Vornado’s retail woes deepen with Toys ‘R’ Us play

Real estate powerhouse Vornado Realty Trust, fresh off a $250 million loss on its stake in struggling retailer J.C. Penney, might be on its way to another stumble with its large investment in Toys ‘R’ Us, according to analysts.

Vornado sold its remaining six percent stake in J.C. Penney last month, which meant its total loss on the company was 40 percent of its initial investment, according to analyst firm Green Street Advisors. The J.C. Penney debacle, some real estate insiders said, contributed to the abrupt exit of former CEO Michael Fascitelli from the real estate investment trust in April, as The Real Deal reported.

The Toys ‘R’ Us stake could similarly hurt Vornado, Green Street managing direct Michael Knott told the Wall Street Journal, and along with J.C. Penney “could be construed as two of the worst REIT investments we’ve ever seen.” Vornado paid $428 million for its Toys ‘R’ Us stake in 2005, and Green Street told the Journal that the stake is now likely worth between $175 and $200 million.

The fall in value is due to both Toys ‘R’ Us’ weak performance as well as a plunge in national retail real estate values, according to the newspaper.

Vornado chairman and CEO Steven Roth declined to comment to the newspaper, but said during the REIT’s April conference call that the investment in the private company owned by KKR & Co. and Bain Capital was “proving to be more difficult.” [WSJ] – Hiten Samtani