Monday, July 10, 2017

Leaky, Leaky

Please slow down. I cannot keep up.
The Kushners’ purchase of 666 Fifth Avenue for a record-breaking $1.8 billion in 2007 was a capstone to an era marked by high prices and reckless amounts of debt. The Kushners invested $500 million in the building, and took out debt to cover the rest. But even at the height of a bubbling New York real estate market, there were clear signs that the price was too high and the debt was too much. The Kushners paid $1,200 a square foot, twice the previous per square foot record of $600, while records show that even with the building initially almost fully rented out, revenue only covered about two-thirds of the family’s debt costs.


The $1.2 billion interest-only mortgage is due in February 2019. The office space is worth less than its mortgage and “there is no equity value” left in the office section of the building.


Not long before a major crisis ripped through the Middle East, pitting the United States and a bloc of Gulf countries against Qatar, Jared Kushner’s real estate company had unsuccessfully sought a critical half-billion-dollar investment from one of the richest and most influential men in the tiny nation, according to three well-placed sources with knowledge of the near transaction.

Kushner is a senior adviser to President Trump, and also his son-in-law, and also the scion of a New York real estate empire that faces an extreme risk from [the investment] at 666 Fifth Avenue, where the family is now severely underwater.

Qatar is facing an ongoing blockade led by Saudi Arabia and the United Arab Emirates and joined by Egypt and Bahrain, which President Trump has taken credit for sparking. Kushner, meanwhile, has reportedly played a key behind-the-scenes role in hardening the U.S. posture toward the embattled nation.


Trump himself has unsuccessfully sought financing in recent years from the Qataris, but it is difficult to overstate just how important the investment at 666 Fifth Avenue is for Kushner, his company, and his family’s legacy in real estate.


After the election, Kushner Companies found many more suitors interested in doing business, one of the sources, who is U.S.-based, said. One of the investors taking the deal more seriously in late 2016 and early 2017, the U.S. source said, was “Hamid bin what’s-his-name,” referring to [Sheikh Hamad bin Jassim al-Thani, known as HBJ]. Top executives at Kushner Companies, the source said, “are dumb enough to not know that why they want to deal with them has nothing to do with the real estate. Around the New Year they were like, ‘LPs” — industry slang for limited partners, or investors — “are engaging more!’ It’s like, I wonder why?”

Or, perhaps, they know quite well what’s going on.

  The Intercept
The Qatari loan deal fizzled when a potential investor, Anbang, pulled out.
Only a handful of companies in the real estate business, such as Blackstone and Brookfield, are big enough to secure a loan of that size, and to date they appear unwilling to take on the level of scrutiny the deal would bring, never mind offer terms as favorable as Anbang’s. Additionally, any borrower would have to get their loan from somewhere, and one dynamic stymying the deal may be that any bank that underwrote such a loan would face just as much scrutiny for their financial and political judgment as the investor they gave it to.

Anbang pulled out after the deal was criticized as a conflict of interest, given Kushner’s role in the White House.
Thus foiling the Qatari promise of investment to match up to $500 million in investment in the deal, and earning Qatar the wrath of Trump.
That chain of events was disputed by a source who said the deal between HBJ and the Kushners wasn’t dead, but on hold as the deal’s mix of loans and equity was reconsidered.

The revelation of the half-billion-dollar deal raises thorny and unprecedented ethical questions. If the deal is not entirely dead, that means Jared Kushner is on the one hand pushing to use the power of American diplomacy to pummel a small nation, while on the other his firm is hoping to extract an extraordinary amount of capital from there for a failing investment. If, however, the deal is entirely dead, the pummeling may be seen as intimidating to other investors on the end of a Kushner Companies pitch.
Trump family sleaze threatens this country's - and perhaps the world's - national security.
On June 9, after Saudi Arabia and the UAE had begun to blockade Qatar, Secretary of State Rex Tillerson sought to calm nerves, calling for mediation and an immediate end to the blockade.

Within hours, Trump, at a White House ceremony, contradicted Tillerson, slamming Qatar again and claiming it had “historically been a funder of terrorism at a very high level.”

Trump’s White House remarks, Tillerson came to believe, had been written by UAE Ambassador Yousef Al-Otaiba and delivered to Trump by Jared Kushner.


Had the Qataris known where things were heading diplomatically, said the source in the region, they’d have happily ponied up the money, even knowing that it was a losing investment. “It would have been much cheaper,” he said.
...but hey, do what you will anyway.

UPDATE 8/30:  Scathing article on Otaiba.

UPDATE 5/16/18:

And perhaps the Qataris would NOT have ponied up.

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