Vornado Buys 25 Percent Interest in $475M Debt on Times Square Project
- Oct 24, 2012
Vornado Realty Trust appears to be in a New York state of mind. Just days after Vornado announced its agreement to sell a Brooklyn mall and a Long Island mall for nearly $1.2 billion, news has emerged of the REIT’s acquisition of a 25 percent participation in the $475 million first mortgage and mezzanine loan on the property at 701 Seventh Ave., which will be redeveloped into the $800 million, mixed-use Times Square Gateway Center.
Vornado acquired the interest in the debt from Starwood Property Trust and Starwood Capital Group’s Starwood Distressed Opportunity Fund IX, which co-originated the mortgage and mezzanine debt for the acquisition and redevelopment of 701 Seventh by The Witkoff Group, New Valley L.L.C. and a subsidiary of Winthrop Realty Trust. The team, which snapped up the site for $430 million, plans to remove part of a 10-story office structure that has stood at the two-building site for more than 100 years to construct 130,000 square-feet of premier retail space and a 120-foot tall, 22,000-square-foot LED sign at a total cost of $170 million. Additionally, 145,000 square feet of air rights will ultimately allow for a $200 million, 500-room hotel high-rise.
Of the $375 million in financing that was funded for the project at closing, Vornado contributed $93.8 million.
Industry analysts see Vornado’s acquisition of a participation in the mortgage and mezzanine loan on Times Square Gateway Center as a good move in the increasingly competitive investment sales market. Imperial Capital just upgraded its Vornado recommendation from a hold to a buy.
“Obviously, there’s a tremendous amount of competition to buy good assets in New York and Washington, which are Vornado’s chosen markets and what this [acquisition] represents is the type of investment that some potential investors–such as sovereign wealth funds, pension funds–would be perhaps a little wary of making,” David Harris, an analyst with investment banking firm Imperial Capital L.L.C., told Commercial Property Executive. “We’ve frequently seen Vornado make opportunistic acquisitions, kind of off the mainstream, and I think that’s really where the value creation proposition is.”