Vornado contemplates floating own private equity fund

According to a report published in the Wall Street Journal, Vornado Realty Trust (VNO), a real estate investment trust (REIT), is considering plans to create its own private equity fund. The company intends to float the fund to acquire bargain-basement properties, primarily in the markets where it already has a presence.

Based in New York, Vornado acquires, owns, and leases office properties, retail space, and temperature-controlled logistics and refrigerated warehouses. The company owns and manages approximately 100 million square feet of real estate (including pro-rata share of partially owned properties and joint-ventures).

Geographically, Vornado has over 34 million square feet of office space in New York and DC, 22.2 million square feet of retail space in 21 states in the US and Puerto Rico, and 8.9 million square feet of Merchandise Mart space. Besides its properties, the company also has investments in other REITs, industrial buildings and Toys ‘R’ Us.

The company plans to raise $1 billion from potential investors for creating the fund, tentatively named as Vornado Capital Partners LP. In addition, Vornado also intends to supplement the fund by $200 million from its own coffers. The fund would aim to acquire assets at fire sale prices.

Smaller private developers and owners are running into problems refinancing loans due to problems in the credit markets. As such, it is possible that Vornado could take advantage of distressed selling as asset values of office and retail properties continue to drop.

With an equity market cap of nearly $6.5 billion, Vornado is by far the largest public diversified REIT. The company concentrates mostly on Class A office properties in urban areas. We largely favor urban office owners over suburban as it is much easier to fill space and increase rents in high-barrier metro areas. Consequently, we reiterate our Buy rating of Vornado.

Read the full analyst report on “VNO”
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