NEW YORK — An ambitious plan by Jared Kushner’s family to recast its indebted Fifth Avenue office building as a luxury architectural trophy is collapsing, setting off a chain of events that may imperil the Kushners’ ownership of a property central to their real estate empire.

Their partner, Vornado Realty Trust, is telling brokers to plan for a much more mundane renovation that would leave the property as an office building, according to three people familiar with the matter. Vornado Chairman and Chief Executive Officer Steve Roth was never enthusiastic about the Kushner plan although until now he hadn’t stood in its way.

Putting an end to the Kushner effort — to salvage their overpriced investment by turning it into a Midtown jewel with expensive condos, a hotel and five-floor mall — could have profound ramifications for the family. Vornado, which owns 49.5% of 666 Fifth Ave., is unlikely to invest further in the property without first being reassured of its future, said three people familiar with Mr. Roth’s thinking. That means returning to the negotiating table with lenders — a battle that could result in Kushner Cos.’ losing control of the building, said the people, who asked not to be named discussing private deals.

A Kushner Cos. spokesman said nothing has been decided.

“As equal partners, Vornado and Kushner have been exploring a range of options for the future of 666 Fifth Avenue,” he said in an e-mail. “All options are still being assessed, and no decision has been made about which option to pursue. Any implication that an agreed upon path has been reached or that there is contemplation of an outcome that would be to the sole benefit of one party over the other would simply be wrong.”

Mr. Roth is famously press shy and private and has instilled that ethos in other company executives. When he suffered a minor heart attack in August — something that many publicly-traded companies would immediately disclose to investors — it took more than a month for the news to break. So Vornado’s switch of directions for 666 Fifth is probably leaking out for a reason, according to three people familiar with him: he’s signaling to any lenders or investors who may still be interested in the Kushner effort to back off, the people said.

It’s a sharp reversal. As recently as March, both Vornado and Kushner were looking at a massive windfall from Anbang Insurance Group. The Kushner family stood to gain a $400-million cash payout from a deal being discussed with the Chinese insurer, while realizing their dreams of building a glamorous skyscraper. But Anbang, which had previously bought up several major US properties, including the Waldorf Astoria hotel, pulled out of the negotiations amid a public outcry in the US over conflict-of-interest concerns and a crackdown by the Chinese government on overseas investments.

The Kushners bought the tower a decade ago at the height of the market and it turned into an albatross shortly thereafter when Manhattan real estate prices collapsed. It has lost money for years, and has been a lightning rod for controversy since January, when Jared Kushner, the company’s former chief executive officer, entered the White House as a senior adviser to his father-in-law, President Donald J. Trump. Before joining the administration, he met with executives from Anbang and South Korea to pitch the grand re-imagining of the tower. Kushner Cos. executives also approached investors in Saudi Arabia, France, Israel and Qatar.

Pressure is mounting because a $1.2-billion mortgage is due in February 2019, while losses make it unattractive to lenders who might refinance the debt. The building lost $14.5 million in 2016 and is on track to lose $24 million this year after a boost in the loan’s interest rate, according to data compiled by Bloomberg. A 30% vacancy rate, as of June, has deepened the losses as Kushner Cos. prepared to demolish the property and replace it — a process that would have required buying out existing leases. Vornado’s plans are designed to fill the building at market-rate rents and stanch the bleeding, three people said.

DIFFERENT INTERESTS
While Kushner and Vornado have shared interest in the building’s success, that means different things to each firm. Mr. Roth has recently renewed his focus on operating Manhattan office properties, after spinning off Vornado’s Washington properties and retail malls. Vornado’s stable of large, profitable office buildings produces plenty of cash to purchase under-performing ones to modernize and fill with new tenants.

Kushner Cos.’ portfolio is less valuable and it has many expensive redevelopment projects ahead. Company president Laurent Morali told Bloomberg only six weeks ago that there were a number of potential investors in the grand redevelopment plan. He said he didn’t consider it prohibitively expensive, as many have, but rather “ambitious and creative.” Modernizing and re-leasing the building, as now seems the more likely path, was only a contingency plan.

The firms’ differences now appear to be on a collision course, and any refinancing negotiation would not occur on equal footing. The process would be expensive, requiring funds for replenishing reserves to pay interest on the debt, as well as money to update the tower.

Vornado, which bought its half of the tower for $80 million and half the debt in 2011, has access to capital of its own, as well as a slate of institutional partners. Kushner Cos. added $30 million at the time, but that was from selling air-rights to a nearby property — meaning the cash came out of the building, not their coffers. While the company has expanded its roster of partners and lenders during the past decade, it has found funds more difficult to come by since Jared Kushner joined the White House.

The 2011 refinancing was a complex affair, involving several lenders. A sequel would be similarly grueling, and outcomes therefore difficult to predict. But the existing power imbalance could result in the Kushners’ losing control of the building, three people said.

Jared Kushner’s ascension to the White House raised concerns that he might use his position improperly to bail his family out even though he had divested his stake in 666 Fifth and other properties out of conflict-of-interest concerns. The success of Mr. Trump’s campaign drew investors into discussions, an August investigation by Bloomberg found. But heightened scrutiny and financial assumptions for the project that most found to be unrealistic resulted in no takers. — Bloomberg

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