Marriott Marquis, Times Square Hotel, 1535 Broadway

NEW YORK CITY—Vornado Realty Trust bought a 46% interest in the retail condominium located at the base of the New York Marriott Marquis Times Square Hotel for $442 million. The seller, the Bethesda, MD-headquartered Host Hotels & Resorts, is a publicly-owned company which invests in hotels.

Vornado now owns 100% of the 45,000 square feet of retail and the 330 linear-foot, 25,000 square-foot display, which is the largest digital sign in New York. The retail area is 100% leased to T-Mobile, Invicta, Swatch, Levi's and Sephora, and the 1,611 seat Marquis Theater is leased to the Nederlander Organization.

The property is located at 1535 Broadway, spanning the entire block front from 45th Street to 46th Street. At the heart of Times Square, it is one of the mostly highly pedestrian-trafficked areas in the world. The building is directly across from Vornado's 197,000 square-foot retail block front at 1540 Broadway at the base of the Bertelsmann Building. Retail tenants at that property include MAC, U.S. Polo Association, Forever 21, Sunglass Hut and Disney.

Vornado had previously acquired a 54% interest and redeveloped 1535 Broadway. In July 2012, it paid approximately $213.2 million, leasing the retail condominium with a development cost of $140 million, according to Real Capital Analytics. This transaction provided Vornado would become the 100% owner through a put/call arrangement, based on a pre-negotiated formula. The put/call arrangement was an option where Vornado, as the holder of the call, had a right to buy the remaining 46%. The deal satisfied the agreement which determined the price.

Vornado had previously accounted for its leasehold interest in the property as a capital lease. This means treating an interest as an owned asset. Often companies will treat an asset as a capital lease when it has the option to buy the asset at a specified price that can be below market. An asset treated as a capital lease is also subject to annual depreciation.

Vornado notes its basis in the property totals $663 million. This represents how much money they paid for the initial 54% interest and their recently acquired 46% stake, inclusive of all capital previously invested and approximately $17 million of tenant improvements to be paid through 2019. The buyer projects that the property will generate an 8.5% stabilized cash net operating income yield on its $663 million investment beginning in Q1 2019.

On Sept. 6, 2018, Host also closed on the sale of the W New York, Union Square. Real Capital Analytics recorded that Westbrook Partners purchased the 20-story structure, built in 1911, from a joint venture of Host Hotels & Resorts and Istithmar World, a financial services company based in Dubai, United Arab Emirates, for $165.6 million.

Host states the Marriott Marquis and W New York transactions demonstrate their ability to monetize their portfolio of investment opportunities at very attractive pricing. “Based on 2018 forecasts, the sale price for these transactions represent a 26x EBITDA (earnings before interest, tax, depreciation and amortization) multiple,” says James F. Risoleo, Host's president and CEO. “The proceeds continue to strengthen our investment grade balance sheet and enhance our ability to make strategic investments that ultimately drive long-term value creation for our stockholders.”

Instant Insights /

Vornado Acquires Marriott Marquis Retail

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