Vornado Realty Trust (VNO:US) acquired land and air rights above a development site it owns on Manhattan’s Central Park South, enabling the company to begin work on a luxury-condominium tower.
The real estate investment trust paid $194 million for the development rights and will begin construction on a 920-foot (280-meter) building at 220 Central Park South, according to a statement yesterday. The seller was Extell Development Co., builder of the nearby One57 luxury-condo tower, that company said in a separate statement.
Vornado, which primarily owns office and retail properties, is starting the condo project at a time when demand for Manhattan homes has pushed sales to a six-year high. The New York-based REIT purchased the rent-controlled apartment building at the site in 2005, when home sales and prices hadn’t yet reached their pre-recession peaks. While residential properties are outside Vornado’s expertise, investors should welcome the project, said David Harris, an analyst at Imperial Capital LLC.
“This is an unusual opportunity, with a low land cost as a result of their historic involvement,” Harris, who is based in New York, said in a telephone interview. “It should generate very satisfactory returns to shareholders, without incurring substantial risk. There aren’t too many sites on Central Park South available for residential development.”
He said he doesn’t expect Vornado, which owns more than 100 million square feet (930,000 square meters) of U.S. commercial real estate, to get involved with condos “wholesale.”
Under the deal, Vornado will acquire a parcel at 225 West 58th St. that was owned by Extell, Gary Barnett, president of Extell, said in an interview today. The trade allows Vornado to build a taller property that is further west than initially planned, which means it won’t obstruct views of a condominium Extell is planning within the same block, he said.
“It made sense for both of us,” Barnett said of his company’s talks with Vornado Chairman and Chief Executive Officer Steven Roth. “They’re able to move forward with their project and they’re also accommodating us in terms of shifting the building to the west and we’re shifting our building to the east. We both have very good views of Central Park.”
The deal gives Vornado an additional 137,000 zoning square feet at its Central Park South site, according to the statement. The REIT’s planned tower will be designed by Robert A.M. Stern Architects, the firm behind 15 Central Park West, the nearby dual limestone buildings that have been favored by celebrities and Wall Street bankers.
Extell’s plans for the block include 150 luxury condominiums in a tower that could rise as high as 1,550 feet. Nordstrom Inc. (JWN:US) has agreed to open a seven-floor flagship store at the base.
Extell is completing One57, currently Manhattan’s tallest residential project at 1,004 feet. Buyers at the tower have smashed price records with two deals valued at more than $90 million each for upper-floor duplexes that were purchased when the building was still a shell.
In the third quarter, Manhattan apartment sales jumped 30 percent from a year earlier to the highest level since 2007, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report on Oct. 2. The number of homes on the market at the end of September was the lowest since Miller Samuel began keeping the data 13 years ago.
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