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Jared Kushner's bold deal gone bad
A global hunt for investors to bail out an ill-timed $1.8bn property purchase is creating a fresh headache for Donald Trump’s son-in-law and his family. Alex Rankine reports.
Joshua, Charles and Jared Kushner: not so much to smile about today
(Image credit: 2014 Patrick McMullan)
A global hunt for investors to bail out an ill-timed $1.8bn property purchase is creating a fresh headache for Donald Trump's son-in-law and his family. Alex Rankine reports.
Who are the Kushners?
A wealthy New York family who have been vaulted to global prominence in the past year due to their connection to Donald Trump. Jared Kushner, who is married to Trump's daughter, Ivanka, is a central figure in Trump's team he is tasked with everything from leading policymaking on veterans' affairs and opioid addiction to running diplomacy with dozens of foreign leaders, despite having no prior political experience.
Jared's role caps the Kushners' rise from refugees to the top circles of money and power in America. Kushner's grandparents were Holocaust survivors who emigrated from Belarus to the US in 1949, where they became real-estate investors. His father Charles later grew their portfolio into the Kushner Companies, a billion-dollar operation. Forbes last year put the family's wealth at $1.8bn, mostly in real estate in New York and surrounding states.
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The Kushner money may have given Jared a good start in life he was accepted into Harvard despite an underwhelming academic record, not long after his father made a $2.5m donation to the university. (Jared's younger brother, Joshua, a venture capitalist, also later attended Harvard.)
Yet the family was plunged into crisis in 2004 when father Charles was imprisoned for tax fraud, illegal campaign donations and witness tampering. The latter charge related to an episode in which Charles tried to deter his own brother-in-law from talking to prosecutors by hiring a prostitute to entrap him. His father's problems meant responsibility for running the family business fell on Jared then just 23 and still a student.
What investments did he make?
Jared took steps to restore the family's reputation by buying The New York Observer newspaper popular among Manhattan's elite for $10m in 2006. His marriage to Ivanka in 2009 helped cement his social ties. But his big business move was to begin shifting the family's real-estate holdings from New Jersey and the surrounding region, where the Kushners once owned 25,000 apartments, to more prestigious ventures in Manhattan.
These deals included the bold $1.8bn purchase of the 666 Fifth Avenue skyscraper on the eve of the financial crisis in 2007. The Kushners put down only $50m, financing much of the acquisition with high-interest loans.
Was the deal a smart move?
No in fact, it's "a growing problem that will not go away", according to a Bloomberg analysis. The deal got off to a bad start when the credit crunch forced the Kushners to sell off part of the office space and retail units in return for capital injections from other investors. The remaining $1.2bn principal on the building's interest-only mortgage falls due in 2019.
Yet the 1950s structure is falling out of favour with tenants and the family is running out of options. So they want to raze the entire building and replace it with a new 80-storey structure designed by architects Zaha Hadid, complete with luxury retail and condos.
Who's going to pay for the project?
That's the sticking point. The plan would require $4bn in construction loans to get off the ground, but the Kushners have so far struggled to find backers in the US or abroad who think the sums add up. Approaches to France's richest man, a raft of Israeli business partners, South Korea's sovereign wealth fund and Chinese insurer Anbang have all failed to secure funding, reports Bloomberg.
Trump's presidential victory brought renewed interest, and Qatari magnate SheikhHamad bin Jassim Al Thani agreed to put in $500m if other investors could be found, but this deal fell through when no one else came forward.
Does this mean a conflict of interest?
Jared Kushner has stood down from his role at Kushner Companies and is reported to have transferred his interest in the 666 building into a trust. However, the fact that a man with an important role in shaping America's foreign policy was trying to negotiate business deals with entities linked to foreign governments in the months following Trump's election victory inevitably raises questions. And it didn't help when Jared's sister Nicole Kushner Meyer openly touted the Kushner Companies' connections to Trump while pitching to Chinese investors in May.
She was trying to attract foreign backers for another real-estate development, using the controversial EB-5 visa scheme that lets foreign citizens get US visas in return for investing in America.
Are there any other controversies?
Yes. Deutsche Bank agreed a $285m refinancing package for another Kushner property in New York one month before the election the bank was under regulatory investigation at the time, raising questions about its motivations. The Washington Post reports that Jared also failed to disclose dozens of financial holdings when he joined the White House, including an interest in real-estate investment platform Cadre, which he founded with Joshua.
With a US special counsel continuing to investigate the Trump campaign's ties to Russia, and Kushner's business dealings coming under scrutiny, it is not surprising that Kushner Companies is reported to have switched its PR firm to one that specialises in crisis communications.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
