Vornado’s Sale of Philly Property Tied to Mall Redevelopment
- Nov 05, 2012
By Scott Baltic, Contributing Editor
Although Vornado is staying mum, and the chaos wrought by Hurricane Sandy didn’t help, the substance behind the REIT’s announcement earlier this week that it was selling four buildings is becoming clearer.
A close reading of Vornado’s website appears to confirm press reports that the three office buildings to be sold in the Fairfax County, Va., suburbs of Washington, D.C., are Reston Executive Center I, II and III on Sunset Hills Road. The buildings, which total about 494,000 square feet, are to be sold for approximately $126 million. There’s no word yet on the buyer, however.
It’s evident from Philadelphia-area media that Vornado’s sale, for $60 million, of an office building in downtown Philly has been in the works for a while. The Philadelphia Business Journal reported in late September that Pennsylvania Real Estate Investment Trust was close to finalizing negotiations to buy Vornado’s 901 Market St., a 427,600-square-foot office/retail building that’s part of The Gallery at Market East.
PREIT has been on a long-term hunt to consolidate its ownership of that urban shopping center, and this acquisition from Vornado essentially finishes that process. The end result will reportedly be a roughly $300 million acquisition-and- complete-renovation of the mall.
The Gallery at Market East was opened in 1977 and expanded in the early 1980s as Gallery I and II. PREIT acquired Gallery I in 2003 from The Rouse Co. and Gallery II in 2004 from Pennsylvania’s Public School Employees’ Retirement System. The total complex, about three blocks long, measures approximately 1.1 million square feet of retail space, and at its peak, had about 130 stores.
Its current major anchors are a Big Kmart and a Burlington Coat Factory; the former is in the building that Vornado is selling. (Kmart’s lease there reportedly expires in 2014.) Other retail tenants in the mall include Modell’s Sporting Goods, f.y.e. and Old Navy.
PREIT, based in Philadelphia and founded in 1960, currently has a portfolio of 38 shopping malls, eight community centers and three development properties.
For Vornado, these two sales will result in total net proceeds of approximately $89 million after closing costs and repayment of an existing loan, leaving a gain of about $70 million. Both are expected to be completed in the fourth quarter.