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Vornado JV Buys NYC Asset for $1.3B

Zacks Equity Research

Vornado Realty Trust (VNO) disclosed that its joint venture, in collaboration with institutional investors advised by J.P. Morgan Asset Management of JP Morgan Chase & Co. (JPM), acquired a Class A office tower – 650 Madison Avenue – for $1.295 billion. The move comes as part of its portfolio repositioning efforts.

The buyout is funded with a new $800 million 7-year 4.39% interest-only loan. The joint venture, in which Vornado holds 20.1% co-controlling interest, is led by Oxford Properties and Crown Acquisitions and Highgate Holdings. Notably, Vornado will co-manage and co-lease the acquired asset.

650 Madison Avenue is a 27 story office tower, spanning 594,000 square feet, situated on the full western block front of Madison Avenue between 59th and 60th Street in New York City. The asset comprises 523,000 square feet and 71,000 square feet of office and retail space, respectively.

The office space is primarily anchored by Polo Ralph Lauren of Ralph Lauren Corporation (RL), which occupies 274,000 square feet. On the other hand, the retail space is mainly occupied by Crate & Barrel (61,400 square feet) and Tod’s (7,900 square feet).

As a matter of fact, Vornado has Class A office properties that are concentrated in select high-rent, high barrier-to-entry geographic markets, which usually fare better amid challenging economic conditions. Its strong leasing activity has strengthened its foothold in two of the most vibrant long-term office markets – New York City and Washington, D.C – in the U.S.

Vornado is currently focused on improving its core business by making opportunistic buyouts. In Aug 2013, the company inked a deal to purchase a retail and office property on 655 Fifth Avenue Manhattan. Such accretive buyouts bode well for its long-term growth.

Vornado currently has a Zacks Rank #3 (Hold). The other better-performing REIT that is worth a look is Sovran Self Storage Inc. (SSS), carrying a Zacks Rank #1 (Strong Buy).

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