The Real Deal New York

Kushner’s 666 Fifth goes to special servicer

March 04, 2010 06:40PM
By Adam Pincus

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From left, Charles Kushner, chairman of Kushner Companies, company principal and son Jared Kushner and 666 Fifth Avenue

The $1.215 billion securitized loan secured by the Kushner Companies iconic Midtown office building at 666 Fifth Avenue was transferred to special servicing yesterday as part of an effort to restructure the loan, a company spokesperson told The Real Deal in a statement.

Kushner bought the building, located between 52nd and 53rd streets, for $1.8 billion from Tishman Speyer Properties in January 2007, at the time the highest price ever paid for an office building.

“The transfer of the 666 Fifth Avenue loan was done at the request of Kushner Companies, so that it could more easily engage in productive discussions with the lender. The loan is not currently in default,” the statement said.

Peter Slatin, editorial director of commercial data tracking firm Real Capital Analytics said the move was part of a trend in owners seeking to reduce their debt.

“They are clearly hoping to take advantage of the increasing willingness of lenders to restructure to avoid what could be a challenging situation since they not only bought at the top of the market, they defined the top of the market,” Slatin said.

Attorney Stephen Meister, a partner at Meister Seelig & Fein who is not involved with the 666 Fifth Avenue loan transfer, said an owner will often send a letter seeking a transfer to special servicing and in the letter identify when the loan is expected to go into default.

“In general when the owners do this they take an honest approach and tell the lender the ‘facts of life’ and when they think they will go into default,” and seek special servicing so they loan can be modified, he said.

Paul Mancuso, vice president at commercial loan tracking firm Trepp, said the loan must be transferred to special servicing to be renegotiated or altered.

“Since the 666 Fifth Avenue loan does not mature until 2017, the special servicer must believe it is in the best interest of the trust to work with the borrower on a loan modification rather than taking control of the property in a depressed market and declining fundamentals,” Mancuso said.

The special servicer on the loan is LNR Partners, according to financial records.

The owners have struggled to lease the building up. The 1.5 million-square-foot tower is just 12.5 percent vacant but 33 percent of the building is listed as available by CoStar Group.

In July 2008, Kushner sold a 49 percent interest in the building’s retail portion for $525 million to the Carlyle Group, and some of the money was used to increase a dwindling reserve fund. The retail portion of the building is not affected by the special servicer transfer.

A source familiar with Kushner’s finances said there was between $50 million and $60 million remaining in a reserve fund, which would last another year or year and a half depending on commission expenses and tenant build-out expenses.

As of last month, the loan had $61 million in a reserve fund, Trepp figures show.

The source said the building was in negotiations with a number of prospective tenants.

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