Vornado Sees Sears as Just Real Estate
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Last Friday, Vornado Realty Trust announced it had acquired a 4.3% stake in the troubled retailer Sears, which owns about 60% of its 870 store locations. Based on the history of the chairman of the board and chief executive of Vornado Realty Trust, Steven Roth, this writer and many real estate professionals expect that Vornado is not interested in the retailer, but in its valuable real estate assets.
Vornado is one of the largest owners and managers of commercial real estate in America with a portfolio including about 87 million square feet of space.
Steven Roth is not a stranger to repositioning real estate assets. Many of Vornado’s plum real estate properties were acquired from retailers who filed for bankruptcy. In 1965, Mr. Roth joined with New Jersey real estate investor David Mandelbaum. Together, they founded Interstate Properties and began to acquire shopping centers.
In the 1970s, under Mr. Roth’s leadership, Interstate Properties invested in Vornado, the owner of Two Guys Discount Department Stores (originally Two Guys from Harrison) with the purpose of owning the land on which the retail stores sat. In 1980, after a bitter proxy fight, Mr. Roth took control of Two Guys and began to redevelop the sites.
In 1985, Vornado purchased a stake in Alexander’s Department Stores. In 1989, Mr. Roth acquired a 27% stake in Alexander’s Inc., which had been revived as a real estate holding company with 11 department store sites in the metropolitan area. Two of the most valuable sites included a 39-acre tract in Paramus, N.J., at the nexus of two highways, and the square block bordered by East 58th and East 59th streets and Lexington and Third avenues.
On the Manhattan site, today known as 731 Lexington Ave., Vornado is in the final stages of completing its newest mixed-use office, retail, and luxury residential condominium development, One Beacon Court. Bloomberg L.P. is the major office tenant in the 1.4 million-square-foot tower. Retail tenants include the Swedish retailer Hennes & Mauritz (H&M), a 100,000-square-foot Home Depot below the ground floor, branches of Wachovia and Bank of America, and other retailers. According to the trade, a significant number of the 105 luxury condominiums have been sold for prices in excess of $2,000 a square foot.
In 1998, Vornado acquired from the Kennedy family the two-block site housing the 25-store Chicago Merchandise Mart and Merchandise Mart Properties, which manages real estate and trade shows.
Last month, Merchandise Mart Properties and its parent company Vornado Realty Trust announced plans for the New York Gift Mart to move to the 12-story, 450,000-square-foot property at 7 W. 34th St. The building previously served as headquarters for the Orbach’s Department Store company. Vornado acquired the building in October 2000 for about $128 million, when the building was 100% leased to Fairchild Publications, the Health Insurance Plan of Greater New York, and the clothing retailer The Limited.
Vornado is one of the largest owners of real estate in the area around Penn Station. A large portion of its holdings came from its purchase of the real estate owned by Bernard Mendik. In 1997, New York real estate owner and developer Bernard Mendik swapped his New York City real estate portfolio to become part of Vornado Realty Trust. Properties included Two Penn Plaza, 11 Penn Plaza, Two Park Avenue (a 40% interest in which was increased to 100% in November 1998),330 Madison Ave.,1740 Broadway, 866 United Nations Plaza, and a 50% interest in 570 Lexington Ave. Since that date they have increased their holdings and are presently considered the largest owner of commercial real estate in the Penn Plaza region.
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Vornado is a company that constantly evaluates repositioning the use of its commercial office buildings. In September 1999, it acquired 595 Madison Ave., also known as The Fuller Building, a 40-story, 295,000-square-foot retail and office tower located at the corner of 57th Street and Madison Avenue. David Greenbaum, president of Vornado Office, a division of Vornado Realty Trust, told me, “We are evaluating the possibility of renovating the top floors of the tower into luxury condominiums.”
Another building it might convert to residential condominiums is the office tower located at 150 East 58th St. It acquired the 39-story, 550,000-square-foot tower in March 1998 for $118 million. This building is located directly across the street from 731 Lexington Ave. and the condominium residences at One Beacon Court.
Another prize location which may one day become a residential tower is the 46-story, 847,000-square-foot office building located at 888 Seventh Ave. It acquired the long term leasehold of the building in January 1999 for $100 million. This great site has magnificent views of Central Park and is located at the corner of Seventh Avenue between West 58th and West 59th streets. The property is located directly across from Carnegie Hall.
Another potential site for residential apartments or condominiums is the 1,700-room Hotel Pennsylvania located on Seventh Avenue between West 31st and West 32nd streets. In September 1997,Vornado and Singapore-based Hotel Properties Limited purchased a 40% interest in the hotel for $159 million.
In May 1998, the company acquired an additional 40% interest in the hotel. A number of properties within walking distance are undergoing conversion from commercial to residential including the site at 131 West 31st St.
Later this year, a partnership including Sidney Fetner Associates, the Durst Organization and the Franciscan Friars of Holy Name Province plan to build a 58-story mixed-use residential rental tower at this site.
Vornado has recently redeveloped another site, 4 Union Square, that originally served as the Manhattan home of May’s Department Stores and Bradlees. Last month, Filene’s Basement opened its largest store ever at this location, occupying the fourth, fifth, and sixth floors. Other tenants will include DSW Shoe Warehouse, Whole Foods Market, and Forever 21. Prior to the retail redevelopment, discussions were underway for this site to serve as the corporate headquarters of Cantor Fitzgerald.
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The company has also made significant investments providing mezzanine loans on the office tower at 767 Fifth Ave.
In October 2003,Vornado announced that it made a $200 million mezzanine loan secured by partnership interests in the General Motors Building. Macklowe Properties acquired the GM Building for about $1.4 billion. Vornado’s loan is subordinate to $900 million of other debt; the loan is based on a rate of LIBOR plus 8.65%.In addition, it made an additional $25 million loan at a rate of LIBOR plus 12.81%. In September of this year, it acquired a $50 million participation in a $200 million loan also secured by partnership interest in the building and additional collateral.
Many real estate leaders feel that in addition to earning an excellent return on these real estate mezzanine loans, Vornado has provided these loans as a way for it to be in a position to possibly own the properties if the Macklowe Organization is unable to service the debt, which would result in Vornado taking over the ownership of the tower.
Based upon the 39-year history of Mr. Roth and Vornado, one should not be surprised if Sears and other troubled retailers will one day no longer continue to exist as retailers. History has a tendency to repeat itself and one thing is certain: Vornado loves to own retail properties and reposition these assets into the best alternative and successful uses.
Mr. Stoler is a television broadcaster and vice president, at First American Title Insurance Company of New York. He can be reached at mstoler@nysun.com.