Vornado Shares Soar After Uniqlo Deal, Mystery Tenant Takeover Of 770 Broadway

Vornado Realty Trust is attempting to fill vacant space and rid itself of debt maturities as the REIT attempts to ride out pressures facing its bread-and-butter asset class: New York City office.

“We feel that we're on the foothills of a very, very good market,” Vornado Chairman and CEO Steven Roth said during a conference call Tuesday, despite continuing to face high interest rates, a rise in unemployment and a volatile stock market. 

But a huge windfall in the sale of Fifth Avenue retail space to Uniqlo — plus a tentative deal by a tenant to take over 1.1M SF of office space — have helped bolster investor confidence. Vornado's stock rose by nearly 13% in trading Tuesday.

Executives say the future looks bright despite the REIT's exposure to a turbulent real estate sector. ​​Its funds from operations, a key metric of REIT cash flow, increased to $0.76 this quarter from $0.74 during the same period last year. 

During Tuesday’s call, the company’s executives said they have a handshake deal with an unnamed tenant to master lease all of the office space at 770 Broadway, where fears have circled the building after Meta Platforms cut its 775K SF lease by about a third in February.

Vornado Executive Vice President and co-Head of Real Estate Glen Weiss said at the time that the building was subject to another 500K SF long-term lease and that it was on the market. 

During Tuesday’s call, Vornado executives dodged questions about the handshake deal, including the status of the existing leases, whether the tenant would sublease the space, or even confirming that the deal is for a lease, not a sale.

The 1.2M SF building has an approximately 90K SF Wegmans supermarket at its base that opened last year. Vornado would retain control of the retail space.

However, the executives did discuss a deal with Uniqlo, in which Vornado agreed to trade 17K SF of its 666 Fifth Ave. flagship for $350M, which will be used to pay down Vornado’s $390M of preferred equity on the asset. The deal adds to the trend of retailers taking control of their real estate on the luxury corridor by paying sky-high prices. The deal works out to more than $20K per SF.

“It's obviously a transaction we're quite pleased about,” Vornado President and Chief Financial Officer Michael Franco said Tuesday. “We still own north of 20% of the prime upper Fifth Avenue frontage, so that puts us in a good place.”

The REIT signed over 1.3M SF of office leases and 4K SF of retail leases in New York City during the quarter. As of June, its office portfolio is 89% occupied, while its retail properties are 77% occupied. 

During the call, executives attributed the lower retail figure to vacancies in Manhattan Mall, which suffered when JC Penney shuttered in 2020 during its bankruptcy.

“If you take Manhattan Mall out, that 77% goes to like 87%,” Franco said. 

At the end of last year, Vornado owned 57 Manhattan properties with 20.4M SF of office space and 2.4M SF of street retail, according to its annual report. Additionally, it is developing a 9M SF campus in the Penn District, signage in Times Square and properties in Chicago and San Francisco. Overall, the REIT is 87% New York-centric and 78% office-centric.

During the past three months, the REIT refinanced debt tied to several of its properties, pushing off maturities. 

At 280 Park Ave., Vornado and SL Green, which co-own the property, managed to strike a sweetheart deal to cut a $125M mezzanine loan in half as well as extend and modify a nearly $1.1B securitized mortgage that was in special servicing.

Vornado also completed a $75M refinancing of 435 Seventh Ave., replacing the previous nearly $96M fully recourse loan and swapping the interest rate to a fixed rate of 6.96% through April 2026. 

Along with its partner, Crown Acquisitions, Vornado refinanced the $500M recourse loan at 640 Fifth Ave., paying it down by $100M. The new $400M non-recourse mortgage matures in June 2029 and bears interest at a fixed rate of almost 7.5%. 

Following Bloomberg’s renewal of its 1M SF lease at 731 Lexington Ave., Vornado is in the process of refinancing that loan as well after it was moved to special servicing.

“We will have then taken care of all of our significant 2024 maturities, and are in the process of addressing our 2025 maturities,” Franco said.