Vornado’s LA selloff is part of company’s larger effort to slim down: Analysts

Steve Roth and the Culver City building
Steve Roth and the Culver City building

The sale of Vornado Realty Trust’s last remaining Los Angeles property will be another step towards consolidation and simplification for the New York-based REIT, sources told The Real Deal.

The company’s decision to sell off the 43,000-square-foot Class A office property at 800 Corporate Pointe in Culver City is in line with its recent attempts to refocus its attention on New York office deals and tie up loose ends on anything that’s distracted from its core focus.

“Roth is trying to simplify the company, make it more manageable, more focused and easier to understand,” said Sandler O’Neill analyst Alex Goldfarb of the company’s CEO Steve Roth. “Having two or three random investments in L.A. doesn’t help that at all.”

As Vornado looks to refocus on New York, there is no competitive advantage to keeping property in L.A, Goldfarb said.

L.A. investments are not the only ones Vornado is unwinding. Roth has hinted for months that the firm may spin off its Washington-area investments into their own company, completely separate from Vornado. The company previously spun off its national strip mall business, which became Urban Edge Properties.

It has also unwound investments in third-party companies such as J.C. Penney.

In L.A., the company previously sold Beverly Connection, a popular shopping center, for $260 million in 2014 and an office building at 520 Broadway in Santa Monica for about $91 million last year. Approximately 70 percent of the company’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is generated in New York, where is owns 23.8 million square feet of office space.

Roth has called the moves to slim down “deconglomeration.”

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“They thought cold storage was good, they thought investing in India was good, they thought a bunch of businesses away from their core New York-focused business were good ideas,” Goldfarb said. “What they discovered is that having less equals more. By slimming the company down and focusing on the core Manhattan market, they’ve actually created more value.”

The move is completely contrary to the strategy of some of Vornado’s biggest New York competitors, including Boston Properties. While Vornado is backing out of L.A., Boston is jumping in with both feet, recently buying Blackstone Group’s 50 percent stake in the six-building Colorado Center office complex for more than $500 million.

Speaking at NAREIT’s REITWeek 2016 Investor Forum in New York earlier this year, Boston chief Owen Thomas said L.A. fits the bill as the REIT’s next market because “highs are generally higher, and lows are generally higher, from a rent perspective.”

Meanwhile, Vornado is sticking with what it knows best.

“It’s a tough market to break into and there’s a lot of nuance,” Goldfarb said. “You really have to know the L.A. market to know that’s going to work. Boston Properties has the patience to go out and do that. For Vornado, they never made it a focal point.”

Kevin Shannon and his team at Newmark Grubb Knight Frank are marketing the Culver City office property, which is 98 percent leased by tenants including Ares Management and Thomson Reuters. Sources told TRD it would likely fetch around $150 million.

Vornado declined to comment on the listing.