Upgrades to existing office inventory is the “defining part” of Vornado Realty Trust’s plans for the Penn Plaza district around Penn Station, chair and CEO Steven Roth said in the real estate investment trust’s first-quarter earnings call Tuesday.
Roth, who was reluctant to offer “premature” comments on Vornado’s plans for the area, said the REIT “couldn’t be more excited about the opportunities” presented by what would be a significant investment in its massive portfolio there.
“There are multiple facets of what we intend to do in Penn Plaza,” Roth said, citing “lots of focus” from outside observers regarding potential retail developments.
“But to me, the defining part of it is to take all the office space we own there and to make it much more valuable by doing what we do to buildings,” he added. “Improving those buildings for our office customers is really the main event.”
Roth noted the benefit of Penn Plaza’s location as “where the marketplace is converging” from other surrounding Manhattan submarkets, and said Vornado is “very close” to finalizing internal planning for the project, which it will disclose in conjunction with government officials “when our plans get to be precise.”
Vornado had a strong first quarter, according to Roth, who cited the $39 million investment that upped the REIT’s stake in The Crowne Plaza Times Square Hotel and the $142 million acquisition of the Center Building in Long Island City among the quarter’s accomplishments.
Vornado also cited an $11 million refundable contribution to a joint venture that plans to develop a 173,000-square-foot Class A office building at 510 West 22nd Street, near the High Line. The REIT has a 55 percent interest in the project. Roth also reiterated plans to develop a new building at 61 Ninth Avenue in the Meatpacking District.
David Greenbaum, president of Vornado’s New York division, said office leasing activity in the first quarter was “dominated” by financial services tenants, who were responsible for roughly 60 percent of leasing transactions in the period.
Vornado completed 42 deals for more than 550,000 square feet in its Manhattan office portfolio, with occupancy up to 97.3 percent and average starting rents at $77.85. Greenbaum added that the quarter saw 45 percent of Vornado’s leasing activity represented by “tenants new to or expanding in New York.”
The REIT’s retail leasing activity included two 15-year leases signed by luxury retailer Swatch Group for all the space at the St. Regis Hotel’s Retail Condominium On Fifth Avenue in Midtown, which Vornado and partner Crown Acquisitions purchased for $700 million last year.
Roth noted that the “large and important leases” at the St. Regis were signed “in five short months since we acquired the property” and described high-end retail space as “the scarcest asset in real estate.”
He cited Vornado’s strategy “to sell a generic 1950s office building” – 1740 Broadway, which Blackstone Group purchased for $605 million last year – and reinvest the funds in the St. Regis retail space as “a spectacular trade” for the REIT.