Debt on Kushner’s Times Square Retail Condo Transfers to Special Servicing

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Kushner Companies‘ retail condominium in Times Square is in trouble with its lenders again, according to Kroll Bond Rating Agency, which is monitoring the debt on the property.

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The $285 million CMBS loan on the retail space at 229 West 43rd Street has been transferred to its special servicer, an indication that bondholders have concerns about being paid back on schedule. Specifically, the loan’s transfer to its special servicer KeyBank on Jan. 2 followed Kushner Companies‘ failure to fund “a shortfall on the loan’s debt service payments and required reserves,” KBRA said in a statement.

Kushner Cos., the New York City-based firm that was founded by Charles Kushner and is now led by his children, Joshua Kushner and Nicole Kushner Meyer, is also in default on the building’s junior mezzanine debt and is currently in negotiations with that mezz lender, KBRA noted. 

(Disclosure: Nicole Kushner Meyer’s husband, Joseph Meyer, is Commercial Observer’s publisher.)

The retail property, in a historic building that housed The New York Times‘ offices until 2007, has been on the special servicer’s radar since the debt was watchlisted for potential troubles in Sept. 2017, according to data from Trepp

The debt on the 250,000-square-foot retail space springs from a 2016 refinancing that closed after Kushner Companies bought the six-story space located between Seventh and Eighth Avenues five years ago. In the refinancing, it received a $285 million loan from Deutsche Bank that was securitized into four separate CMBS transactions, with the largest piece held in CD 2017-CD3, as well as a $70 million mezzanine loan from Paramount Group and a $15 million mezzanine loan from SL Green Realty Corp.

Retail assets have seen tough going across the CMBS universe, but the 229 West 43rd Street retail condo’s problems trace back to its troubled tenancy. Several lessees have gone belly up since Kushner bought the space.

It was home to Guy’s American Kitchen, a restaurant led by celebrity chef Guy Fieri, who has hosted several Food Network television shows. But the 5-year-old eatery closed in 2017. It had received an infamously acerbic review from The New York Times‘ food critic.

The Kushners also tapped chef Todd English to preside over a food hall in the building, but by 2018, they were locked in a lawsuit with English’s company, Outstanding Hospitality Management, over rent payments, according to Bloomberg. The eatery never opened.

More recently, the building has floundered because of problems with its two largest in-place tenants, KBRA said.

Its largest, a novelty attraction called Gulliver’s Gate which invites visitors to wander past elaborate miniatures of famous global sites, defaulted on lease payments beginning in late 2018 and then pushed the Kushners into a reduced-rent agreement. But late last year, Gulliver’s Gate filed for bankruptcy and isn’t paying any rent at all, as per the rating agency.

The second-biggest tenant is National Geographic, which runs an exhibit about sea life called Ocean Odyssey in the building. Like Gulliver’s Gate, Ocean Odyssey also defaulted on its lease and began paying a reduced rent under a stipulation agreement last spring. Then National Geographic also fell behind, even on the reduced payments. 

Despite the trouble, the retail condo is not in default on its senior debt, as of the December payment. Citing tenants’ financial issues, Kushner was about $28,000 short on a $1.3 million payment it owed to senior bondholders on Dec. 6, but it came through with the money three days later, according to the servicer’s watchlist notes from December.

The property was 95.1 percent occupied as of June 2019, but that figure is expected to drop to 52.4 percent after excluding Gulliver’s Gate and National Geographic, according to KBRA. 

“The borrower continues to aggressively market these spaces for lease given the uncertainty around both of these tenants,” the servicer wrote in watchlist notes from December. 

Other current tenants include a Bowlmor Times Square — a bowling alley — and Guitar Center, which sells music and audio equipment. 

A Kushner Companies representative did not immediately respond to an inquiry.