Vornado, SL Green join forces to target 280 Park Avenue

Through a 50-50 joint venture, the two US REITs have merged $400m of debt positions in the $1.3bn New York office property owned by Broadway and Investcorp.

Vornado Realty Trust and SL Green have joined forces to target one of New York’s most expensive office properties, which is owned by private equity real estate firms Broadway Partners and Investcorp. 

The two US REITs said they have formed a 50-50 joint venture in which they have contributed debt with a total face value of $400 million secured against 280 Park Avenue. As part of the deal, Vornado paid SL Green $111 million and assumed $15 million of its debt positions. Both REITs declined to comment further, but the transaction fuels speculation that the firms are positioning themselves within the capital stack of 280 Park Avenue in the event of a possible default.

Financed with $1.125 billion of debt, concerns are mounting about 280 Park Avenue’s rising vacancy rate after it recent lost Deutsche Bank, which had about 340,000 square feet of space, according to Crain’s New York.

Earlier this month, owners Broadway and Investcorp hired Edgerock Realty Advisors to source new equity for the building. Although the CMBS debt secured by the office property doesn’t mature until 2016, sources told Crain’s New York that the building’s debt interest reserves were unlikely to last through the end of the year. 

Vornado originally acquired $73.8 million of mezzanine debt in the 1.2 million-square-foot office property in June 2006, while SL Green has actively pursued mezzanine debt and other structured finance investments over the past two years, reportedly buying four pieces of CMBS secured by 280 Park Avenue. SL Green has invested $785.4 million in more than 20 mezzanine, junior, whole and other loans across a variety of assets, according to the firm’s 2009 annual report.

Vornado added in its 2010 annual report that its $73 million mezzanine position was senior to just $260,000 of equity and interest reserves and junior to $1.04 billion of other debt.