Jared Kushner's Losing Commercial Real Estate Bet

New York Observer publisher Jared Kushner bought trophy property 666 Fifth Avenue for a record $1.8 billion in 2007, but since then he’s lost money and tenants.

Bloomberg: Since Kushner bought the building, its occupancy rate has dropped 10 per cent and rental income has declined. Citigroup Inc., Kushner’s biggest tenant, vacated about 80,000 square feet of space in August and the skyscraper had about 69 cents in rental income available for every $1 owed in the third quarter, down from 80 cents in the second quarter, according to loan servicing documents examined by Bloomberg…

Kushner, who also owns the weekly New York Observer newspaper, said new leases at the 41-story building will help bolster cash flow.

The reserve fund had $98.2 million as of Nov. 24 to cover debt payments and other expenses, according to a servicer report. Kushner sold a 49 per cent stake in the building’s retail space in July for $525 million. Part of the proceeds were used to increase the fund, which had fallen to about $32 million as of the end of May, records show. The fund started at $100 million when the loan was originated.

“There’s eight years left on the debt, and we have $100 million in reserve so any inference that this building is in trouble or distressed is ridiculous, even in this crappy real estate market,” Kushner, 28, said in an interview…

But rents haven’t been anywhere near where Kushner hoped they’d be when he bought the property which is typical of the neighbourhood.

When Kushner bought 666 Fifth Avenue, he got $1.215 billion from Barclays Capital. The loan was divided and sold as part of three commercial mortgage bond offerings, according to data compiled by Bloomberg. The purchase was financed with another $535 million in debt, which has since been paid off.

Kushner estimated the building would have average revenue of roughly $110 a square foot per year, according to loan documents. That’s more than double the average of $48.99 per- square-foot tenants were paying in rent at the time of the sale, the documents show.

Office rents in the neighbourhood, which includes the landmark Plaza Hotel, averaged $86.26 a square feet in the fourth quarter, about 25 per cent less than the peak of $115.66 in May, according to Colliers ABR data. Kushner said the average rent in the building is now almost $50 a square foot.

Kushner’s second strategy to increase revenue: raise rent on existing tenants. He maintains that he’s not selling the building.

See Also: Ivanka Trump and Media Mogul Jared Kushner Keeping Money In Family Again

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