The coronavirus crisis has ratcheted up the heat on Kushner Companies as it tries to cover the debt payments on a Brooklyn office complex, where one of its biggest tenants is WeWork.
Before the pandemic struck, Kushner Companies was already running tight margins at Dumbo Heights, a four-building property it bought out with RFR Holdings in 2016 for $600 million, according to Bloomberg.
Now, WeWork has been asking landlords to cut its rents by as much as 30 percent, potentially putting additional strain on Kushner Companies, Bloomberg reported. The co-working giant accounts for more than a fifth of rental income there.
Last year, the ratio of cash flow to debt on Dumbo Heights was tight enough that banks put it on a list of potentially troubled properties, allowing its lenders to review new leases and lease changes.
Most of the debt on the property is high-interest held by funds operated by South Korean insurance companies Shinhan Financial Group and DB Insurance Company, according to the Bloomberg report. Kushner Companies and Aby Rosen’s RFR Holdings took out $300 million in financing with the South Korean firms in 2018.
A Kushner Companies spokesperson called the Dumbo Heights complex “a huge success, and any suggestions to the contrary are absolutely false. Of course, rent collections during the pandemic will likely be similar as with all other landlords at this time. The properties are essentially 100% leased at rents far exceeding the initial underwriting at acquisition.” The spokesperson provided the statement to The Real Deal, the same one the company gave Bloomberg.
A representative for the Shinhan subsidiary that provided the loan also said that interest payments are up to date.
But ratings company S&P Global estimated that the loan-to-value ratio for all the debt on the property — including another $180 million issued by other lenders — was around 140 percent, which means its analysts consider the debt on Dumbo Heights to be more than what the property is worth. [Bloomberg] — Dennis Lynch