By Eleanor Beevor
Qatari money may soon be offered to Jared Kushner’s family company, an offer which could save it from disaster. But if the Kushners take it, then the already-tainted political career of Jared Kushner will come under further scrutiny. For one of the youngest members of the Trump team, Kushner carries a remarkable amount of compromising political baggage. And his opponents are unlikely to let him accumulate more without a fight.
Kushner backed by Trump (AFP/File Photo)
White House insiders had long-feared that Kushner’s business history, and his family’s extensive debts could leave him vulnerable to foreign pressure. Indeed, interested foreign governments appeared to think the same.
The Washington Post reported that US intelligence found officials from four separate countries - China, Israel, Mexico and the United Arab Emirates - had discussed trying to take advantage of Kushner’s compromised position, and his lack of foreign policy experience.
Around the same time, Kushner’s security clearance was downgraded by White House Chief of Staff John Kelly. This was because Kushner’s background check had not been completed months after his appointment, again because of fears that his family’s debts would leave him vulnerable to foreign pressure.
Kushner renounced his role in his family firm Kushner Companies when he started work at the White House. He divested his stakes in the corporation’s biggest projects, selling them back to a trust run by his mother. Nevertheless, given the pressures facing his family, and the considerable financial interest that Kushner Companies represents to Jared Kushner once he leaves the White House, there is reason to wonder if the company’s situation might affect his political dealings.
The crux of the Kushners’ financial woes is a high rise tower, number 666 5th Avenue.
Jared’s father Charles Kushner made his fortune developing suburban residences in New Jersey and Pennsylvania. However, the family was keen to break into the more glamorous world of luxury New York real-estate. And in 2007, the father and son team of Charles and Jared Kushner were ready to make their move.
Kushners 41-storey tower on 666 5th Avenue (Twitter)
666 5th Avenue, on Manhattan’s best known shopping street, is a 41-storey tower, with retail space on the lower floors and offices above. The Kushners believed that the exclusive address would guarantee high rents for the office spaces, quick returns, and the opportunity to redevelop some of the floors into luxury flats in the future.
On this assumption, they paid $1.8 billion for the tower - the highest price ever paid for an office block. $500 million of this sum came from their own money, but the rest was put together with loans and a mortgage. For the Kushners to be able to make good on the interest, the gains from the tower would have to come quickly.
That wasn’t how things turned out. Contrary to their expectations that rents for Manhattan office space would rise, rents actually fell as the 2008 recession set in. And so despite the Kushners selling the most valuable feature of the property – its retail space – for a cool $525 million in 2010, they were falling into more and more debt. Meanwhile, almost a third of the spaces for rent in the tower went unoccupied. Vornado Realty Trust, the same company that bought the retail space, purchased a 49% stake in the tower. Though this bought the Kushners time, it also complicated their plans to develop the building further – Vornado has a veto over any sale.
Commissioning Zaha Hadid
Dame Zaha Hadid's Heydar Aliyev Centre in Baku, /AFP
For a time, things seemed to be picking up. In late 2016, a Chinese company called Anbang Insurance appeared ready to finance the Kushners’ redevelopment plans. Kushner Companies had made plans to demolish the original building and replace it with a skyscraper for luxury living space. They had commissioned celebrity architect Zaha Hadid to create a new design for the building, and were hoping to have her oversee the redevelopment. Kushner Companies projected that this would cost $7.5 billion.
And whilst their pitch promised several billion in returns for potential investors, Vornado objected, saying it would not continue to invest in the building without future security. Vornado thus would also have had to be bought out for the project to go ahead. Given the building’s underwhelming returns, the offer from Anbang to take on the project as business partners with the Kushners seemed too good to be true.
Indeed, many thought it was. Kushner Companies were set to receive a $400 million cash payout from Anbang, who would also take on much of the future financing of the project. $200 million in debt was also going to be forgiven. Bloomberg described the terms as “unusually favourable”, and given Anbang’s extensive ties to the upper echelons of the Chinese Communist Party, it is hardly surprising that talk of conflicts of interest arose.
Even though Jared Kushner was not brokering the Anbang deal himself, his family and his personal fortune were still tied up in its success. Eventually the deal fell through, seemingly because both sides were unwilling to weather potential legal trouble from political ethics lawsuits.
And now time is flying for Kushner Companies. The repayment of the tower’s mortgage - a sum of $1.2 billion – is due in February 2019. However, this is reported to exceed the value of the office space for rent. Meanwhile the Kushners have had to cover the building’s losses, which have sometimes run into the tens of millions of dollars over the course of a year. But despite the saga 666 5th has presented so far, the Kushners may have one more chance. The question is whether it comes with strings attached.
In comes Qatar
The potential investor is Brookfield Property Partners, a Canadian property development firm that has a number of deals to its name in the world of Manhattan real estate. But eyebrows have been raised given that its second largest investor is the Qatar Investment Authority (QIA), the sovereign wealth fund of the troubled Gulf Emirate that is currently being blockaded by its neighbours.
This is not the first real-estate investment that will have been financed by Brookfield Property Partners and the QIA. But in this particular case, the political questions cannot be ignored. That’s not least because Charles Kushner met with officials from QIA in April 2017 after pitching the project to them. Though the deal fell through due to a lack of outside investment, Kushner said that he would never have accepted money from a sovereign wealth fund anyway, and that his meeting with the Qataris was a “courtesy”. Yet here he is about to accept Qatari investment through a third-party company.
There is no doubt that Qatar has the motive to try and buy influence in Washington. Its lobbying efforts to try and secure US influence in lifting the blockade have been extensive, and often unexpected. Qatar has even courted a number of right-wing pro-Israeli figures in Washington, including Mort Klein, President of the Zionist Organisation of America.
True, it is hardly the only state to play the lobbying game – its rivals such as Saudi Arabia and the UAE do the same. And it is certainly possible that Brookfield Property Partner’s decision was made with purely commercial objectives. But even if that most generous assumption is true, it is still out of step with proper government conduct. Erik Jensen, Professor Emeritus of Law at Case Western Reserve University in Ohio told Al Bawaba:
“It shouldn’t matter much, if at all, whether a financial arrangement between a U.S. official (which Jared Kushner is, even if he takes no salary from the American government) and a foreign government is a technical violation of U.S. conflict-of-interest law. A reasonable official should want to avoid any economic arrangement that could be construed as creating an appearance of impropriety.
Even if the connection between U.S. official and foreign government is a tenuous one, which may be the case here, the official should be taking every step possible to eliminate any bad appearances. And the appearance of impropriety can exist whether or not the foreign government is one friendly to the United States.”
Kushner Companies may feel that they can no longer afford political propriety. But other experts believe this deal may represent serious legal infractions. If there is a case to come from the deal, it will likely hinge on the Emoluments Clause – a Constitutional article that prevents American officials accepting gifts of any kind from foreign governments without the consent of Congress. Whether a transaction through a private company to an official’s family constitutes an acceptable degree of separation is a matter of legal interpretation. But on this occasion, it’s a very fine line.
Richard Painter, Professor of Law at the University of Minnesota Twin Cities, and vice-chair of Citizens for Responsibility and Ethics, an anti-corruption organisation in Washington, told Al Bawaba:
“I think that this does very likely pose a serious conflict of interest. If the Qatari government controls the Canadian entity, then I think it’s a clear violation of the Emoluments Clause. This applies to every single person employed by the US government. The only thing that makes this borderline is that the Qatari government does not wholly own the Canadian company, and the Canadian company is private.
But if the Qatari government has control over that Canadian company, directly or indirectly, then I’d say it’s a violation of the Constitution. The point of the Emoluments Clause is that American officials are not allowed, directly or indirectly, to be getting profits from foreign governments. If there is, for practical purposes, a deal between the Qatari government and Jared Kushner, or his businesses, then this certainly raises very serious concerns.”
Whether the Trump administration will share such concerns is questionable. Nevertheless, the judiciary has proven the strongest obstacle to Trump’s most controversial moves in office. American law has mostly held steadfast against Trumpian attempts to circumvent it.
With the wind behind it, the law may go after Jared Kushner too. If it does, this deal might still help save Kushner Companies, but at the expense of the Kushner family.
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