New York-based Vornado Realty Trust is looking to sell its 70 percent interest in the two office towers - one in San Francisco and another in Manhattan, Bloomberg reports.
Given that both these properties are co-owned by the Trump Organization, and the real estate industry is still reeling from the economic effects of the pandemic, a fruitful outcome remains to be seen.
According to the report, Vornado is already in talks with brokers to sell its interest in these properties. The first is located at 555 California Street, San Francisco, which could possibly sell for more than $2 billion. It houses the Goldman Sachs Group Inc., KKR & Co., Microsoft Corp., and McKinsey & Co., among other tenants.
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The other property, 1290 Avenue of the Americas, New York, includes Neuberger Berman and State Street Bank among its tenants. The Trump Organization owns 30 percent of these properties but does not actively participate in managing the buildings. The Trump Organization could possibly sell its stake in these properties, the report added.
It is reported that Trump's minority stake in the said properties was worth $765 million, which is after accounting for his share of the debt.
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Vornado's partnership with Trump began when the Steven Roth-led firm bought the office building for $1.8 billion back in 2007. Critics say that Trump's stakes in the properties could become a hurdle for any potential deal, added to the fact that the recovery of commercial real estate still remains uncertain, particularly in New York.
New York City moved to phase II of its reopening, allowing outdoor dining, in-store retail, salons, barbershops, car dealership, real estate services, and offices, among others. But as to how the reopening will playout for the commercial real estate, no one can say for sure.
As reported by MarketWatch, many property owners are falling behind on their mortgages, property prices are falling, and tenants battle it out against landlords for rent relief. Victoria's Secret Stores, for example, filed almost $1 million monthly claims for rent relief against its landlord SL Green.
The lockdowns have also compounded the economic burden that regional malls have been experiencing for years, forcing many retail and hotel properties to seek debt relief. Commercial backed securities delinquencies are forecast to hit a record high of 11.3 percent after reaching 10 percent in June, MarketWatch said citing Goldman Sachs' analysis.
Meanwhile, the Commercial Property Index slid 11 percent year-to-date, as of May 2020, according to a Green Street study. William O'Connor of Thompson & Knight LLC told MarketWatch that clients are expecting a minimum of 15 percent decline in property prices.
O'Connor said that many corporate tenants are trying to negotiate their leases, to either get lower rent or lesser space or terminate the lease. Some tenants are even amenable to paying lump-sump and then move on, he added.
The future of commercial real estate does not look promising overall. Particularly because industrial real estate and other properties that rely on e-commerce are benefiting from the lockdowns, AEW Capital Management real-estate securities group's portfolio manager, Gina Szymanski, said.
