Vornado Buying Manhattan Mall

The purchase adds to the REIT's focus on the Penn Station area of New York City.
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Vornado Realty Trust

(VNO) - Get Report

is paying $689 million to buy the Manhattan Mall, a one-million-square-foot office and retail property near New York City's Pennsylvania Station.

The purchase adds to the company's cluster of buildings in the Penn Station vicinity, which Vornado has targeted as Manhattan's next major redevelopment area.

The property is located on the entire Sixth Avenue block between 32nd and 33rd streets in Manhattan, adjacent to the real estate investment trust's 1.4-million-square-foot Hotel Pennsylvania. Vornado has said that it will likely redevelop the Hotel Pennsylvania, which sits across from Penn Station and Madison Square Garden, at some point in the future.

The Manhattan Mall, which is 97% leased, contains 812,000 square feet of office space, mostly leased to

Bank of America

(BAC) - Get Report

and

Interpublic Group

(IPG) - Get Report

.

The building also contains 164,000 square feet of retail space and 250,000 square feet of air rights, which would allow Vornado to build higher.

HausInvest Global, a German fund, has owned the Manhattan Mall since 2004.

Vornado already owns four office buildings that comprise Penn Plaza surrounding Pennsylvania Station, along with several retail properties that also hold redevelopment opportunity.

Vornado and the Related Companies were picked last year by a New York state agency to turn the nearby Farley Post Office Building, on 32nd Street and Eighth Avenue, into a new transit hub.

That project, however, is now in limbo. State Assembly Speaker Sheldon Silver blocked the renovation of the building, which is planned to become Moynihan Station, in October.

There also have been plans floating around that would move Madison Square Garden to the Farley Post Office; this would free up the entire Penn Plaza block and allow Vornado to build some sort of super office and retail project sitting between Seventh and Eight Avenues, on 31st to 33rd streets.

Vornado CEO Steve Roth told investors at a conference earlier this year that the redevelopment of the area would add $1.2 billion of value to Vornado's properties in the area, due to surging rents. Including the Manhattan Mall purchase, the company now owns about eight million square feet of properties in the district.

Shares of Vornado recently were up 22 cents to $122.18.