(Bloomberg) -- Jared Kushner’s plan to sell his stake in Cadre, the real-estate company he co-founded, sounded good on many levels. The value of the business had grown, and Kushner was cleared to take advantage of a tax break on the deal. He could also blunt the criticisms of ethics watchdogs who saw a clash between his private interests and his public role as a White House adviser. By late February, Cadre was poised to buy him out.

Then Covid-19 took hold. Company executives started cutting costs as real estate prospects dimmed and fresh investments dried up. The deal was shelved.

The turn of events, described by a half-dozen people familiar with the circumstances, leaves Cadre with a part-owner whose presence has posed an obstacle to new business, two of the people said. And that’s amid an already tough environment for the six-year-old real estate firm led by CEO Ryan Williams.

For Kushner, the aborted deal has complicated his ability to defend against ethics-related criticisms that have persisted throughout his White House tenure. For three years, he has held on to his Cadre stake while working as an adviser to his father-in-law, President Donald Trump. His representatives have consistently downplayed the potential for conflicts, saying that Kushner is a passive investor, hasn’t participated in deal talks and has followed all ethics rules.

That argument changed abruptly late last year, when Kushner made a surprising request. In December, he sought a ruling from the White House that his Cadre shares did, in fact, pose a conflict. The request kicked off a government process designed to help public servants shed assets without a tax burden. The White House deemed the sale necessary to avoid a conflict, according to redacted emails and internal White House documents made public by Citizens for Responsibility and Ethics in Washington, a watchdog group. The Office of Government Ethics signed off, granting a certificate of divestiture that would allow Kushner to defer taxes on any gains from the pending sale.

“We have determined that divestiture of your Cadre holdings is reasonably necessary to allow you to perform your official duties,” Scott Gast, a lawyer in the White House counsel’s office, wrote to Kushner in a Dec. 20 email. Gast said he had attached a memo “memorializing the directive to you to divest of your Cadre holdings to avoid a conflict of interest.”

Bloomberg News first reported on the Kushner divestiture in February. Abbe Lowell, an attorney for Kushner, said then that a business decision by Cadre had prompted the move.

“When Cadre, with which Mr. Kushner has not been involved for over three years, decided to pursue opportunities that could unknowingly to Mr. Kushner become future conflicts, he took the guidance of White House Counsel and the Office of Government Ethics and put in place a blind divestment process,” Lowell said at the time. He referred questions for this article to another lawyer at his firm, Christopher D. Man, who declined to comment.

A written statement provided by a company spokesman and attributed to Cadre’s executive team says its real estate portfolio is performing exceptionally well and describes “a series of prudent decisions” during the past months, including staff layoffs and the delayed purchase of Kushner’s stake because of pandemic uncertainty. “Since early 2017, we have maintained a strong set of protocols to prevent any conflicts, including procedures approved by the Office of Government Ethics and a comprehensive screening process of all investors as a regulated broker-dealer,” the statement says.

According to two people close to the company, Kushner’s plan to sell was well received in Cadre’s offices in the Puck Building, a property in lower Manhattan that’s owned by the Kushner family. Kushner’s stake had previously tripped up Cadre’s investment talks with SoftBank Vision Fund in 2018. It continued to be a thorn for some potential lenders and partners, who saw a reputational risk, they said.

Shedding a link to the Trump administration and creating a clean slate was also attractive to some Cadre employees, the people said.

Within two weeks, however, the pandemic forced Cadre’s employees to begin working from home. So did legions of professionals at other workplaces, in a shift that cast a pall over the business of selling shares in real estate projects. The value of real estate was suddenly in doubt, as was the future of offices, the desirability of cities and the safety of travel. Large established real estate management companies with profitable operations retrenched. New deals all but dried up. Cadre, not yet profitable, last raised capital in 2017, and a new round looked unlikely in the middle of a pandemic.

In May, Williams announced in a company-wide Zoom call that he was cutting staff, which would amount to a quarter of its employees. Some employees left for their own reasons. Leonid Movsesyan, the chief technology officer, departed. Andrew Borovsky, the longtime head of product, became a part-time adviser. Executive pay was cut, and subscriptions to data services Cadre used to make investment decisions were curbed.“While our current portfolio is holding up well thus far, we are navigating an environment in which real estate transactions have abruptly halted, and we can’t be certain how long this will last,” Williams wrote in a May 11 blog post.

In the midst of it all, the deal to buy Kushner’s shares was tabled. And by the end of June, Kushner had withdrawn his request for government clearance to sell his shares with favorable tax treatment. The Office of Government Ethics made a notation of the June 26 withdrawal but didn’t specify the reason or indicate whether the previously identified conflict of interest had been eliminated.

“It appears to be the first and only one the Office of Government Ethics has ever withdrawn,” wrote Citizens for Responsibility and Ethics in Washington, the watchdog group, describing the shares as an “ethical landmine.”

A spokesman for OGE said the agency doesn’t respond to questions about specific individuals.Neither Kushner nor Cadre has disclosed what percentage of the company Kushner owns. His government financial disclosure form filed in 2017 estimated the value of his stake at $5 million to $25 million. In his most recent disclosure, he put the value at $25 million to $50 million. The company last attracted $65 million in funding in 2017, at a valuation of $800 million.

With Kushner still an owner but outside the management structure, Cadre is charting a path forward and has added several people to its management team. In May, it began planning a new fund to look for property opportunities in the pandemic-induced downturn. Dan Rosenbloom, Cadre’s managing director of investments, has pointed to possibilities in the hotel business.

“These opportunities are still three to six months away, until you start to see forced selling,” he said in an interview published June 1 in PERE, a trade publication that covers real estate financed by private equity.

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