Vornado sells 45% stake in prime Manhattan retail portfolio valued at $5.6B

Sovereign wealth funds including Qatar Investment Authority, pension funds and Crown Acquisitions are investors: sources
By Mary Diduch and Kevin Sun | April 18, 2019 07:10PM

From left: Steven Roth and Haim Chera with retail condo at 666 5th Avenue (Credit: Getty Images and Vornado)

UPDATED, April 19, 12:38 p.m.: Vornado Realty Trust has sold a minority stake of its Fifth Avenue and Times Square retail portfolio in a deal that values the assets at about $5.6 billion. Just as surprisingly, Vornado also announced on Thursday that Crown Acquisitions’ Haim Chera would be leaving his family firm to join Vornado as its head of retail.

The real estate investment trust transferred 45.4 percent common equity interest in the portfolio, which covers 489,000 square feet of some of the most highly trafficked retail space in the world, to a joint venture of institutional investors advised by Crown, Vornado announced Thursday afternoon.

Vornado said it would hold on to 51 percent — $2.8 billon of common equity — and is the joint venture’s general partner. Before the deal, the firm had a 96.4 percent stake, with the remaining interest held by unnamed minority partners. Vornado’s joint venture partners are sovereign wealth funds and pension funds, sources told The Real Deal. Crown Acquisitions’ principal Haim Chera, whose family is a venture partner, advised on the deal, according to a source.

Vornado and Crown did not immediately respond to messages seeking comment.

But in a statement to investors, Vornado chairman Steve Roth did say that he was thrilled to have also lured Chera to his real estate investment trust, which owns 71 Manhattan retail assets spanning 2.8 million square feet.

“Haim is hands down the very best retail real estate executive there is,” Roth said. “His knowledge, skills and access are unparalleled. Haim will be leaving his family business, Crown Acquisitions, to join us. My relationship with Haim and his family goes back forever. Haim will have a field day leasing, managing and improving our existing portfolio. What’s more, the disruption in retail will present enormous opportunity for those with talent and capital. We intend to have both in large measure. We are excited about the opportunities that lie ahead.”

The Fifth Avenue-Times Square portfolio includes seven properties: 640 Fifth Avenue, 655 Fifth Avenue, 666 Fifth Avenue, 689 Fifth Avenue, 697-703 Fifth Avenue, 1535 Broadway and 1540 Broadway. The properties also cover some 327,000 square feet of office space, plus signage at 1540 Broadway and 1535 Broadway, a parking garage at 1540 Broadway and a theatre at 1535 Broadway.

One of the sovereign wealth funds involved in deal was the Qatar Investment Authority (QIA), which announced Friday that it has co-invested with Crown to acquire an approximately 24 percent stake in the portfolio, or half of the stake that was sold.

“This investment underlines QIA’s ambition to substantially increase our US investments over the coming years, and our belief in the exciting long-term possibilities offered by New York City,” QIA CEO Mansoor Al-Mahmoud said in a statement. Al-Mahmoud was tapped to head the fund last September, with observers expecting him to pursue a more aggressive investment strategy.

The deal’s capital structure is 50 percent common equity and 50 percent debt and preferred equity. Vornado holds $1.8 billion — or all — of the preferred equity, and the joint venture took on $950 million of mortgage debt. Meanwhile, the investors are contributing about $1.3 billion of cash, according to a filing with the Securities and Exchange Commission.

Vornado’s net proceeds from the transaction will be about $1.2 billion, the firm told investors late Thursday afternoon.

The deal comes as the retail sector overall faces challenges from diminishing store footprints to retailer bankruptcy. Along Fifth Avenue in particular, retail rents are dropping while availability rates are headed in the other direction.

At 681 Fifth Avenue — a few doors down from Vornado’s 689 Fifth — Tommy Hilfiger is shutting down its 22,000-square-foot flagship store. The move follows a string of other fashion giants that have left the famed retail strip.

Vornado and Crown are well acquainted. In 2014, the pair paid a then-record $700 million for the retail at the St. Regis, which included a 24,700-square-foot retail space plus air rights at the hotel and a neighboring townhouse. In 2016, Vornado and Crown bought out De Beers’ lease for $20 million. They also partnered with Starwood Capital Group in 2015 to buy 150 West 34th Street for $355 million.

Update: This story has been updated to include information on Qatar Investment Authority’s investment.