Vornado Realty Trust (VNO:US) said it agreed to buy retail space on New York’s Fifth Avenue, the world’s priciest shopping corridor, for about $707 million, and plans to sell $428 million of properties across the U.S. and Canada.
The purchase at 666 Fifth Ave. in Manhattan will be funded with debt along with proceeds from asset sales, New York-based Vornado said yesterday in a statement. The company will get net proceeds of about $144 million from the sale of assets including the Washington Design Center, the Boston Design Center and the L.A. Mart, and a further $186 million from an agreement to sell an office building in Washington, it said separately.
Vornado, which reported a 31 percent drop in funds from operations in the first quarter, is seeking ways to boost its share price and respond to shareholder complaints that its structure is too complex, Chairman Steven Roth said in a letter to investors in April. The real estate investment trust expects to sell about $1 billion of assets by the end of 2012, Chief Executive Officer Michael Fascitelli said at a conference last month.
“Vornado is under pressure to show that they’re doing something,” Alex Goldfarb, an analyst at Sandler O’Neill & Partners LP in New York, said in a phone interview. The deals “help show the case that they are doing something. But I don’t think anybody’s going to look at these transactions and say ‘Wow, Vornado’s turned a whole new page.’”
The company’s Mart showroom holdings now “essentially” will be reduced to the Merchandise Mart building in Chicago and the Medical Mart convention center under construction in Cleveland, said Goldfarb, who has a hold rating on the stock.
Vornado fell 0.4 percent to $84.41 at 11:16 a.m. in New York. The shares have fallen 12 percent in the past year.
The Fifth Avenue purchase should exceed the record of $10,755 a square foot for New York store space, set by SL Green Realty Corp. (SLG:US) and Jeffrey Sutton when they bought a 12,700- square-foot (1,180-square-meter) Times Square building last year, said Ben Thypin, director of market analysis at Real Capital Analytics Inc.
Vornado’s 114,000-square-foot purchase also includes about 75,000 square feet that are part of the office portion of the building, which it’s acquiring under a long-term lease, according to the company’s statement. The company didn’t disclose the price breakdown for the retail and office portions.
The retail condominium at 666 Fifth Ave. is 49 percent- owned by Crown Acquisitions and Carlyle Group LP (CG:US), while Kushner Cos. has 51 percent.
Kushner bought the 41-story skyscraper near West 53rd Street in January 2007 for $1.8 billion, then a record for a single U.S. building. As real estate values were close to their peak in 2008, the firm sold a stake in the retail portion to Carlyle and Crown for $525 million. Kushner restructured the debt on the property in December, making Vornado a partner on the office portion.
Spanish retailer Inditex SA (ITX) bought a 39,000-square-foot section of the space last year for $324 million, or about $8,300 a square foot, a record at the time. Inditex converted the space, former home of the NBA Store, to a flagship for its Zara clothing brand.
The Inditex and Vornado deals would bring the value of the building’s retail space to more than $1 billion, Haim Chera, a Crown principal, said in a telephone interview.
“Fifth Avenue has been extremely resilient through the downturn and continues to perform extremely well,” he said. “Our business plan was to take it to the next level. We searched the world for the best tenants for this property.”
Randy Whitestone, a spokesman for Carlyle, declined to comment. A call yesterday to Steve Solomon, a Kushner spokesman, wasn’t returned.
Vornado made a pre-emptive offer just as CBRE Group Inc. (CBG:US) Vice Chairman Darcy Stacom was preparing to market the property, Chera said. Robert McGrath, a spokesman for Los Angeles-based CBRE, declined to comment.
The portion Vornado is buying contains the U.S. flagship store of Uniqlo, the Japanese clothier, which leased its space for a record $300 million over 15 years. The other tenants are watchmaker Swatch and Hollister, a youth-oriented apparel shop. The purchase will probably be completed in the fourth quarter, Vornado said.
The sales of the L.A. Mart and Canadian Trade Shows have been completed, and the rest of the deals are expected to close in the third quarter, Vornado said. It didn’t identify buyers.
The company also said it bought through its Vornado Capital Partners LP investment fund a 167,000-square-foot retail property on Lincoln Road in the South Beach section of Miami Beach, Florida, paying $132 million. The space is 97 percent occupied, with tenants including Regal Cinemas and fashion retailers Anthropologie and Banana Republic.
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