How It Works: In January, Kushner Companies paid $1.8 billion for 666 Fifth Avenue, a Manhattan real-estate record. Did the Kushners overspend? Yearly net income from office and retail spaces, including the NBA Store, Brooks Brothers, and Hickey Freeman on the ground floor, likely runs somewhere in the neighborhood of $57.6 million, based on a capitalization rate—the one-year return expected on the investment—of 3.2 percent, according to one source. According to documents filed with the city, 666 Fifth Avenue’s new owners now owe $1.215 billion on the building. Commercial-real-estate expert Lawrence Fiedler’s back-of-the-envelope calculation pegs the Kushners’ likely mortgage payments at $79 million each year. So far, it looks like the building is in the red, though Jared Kushner, who also bought the Observer last year, says, “Sixty percent of the office space is rolling in the next four years,” which means about 720,000 square feet’s worth of leases will be at market rate, anywhere from $80 to $120 per square foot. (That’s as much as $86.4 million a year in full-market rents right there if they get top dollar.) Tenants aren’t likely to have much room for negotiation, not if they want to stay in a prime location.
Added Value: The “trophy factor”: Marquee properties don’t come around too often, says appraiser John Cicero. The land alone would likely cost, if it were on the market now, up to $700 per square foot, not counting construction costs, which run about $500 per square foot. Add payments for architects to design a replacement, a marketing team to fill it with tenants, and lawyers to handle the formalities, and the $1,200 per square foot the Kushners paid seems somewhat sane.