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Roth: Vornado Eyeing Investment In Manhattan Casino, Soundstages

A rendering of the Farley Building redevelopment

Vornado Realty Trust offered a peek into its plans last week with the release of its annual chairman letter, and Chairman and CEO Steven Roth is thinking beyond the retail, residential and office real estate that has proved lucrative to the firm in the past.

In his yearly letter to shareholders on Friday, Roth officially announced Vornado will tear down the famed Hotel Pennsylvania and plans to build a new tower, Penn 15, in its place.

The company has long considered demolishing the century-old hotel, and Roth said the “grande dame” is now “decades past its glory and sell-by date.” The company is separating the Penn District through a new tracking stock, giving investors the chance to invest in what Roth describes as “higher growth but longer-term” development there, while keeping Vornado's stock focused on its “traditional core assets."

"The Penn District is different from our other office assets … it is a large multi-building complex, it is long-term and it is development focused (development and long-term are two of the dirtiest words in REITland)," Roth wrote. "The Penn District is our moonshot, the highest growth opportunity in our portfolio."

Alongside confirmation the hotel will be razed, the letter also provided insight into Roth’s broader thinking for the business, with several general musings from the real estate veteran in the note.

In saying that during lockdown his Netflix subscription was “the best investment," Roth alluded to the possible real estate opportunities.

“I now understand why the soundstage business is booming,” Roth wrote. “While we certainly aren’t going Hollywood, we have been approached and are intrigued.”

Vornado wouldn’t be the first — that line of business has certainly gained the attention of some big names willing to pay big sums. Last summer, Blackstone Group dropped $1.65B for a nearly 50% stake in Hudson Pacific Properties' Hollywood production campus, a 2.2M SF collection of soundstages and office buildings. In September, Hackman Capital Partners paid $500M for Silvercup Studios, the Queens production facility where The Sopranos was filmed.

Roth also noted the “chatter” surrounding casino licenses, and what that may mean for real estate in the city. Mobile sports betting in New York was legalized through the state budget, and licenses for three new casinos near New York City are now in the cards.

Vornado has been exploring the idea of a casino near Herald Square, The New York Times reported in January, joining other real estate companies like L&L Holding Co. that have also looked into the concept

Roth said he believes two of the three licenses would go to Yonkers Raceway and Aqueduct Raceway, putting Manhattan squarely in line for the third, were it to materialize.

“It makes perfect sense for the third and final license to go to Manhattan. Being the center of everything, Manhattan will generate by far the highest revenue for our education system; after all, aren’t we in it to maximize the tax revenue?” Roth wrote. “Manhattan has, by far, the largest number of hotel rooms, restaurants, museums, tourist attractions, and the region’s transportation network was designed with Manhattan as its hub. We have heard the chatter and have been approached.”

In describing Vornado’s stock as “once again stupid cheap” — shares fell 44% in 2020 but have gained 22% so far this year, per Bloomberg — Roth doubled down on the widely held office landlord position that work will not fundamentally shift away from the office. He expects just a “modest” percentage of the working population to shift to hybrid working styles.

“Time will tell … But the success of our businesses will continue to depend upon talented workers gathering together,” he wrote. “I guess the kitchen table has a place for some, but I continue to believe the urban office is the future of work.”

Still, there is no disputing it was a challenging year for Vornado — even as it scored the office leasing coup of 2020 with Facebook taking all of the office space in the Farley Building and Apple deciding to expand at 11 Penn Plaza.

The company reported $138.4M in funds from operation in Q4 2020, down $311.9M year-over-year, a nearly 56% decrease, as Bisnow previously reported. After turning a profit in Q3, buoyed by condominium sales at 220 Central Park South, Vornado posted a net loss of $209.1M in Q4.