Steve Roth: NYC retail might never fully recover

As retail surges nationwide, prime urban corridors lag, Vornado head says

New York /
Feb.February 15, 2022 02:13 PM

Vornado’s Steven Roth (Getty, iStock/Illustration by Ilya Hourie for The Real Deal)

New York’s high-street retail landlords might never again collect the astronomical rents of the pre-pandemic era, Vornado Realty Trust’s Steven Roth said Tuesday.

Roth and other Vornado executives on an earnings call described a “startling” retail recovery across the country that has included malls and shopping centers. But big cities, including New York, have been laggards, despite a “booming” luxury segment where brick-and-mortar sales outnumber online ones.

Retailers on Fifth Avenue and Times Square have only begun to “nibble” at new locations, Roth said.

“We expect that, over time, street retail will recover,” Roth said. “We do not expect it to recover to the unbelievable highs of the top rents of four or five years ago. But it will recover from today’s levels very aggressively.”

Vornado Realty Trust’s shares surged more than 6 percent Tuesday after the Manhattan office and retail landlord reported 2021 fourth quarter results ahead of Wall Street estimates. The company recorded funds from operations, a key metric of REIT operating performance, of 81 cents per share — a 7-cent beat.

Vornado’s stock still hasn’t recovered to its pre-pandemic level, however. On Valentine’s Day two years ago it stood at $67.89 per share but plunged to $29.66 on March 20 of that year. It was trading at around $43.50 Tuesday afternoon and is down by more than half in the past five years.

Net operating income for the company’s New York business increased 11.3 percent over the year-ago quarter, and 10.1 percent company-wide.

Vornado forecast “double-digit” growth in FFO per share in 2022, driven primarily by office and retail leasing.

So-called necessity retail has been a more positive story for New York and the company, with major thoroughfares such as Union Square having recovered in that category “robustly,” Haim Chera, head of retail for Vornado, said on the call.

“We need our international tourists back. We need our workers back in the office to fill the streets. And that’s a little behind the curve,” Chera said.

In 2019, about 10 months before the pandemic arrived, Vornado sold a 45 percent stake in its New York City retail portfolio to several investors including Crown Acquisitions, which was founded by Chera’s late father and is run by his brothers.

Vornado has tweaked its New York retail footprint In recent months, offloading a handful of properties “high on Madison Avenue” and some “less important” ones Downtown, Roth said. “The rest of our assets we’re pretty happy to very happy with,” Roth said.

Last summer, the company sold, at a loss of about $7 million, five struggling retail buildings in Soho and the Upper East Side, citing “negative income” and low occupancy.

Vornado leased 954,000 square feet of New York office space to tenants in the fourth quarter alone, bringing the year’s total for the market to more than 2.2 million. The company’s office properties were 92 percent leased at year-end but only about 30 percent occupied, according to Roth, who described a “universal” desire among the company’s tenants to return to the office.

“It’s going to happen,” Roth said. “Whether it happens three months from now or nine months from now, we don’t know. But the one thing that we do know is all of our clients — our tenants and their CEOs — they basically want to be office-centric operations.”





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