The latest twist in Vornado Realty Trust's extensive, yearslong endeavor to streamline its operations raises the possibility that the company could risk oversimplifying its business.
Chairman and CEO Steven Roth said on the company's first-quarter call that it is weighing spinning off its remaining Manhattan retail assets — roughly 3 million square feet of space, according to S&P Global Market Intelligence data — from its already trimmed-down portfolio.
"I tell you I am dying to find out what [our] retail would trade at, from a transparency point of view, as an isolated business," Roth said.
The move would effectively make Vornado, apart from a select few projects, an office-only landlord, a possibility that does not sit well with one analyst.
"I think Vornado should hold onto most of its NYC retail portfolio, as it is a highly unique collection of assets," BMO Capital Markets' John Kim said in an interview, citing in his rationale the company's own net operating income growth estimates — $380 million projected by 2021, representing a compound annual growth rate of 7.7%. "Why spin it now?"
Vornado declined to comment for this story.

Public equity REITs in recent years have perfected the art of the spin and portfolio sales to accommodate investors' preference for simplicity and transparency. Vornado has been a maestro in that group, spinning off its strip center business into Urban Edge Properties, and spinning off and merging the vast majority of its Washington, D.C., properties into JBG SMITH Properties.
Vornado's current New York City retail square footage is spread across several Manhattan, N.Y., submarkets, with more than half in the Penn Plaza/Herald Square and the SoHo, Tribeca and Downtown submarkets — the last of which Melissa Coley, a director at CBRE, described as among the most vibrant and richly endowed submarkets today.
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In an interview, Coley said New York City remains the great American retail market and Fifth Avenue its centerpiece, even as e-commerce has changed the nature of demand for space in individual tenants' cases.
"It's still the most valued retail location in the world, and I think it will stay that way," she said of Fifth Avenue, Vornado's third-largest submarket by square footage. "We don't question that. Moment to moment, it might be worth more or less. But its long-term value as a location is still unchallenged."
Coley said asking rents are down and concessions are high across New York, but there remains a rock-solid foundation of demand. Street retail is viewed now as an essential component of the myriad developments and redevelopments taking place all over the city for its ability to attract and retain desired tenants.
"Everyone wants it," Coley said of street retail space. "Everyone is building it in their projects. They're seeing it as an opportunity to really give those projects real amenities and character."
BMO's Kim said select joint ventures or individual asset sales would be a more desirable route for Vornado. The company's orientation as a developer demands some fluency in retail, and having in-house expertise can only work in Vornado's favor, he said.
"Pricing is currently a question given headwinds in retail, but New York's economy is still humming and many submarkets provide unique foot traffic," Kim said. "We don't believe being an office-only company would be better in Vornado's case given NYC office and retail are physically intertwined."

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