Vornado commits almost half of its $800m fund

A bright spot in disappointing fourth quarter results as New York REIT, Vornado Realty Trust, says it has $416m of unfunded commitments left of its $800m private equity real estate fund, Vornado Capital Partners.

Vornado Realty Trust, the New York REIT which owns stakes in retailers Toys “R” Us and JC Penney revealed yesterday it had committed almost half of its $800 million Vornado Capital Partners private equity real estate fund in an otherwise disappointing fourth quarter update.

Reporting a 66 percent profit slump in fourth quarter earnings from $257 million last year to $87.3 million, Vornado nevertheless revealed solid progress with its private fund, saying it had $416 million remaining of unfunded commitments, of which Vornado’s share is $104 million. The firm has so far made five investments and has surpassed the half-way mark in terms of equity committed with a year and a half remaining of a three-year investment period. 

Providing further details, it said the eight-year Vornado Capital Partners fund, which closed in February 2011, had invested in deals with an aggregate value of $346 million – $12 million above the cost of the investments. During the course of 2011, the company made three investments, aggregating $248 million, and exited two investments, it added.

The deal book includes a stake in One Park Avenue, which is a 932,000 square foot office building located between 32nd and 33rd Streets in New York that the firm bought for $374 million. The fund owns a 64.7 percent share while Vornado owns 30.3 percent. The purchase was financed by $137 million of equity and a five-year mortgage that bears interest at 5 percent.

In another deal, the fund formed a joint venture with the owner to recapitalise the Crowne Plaza Hotel in Times Square. The game plan there is to reconfigure and reposition the retail and office space. Vornado said the transaction was initiated in May 2011, when the fund acquired a $34 million mezzanine position in the junior most tranche of the property’s mezzanine debt. In December 2011, the fund then contributed $31 million and its partner invested $22 million of new capital to pay down third party debt and to meet future capital expenditures. The new capital was contributed in the form of debt that is convertible into preferred equity that receives a priority return and then would receive a profit-participation.

Another deal involved acquiring the retail portion of 11 East 68th Street, an 11-story residential and retail property located on Madison Avenue and 68th Street, for $50 million. The fund provided $21 million at closing and will provide the remaining $29.3 million over the next two years, said Vornado. In addition, the fund has also provided a $21 million mezzanine loan on the residential portion of the property, which bears paid-in-kind interest at 15 percent, matures in three years and has a one-year extension option.

However, progress in the private equity fund went relatively unnoticed as the company updated investors on its overall earnings.

The private equity fund is just a small part and a recent addition to its overall property interests. It owns a 32.7 percent stake of US retailer Toys “R” Us, and 11 percent of JC Penney Company. It also owns a 26.2 percent stake in mortgage servicer and special servicer, LNR Property Corporation, and 32.4 percent of Alexander’s, which owns seven properties in the greater New York metropolitan area, including 731 Lexington Avenue, the 1.3 million square foot Bloomberg headquarters building.

Apart from those real estate investments, Vornado owns or has stakes in a total of 20.8 million square feet of Midtown Manhattan property, 20.5 million square feet in the Washington DC and Northern Virginia area, plus the 1.8 million Bank of America Center in San Francisco, and a large portfolio of retail, strip shopping malls, regional malls adding up to 24.2 million square feet, primarily in the northeast states, California and Puerto Rico.
In its results presented yesterday, it emerged JC Penney had contributed less to Vornado’s funds from operations, while Toys “R” Us also yielding varying returns.