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Brookfield Buys Another Leasehold Interest, This Time Beneath Kushner’s 666 Fifth Avenue Tower

99 Year Ground Lease Marks One More Acquisition in a Busy Year for the Global Asset Manager
August 10, 2018
American real estate developer and lender Kushner Companies LLC appears to have stemmed some of its bleeding at 666 Fifth Ave., as Brookfield Asset Management has stepped in to assume the entire leasehold interest on the office condominium, carrying a 99-year term.

Brookfield, a global alternative asset manager with roughly $285 billion total assets under management, said it is planning major upgrade work on the 1.5 million-square-foot office property, which it will operate in-house.

Ric Clark, senior managing partner and chairman of Brookfield, referenced the property’s "Main and Main location, direct transportation access and currently unrefined physical characteristics" as reasons behind its potential to become "one of New York City’s most iconic and successful office properties." He added the asset manager’s experience in redeveloping and repositioning major offices in New York and other cities means that it is "well-placed to capitalize" on 666 Fifth.

Brookfield said in a securities filing that it had not completed work on its valuation of the asset, but industry watchers estimate the transaction may have cost Brookfield approximately $1.1 billion.
See CoStar COMPS #4470111.

Brookfield’s entry follows Vornado’s move to exit its stake at the building this summer. On June 1, Vornado said that it had entered into an agreement to sell its 49.5-percent interest in the office condominium at 666 Fifth Ave. in New York City back to Kushner Companies. The transaction is expected to close during the third quarter. Kushner Cos. had sold the partial-interest stake in the space to Vornado in 2011 for $646 million, or about $900 per square foot, according to CoStar data, after it had bought the building from Tishman Speyer for $1.8 billion in 2008, arguably at the top of the market last cycle.

See CoStar COMPS #1203518 and #2225558.

The ownership group is carrying about $1.22 billion in debt on the building, following a loan modification in 2011, according to public records.

The building's travails have attracted attention because of the role President Trump's son-in-law Jared Kushner played in the original purchase. Before he was named a senior White House advisor to Trump, Kushner held a top-level role as president of his father’s real estate development firm. Jared Kushner took over the business in 2005 following his father’s two-year stint in prison for tax evasion and witness tampering. It was during these years that he personally signed the acquisition paperwork for 666 Fifth in 2007 and the follow-on loan modification in 2011.

As Jared Kushner came aboard the Trump administration, he is reported to have sold some of his family assets to his mother and brother, but not all of them. Following an analysis of his nearly 60-page financial disclosure form submitted in 2017, the Washington Post estimated that "the companies, properties and other assets that Kushner still owns are worth between $167.5 million and $569.5 million."

Representatives for Kushner Cos. did not respond to phone calls or e-mails seeking comment.

666 Fifth Avenue is not the first Manhattan leasehold acquisition this year for Brookfield, which is known for its exercises in
"placemaking."
It also entered into a joint venture with Waterman Interests for a long-term ground lease at the Lever House.

Other acquisitions by Brookfield this year include the $31.5 purchase of retail condominiums on Bleecker Street that were formerly held by New York REIT. It also purchased a 49-percent stake in a seven-property apartment portfolio held by Carmel Partners that valued the portfolio at nearly $1.9 billion. And of course, Brookfield acquired GGP and Forest City this year.

According to its second-quarter earnings report, Brookfield derived $30.5 billion from its core office segment of six midtown New York City office properties, compared to $28.6 billion for the same period a year ago. It earned $70 billion in the second quarter from its eight downtown New York City office properties, compared to $70.8 billion a year before.

However it noted a significant spike in debt obligations for its core office properties in the coming years. In 2018, Brookfield calculates holding about $345 million in core office debt, but that will jump to $2.218 billion in 2019 and $3.43 billion in 2020. Brookfield has about $160 billion in real estate assets under management and owns and operates more than 275 office buildings worldwide.

  For the Record: Brookfield was advised in the 666 Fifth Ave. deal by real estate law firm Fried Frank. The Fried Frank team included Joshua Mermelstein, Patrick M. Dowd, Robert Cassanos, Joel London, Cyril Touchard, Jessica H. Mayes, Jing Jin, Tam T. Ho, Josh Goldstein and Daniel Jacobson.



Diana Bell, New York City Market Reporter  CoStar Group   
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