Fifth Ave.
Magnus Manske/Wikimedia Commons

Bribery, corruption, and real estate have always gone hand in hand. If I give you a suitcase containing $500,000 in cash, that’s extremely suspicious. But if I buy a property from you for $1.6 million, it’s almost impossible to determine that the “real” value was only $1.1 million and that therefore $500,000 of the payment was somehow nefarious.

That’s one huge reason why the real estate fortunes of the Trumps and the Kushners fit so uncomfortably with their political importance. Both families are now at the apex of the American (indeed, the global) political power structure; there’s surely no shortage of countries, companies, and individuals who would love to bribe them if they could. And so anytime that either of the families enters into a major real estate deal, questions are going to be asked.

The latest headlines surround a possible deal whereby Jared Kushner’s family business will sell all or most of its stake in 666 Fifth Ave. to Brookfield Properties, a large Canadian real estate company that is 7 percent owned by Qatar. (According to Bloomberg, Qatar is the largest investor in the company.) Is this corrupt? Who’s to say? After all, large midtown office buildings aren’t exactly fungible commodities; they’re worth whatever someone’s willing to pay for them. Jared Kushner was willing to pay $1.8 billion for the tower in 2007, but that tells us almost nothing about what it’s worth today, with the retail portion having been hived off and with 30 percent of the offices being left deliberately vacant.

The reported terms of the proposed deal are very vague. We don’t know whether it’s a straight deal between the Kushners and Brookfield, or whether the Kushners’ counterparty is going to be some kind of joint venture between Brookfield and Qatar. We certainly don’t know what kind of side deal Brookfield may or may not have with Qatar, or how the ultimate economics are going to break down. And so, there’s almost infinite room for speculation about how this might be an attempt by Qatar to gain influence over the Trump-Kushner dynasty.

At some price, 666 Fifth is surely an attractive investment. It has a great location, and it can be refurbished to become much more attractive than it is currently. (The Kushners realize this, which is why they aren’t renting out space in the building as tenants move out.) What’s more, there’s a motivated seller: The Kushners have a massive mortgage payment due in less than a year. Selling now, with both Robert Mueller’s team and reporters digging around for shady conflicts, might generate bad headlines, but then again any bank that refinanced that mortgage would surely face similar scrutiny, and most lenders will be quite happy staying away from such publicity. Which puts the Kushners in something of a pickle and gives Brookfield the upper hand in negotiations.

One big question about Thursday’s story is: Who leaked the deal information to the New York Times, and why? The newspaper cites only “executives briefed on the deal,” which could mean anything. But given the paper’s framing, with Qatar front and center, the leak surely reduces the probability that any sale will end up going through. So the leak doesn’t seem to be in the Kushners’ interest, and it also doesn’t seem to be in Brookfield’s interest—if Brookfield really thinks that the deal is a good one.

But maybe it doesn’t. One possibility is that the leak came from Brookfield, which can then point to the political controversy, say “we don’t want anything to do with this,” and thereby force the Kushners to lower their asking price. Another possibility is that the leak came from a non-Brookfield potential buyer, who would love to see the Brookfield deal fall through and possibly be able to swoop in with a lowball bid if and when that mortgage payment comes due. A third possibility is just that a Trump-Kushner foe got wind of the deal and wanted to harm those families; after all, both families have made quite a few enemies in New York real estate circles. And, yes, a fourth possibility is that the deal is being pushed through by the Qataris, and the leak is Brookfield’s attempt to sabotage something it really wants no part of.

For the time being, it’s impossible to really know what’s going on. But if and when a formal deal does get announced, two aspects in particular will attract scrutiny. First will be the status of Qatar: Will it be a fully fledged joint partner in the deal, like it is in London’s Canary Wharf? Or will its only interest be its stake in Brookfield, so that its ultimate interest is exactly the same as that of anybody else who’s invested in the Canadian company? And secondly, what’s the purchase price? If the Kushners end up losing hundreds of millions of dollars, the deal will look like much less like a suspicious bailout than if they somehow contrive to make a profit on the building.

What’s clear is that given how politically sensitive 666 Fifth Ave. is, Brookfield and the Kushners are going to have to be incredibly transparent about the economics of any deal, especially when it comes to the participation, if any, of Qatar. That’s not going to be comfortable for them, since the Kushners, like most real estate families (including the Trumps), like to keep their dealings as opaque as possible. But that’s what happens when your scion is in the White House: You have no choice but to submit to an uncommon level of public scrutiny. If you don’t, your secrecy alone will be reason enough for everybody to assume the worst.