Vornado Runs Loan Default Tab to $400 Million
Vornado, a big name in national and international commercial real estate spheres, has defaulted on its third property. That brings the delinquent loan total for the New York City-based REIT to about $400 million, according to findings by the Wall Street Journal
Vorando Realty Trust principals continue to work with special servicers to restructure the loans and retrieve the properties, according to persons familiar with the REIT's circumstances.
Vornado's latest default is at The Cannery at Del Monte, an historic San Francisco landmark. The REIT informed the Securities and Exchange Commission it owes about $17.5 million on The Cannery loan.
According to the WSJ, the company also said in SEC filings that it has defaulted on $217.8 million in non-recourse debt on a showroom complex in High Point, N.C., and a mortgage loan with a principal balance of $164.25 million on the 1.4-million-square-foot, enclosed Springfield Mall in Washington, D.C.
Vornado owns property, office buildings and stores valued at more than $20 billion.
Vornado led a group that in 2007 paid $33.5 million for the 103-year-old San Francisco property, once regarded as the largest peach cannery in the world, according to the WSJ.
The seller, San Francisco's Martin family, had converted it into retail and office use in the 1960s. Vornado planned an upgrade that would attract national retailers and upscale companies to the property, which is located on Fisherman's Wharf, a popular tourist destination.
But Vornado, which owns a 95% stake in the 1.25 acre waterfront property, put the brakes on the plan when the recession hit, putting a pall on the leasing market, the WSJ reports.
Earlier this spring, the company stopped making payments on the $18 million mortgage, which had been carved up and sold as commercial mortgage-backed securities, the person familiar with the matter said.
The debt was transferred in April to a special servicer, a company that deals with troubled commercial-mortgage securities, according to Trepp, a CMBS research firm.
Vornado wants to keep the property, the person said. But, like many owners of distressed property, the company has defaulted as a strategy to restructure the debt, he told the WSJ. "It was a calculated move," the source said.
A Vornado spokeswoman declined to comment. But, the company said in a Securities and Exchange Commission filing last week that it requested that the mortgage loan on a California retail property with a principal balance of $17.5 million be placed with a special servicer.
"We have not made debt service payments since March and are in default. We are in negotiations with the special servicer; there can be no assurance as to the timing and ultimate resolution of these negotiations," the filing said.
Vornado's partner in the Cannery is Patson Cos., a real-estate development, investment and management firm based in San Francisco. The property was owned by Del Monte Foods Co. more than 70 years ago.
Ironically, the default comes as San Francisco boasts one of the lowest retail vacancy rates in the country, at 4%, compared with a 10.8% rate nationally, according to Reis Inc.
Nonetheless, reports the WSJ, big national retailers aggressively cut back expansion plans and new store openings during the recession because of a steep downturn in consumer spending.
However, the city's office market is in more dire shape, with vacancies rising to 15.2% during the first quarter of 2010, up 12.7% from a year ago, Reis said.