The incoming chairman of the Port Authority of New York and New Jersey will recuse himself from decisions regarding one of the bistate agency’s largest and most controversial development initiatives: construction of a high-rise office building above the Port Authority Bus Terminal.
That’sbecause CharlesKushner, a real-estate developer who is NewJersey Governor James E. McGreevey’s choicetobecome theauthority’s chairman, recently made a $164 million investment in a New Jersey mall with Vornado Realty Trust-the real-estate company that will develop the bus-terminal tower.
Mr. Kushner was approved for his position on the board of the Port Authority by the New Jersey Senate Judiciary Committee in mid-June, when the deal to buy the Monmouth Mall was still in progress.
An innocuous item on the Bloomberg newswire Oct. 11 announced that Mr. Kushner and Vornado had teamed up to buy the Monmouth Mall in New Jersey. But one senior source at the Port Authority said the bistate agency “had no record or knowledge of his partnership with Vornado in Monmouth County” when he was appointed to the agency’s board. “It would be a conflict if it were not disclosed because of Vornado being the designated developer of the tower above the Port Authority bus terminal,” the source told The Observer .
A Port Authority source told The Observer that the board depends on background checks and investigations conducted by the governor’s office to identify conflicts and bring them to the attention of the Port Authority’s chief legal counsel. But Democratic Party sources said that Mr. Kushner was spared a personal appearance before the State Senate Judiciary Committee, as his candidacy for the chairman spot was vetted not at a public hearing but in a closed-door meeting of the State Attorney General’s office. Mr. Kushner’s potential conflicts of interest did not surface at that time.
According to Mr. Kushner’s spokesman, Howard Rubenstein, attorneys for Mr. Kushner hadn’t identified the conflict.
“But as soon as the inquiry was made,” Mr. Rubenstein said, referring to The Observer’s questions about the Monmouth County transaction, “he made the disclosure.”
Mr. Kushner “wants to avoid even the appearance of a conflict,” and so he “will certainly recuse himself” from decisions regarding the bus-terminal project, Mr. Rubenstein said. “What he’s doing is notifying the chief legal officer of the Port Authority, and he’s making a disclosure.”
A spokesman for the authority said merely that the agency “works closely with its commissioners to help identify and avoid any potential conflicts of interest.” The spokesman pointed out that board members serve without compensation, and that their backgrounds in business, law, accounting and other fields are viewed as assets by the agency.
Mr. Kushner’s move and the bus-terminal project itself speak to larger questions about the Port Authority’s role in economic development projects in the region. Originally created to oversee transportation projects, the agency has become a powerful developer on both sides of the Hudson River. Recent statements from Governor George Pataki and Mayor Michael Bloomberg have encouraged the agency to return to its original mission and attempt to divest itself of its real-estate holdings. That’s precisely what the authority was attempting to do more than a year and a half ago, when it sold a 99-year lease on the World Trade Center to developer Larry Silverstein.
To manage the Port Authority’s vast real-estate holdings, or to supervise the leasing of them to developers, requires some knowledge of commercial real estate. But anybody with such knowledge-that is, a real-estate developer-would seem likely to run into real or perceived conflicts of interests. The head of the Port Authority, after all, has significant power to enrich developers, thanks to the agency’s vast real-estate empire.
“Across the board, these things will arise,” said Mr. Rubenstein. “And [Mr. Kushner] wants to avoid both an actual conflict and the appearance of conflict.”
A spokesman for Mr. McGreevey downplayed the issue. “You want a businessman to be at the head of the Port Authority, and I’m not sure why people think otherwise,” said Kevin Davitt, Mr. McGreevey’s press secretary. “And if someone on the board finds himself in a conflict-and I don’t think Mr. Kushner will be the only one-the proper thing to do is what he has done, which is to recuse yourself.”
This doesn’t mean that the Port Authority is used to keeping such a watchful eye. “People are much more conscious of potential conflicts,” said one Port Authority board member, who asked not to be named. “And the community is much more aware of it than perhaps 30 years ago or 50 years ago, when you had the great titans of the metropolitan area on the board. People weren’t as aware of conflicts, or maybe the community didn’t hold their feet to the fire over conflicts. But, obviously, now it’s a big deal.”
At the moment, all eyes in New York are cast on the future of the 16-acre World Trade Center site, where Mr. Kushner will represent the interests of New Jersey and the Port Authority. But the Port Authority owns properties all over the city-including the bus terminal on West 42nd Street that the American Institute of Architects has hailed as “the city’s vomitory.” In March 1998, this unlikely place was unveiled as the site of an ambitious new project: a skyscraper that would earn the Port Authority $130 million in ground leasing to prospective tenants. A lot has changed since then: The first anchor tenant for the building, Cisco Systems, a creature of the Internet boom, backed out of the deal, and talks between the developers-Lawrence Ruben and Vornado Realty Trust, who were named in late 1999-and potential anchor tenants since then have not yielded many prospects.
What’s more, the previous city administration was locked in a battle with the Port Authority over its New York properties, with Rudolph Giuliani insisting that the bus-terminal development be subject to city property taxes. Traditionally, the Port Authority was exempt from property taxes and instead provided the city with so-called “payment in lieu of taxes,” also known as PILOT fees.
After Cisco bowed out, Deutsche Bank and Microsoft both snubbed the project, prompting real-estate experts to insist that the site wasn’t attractive to the very blue-chip tenants that could make the building a success. Since last year, little has changed at the vomitory-and the appointment of Mr. Kushner to the agency’s board, and Mr. McGreevey’s campaign to have him elected chairman, very likely will not speed things along.
That appointment didn’t appear to ruffle feathers in the New Jersey State Senate, which is equally divided between Republicans and Democrats. The Senate’s Judiciary Committee, chaired by Republican State Senator Bill Gormley, reviews such gubernatorial appointments. According to published reports, Mr. Kushner was confirmed for both positions without facing a single question from legislators.
But a series of reports in The Record of Hackensack raised questions about Mr. McGreevey’s motives for choosing Mr. Kushner, a politically connected developer who counted Mr. Giuliani, former U.S. Senator Frank Lautenberg and Mr. McGreevey among the guests at his 8-day-old grandson’s bris at the Puck Building (a Kushner property) last March.
The report detailed how Mr. Kushner was able to exploit campaign-finance loopholes to donate at least $3.1 million to political candidates and causes since 1995-including more than $1.5 million to political funds benefiting Mr. McGreevey since 1997.
Mr. Kushner logged the contributions through some 85 different corporate entities and private individuals, many of them family members. His son Jared, a college student, has made $82,000 in contributions to mostly Democratic causes; Mr. Kushner’s daughter Nicole gave $67,000; and the youngest contributor, Mr. Kushner’s 17-year-old son Joshua, gave $44,000.
Many contributions were listed under the names of employees of some of Mr. Kushner’s many companies. Mr. Rubenstein said that checks written in the names of employees were not always cleared with those employees beforehand, but contemporaneously or afterwards.
Mr. Kushner also has been connected to a minor scandal in the McGreevey administration earlier this year. Shortly after taking office in January, Mr. McGreevey appointed Golan Cipel, whom he has said he met on a tour of Israel, as his homeland-security adviser. It turned out that Mr. Cipel is not an American citizen but an Israeli, and that federal agencies would not share national-security data with him. Mr. Cipel has since resigned.
Mr. Cipel had previously been employed by Mr. Kushner to write press releases from the Kushner Companies’ Florham Park, N.J., offices. Mr. Kushner took Mr. Cipel on after he had served as the McGreevey gubernatorial campaign’s outreach coordinator to Jewish voters.
The governor named Mr. Kushner to the board of the Port Authority one month after his election, and publicly touted him as the next chairman of the powerful agency, which is grappling with Pataki appointees on the Lower Manhattan Development Corporation, a city-state entity, to determine what gets built at the former World Trade Center.
Further muddying the waters is an ongoing Kushner family feud. Charles Kushner was sued by his brother and business partner, Murray (who is, not incidentally, a fund-raiser for Republicans), in September 2001; the suit alleges that Charles Kushner kept part of the company profits for himself, ignored agreements made within the partnership and withheld accounting information. The suit called for Charles Kushner to make an accounting of all revenues and disbursements in the company since 1997. But in March of this year, the case was sealed, and the court appointed an arbiter to resolve the matter out of court. Therefore, the records of Mr. Kushner’s fast-growing real-estate empire could not be presented to the Senate Judiciary Committee, which ultimately approved Mr. Kushner’s elevation to the board of the Port Authority.
Spokespersons for the Kushners said the matter was still in arbitration.