Vornado Office Tenant Concessions, Upgrades “Killer”: Roth

The juice of a signed office deal takes an expensive squeeze, according to Vornado Realty Trust’s Steven Roth.

The chief executive of Manhattan’s second-largest landlord bemoaned free rent and tenant allowances as a “killer,” according to his annual shareholder letter reported by Crain’s.

Vornado needs to commit as much as $300 per square foot on concessions to secure companies as tenants for more than $40 per square foot over 10-year deals, Roth wrote. The weighted average rent of Vornado’s Manhattan office buildings is $100 per square foot.

Roth touted the company’s buildings as higher quality than the vast majority of the borough’s office market, but said he is “clear-eyed and realistic” about some difficult moments ahead for the company.

Those challenges include the need to refinance mortgages at elevated interest rates at properties like 280 Park Avenue and 731 Lexington Avenue. Roth predicted there would be several workouts that need to be struck in the coming years.

In February, Fitch Ratings lowered the outlook on the mortgage at 731 Lexington Avenue, the Bloomberg Tower in Midtown East. The property, owned by a Vornado affiliate, is set to have its mortgage mature in June. The $500 million mortgage originated in 2017 with a floating interest rate, which has risen from 1.4 percent to 6.2 percent, according to KBRA data.

“The outlook reflects the possibility of a downgrade in the event the borrower and servicer are unable to agree upon extension terms,” Fitch said in changing its outlook to “negative.”

Last month, Vornado scored with a 126,000-square-foot lease at Penn 2, signed by Major League Soccer. The annual asking rents at the property are $110 to $125 per square foot.

— Holden Walter-Warner