Vornado Takes $600M Write-Down on NYC Portfolio

Vornado Realty Trust disclosed in a regulatory filing last week that its writing down the value of its portfolio by $600M.

The lion’s share of the impairment charge—about $480M—is related to another drop in the valuation of the REIT’s ownership stake in a seven-property portfolio of Times Square and Fifth Avenue office and retail properties, including a Broadway theater, encompassing a total of nearly 850K SF.

Vornado owns the Midtown portfolio in partnership with Crown Acquisitions, which purchased a stake in 2019 for $2.5B. The write-down is the second impairment charge assigned to the seven-building package; in Q3 2020, the partners took a write-down of $409M.

Last week’s impairment charge signals that the high-profile properties have lost 30% of their value during the pandemic. The balance of property that has been written down by Vornado was not disclosed.

In November, Vornado cited economic headwinds as a primary reason it has postponed any development in 2023 of its largest project by far—a state-sponsored effort to develop up to 10 new office towers in a neighborhood surrounding Penn Station.

Gov. Kathy Hochul has approved a scale-down version of the mammoth development, known as the Penn District. The funding framework for the project, which will redevelop an area around eighth Avenue that the state has designated for revitalization, hinges on payments in lieu of taxes (a.k.a. PILOTs) from Vornado for its planned 18.3M SF of office space and up to 1,256 apartments in the district.

In a Nov. 1 statement indicating a timeline for the Penn District Development, Vornado CEO Steve Roth said that other than the demolition of the Hotel Penn—a dilapidated scheduled to come down before the end of this year—no further development will take place in 2023.

Roth said that current economic headwinds, including rising interest rates, as “not-conducive to ground-up development.”

Empire State Development (ESD), New York’s lead economic development agency, which is spearheading the Penn District redevelopment suggest that the hesitation from Vornado to start construction is a short-term disruption on what is expected to be a decade-long project.

“Quarterly conditions may fluctuate, but Gov. Hochul’s commitment to revitalizing Penn Station and the area surrounding it will not,” Matthew Gorton, an ESD spokesperson, said in a statement.

“We have always said this was a long-term project designed to withstand temporary market adjustments and that the revenues generated through redevelopment were just one of several funding sources to support the reconstruction of [the Penn District],” Gorton said.