Kushner Said to Offer to Buy AIG's Stake in $1.9 Billion Housing Venture

Kushner Cos. is seeking to buy American International Group Inc.’s equity stake in about 17,000 apartments, almost three years after selling the units near the property market’s peak, a person with knowledge of the bid said.

Kushner offered $165 million to $190 million for the equity interest, said the person, who asked not to be named because the talks are ongoing. AIG and Morgan Properties agreed in June 2007 to buy the 86 complexes for $1.9 billion, mostly in debt.

The insurer is weighing a sale of its stake in the venture as it seeks to repay a $182.3 billion government rescue, two people with knowledge of the talks said May 26. Morgan may be interested in buying out AIG’s stake, the people said. U.S. apartment values rebounded by 11 percent in the six months ended March 31, after falling 40 percent since their first-quarter 2007 peak, according to Moody’s Investors Service.

AIG was among “major market participants who invested heavily in commercial real estate,” said Sam Chandan, chief economist at Real Capital Analytics Inc., which tracks real estate sales worldwide. “Now they have to spin off some assets that they might reasonably believe could move higher in the medium term.”

AIG and Morgan paid “significantly over market” when they closed their deal in September 2007, said Ben Thypin, an analyst at New York-based Real Capital.

Priced Too High?

The joint venture’s deal valued the apartments, located mostly in New Jersey and Pennsylvania, at about $112,000 a unit, Thypin said in a May 27 e-mail. Properties of about the same age and in the same markets were selling for about $93,000 a unit that year, he said. In 2010, based on only four deals, the price per unit averaged $70,000.

It was the sixth-largest sale of multifamily properties in the decade between 2000 and 2009, according to the December 2009 issue of Apartment Finance Today.

AIG and Morgan raised $1.5 billion of debt from firms including Fannie Mae and Wachovia Corp. to acquire the properties, according to court documents. Kushner would assume that debt under its offer, the person familiar with the bid said.

The equity portion of the 2007 sale came from a $614 million commitment from New York-based AIG and a $25 million investment from Morgan, according to the court documents.

Steve Solomon, a Kushner spokesman, said the company declined to comment, as did Mark Herr, an AIG spokesman. Mitchell Morgan, founder of King of Prussia, Pennsylvania-based Morgan Properties, also declined to comment.

Morgan’s Lawsuit

Morgan has the right of first refusal in a buyout of AIG’s stake under a contract with the insurer, the developer said in a February 2009 lawsuit accusing AIG of making late payments for apartment renovations.

The agreement permits AIG “to solicit third parties to purchase, or to accept unsolicited offers” for its interest, according to the complaint. The sale “shall be subject to” the partner’s “reasonable approval,” within the first three years of the agreement, the complaint says.

Kushner, founded by New Jersey developer Charles Kushner, sold the apartment portfolio about eight months after paying $1.8 billion for 666 Fifth Ave., a Midtown Manhattan skyscraper. At the time it was the most ever paid for a single U.S. building. Kushner’s son Jared Kushner, a principal in the firm, said in a June 2007 interview that the portfolio sale was “part of a strategic shift” from suburban apartments to larger New York properties.

666 Fifth Ave.

In March, Kushner Cos. asked that its $1.215 billion of debt on 666 Fifth Ave. be transferred to a special servicer to facilitate restructuring as rents generated from the building were less than anticipated.

In April, Japanese apparel merchant Uniqlo agreed to pay a record $20 million a year for 15 years to lease retail space at the property. Kushner co-owns the building’s ground-floor retail space with Carlyle Group and Crown Acquisitions.

In court documents, Morgan described the apartment portfolio it co-owns with AIG as “workforce housing” for middle-class families. At the time it was sold, the portfolio consisted of complexes in five states, including the Towers of Windsor, a 525-unit complex in Cherry Hill, New Jersey; the 46- unit Highland House in Highland Park, New Jersey; and Summit Pointe, a 212-unit complex in Scranton, Pennsylvania.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

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