Did Trump’s Son-in-Law Just Get a Sweetheart Deal From Chinese Investors?

An unusual Manhattan real estate transaction is drawing the eyes of property watchers in the Big Apple as 666 Fifth Avenue, a 41-story office and retail tower, looks set to receive a huge financing boost from Chinese investment firm Anbang Insurance Group.

Anbang, which in 2014 bought the Waldorf Astoria Hotel, has murky ties to the Chinese government, to the point where former President Obama decided not to stay at the Waldorf in 2015 because of security concerns that his room might be wired with surveillance gadgetry.

Under normal circumstances, Anbang’s investment in 666 Fifth Avenue wouldn’t raise any eyebrows. But in this case, there are two large caveats — the first is that majority ownership in the building belongs to the company headed by Jared Kushner, the son-in-law of President Trump (Kushner is married to Ivanka Trump).

The second being the unusual specifics of the deal, by which Kushner’s company stands to make out exceedingly well, despite having come close to insolvency in the aftermath of the 2008 financial crisis.

In the wake of the 2008 crisis, established New York real estate firm Vornado Realty Trust acquired a 49.5 percent stake in the 666 building from the Kushner Companies in exchange for just an $80 million investment of capital. That’s not bad, considering that Kushner bought the building the prior year for a whopping $1.8 billion (mostly borrowed) — a record for a single office building in Manhattan.

In 2012, Vornado purchased the retail spaces at the building’s base from Kushner. Now, with Anbang entering the picture, Vornado may be bought out for ten times its investment on the office tower and double what it paid for the retail spaces.

It’s a great deal for Vornado, which still might not raise many eyebrows, except that Vornado’s chairman Steven Roth co-chairs a national committee working on infrastructure revitalization, one of the Trump White House’s signature agenda items. If the federal government invests in rebuilding Manhattan infrastructure, many of Vornado’s buildings, particularly those clustered around Pennsylvania Station, would benefit greatly.

The 666 Fifth Avenue deal would not just help Vornado — it will also aid Kushner because it would allow Kushner to buy back into the retail spaces and also to become a partner with Anbang in the $4 billion conversion of the tower’s upper floors to luxury condominiums.

If the deal is consummated, Kushner Companies’ loans would be paid off, and the company would profit by at least $500 million. Where it gets interesting is that the federal government may also be involved.

Under a federal financing program known as EB-5, buildings in “economically distressed areas” can be rehabilitated partially using government money. The way it works is the government pays down a share of a project’s needed capital in order to create jobs and attract foreign investment that otherwise might go elsewhere.

In exchange for the foreign interest, the government supplies two-year visas and a direct path to permanent residency for foreign investors who contribute at least $500,000 each. Thus far, the EB-5 program has been used for a number of high-profile projects such as Manhattan’s Hudson Yards development and Brooklyn’s Barclay’s Center.

In both of those projects, it’s possible that the “economically distressed” label could have been applied to the previous incarnations of those developments’ locations. But with 666 Fifth Avenue — a section of one of the world’s priciest stretches of real estate — it’s hard to see how the “distressed” label fits.

Analysts see some peculiarities with the 666 transaction. “At the very least, this raises serious questions about the appearance of a conflict that arises from the possibility that the Kushners are getting a sweetheart deal,” says Larry Noble, the general counsel of the Campaign Legal Center. “A classic way you influence people is by financially helping their family.”

Joshua Stein, a real estate attorney in New York, says, “This is a huge, huge exit strategy for an office building. It does sound like a home run of a transaction for Kushner and his group.” A spokesman for Kushner Companies, James Yolles, said that the deal is not yet finalized and he could not yet name other investors or lenders in the deal.

Jared Kushner, who until recently was CEO of Kushner Companies, sold his stake in the building to members of his family to avoid conflicts of interest prior to becoming a senior advisor to President Trump. “Kushner Companies has taken significant steps to avoid potential conflicts and will continue to do so,” said Yolles in a statement.

At the White House, a spokeswoman stated Kushner will recuse himself in advance from any matter that might bring his impartiality into question, including any participation in the EB-5 program renewal. However, it should be noted that Kushner was present at a meeting of President Trump and China’s top diplomat, Yang Jiechi, in late February.

Kushner is also in a position to have an impact on the U.S.’s trade policies and national security approach with China. It’s said that President Trump will be meeting with Chinese President Xi Jinping as early as April of this year; some international business observers say the Chinese government has been clamping down on investments overseas and has not yet reviewed the part of the 666 transaction that involves Anbang.

In the meantime, Kushner Companies has said it will be investing $750 million in the retail spaces of the building and will end up with a stake worth one-fifth of the total project if the deal is completed. There are still opportunities for additional investors in the project, which would value the office section of the building at $1.6 billion and the retail portion at $1.25 billion.

If the project is successful, $1.15 billion worth of existing mortgage debt would be refinanced. Scott Singer, the president of Singer & Bassuk, a real estate financing specialist, said the terms of the deal sounded “aggressive, but not absurd,” based on the building’s square-foot metrics and net income expectations. He said they matched up with what might be projected for a building of that size in such a location.

But to be sure, the degree of closeness of the partners in this deal have some people scratching their heads and wondering if real estate is the only game being played here.