(Bloomberg)—Two months ago, the Kushner family announced with fanfare the purchase of the Quail Ridge Apartments of Plainsboro, New Jersey, which it had sold 10 years earlier, describing the move as an outstanding opportunity.
They didn’t mention that most of the money came from others.
Psagot Investment House, as well as another unnamed buyer, helped Kushner Cos. finance its $146 million purchase of the 1,032-unit apartment complex. Although the Kushners have deep ties with Israel, this is the first time they have worked with Psagot, Israel’s largest asset manager. The deal is a curious one, requiring the buyers to take on an existing loan with onerous conditions.
“We like to think outside of the box for the most appropriate structure for any given deal,” Laurent Morali, president of Kushner Cos., said in an interview while declining to name the second partner.
Recalibration
The purchase may be part of a recalibration away from pricey New York and back to large, provincial multifamily properties that generate management fees and steady revenue. This year, the family backed out of buying a Brooklyn hotel, sold a stake in a nearby office building and unloaded rental buildings in Queens, while buying out a partner in a portfolio of Maryland apartments.
Not everyone is convinced the Quail Ridge acquisition is a smart one. Other potential buyers who considered it described the debt as prohibitive: a $93 million loan with 6 percent interest, an early payment penalty of more than $40 million and a stipulation against taking out too much debt.
Morali points to nearby complexes that have traded at higher per-apartment prices as proof the family got a good deal. The Kushners will collect 4 percent management fees on the property before distributing income to Psagot and the undisclosed investor, which together put down most of the money the Kushners needed in the form of an instrument called preferred equity.
Shlomi Sheffer, a spokesman for Psagot, declined to comment on a detailed list of questions.
Preferred equity functions in many ways like a loan: guaranteeing the owner a certain percentage return, frequently in the double digits on an annual basis. Often, these payments aren’t due until a certain deadline or in the event of a sale. The guarantee means other owners can lose their stake to the preferred investor if a sale doesn’t generate the promised returns.
Morali declined to detail the exact nature of the preferred equity for Quail Ridge.
Blessing and Curse
Jared Kushner, previously the company’s chief executive officer, joined the administration of his father-in-law, President Donald Trump, in January. The Kushners’ link to the White House has been both blessing and curse -- attracting wealthy foreigners while increasing concerns about scrutiny over conflicts of interest. While there have been problems securing funds for their debt-laden Manhattan office tower at 666 Fifth Ave. and a Jersey City development site, the company has had better luck with lower-profile deals.
The 50 or so plain, boxy two- and three-story buildings that make up Quail Ridge harken back to a money-making era for the Kushners. Ten minutes by car from Princeton, the property was one of many working- and middle-class apartment complexes that made Jared’s father, Charles Kushner, rich -- propelling him to a perch as a kingmaker in New Jersey Democratic politics in the 1990s.
After he was convicted of witness tampering, illegal campaign contributions and tax evasion in 2005, the family decided to make its mark in New York with the purchase of 666 Fifth Avenue in what Jared called “Kushner 2.0.” Quail Ridge was among the properties sold to finance the acquisition.
Kushner Cos. had taken out the demanding Quail Ridge loan from a subsidiary of American International Group in 2006 before selling the property less than a year later. The debt was still there when they rebought the property in September for $146 million. That left more than $50 million to pay, which was covered by Psagot and the undisclosed partner in roughly equal portions.
A mutual friend introduced Morali to executives at Psagot, which has recently been buying U.S. apartments. Apax Partners bought the company in 2009.
Ties with Israel
Kushner Cos. has substantial business and philanthropic ties with Israel and has done deals with several of the country’s financial firms, many of which are listed as partners and lenders on its website. Psagot isn’t on the list. Some other investors, including the diamond-trading Steinmetz family, are also not included.
Jared Kushner has taken on an ambitious portfolio of responsibilities in the Trump administration, including overseeing an attempt to revive Israeli-Palestinian peace talks. Even though he divested from many of his properties by selling his shares to family members, ethicists have raised concerns that Kushner Cos.’ business ties to Israel could pose conflicts.
The company bought Quail Ridge from a partnership of Angelo Gordon & Co. and Candlebrook Properties LLC. Dana Roffman, a managing director at Angelo Gordon whose name has appeared on Quail Ridge documents, declined to comment. Neil Rubler, Candlebrook’s president, didn’t respond to multiple requests for comment. Three brokers on the deal with Holliday Fenoglio Fowler LP didn’t provide comment. One said they’d signed confidentiality agreements.
To contact the reporters on this story: David Kocieniewski in New York at [email protected]; Caleb Melby in New York at [email protected] To contact the editors responsible for this story: Ethan Bronner at [email protected] Melinda Grenier
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