The Real Deal New York

At 666 Fifth, loan fees are piling up

“It is an understatement to say this building is not doing well.”
March 22, 2017 06:25PM

Rendering of Zaha Hadid’s 666 Fifth,
Wu Xiaohui and Jared Kushner
(Click to enlarge)

Kushner Companies’ 666 Fifth Avenue has been losing money for three years now, as about 30 percent of its 1.4 million square feet of office space lies vacant. And the clock is ticking as the company reportedly negotiates with Anbang Insurance Group for an ambitious redevelopment plan, with loan fees increasing through the year.

Those fees began in February and climb with each payment until the $1.1 billion worth of loans are paid off, according to a 2011 refinancing agreement cited by Bloomberg. And in December, the interest on those loans jumps to 6.35 percent, a figure that’s more than double what it was when the debt was refinanced in 2011.

When Jared Kushner bought the building for a then-record $1.8 billion in 2007, underwriters on the mortgages expected the property to throw off $119 million in net income and have an occupancy rate of 98 percent.

But then came the financial crisis, and by 2010 the building was just 78 percent occupied and earning a little more than a third of what the lenders had expected. After debt payments, it was operating at a $35 million loss.

Vornado Realty Trust came in and took 49.5 percent of the building’s equity. The partners refinanced the debt, payments dropped in 2012 and the property made money.

Citibank then vacated about a quarter of the office space. Vornado noted that Citi would pay rent until its lease was up in 2014 and was bullish on the prospect of finding a replacement tenant.

In 2015, the property lost $10 million after debt payments, and was on track to lose more in 2016.

“It is an understatement to say this building is not doing well,” Joshua Stein, a real estate attorney who reviewed the building’s financials, told Bloomberg.

Kushner Companies’ reported negotiations with Anbang on a $4 billion redevelopment would refinance the debt while forgiving the majority of a second tier of obligations called a “hope note,” where much of the interest on the debt has accrued, according to the refinancing agreement cited by Bloomberg. Anbang has denied any investment plans.

That redevelopment plan calls for stripping the steel off the 41-story tower and reconfiguring the development rights as a 1,400-foot-tall skyscraper designed by the late architect Zaha Hadid.

Bloomberg last week had reported the redevelopment would be valued at $7.2 billion, though Kushner Companies believes that figure could climb as high as $12 billion.

As The Real Deal reported last week, even at the more conservative $7.2 billion valuation, condos would have to be underwritten at $9,000 per square foot. That figure is far and above the current crop of Luxury Buildings Such As 432 Park Avenue, which asks an average of $6,894 per square foot. [Bloomberg]Rich Bockmann