Kushners may have to cut stake in NYC tower below 50% as Brookfield offers $700-million cash infusion

When Kushner Cos. bought 666 Fifth Ave. for a record-setting US$1.8 billion, it made a down payment of US$50 million. When it added a partner years later, that company put down US$80 million.

Now Brookfield Asset Management Inc. is offering to buy a stake in the troubled New York City office tower and put up as much as US$700 million — in cash.

That figure, which emerged on Friday, is a standout in Manhattan real estate, where empires are typically built on debt. Though Kushner has owned a majority stake in the property, Brookfield will probably demand more than 50 per cent or other concessions for its giant equity infusion, according to five people familiar with the building’s finances.

Representatives for Kushner Cos. and Brookfield declined to comment.

The marquee property in the Kushner Cos. portfolio, 666 Fifth Avenue is weighed down by a US$1.2 billion mortgage. It also needs hundreds of millions of dollars in renovations. Attempts to find other investors who would take a back seat to the Kushners in a redevelopment deal have come up short over the last couple of years.

Saving Face

Months-long negotiations with Brookfield are progressing, though the final terms aren’t set. The companies are now discussing more than US$1.5 billion of financing, including as much as US$1 billion of debt. That eclipses current appraisals on the property, which top out at US$1.3 billion.

Kushner Cos., owned by family members of Jared Kushner, the son-in-law of President Donald Trump, wants to maintain a stake in the property, which was its first big splash on the Manhattan real estate scene. But without a new partner and financing, it runs the risk of having lenders seize the property when the mortgage comes due in February.

As a first step in its latest refinancing plan, Kushner Cos. said this month it would buy out its partner, Vornado Realty Trust, which owns 49.5 per cent.

Deep Pockets

Brookfield, one of the world’s largest investment firms, certainly has the funds for the deal. Under the latest discussions, Brookfield would put up US$500 million to US$700 million in equity, though it’s not clear what structure would be used to make the deal worthwhile to its shareholders.

“I’m not going to say it’s chump change, but it’s not going to change anyone’s lifestyle over at Brookfield,” said Lawrence Longua, a retired real estate professor at New York University’s Schack Institute of Real Estate and now an adjunct instructor at Fordham University’s new real estate institute.

The transaction could be structured any number of ways, with components — such as preferred equity with an outsize guaranteed return — that could sweeten the deal for Brookfield while allowing Kushner Cos. to hold a nominally larger stake, two of the people said. When Vornado purchased its stake for US$80 million in 2011, it secured a guaranteed 11 per cent return on the funds, deal documents from the time show.

In the end, Vornado and Kushner Cos. couldn’t agree on how to manage the property. Vornado wanted a modest update to the building, while Kushner Cos. favored a plan to knock down the tower and build one twice as tall in its place.

Vornado “is going to walk away from this getting a net US$120 million,” Longua said. “I’d go back to my shareholders and say, Look at what I did.”

Trophy, Anyone?

Brookfield now has the opportunity to bring the offices up to top standards and charge premium rents. “They are going to come in, give Vornado an exit, and they are going to take advantage of the tremendous run-up in value going forward,” Longua said. Brookfield has said it would follow a plan similar to one executed at the onetime home of the New York Daily News at 5 Manhattan West, stripping off its sides and re-cladding it in floor-to-ceiling glass.

After a successful turnaround, Brookfield could sell the refurbished tower. It could go to “an international buyer who wants a trophy property in a dead-center location on Fifth Avenue,” said Lynne B. Sagalyn, a real estate professor at Columbia Business School.

A partnership with Brookfield would be a great relief for the Kushners. The 41-story building, which the family bought at the height of the real estate boom in 2007, lost US$25 million last year and has almost always been unprofitable. Over the last few years, the tower has been a source of controversy as company executives scoured the globe for capital. They approached investors in Saudi Arabia, Qatar, Israel, China, France and South Korea.

Before he became a senior White House adviser, Jared Kushner was involved in many of those conversations. Since then, he has stepped aside from the family business. In his role in the administration, he has taken on a foreign policy portfolio that includes talks with the leaders of several of those countries. Lawyers for Kushner have frequently said that he follows all ethics guidelines and doesn’t mix private business with his government work.


Cirque du Soleil is coming soon to a shopping mall near you, starting with Toronto

Shopping malls with a growing surplus of space have already leased to grocery stores and medical offices. Soon they’ll try out high-wire acts.

Cirque du Soleil Entertainment Group plans to open its first family entertainment centre inside a mall in the greater Toronto area in September 2019, in a partnership deal with real estate firm Ivanhoé Cambridge. Discussions are ongoing for additional locations in Canada, the entertainment company said Wednesday. It’s also talking with other partners for sites outside the country.

Shopping centres across North America have been hit hard in recent years by an exodus of traditional retailers as more consumers shop online and demand experiences, such as entertainment, as part of their trips to the mall. Cirque du Soleil’s so-called Creactive centres will help the company diversify and fill empty storefronts.

The centres will be about 2,200 square meters (24,000 square feet) and offer acrobatic and other recreational activities, such as bungee jumping, aerial parkour, wire and trampolines and juggling.

“Our fans regularly express their wish to experience Cirque du Soleil from an insider’s perspective,” said Marie-Josee Lamy, Creactive’s producer. “We make that possible by inviting families to jump on stage, offering them another way to explore our creativity beyond our live shows.”


Cadillac Fairview announces $800-million office tower in Toronto

TORONTO — Cadillac Fairview and the Investment Management Corporation of Ontario will build a 46-storey office tower in Toronto that will become the new home of the Ontario Teachers’ Pension Plan.

The commercial real estate company hopes to secure additional tenants before the $800-million building opens in the fall of 2022.

The building will be situated on the northeast corner of Front Street and Simcoe Street in downtown Toronto.

It will include 1.2 million square feet of office space, 12,290 square feet of retail and 339 parking stalls.

It is part of flurry of recent investments from Cadillac Fairview, including $1.5 billion in office projects and $25 million for the redevelopment of a former Sears location at CF Champlain mall in Moncton.

Since 2000, Cadillac Fairview has been wholly owned by the pension plan, which currently has a head office in North York.

Macy’s acquires minority stake in tech retailer b8ta

Macy’s has partnered with b8ta, the retail-as-a-service startup that originally started out as a way to let people try out new tech products. Macy’s has acquired a minority stake in b8ta and will use the startup to enhance The Market, an experiential-based retail concept at Macy’s. By partnering with b8ta, Macy’s envisions being able to scale its Market concept faster, Macy’s President Hal Lawton said in a statement. For b8ta, this is an additional source of revenue.

“At b8ta, we believe physical retail will thrive as a platform for discovering new products and brands,” b8ta CEO Vibhu Norby said in a statement. “Macy’s was the best partner for b8ta to scale our pioneering retail-as-a-service model to a breadth of categories like apparel, beauty, home, and more. With b8ta’s software platform and business model, product makers can go from solely selling online to launching their products with Macy’s in a few clicks. Our platform makes it easy for makers to deploy, manage, analyze, and scale amazing offline retail experiences.”

Earlier this year, b8ta unveiled a Shopify-like solution for retail stores. Called “Built by b8ta,” the solution functions as a retail-as-a-service platform for brands that want a physical presence. b8ta’s software solution includes checkout, inventory, point of sale, inventory management, staff scheduling services and more. Netgear was the first customer to launch a Built by b8ta store this June in Silicon Valley’s Santana Row, and b8ta has plans to deploy additional stores for other brands in that area.

In April, Norby told me there were a handful of other brands that b8ta would announce soon. This year, b8ta expects anywhere from 10 to 15 companies to launch stores built by b8ta across cosmetics, apparel and furniture. It seems that Macy’s was one of those companies.

b8ta initially launched as a store that showcased products like the Gi Flybike, a folding electric bicycle, and Thync, a wearable for achieving mindfulness and boosting energy, into physical stores and enable customers to have real, tactile experiences with them.

Robert De Niro’s Nobu aims for $1 billion in sales combining sushi, hotels and now condos

Nobu Hospitality LLC, the sushi restaurant and luxury hotel chain founded by Robert De Niro, chef Nobu Matsuhisa and movie producer Meir Teper, expects to reach US$1 billion revenue in five years as it adds condos to its growing empire.

A key step in the company’s growth was its first foray into the condo market with 660 units and 36 luxury-hotel suites atop a Nobu restaurant in Toronto. The project, announced last year, sold out in three months. After starting with one sushi restaurant in New York in 1994, the company now has more than 40 locations, including London and Las Vegas, said Trevor Horwell, chief executive officer of closely held Nobu Hospitality.

“It’s quite a rapid growth,” Horwell said, breaking ground at the Toronto project in the city’s entertainment district Monday. “Normally in our restaurants, we can have over 100,000 customers a year. All we’ve got to do is convert 10 to 15 per cent of those customers to fill our hotels. So that’s why we went into hotels.”

Nobu Hospitality hopes to complete the two-tower Toronto project, which may cost as much as $300 million (US$231 million), in 30 months, Horwell said. Hotel room rates are expected be as much as $800 per night and condo units will average $850,000.

Nobu Resort

“I’ve done movies here, a festival here and it’s a logical place for us to open,” said De Niro, who also attended the groundbreaking, complete with gold shovels and Japanese drummers.

A chef holds a finished sushi dish for a photograph at the Nobu London luxury restaurant inside the Metropolitan Hotel in London, U.K.

The company has committed to two more mixed-use developments, in Sao Paulo, Brazil and Los Cabos, Mexico, and is on the lookout for more opportunities in Asia, including Taipei, Hong Kong and Jakarta. Horwell hopes to have 10 mixed-use Nobu developments around the world in the next decade, while adding five hotels and restaurants per year.

New York is still the dream location for a Nobu-branded mixed-used development, said Horwell, despite an earlier project falling through due to zoning hurdles. “We want to do New York without a doubt, but it has to be special,” he said. “If we did a mixed-use, it’d have to be the best, because there’s some great developments there.”

De Niro is hoping to see a Nobu resort in the coming years, specifically eyeing Bermuda. “There’s quite a few things in the works,” he said.


Toronto drop drives Canadian housing starts to lowest in a year

Canadian housing starts fell to the lowest level in a year in May on a decline in Toronto apartments and townhouses.

Housing starts fell 9.8 per cent to an annualized 195,613 units, from 216,775 in April, Canada Mortgage & Housing Corp. said Friday from Ottawa. Multiple-unit starts dropped 15 per cent to 124,957 units. Single-detached homes was the only segment to see a slight rise from April, with a 2 per cent gain to 70,655.

Housing has been a key driver of Canada’s economy for a decade as interest rates remain at historically low levels. In Vancouver and Toronto, the country’s biggest markets, prices have soared to record highs, prompting a series of regulations to cool the market. So far, the government has succeeded in slowing the rush, with both cities undergoing a drop in sales amid rising interest rates.

“In May, the national trend in housing starts declined following several months of stability,” Bob Dugan, CMHC’s chief economist, said in a statement. “This reflects a decline in multi-unit urban starts in May that leaves them close to their 10-year average following several months of historically elevated levels.”

Ontario saw a drop of 22 per cent from April to 52,353 units, while starts in British Columbia saw a rise of 3 per cent to 40,892 units. Toronto starts fell 13 per cent, while in Vancouver they climbed 14 per cent.

The drop in housing starts was unexpected, extending the softer run of construction activity to mark the first month below 200,000 units in a year, Priscilla Thiagamoorthy, an analyst at BMO Capital Markets in Toronto, said in a research note.

“Residential construction, which remained firm at the start of the year, has shown signs of slowing with the double whammy of tougher mortgage rules and rising mortgage rates, combined with fewer ready-to-build lots and permit delays,” Thiagamoorthy said.


Brookfield said to explore sale of industrial-property unit IDI Logistics

Brookfield Asset Management Inc. is weighing a sale of its North American industrial-property business IDI Logistics, according to people with knowledge of the matter.

The Canadian investment firm has interviewed banks to advise it on a sale of the company, which could fetch US$5 billion, according to the people, who asked not to be named because the matter is private. The business is owned by Brookfield’s real estate arm, Brookfield Property Partners LP.

A deal for IDI Logistics would follow Brookfield’s sale last year of its European warehouse business, Gazeley, for YS$2.8 billion to Singapore’s Global Logistics Properties Ltd. IDI Logistics has 33 million square feet (3.1 million square metres) of assets under management as well as sites to develop an additional 20 million square feet of distribution facilities, according to a press release last month.

The shift toward online shopping is luring investors into industrial real estate at a time when sales of other types of properties have slowed. Purchases of industrial buildings surged 34 per cent in the first quarter from a year earlier, to US$20.9 billion, according to research firm Real Capital Analytics Inc. Since then, deals have included Blackstone Group LP’s agreement last month to buy Gramercy Property Trust and Prologis Inc.’s proposed acquisition of DCT Industrial Trust Inc.

Brookfield bought IDI’s predecessor, IDI Developments International Inc., for US$1.1 billion in 2013.


Real estate property manager and developer JLL launches a $100 million tech investment fund

The multi-billion dollar real estate developer and property manager JLL is getting into the tech investment game with the launch of a new $100 million fund run by corporate subsidiary JLL Spark.

Initially envisioned as a technology-focused business unit of the multinational real estate company, the firm eventually turned to the more traditional venture capital investment model as a way to get more exposure to all of the new technologies that are coming to market, according to JLL SPark’s co-chief executive Mihir Shah.

For Shah and his co-founder Yishai Lerner running the real estate company’s investment firm is the first foray by either executive into the world of real estate or property technology. But both men have been working in the startup world of the Bay Area for at over a decade.

In fact, the two serial entrepreneurs launched one of their first companies from the TechCrunch 50 conference way back in 2007 (it was a mobile app that mimicked Yelp).

The two eventually sold their mobile review business to GroupOn and began doing some angel investing. It was during that venture into the wild world of seed stage prospecting that Shah got bitten by the real estate bug while trying to buy some commercial real estate.

“I was looking at the process and was thinking ‘Wow! That is not a modern process,’” Shah said.

Unbeknownst to Shah, at the same time he was looking for commercial real estate, the commercial real estate industry was looking for someone like him.

JLL had put out feelers and hired head hunters to find someone who could take the lead at the firm’s burgeoning technology practice, Shah said.

“They had all sorts of internal initiatives bringing in new technology companies and services to their existing clients,” Shah said. “They understood that technology was going to transform all aspects of the industry.”

One of the first steps that JLL had taken was to acquire Stessa, which developed and sold asset management software for the real estate industry. But Shah and Lerner quickly realized that the buy and build strategy wouldn’t be robust enough for JLL’s needs.

“Over the last six months we saw how much innovation was happening in the proptech space and we thought it made more sense to launch a venture fund,” Shah said.

The firm will invest anywhere from a few hundred thousand dollars to a few million into seed stage or Series A companies with the option to dabble in later stage deals, according to Shah. The firm has made two investments so far — neither one of them in startups.

The commitments have been in one accelerator program, the New York-based Metaprop, which focuses on real estate tech investment, and Navitas Capital, which is billed as a later stage investor in the same space.

Both investments appear to be geared toward educating the firm’s two principals on the market and what’s already happening in the space.

The benefit that a corporate firm like JLL can provide to startups is the access to pilot projects where companies can deploy their technologies and, indeed, that’s the pitch that Shah makes to potential portfolio companies.

“Money is not enough,” he said. “There’s a lot of products out there, but they’re struggling with distribution.” JLL has designated a few buildings in top cities around the world to fast track new technologies and provide trial spaces for them to develop, Shah told me. “Our value as a strategic is to build that bridge and make that connection.”

“Creating this $100 million venture fund through JLL Spark allows us to continue to lead the real estate industry in bringing the best proptech ideas to reality,” said Christian Ulbrich, JLL’s Global chief executive. “It complements and expands our substantial ongoing investments in innovative, cutting-edge digital solutions, which is a core part of our Beyond strategic vision and commitment to achieve ambitions for our clients.”