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Kushner's tenant woes flare up at Times Square
TOURIST attractions at Kushner Cos' Times Square property are showing signs of financial stress, posing a threat to the company's sizeable mortgage there.
The owner of Gulliver's Gate, which displays a miniature model of New York, has been sued by at least six contractors alleging nonpayment of various fees.
Three people familiar with the suits said the company portrayed itself as financially strapped in talks about potential settlements, a characterisation its co-founder denied in an interview.
Meanwhile, the operator of National Geographic Encounter has been fighting over rent with Kushner Cos since August, lender records showed. It was hit with tax liens by both New York City and New York State earlier this year.
The two attractions accounted for almost half of the property's expected rent-roll in a 2016 estimate that helped justify US$370 million in loans, mostly from Deutsche Bank.
Exits or rent reductions by major tenants could blow a hole in the property's ability to cover US$11.6 million in annual interest payments. So far, there has been no evidence of either.
Gulliver's Gate has settled at least two of the lawsuits, Michael Langer, co-founder of the company, said in a phone interview.
"We're a growing company that's scaling pretty rapidly, and that comes with lots of challenges," he said, adding "I certainly wouldn't characterise" the company as experiencing financial stress, and that he wasn't worried about its ability to stay in the Times Square location.
Representatives for the National Geographic Encounter: Ocean Odyssey attraction, which promises "an ocean of fun in the heart of Times Square", were also unconcerned.
"This is a simple garden variety landlord-tenant dispute and we expect it to be resolved. This doesn't impact the day-to-day operations," a spokeswoman for National Geographic Encounter said in an email. "The NYC lien has been paid in full. While there is a question about timing regarding NY State taxes, and it's currently under administrative review, we expect this to be resolved."
National Geographic was delinquent in paying rent in August, and is in talks with Kushner about "recoveries and rent under the lease," according to lender records.
Kushner Cos, owned by the family of presidential son-in-law Jared Kushner, has recently pulled back from New York after a decade of making purchases there. The company has backed away from development projects in Brooklyn and sold 666 Fifth Avenue, their marquee property. Selling it relieved a huge financial burden, because payments on the tower's debt eclipsed net income.
The Times Square building, at 229 West 43rd Street, previously home to The New York Times, is smaller, and the risk it poses isn't existential.
Kushner Cos purchased the six-floor retail property for US$296 million in 2015. Much of it was vacant, and their assurance that they would rapidly fill it up helped garner US$370 million of loans, including US$285 million from Deutsche Bank, in October 2016. The German bank then sold the debt to investors, with disclosures stating the property was 100 per cent leased. But it has never been full.
Repositioning retail property is a difficult task compounded by the changing ways Americans shop and spend free time.
Kushner Cos made a bet on new tenants that offered experiences rather than products in a popular tourist area. But their tenants posed special risks.
Disclosures to potential buyers of their debt showed none had a credit rating from Fitch, Moody's Investors Service or S&P Global, unlike many large retail properties that tend to be anchored by stores with known credit profiles.
Eiran Gazit, who masterminded Gulliver's Gate's 1:87th scale model of New York City, said in a phone interview that the company had met with 17 landowners before getting a yes from Mr Kushner.
Mr Gazit said he stepped down from leading Gulliver's Gate more than a year ago and isn't authorised to speak on behalf of the company, where he is a minority owner.
Kushner Cos also chose Outstanding Hospitality Management, a St Louis-based operator of airport restaurant spaces, to open a food hall branded for celebrity chef Todd English. But Mr Kushner and OHM traded lawsuits earlier this year, and the company is no longer moving in to a space meant to fill 10 per cent of Kushner's rent roll. Kushner Cos is in negotiations with two potential tenants, according to lender records filed in October.
One bright spot: the company found a taker for the former restaurant space of Guy Fieri's American Kitchen. The Ribbon, a mainstay on Manhattan's Upper West Side, will open a branch there. There are no indications of trouble for four other tenants, representing about one-third of Kushner's rents.
As of June, the building was on track to clear US$6.3 million after debt payments in 2018, lender filings show. That's an improvement over the US$1.9 million last year, thanks mostly to new tenants exiting free-rent periods but still short of the US$9.9 million estimated when debt was sold to investors.
Any exits or reductions in rent could make matters worse. In the 2016 estimates, Gulliver's Gate and National Geographic each accounted for about a quarter of the building's rent.
In October of last year, lenders put the building on watch-lists for potentially troubled debt because of the tenant troubles. BLOOMBERG