I reported earlier this week how the cracks are starting to show for New York City’s two biggest office REITs, Vornado Realty and SL Green. Well, more bad news for Vornado has recently come down the pike. Vornado disclosed in a regulatory filing that it will absorb a $600 million impairment charge on its real estate portfolio, with $480 million related to an ownership stake in Times Square and Fifth Avenue holdings. An impairment charge is an accounting term referring to the significant reduction or loss in the recoverable value of an asset. Lenders often review impairment charges to decide whether or not to lend to a particular company.
Four years ago, the seven properties in Times Square and Fifth Avenue were valued at $5.6 billion. Now, the properties are worth $4 billion, a 30 percent decrease. It’s estimated the properties generate between $200 and $225 million in net operating income annually, which is also down from $250 million four years ago. After the pandemic started, the REIT was already hit with a $409 million impairment charge on the joint venture in 2020. This is just the latest bad news for Vornado. The REIT recently cut its dividend by 30 percent, an expected move but at a size that shocked some analysts. The S&P 500 also removed Vornado’s stock from the index, saying its shares had become more representative of one in the midcap market. Vornado’s shares have lost two-thirds of their value since the pandemic began.
Vornado reports its fourth-quarter earnings on February 13th, something that real estate investors will be watching closely. They aren’t the only office REIT to disclose a big NYC investment write-down or to be facing heavy challenges. Boston Properties recently disclosed a nearly $51 million impairment charge on the Dock 72 office developed in a joint venture with Rudin Management. Boston Properties CEO Owen Thomas recently said commercial real estate is already in a recession, and judging by the reports like this that are increasingly coming out, he’s probably right.