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Vornado Realty Joint Venture Defaulted on Loan. What It Means for the Stock.

Vornado’s principal business involves ownership of a group of Manhattan office buildings.

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A joint venture controlled by one of the biggest commercial landlords in Manhattan defaulted on a $450 million loan backed by a group of prime retail properties on Fifth Avenue.

Vornado Realty Trust
(ticker: VNO) said in its fourth-quarter earnings release late Monday that the $450 million non-recourse loan “matured and was not repaid, at which time the lenders declared an event of default.” Non-recourse means that the loans are backed by specific properties and collateral and don’t carry a guarantee from the joint venture or Vornado.

The default, which occurred in December, highlights the tougher environment for high-end retail properties in Manhattan since the Covid-19 pandemic because of less traffic—particularly from high-spending international tourists—and greater reluctance of luxury-goods retailers to pay up for prime spaces.

The default, however, isn’t a significant event for Vornado and doesn’t affect its corporate debt, its ability to borrow, or its credit rating. Vornado’s unsecured debt maturing in 2031 yields around 7% based on Bloomberg data and carries investment-grade bond ratings from Moody’s Investors Service and Standard & Poor’s. It’s common for real estate investment trusts like Vornado and other commercial real estate investors to get non-recourse financing that is secured only by the underlying property.

The loan was taken out by a joint venture, Fifth Avenue and Times Square JV, which owns interests in properties on Fifth Avenue—which historically has had some of the highest retail rents in the country—and in Times Square. Vornado owns a 51.5% interest in the joint venture, with other investors holding the remaining 48.5%.

Vornado said in its release that the “JV is in negotiations with the lenders regarding a restructuring but there can be no assurance as to the timing and ultimate resolution of these negotiations.”

On the company’s earnings conference call Tuesday, Vornado Chief Financial Officer Michael Franco said the loan couldn’t be refinanced in current market conditions because the leases were signed “at the peak of the market” and are resetting to lower rents. It is more difficult now to get commercial real estate financing.

“We’re in active discussions to restructure the loan,” Franco said, adding “that’s the benefit of non-recourse debt—if you can’t reach an agreement, you can walk away.” He suggested that any deal with the lenders likely would involve a lower rate than the current 8.5%.

Vornado CEO Steve Roth said on the call that the high-end street retail market in Manhattan is “thin” with “very few transactions on Fifth Ave or Times Square.”

“It’s still a sluggish impaired market,” Roth added. “There is not the same lust for space there was five years ago. That will come back—for sure.”

Vornado’s principal business involves ownership of a group of Manhattan office buildings with a concentration in the area around Penn Station. The company’s stock has been hammered in recent years because of difficult conditions in the New York office market, resulting from reduced postpandemic demand and new construction in the Hudson Yards area on the west side of Manhattan.

Vornado shares, which fell 2.4% in recent Tuesday trading to $22.92, are off about 47% in the past year and are down from nearly $70 in late 2019.

Vornado said in its fourth-quarter release that it took a $483 million noncash impairment charge against its investment in the Fifth Avenue and Time Square retail JV, following a $409 million charge in 2020. It had recognized a $2.6 billion gain in 2019 when it transferred seven properties to the retail JV.

“VNO’s balance sheet remains a focus,” wrote Citi analyst Michael Griffin in a client note before the conference call. He highlighted Vornado’s elevated net-debt-to-Ebitda ratio, at 8 times, and noted that the company’s weighted average interest rate increased by 40 basis points from the third quarter to 4.23% in the latest period.

Ebitda is a cash-flow measure that refers to earnings before interest, taxes, depreciation and amortization. One basis points is a hundredth of a percentage point.

“We expect rising interest rates could continue to weigh on the stock,” Griffin wrote.

Write to Andrew Bary at


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