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Vornado Sells Stake in $5.6B Fifth Ave, Times Square Portfolio

666 Fifth Ave.

666 Fifth Ave.

NEW YORK CITY—Vornado Realty Trust reports it has sold its 45.4% equity interest in a portfolio of retail assets on Upper Fifth Avenue and Times Square to a group of institutional investors led by Crown Acquisitions Inc. in a deal that values the portfolio at $5.556 billion.

In connection with the deal, Vornado also reports that Haim Chera, 50, has left the family-owned Crown Acquisitions to join Vornado as its EVP- head of retail.

The transaction values the portfolio at a 4.5% cap rate. Vornado is the general partner of the joint venture formed to own the assets. Vornado continues to own 51.0% of the common equity of the portfolio.

The properties involved in the deal include: 640 Fifth Ave., 655 Fifth Ave., 666 Fifth Ave., 689 Fifth Ave., 697-703 Fifth Ave., 1535 Broadway and 1540 Broadway and include approximately 489,000 square feet of retail, approximately 327,000 square feet of office space as well as signage at 1540 Broadway and 1535 Broadway, a parking garage at 1540 Broadway and a theatre at 1535 Broadway.

Net cash proceeds to Vornado from the transaction will be approximately $1.198 billion after deductions for the repayment of a $390-million mortgage loan on 666 Fifth Ave. and a $140-million mortgage loan on 655 Fifth Avenue, anticipated proceeds from a new $500-million mortgage loan on 640 Fifth Ave., $26 million used to purchase minority investors' interests and $56 million of estimated transaction costs.

As a result of the transaction, Vornado will realize a tax gain of approximately $735 million. There will be a financial statement gain of approximately $2.6 billion in the second quarter of 2019, the REIT reports.

In conjunction with the transaction, Vornado retained preferred equity interests in certain of the properties in an aggregate amount of $1.828 billion. The preferred equity has an annual coupon of 4.25% for the first five years, increasing to 4.75% for the next five years and thereafter at a formulaic rate, the company states.

Vornado states that the joint venture assumed a $450-million mortgage loan on 697-703 Fifth Ave. The new $500-million mortgage loan on 640 Fifth Ave. is anticipated to be completed in the near future and is expected to have a term of five years at an interest rate of LIBOR plus 101 basis points and will be guaranteed by Vornado.

Until the new mortgage closes, Vornado will retain $500 million of preferred equity interests in addition to the $1.828 billion referenced.

Steven Roth, chairman and CEO of Vornado Realty Trust, says of Crown Acquisitions’ principal Chera joining the REIT to head its retail business, “Haim is hands down the very best retail real estate executive there is. His knowledge, skills and access are unparalleled. Haim will be leaving his family business, Crown Acquisitions, to join us. My relationship with Haim and his family goes back forever. Haim will have a field day leasing, managing and improving our existing portfolio. What's more, the disruption in retail will present enormous opportunity for those with talent and capital. We intend to have both in large measure. We are excited about the opportunities that lie ahead."