By now, everyone agrees that New York’s retail market is in trouble. But is it just a temporary dip, or is the market facing a more permanent crisis? Vornado Realty Trust CEO Steve Roth thinks it’s the former.
“My belief is that the softness in New York is cyclical,” he said during Vornado’s quarterly earnings call Tuesday. He was more concerned over the U.S. retail market outside the Big Apple, which he sees in a cyclical downturn.
“The country is vastly overstored,” he said. “Growth will not solve this problem. There has to be an evaporation of a vast amount of retail space.”
Roth’s comments echo his annual letter to shareholders earlier this year, in which he argued that retail’s struggles “will also create enormous opportunity for those with the capital and management platforms to feed on the carnage.”
In Manhattan, retail properties with tenants on long-term leases are still selling at cap rates below 4 percent, Roth claimed, but “secondary assets or assets which are vacant or are not leased to term are struggling to get bids.”
Vornado owns the retail space at 666 Fifth Avenue and shares ownership of the office portion with Kushner Companies. Asked about Kushner’s reported plans to turn the building into a condo tower with a vertical mall, Roth merely said that the “debate continues” over the future of the building.
The company’s executives also talked about Penn Station area, where Vornado is co-developing a new train hall in the James A. Farley post office building with Related Companies and Skanska. New York president David Greenbaum said that while talks with potential tenants for the building’s planned 730,000 square feet of office space (which is expected to open in 2020) are still early, “there are already at least two tenants who have interest in taking the entire asset.”
Executives declined to talk about rumors that Vornado wants to tear down the Hotel Pennsylvania and replace it with an office tower, but said that they are “looking at more aggressive options to Add Tonnage On The Plaza” beyond reported plans to redevelop One and Two Penn Plaza.
According to Roth, who was recently appointed to New York Gov. Andrew Cuomo’s Penn Station task force and is also on President Trump’s infrastructure council, emergency repair work at Penn Station will benefit Vornado’s real estate holdings despite the travel disruptions this summer. “The fact that everyone is focused on it now, and that it will be put to good repair, is very fortunate,” he said.