NEW YORK -- In a six-floor retail space near Times Square, the Guy Fieri restaurant has closed and construction hasn't begun on celebrity chef Todd English's food hall. A tourist attraction featuring a 1/87th scale model of New York City was behind on rent for two months as of December, according to loan documents.
It wasn't supposed to be this way.
When Kushner Cos. bought the property for $296 million in 2015, then-Chief Executive Officer Jared Kushner had big plans to capitalize on the tens of millions of tourists who visit the area every year. Deutsche Bank AG financed the endeavor before selling most of the debt to investors across Wall Street a year ago. Those investors were shown disclosures describing the retail space as 100 percent occupied and estimating it would throw off $24 million of rent annually.
But Fieri, English and Gulliver's Gate, the operator of the miniature Manhattan, account for $9.9 million of that rent estimate, which underpinned a market-defying appraisal boost and helped justify $370 million of loans, the disclosures show. Problems with these spaces could make the economics challenging.
Last year, New York prosecutors requested documents from Deutsche Bank related to the property, where the Kushners used the debt to take out $59 million in cash. It isn't clear what prosecutors are looking for. But mortgages granted under generous financial assumptions then sold to others who will bear the risk have piqued their interest in other cases. A spokesman for the Brooklyn U.S. Attorney declined to comment, as did a spokesman for Deutsche Bank.
Kushners Cos. declined to comment or answer detailed questions about the property sent to them a week ago. A spokeswoman for Gulliver's Gate said that it "is up to date on their rent and paid in full on their lease" and there are "no concerns" about its future there.
Kushner, President Donald Trump's son-in-law and senior adviser, left his role in the family company when he joined the administration a year ago and divested from some assets. He says that, to avoid conflict of interest, he's no longer involved in the business.
New managers of the loans bought from Deutsche Bank have taken notice of the property's issues. Even if they were brief, the missed payments by Gulliver's Gate, the second most lucrative tenant, triggered a clause in the Kushners' loan documents allowing creditors to demand any excess cash from the property until the problem was resolved, according to reports from debt servicers. Managers also put the retail space on watch lists for potentially troubled debt because it lost money for nine months through September 2017 after accounting for interest payments, the reports show. That's because new tenants were given millions in free rent, a common tactic used to fill store spaces. Kushner Cos. set aside $11 million of the loans for the free rent. Disclosures don't describe that figure as including funds for vacancies.