VNO - Vornado Realty Trust

[thepupil]

https://www.bloomberg.com/news/articles/2021-04-27/trump-building-owned-with-vornado-set-for-617-million-cash-out

~$430mm of cash to VNO, via a $1.2B cash out refi of their existing $540mm of debt on 555 Cali. VNO owns 70%, DJT owns 30%.

SASB CMBS underwritten at 60% LTV on 5 cap of normalized $100mm NOI. 

I was surprised to see them go with a floater which is 2 years + 5 1 year extensions as I believe they could have easily gotten 10 yr fixed rate on this. There are 4 reasons I can think of to do this 

1) VNO thinks ST rates will remain low and that it will be cheaper to have floating rate debt 

2) It was cheaper to go floating and swap into fixed (no evidence of that but we'll find out) 

3) the market demands shorter duration financing (no evidence of this because we've seen big 10 year CMBS transactions, the Brookfield's Grace building, SLG's One Vandy, probably some others) 

4) they want to maintain optionality to sell the building and don't want the call protection of a longer term CMBS structure. They have said that because they didn't get what they deemed appropriate bids on it and pulled it from the market, that their plan was to take it off market, do a big cash out refi (this) and then potentially market it later when office/cities come back ("when" in VNO's mind, "if" in everyone else's). 

I think the real reason is #4. 

 

Edited April 27, 2021 by thepupil