VNO - Vornado Realty Trust

[Gregmal]

VNO and SPG should just merge and create the ultimate real estate monster. Personally I hate office about as much as some of you hate retail, but I also think they are both probably tied to the same type of trends. Smart managers will navigate this and create value. You can always do "something" with well location dirt.

[thepupil]

Johnny, I very much appreciate the dig at Roth. Surely his existing position in VNO is adequate incentive lol.

 

as for the work from home, I'm in the "I don't know. I think I' being comp'd for the risk, but I don't know" camp. Perhaps otherwise known as the pot committed bag holder camp?

 

 

what's kind of funny is to think about the end users.

 

Facebook pays $77 million / year in rent to Vornado to lease 700K of Vornado's 17.6 million office portfolio at share (they rent at 770 Broadway). This doesn't include the much rumored 700K square feet at Farley Post office rumored at $100+ / foot. Assuming that Farley is additive and not a replacement for space at 770 and assuming Facebook still wants the space (perhaps big assumptions), Facebook is set to be paying Vornado $140 million / year in rent and probably $90 million in NOI / year.

 

Facebook doesn't have bonds, but I assume they could raise long money on terms equal to AA+ rated Apple (I think FB is a better credit, but that's an academic exercise given neither will default short of a nuclear apocalypse).

 

Rather than paying VNO $90mm / year of profits, Facebook should just buy VNO stock. They could borrow for 30 years at 2.6% (where AAPL 2049's trade). Using $90mm of interest, FB could, in this dumb academic exercise, buy $3.4 billion of Vornado stock, roughly half of the market cap and a large percent of the enterprise value depending on how it's counted.

 

Why rent 4% (hopefully going to 8% with Farley) of the square feet when you can own half of it for the same cost?

 

this is kind of a joke of course, but it's illustrative of the times we're in, corporate obligations of Facebook are deserving of an extremely low cost of capital, but when they come with an office building and residual risk, well my god that deserves a 9 cap!

 

Of course, not all of VNO is let to the likes of Facebook Limited Brands and the like are a more scary proposition.

 

EDIT: just to add for shits and gigs: the Ziff Family pays VNO $28 million a year in rent (shows up in top tenants as "Ziff Brothers Investments", which is their family office...maybe with their $14 billion net worth, they could spare a few dollars to become their own landlord.

 

 

[BG2008]

what's kind of funny is to think about the end users.

 

Facebook pays $77 million / year in rent to Vornado to lease 700K of Vornado's 17.6 million office portfolio at share (they rent at 770 Broadway). This doesn't include the much rumored 700K square feet at Farley Post office rumored at $100+ / foot. Assuming that Farley is additive and not a replacement for space at 770 and assuming Facebook still wants the space (perhaps big assumptions), Facebook is set to be paying Vornado $140 million / year in rent and probably $90 million in NOI / year.

 

Facebook doesn't have bonds, but I assume they could raise long money on terms equal to AA+ rated Apple (I think FB is a better credit, but that's an academic exercise given neither will default short of a nuclear apocalypse).

 

Rather than paying VNO $90mm / year of profits, Facebook should just buy VNO stock. They could borrow for 30 years at 2.6% (where AAPL 2049's trade). Using $90mm of interest, FB could, in this dumb academic exercise, buy $3.4 billion of Vornado stock, roughly half of the market cap and a large percent of the enterprise value depending on how it's counted.

 

Why rent 4% (hopefully going to 8% with Farley) of the square feet when you can own half of it for the same cost?

 

this is kind of a joke of course, but it's illustrative of the times we're in, corporate obligations of Facebook are deserving of an extremely low cost of capital, but when they come with an office building and residual risk, well my god that deserves a 9 cap!

 

Of course, not all of VNO is let to the likes of Facebook Limited Brands and the like are a more scary proposition.

 

This is an interesting exercise and not a frivolous one unlike thinking about a retailer like Macy's.  Well they own X sqft and SPG owns Y sqft and SPG trades for.  There isn't a dying retailer that could potentially burn cash versus a FB who really will likely be in NYC for many years.  Yes, I know it is kind of hard to imagine anyone wanting to be in NYC at this exact moment. At some point in the future, the smartest and most adventurous young graduates (tech savants) will still want to be in NYC.  Because it has the most energy and their likely highest chance of meeting their future significant others.  I know there has been a lot of coast bashing on this thread. But for a lot of the tech employees, they have to be in a coastal city for them to have success finding a future significant other.  This was a huge decision factor for me when I was looking at career path.  As an Asian man (which 30% of tech is), your odds in Austin or Nashville is likely a lot less successful than a big metro city like SF or NYC or LA.  If you are 6' 2" and look like Thor, you will do fine anywhere, even in an Eskimo village.  These little observations may seem frivolous, but they are very important drivers of where young college graduates gravitates to.  FB and Apple both wanting to lease Farley is a very interesting dynamic.  On one hand, you do have some fringe tenants. On the other hands, you have a tenant base that is likely going to grow over time and they are the most profitable companies in the world with a good growth path.   

[CorpRaider]

It's important to keep capable employees motivated and dedicated to the firm. Wouldn't want to wake up one morning and find out that SLG poached him now would you???

 

LOL quality. 

[thepupil]

 

4. a fundamental assumption to my "VNO has no net corporate debt" is the idea that 220 CPS units will close as expected. If you are someone who bout a $50mm apartment in 2015 at 2015 prices, you are having an interesting conundrum...you can forfeit your $12.5mm deposit and not close on your unit, or you can go through with the deal and own a ballin' apartment. I think the majority will close. Why? Many of these types of owners $50mm is not a lot of money and tey want a 220 CPS unit for the vanity factor. Did Ken GRiffin need that $200mm apartment? no. Many just sold their unit at 15 CEntral Park West to buy the new best building. I don't think if you're worth a few hundred or a billion plus you're going to not close. I could be wrong, in which case a stress case may be, VNO gets $200mm of deposits back and sells the remaining units at a 60% discount to expected, that would still be something like $500-$600mm of cash coming VNO's way. if you think the market for 220 CPS will completely completely dry up, then that's an assumption yours truly will have gotten wrong. units like these are like fine art, not even a place to live. the market for fine art may decline, maybe even to a crazy extent, but I not go  away completely

 

The city is shut down, but pricey closings continue at Vornado Realty Trust’s ultra-luxury condominium at 220 Central Park South.

On April 17, an anonymous buyer closed on a 65th-floor unit for $56.2 million, according to property records. The buyer, who went into contract on the property in 2016, was identified only as an LLC — “G’s Delight.” Three days before the deal closed, a unit two stories below sold for $53.6 million, according to property records. Purchased through a trust, the property went into contract in 2015.

 

https://therealdeal.com/2020/04/22/back-to-back-closings-at-220-cps-net-vornado-110m/

 

If anyone is jealous of the 2 folks who just bought $50mm condos the middle of coronacrisis, 31A is available for $36 million; buyer paid $26 million in December 2018.

 

With 20% down, it's yours for $165K a month.

 

https://streeteasy.com/building/220-central-park-south-new_york#tab_building_detail=2

[BG2008]

They have 3 units on Streeteasy for rent for a mere $35k to $65k a month.  Chump change. 

 

The ultra-luxury with Central Park Views are in a world of their own.  Many new luxury condos struggle to sell for $2-3k/sqft.  These Ultra-luxuries sell for $10k/sqft.  What a world that we live in!  I guess nothing says "Ferraris are so crass" like Central Park Views on the 65th floor for $50mm.  If you can buy one of these, you are the kind that goes to another millionaire and say "I'll flip you for it (all your networth)"     

[Jurgis]

At some point in the future, the smartest and most adventurous young graduates (tech savants) will still want to be in NYC.  Because it has the most energy and their likely highest chance of meeting their future significant others.  I know there has been a lot of coast bashing on this thread. But for a lot of the tech employees, they have to be in a coastal city for them to have success finding a future significant other.  This was a huge decision factor for me when I was looking at career path.  As an Asian man (which 30% of tech is), your odds in Austin or Nashville is likely a lot less successful than a big metro city like SF or NYC or LA.  If you are 6' 2" and look like Thor, you will do fine anywhere, even in an Eskimo village.  These little observations may seem frivolous, but they are very important drivers of where young college graduates gravitates to.

 

Maybe you should open a business selling coastal cities to horny tech guys based on the f&&kability potential.  ::)

[Spekulatius]

At some point in the future, the smartest and most adventurous young graduates (tech savants) will still want to be in NYC.  Because it has the most energy and their likely highest chance of meeting their future significant others.  I know there has been a lot of coast bashing on this thread. But for a lot of the tech employees, they have to be in a coastal city for them to have success finding a future significant other.  This was a huge decision factor for me when I was looking at career path.  As an Asian man (which 30% of tech is), your odds in Austin or Nashville is likely a lot less successful than a big metro city like SF or NYC or LA.  If you are 6' 2" and look like Thor, you will do fine anywhere, even in an Eskimo village.  These little observations may seem frivolous, but they are very important drivers of where young college graduates gravitates to.

 

Maybe you should open a business selling coastal cities to horny tech guys based on the f&&kability potential.  ::)

 

He underestimates hillbilly towns in that regard.

[BG2008]

At some point in the future, the smartest and most adventurous young graduates (tech savants) will still want to be in NYC.  Because it has the most energy and their likely highest chance of meeting their future significant others.  I know there has been a lot of coast bashing on this thread. But for a lot of the tech employees, they have to be in a coastal city for them to have success finding a future significant other.  This was a huge decision factor for me when I was looking at career path.  As an Asian man (which 30% of tech is), your odds in Austin or Nashville is likely a lot less successful than a big metro city like SF or NYC or LA.  If you are 6' 2" and look like Thor, you will do fine anywhere, even in an Eskimo village.  These little observations may seem frivolous, but they are very important drivers of where young college graduates gravitates to.

 

Maybe you should open a business selling coastal cities to horny tech guys based on the f&&kability potential.  ::)

 

How do I open such a business?  You kind of need land, building, and skyscrapers, subway systems, lots of labor from years ago, etc  oh wait, it's called the real estate business. 

 

Don't make fun of my proprietary "Tinder Index" (Trademark pending)

 

I've also purposely stayed at Airbnbs and talked to gay hairstylists about why they moved from the Midwest to Downtown LA.  If you are queer, these coastal cities are much safer and rank much higher on the "Grindr Index" (Trademark Pending) 

 

 

[Gregmal]

Deep down, everyone just wants to get paid and get laid.

 

NY, LA, SF, Miami... all the same in that respect.  Probably chuck Chicago, Orlando and certain Phoenix markets in there as well. You dont need big tech for this, you just need jobs that support the lifestyle of the folks who also want to have social lives. Orlando and Disney are a good example of this. People go to work at Disney because they pay well enough to live, and life over in that area is like a never ending frat party.

[Jurgis]

At some point in the future, the smartest and most adventurous young graduates (tech savants) will still want to be in NYC.  Because it has the most energy and their likely highest chance of meeting their future significant others.  I know there has been a lot of coast bashing on this thread. But for a lot of the tech employees, they have to be in a coastal city for them to have success finding a future significant other.  This was a huge decision factor for me when I was looking at career path.  As an Asian man (which 30% of tech is), your odds in Austin or Nashville is likely a lot less successful than a big metro city like SF or NYC or LA.  If you are 6' 2" and look like Thor, you will do fine anywhere, even in an Eskimo village.  These little observations may seem frivolous, but they are very important drivers of where young college graduates gravitates to.

 

Maybe you should open a business selling coastal cities to horny tech guys based on the f&&kability potential.  ::)

 

How do I open such a business?  You kind of need land, building, and skyscrapers, subway systems, lots of labor from years ago, etc  oh wait, it's called the real estate business. 

 

You've got to go ass-et lite dude. Second level grind'ing.  8)

 

Don't make fun of my proprietary "Tinder Index" (Trademark pending)

 

I'd never.

[Guest cherzeca]

"Deep down, everyone just wants to get paid and get laid."

 

another mungerism, I presume.

[BG2008]

At some point in the future, the smartest and most adventurous young graduates (tech savants) will still want to be in NYC.  Because it has the most energy and their likely highest chance of meeting their future significant others.  I know there has been a lot of coast bashing on this thread. But for a lot of the tech employees, they have to be in a coastal city for them to have success finding a future significant other.  This was a huge decision factor for me when I was looking at career path.  As an Asian man (which 30% of tech is), your odds in Austin or Nashville is likely a lot less successful than a big metro city like SF or NYC or LA.  If you are 6' 2" and look like Thor, you will do fine anywhere, even in an Eskimo village.  These little observations may seem frivolous, but they are very important drivers of where young college graduates gravitates to.

 

Maybe you should open a business selling coastal cities to horny tech guys based on the f&&kability potential.  ::)

 

How do I open such a business?  You kind of need land, building, and skyscrapers, subway systems, lots of labor from years ago, etc  oh wait, it's called the real estate business. 

 

You've got to go ass-et lite dude. Second level grind'ing.  8)

 

Don't make fun of my proprietary "Tinder Index" (Trademark pending)

 

I'd never.

 

Jurgis,

 

What a comment!!! I am bowing. 

[BG2008]

Deep down, everyone just wants to get paid and get laid.

 

NY, LA, SF, Miami... all the same in that respect.  Probably chuck Chicago, Orlando and certain Phoenix markets in there as well. You dont need big tech for this, you just need jobs that support the lifestyle of the folks who also want to have social lives. Orlando and Disney are a good example of this. People go to work at Disney because they pay well enough to live, and life over in that area is like a never ending frat party.

 

The problem is that Orlando rent will probably never reach $90/sqft given you can build outward (not surrounded by bodies of water) and people treasure frat party lifestyles over pursuits of AI and other really tough tech problems in life.

[Gregmal]

Somewhere in there, there's a joke about islands and moats

[johnny]

Absolute gratitude to BG for convincing me that Tinder in-app purchases are now deductible.

[BG2008]

Somewhere in there, there's a joke about islands and moats

 

Hahaha

 

Is it a joke or is it real?  I mean look at the most expensive real estate markets in the world

 

Hong Kong

Seattle

Miami

Shanghai

NYC

SF

LA

Singapore (yes, it'a  country, but the size of a city)

 

They all share something in common, they are all physically constrained by bodies of water.  These bodies of water literally creates a moat (well, because you can't build on water).  There is a reason why Manhattan, Shanghai, Hong Kong, all have 50-100 story towers.  It's not that they are consciously eco-friendly. It is because they literally cannot build outward onto the water.  Despite all the advancement in engineering etc, building on water is still way too expensive and likely very unstable.  Replacement cost (which in dense cities are very real) inhibits new supply from being built. 

 

In 2008, my parents helped me buy a 4 unit rental and it is one of the best investments I have ever made.  We bought it for a 5% cap rate and it is located at a 5 minute walk to the subway station.  At the time, I was concerned about the housing bubble and a slew of other issues.  11 yeas later, market rent has gone up 70% and my mortgage is still fixed.  We recently refi'd and took out a loan to buy another property (literally closed in Jan).  There is quite a lot of wisdom of these old uneducated Asian parents.  My parents quit school after 1st and 5th grade in China.  When we came to the US, we ran a restaurant and then mostly invested in NYC real estate. In the last 20 years, I have watched in astonishment in how well people have done if they just bought NYC residential and sat on it with 60-80% LTV.  I kind of always complained and said that we should try to buy an 8% in upstate or in Philly.  But that would have backfired.  I guess this is my long winded way of saying "It is better to pay a fair price for a great asset".  NYC real estate is great asset.  My family and relatives do some RE development and they are learning in real time how difficult it is to get things built.  Some in my family initially thought that they can go from land acquisition to sale of condo in 2.5 years.  The reality is that it takes 4-5 years to finish a project from the day of land acquisition.  Some of the projects in Downtown Brooklyn near JW Mays were acquired in 2014 and are just now coming onto the market.  Trinity Place Holdings (Old Syms) went bankrupt in 2011 and their 77 Greenwich condo project is still not complete yet.  We are closing in on 10 years. 

 

Yes, the supply eventually do get added, but it takes forever!!  I am a giant nerd when it comes to real estate investing and I have been thinking about these topics on the weekend and late at night.  Mostly, because my Asian parents humbled me a great deal in showing me slowly over 10-11 years that if you buy good RE and sit on it, you will do very well.  I guess these lessons are similar to the transition that Buffet went through from buying net nets to buying higher quality companies. 

 

Moats are real.  Replacement costs are real.  Union labor are expensive and likely have been compounding at 4-5% a year.  Good location and good bones are important.  If you are on 6th Ave and next to a busy subway station (sounds like a liability at this moment), you will likely do fine in the long run.  If office is obsolete, you likely have a future as an alternative use, condo or hotel conversion (risky, but there is real value in that land and bones value). 

 

With all of that, let me introduce to you PIRO investing (trademark pending).  Penisula, Island, River, and Ocean!! These locations naturally create barriers to entry and have natural geographical moats that is hard to attack.  You can DM me if interested, min investments 10 Ferrari!!

[BG2008]

There has been mixed feedbacks regarding the "work from home" experiment.  This is an interesting article.

 

https://www.bloomberg.com/news/articles/2020-04-23/working-from-home-in-covid-era-means-three-more-hours-on-the-job?srnd=premium

[Gregmal]

Ugh, after listening to you fuckers and largely feeling similar although expressing it in a somewhat different way(SPG), I looked at my liquidity position in the good ole IBKR account and thought, it costs me 1% to carry VNO at this valuation? Lets take a trip down the yellow brick road...

[nspo]

Somewhere in there, there's a joke about islands and moats

 

Hahaha

 

Is it a joke or is it real?  I mean look at the most expensive real estate markets in the world

 

Hong Kong

Seattle

Miami

Shanghai

NYC

SF

LA

Singapore (yes, it'a  country, but the size of a city)

 

They all share something in common, they are all physically constrained by bodies of water.  These bodies of water literally creates a moat (well, because you can't build on water).  There is a reason why Manhattan, Shanghai, Hong Kong, all have 50-100 story towers.  It's not that they are consciously eco-friendly. It is because they literally cannot build outward onto the water.  Despite all the advancement in engineering etc, building on water is still way too expensive and likely very unstable.  Replacement cost (which in dense cities are very real) inhibits new supply from being built. 

 

In 2008, my parents helped me buy a 4 unit rental and it is one of the best investments I have ever made.  We bought it for a 5% cap rate and it is located at a 5 minute walk to the subway station.  At the time, I was concerned about the housing bubble and a slew of other issues.  11 yeas later, market rent has gone up 70% and my mortgage is still fixed.  We recently refi'd and took out a loan to buy another property (literally closed in Jan).  There is quite a lot of wisdom of these old uneducated Asian parents.  My parents quit school after 1st and 5th grade in China.  When we came to the US, we ran a restaurant and then mostly invested in NYC real estate. In the last 20 years, I have watched in astonishment in how well people have done if they just bought NYC residential and sat on it with 60-80% LTV.  I kind of always complained and said that we should try to buy an 8% in upstate or in Philly.  But that would have backfired.  I guess this is my long winded way of saying "It is better to pay a fair price for a great asset".  NYC real estate is great asset.  My family and relatives do some RE development and they are learning in real time how difficult it is to get things built.  Some in my family initially thought that they can go from land acquisition to sale of condo in 2.5 years.  The reality is that it takes 4-5 years to finish a project from the day of land acquisition.  Some of the projects in Downtown Brooklyn near JW Mays were acquired in 2014 and are just now coming onto the market.  Trinity Place Holdings (Old Syms) went bankrupt in 2011 and their 77 Greenwich condo project is still not complete yet.  We are closing in on 10 years. 

 

Yes, the supply eventually do get added, but it takes forever!!  I am a giant nerd when it comes to real estate investing and I have been thinking about these topics on the weekend and late at night.  Mostly, because my Asian parents humbled me a great deal in showing me slowly over 10-11 years that if you buy good RE and sit on it, you will do very well.  I guess these lessons are similar to the transition that Buffet went through from buying net nets to buying higher quality companies. 

 

Moats are real.  Replacement costs are real.  Union labor are expensive and likely have been compounding at 4-5% a year.  Good location and good bones are important.  If you are on 6th Ave and next to a busy subway station (sounds like a liability at this moment), you will likely do fine in the long run.  If office is obsolete, you likely have a future as an alternative use, condo or hotel conversion (risky, but there is real value in that land and bones value). 

 

With all of that, let me introduce to you PIRO investing (trademark pending).  Penisula, Island, River, and Ocean!! These locations naturally create barriers to entry and have natural geographical moats that is hard to attack.  You can DM me if interested, min investments 10 Ferrari!!

 

+111111 Very cool story. Absolutely spot on

[sleepydragon]

Note from Rhizome Partners, an RE fund I have a ton of respect for:

https://d2gr5kl7dt2z3t.cloudfront.net/blog/wp-content/uploads/securepdfs/2020/04/21100608/Rhizome_Partners_Q1_2020_Investor_Letter_Final.pdf

 

for example, we recently bought Vornado Realty Trust which owns New York City office buildings.  We are buying

at around $700 per square foot for the New York City office portfolio and we get some development and non‐

NYC assets for free.  The implied cap rate is in the high single digits while private market transactions are in

the 4‐5% cap rate.  Most importantly, the replacement cost for these assets are close to $2,000 a square foot. 

The company has historically published a NAV estimate in the $90s and we bought our shares for $34. 

 

$700 per square feet. Is this the right way to think about it? You still owe the mortgage. You are Not owning the real estate at this price. You are only owning the equity portion of this real estate at this price.

 

[BG2008]

Roughly 20mm square feet of NYC office and retail, $7bn of net debt, $7bn of MC plus $1bn of preferred.  Thats seems like $700/sqft.  Chicago and SF assets for free and development assets for free near Penn Station. 

[thepupil]

Note from Rhizome Partners, an RE fund I have a ton of respect for:

https://d2gr5kl7dt2z3t.cloudfront.net/blog/wp-content/uploads/securepdfs/2020/04/21100608/Rhizome_Partners_Q1_2020_Investor_Letter_Final.pdf

 

for example, we recently bought Vornado Realty Trust which owns New York City office buildings.  We are buying

at around $700 per square foot for the New York City office portfolio and we get some development and non‐

NYC assets for free.  The implied cap rate is in the high single digits while private market transactions are in

the 4‐5% cap rate.  Most importantly, the replacement cost for these assets are close to $2,000 a square foot. 

The company has historically published a NAV estimate in the $90s and we bought our shares for $34. 

 

$700 per square feet. Is this the right way to think about it? You still owe the mortgage. You are Not owning the real estate at this price. You are only owning the equity portion of this real estate at this price.

 

that's true, but 82% of the debt is non-recourse and ~1/3 of the asset base has no (asset level) debt.

 

For example, BG2008 includes $1 billion of debt at share from theMart ($655mm) and 555 California ($385mm at share) but didn't include their square footage in the above calc, I believe. when he says you'r getting those for free, he actually means "i included their debt, but not their value/earnings power, just because I'm conservative like that"

 

[matts]

Google's real estate pause shows cracks in tech office demand

 

https://www.bnnbloomberg.ca/-1.1426551

 

[Gregmal]

Google's real estate pause shows cracks in tech office demand

 

https://www.bnnbloomberg.ca/-1.1426551

 

Yea this provides, at least for me, along with the cuts announced yesterday a pretty good look into the window of GOOG and their projection of the economy going forward, short-mid term.

 

Google has been very aggressive, especially in Bay Area, about building a big real estate portfolio for basically the past decade. I think seeing them completely cut bait like this is telling. Prying shares of GOOG from my portfolio takes quite a bit, but since the beginning of the year, Ive cut my position about 50%, although I hope to eventually buy it all back and then some. But its important not to underestimate how much they can be a proxy for the overall economy.