Vornado to funnel new deals to private fund ahead of REIT

Vornado Realty Trust has promised institutional investors eyeing its debut private equity real estate fund that its entire acquisition team will be focused on finding new deals only for the commingled fund over the next few years.

The New York-based REIT is targeting $1 billion for Vornado Capital Partners, with staff at Oregon Investment Council this week backing a $100 million commitment to the vehicle.

However, in minutes of the pension’s board meeting this week, Oregon revealed that in order to attract commitments to the fund, Vornado is promising to dedicate its “entire” acquisition team to finding new investments for the vehicle –ahead of sourcing potential investments for the REIT’s general activities. A spokeswoman for Vornado declined to comment.

The $68 billion public pension said Vornado would co-invest 20 percent of the fund, up to $200 million, and charge a 1.5 percent managing fee only on capital that has been called by the GP. Oregon added though that Vornado was a “self-sufficient organisation so any fees add to its bottom line”.

The pension added: “Mitigating this issue, during the acquisition period Vornado’s entire acquisition team will be dedicated to finding investment for the fund.”

The value-added vehicle will target gross IRRs of between 15 percent and 20 percent, focusing on high quality office and urban retail opportunities in New York and Washington DC. In its minutes Oregon said Vornado Capital Partners would “pursue large, high quality investments” that “may be of a size that exceed’s Vornado’s REIT resources”, adding that the private equity real estate platform would for the “benefit of both the REIT and the other fund investors”.

Earlier in the minutes, Oregon said: “The [Vornado] fund will be the primary acquisition vehicle for the REIT.” Vornado Capital Partners cannot invest more than 20 percent of its equity in a single deal, but LPs in the fund will be offered the chance to co-invest additional capital if large-scale transactions are available.

Oregon said part of the attraction in recommending a $100 million commitment to the REIT’s private fund was because of its “public history”.

“They have incorporated fiduciary responsibility and transparent reporting into their processes for many years,” the minutes said. “Their public history, plus Vornado’s 20 percent stake in the fund, should be two strong factors for the fund’s success.”