Vornado Looks To Sell Chicago's The Mart, San Francisco Tower To Focus On NYC

A series of large deals has put Steven Roth in a New York state of mind. 

In a call with investors Tuesday morning, the Vornado Realty Trust chairman and CEO boasted about being a “90% New York-centric company” and signaled for the first time that the REIT could offload the assets that make up the remaining 10%. 

“We do own a single large building in Chicago, The Mart, and a single complex of 555 California St., the No. 1 building in San Francisco,” Roth said on the call. “These two assets may be on the ‘for sale’ list for the right deal at the right time.”

The Mart, long known as the Merchandise Mart, is a 3.7M SF office complex that spans two city blocks and was the world's largest building when it opened in 1930. It was the centerpiece of a $625M deal between Vornado and the Kennedy family in 1998.

It was 78% occupied as of the end of the quarter, according to Vornado's regulatory filings, down from 80% at the end of 2024. It generated $25M in net operating income during the second quarter, up from $16M a year before.

555 California St., also known as the Bank of America Tower, is a 52-story skyscraper in San Francisco's Financial District. Vornado owns a 70% stake in the building and two adjacent properties, which are 92% occupied, while The Trump Organization owns the other 30%. The 1.8M SF complex generated more than $17M of NOI in Q2.

“They're not sacred,” Roth said of the properties. “Nothing is sacred.”

Roth’s statements come after multiple attempts from Vornado to alter its ownership of the San Francisco office. A proposed sale was part of an effort to raise $5B, which was shelved in 2020. Then, in 2021, Vornado attempted to buy Trump out of its stake, a deal that also never came to fruition.

Those aren't the only changes that could be coming to Vornado’s portfolio. 

On the call, one analyst questioned the dwindling cash balance for Alexander’s, a former department store chain controlled by Vornado. Through the company, Vornado owns 2.5M SF of New York City real estate, including 731 Lexington Ave. and a 312-unit Rego Park apartment tower. 

Net operating income for the Alexander’s segment of Vornado’s business decreased from $21M during the first half of 2024 to $18M in the six months ending in June, according to the company's Securities and Exchange Commission filings. 

Roth declined to comment on Alexander’s financials but told analysts that “there are things going on at Alexander's that you don't know about.”

“There are some assets that are going to be sold at Alexander’s,” Roth said. “It’ll probably surprise you greatly.”

Overall, the REIT had a solid quarter, with funds from operations, a key metric of REIT cash flow, beating analyst expectations. In filings, the REIT said that its FFO was 60 cents per diluted share, compared to 76 cents a year ago. When those figures are adjusted for “period-to-period comparability,” FFO was 56 cents, just 1 cent less than what it was a year ago, according to the company’s calculations. 

Vornado reported its Q2 earnings on the heels of Verizon inking a 203K SF lease last month to move its global headquarters to Penn 2. The deal was a talking point for the REIT despite coming after the quarter ended. 

The report does include New York University’s $1.6B master lease at 770 Broadway, the $350M sale of Uniqlo’s Fifth Avenue flagship, and a ground rent reset at Penn 1. Those deals sent Vornado’s net income soaring to $744M this quarter, compared to $35M a year prior. 

Overall, the REIT signed 1.5M SF of office and 57K SF of retail leases in New York over the quarter. Its office portfolio was 87% occupied at the end of June, while its retail spaces had a 68% occupancy rate. 

That is down from a year ago, when its offices were 89% occupied and its retail portfolio was 77% occupied. 

That makes Vornado a laggard compared to the broader Manhattan office market, where leasing activity has rebounded this year to exceed prepandemic numbers. In May, Manhattan leasing activity totaled 2.5M SF, 46% ahead of the five-year monthly average, according to CBRE. The vacancy rate fell to 14.2% from 15.7% a year prior.

Vornado's stock price fell 4% in trading on Tuesday following the earnings release.