(Bloomberg) -- Manhattan’s 1290 Sixth Avenue and San Francisco’s 555 California Street are outliers in President Donald Trump’s real-estate portfolio. His name doesn’t appear in big letters there. Trump owns only 30% of them. His company doesn’t have a management role.
Yet without fanfare, the two office towers are also among the Trump Organization’s most lucrative assets, together generating tens of millions in cash flow each year, according to a Bloomberg analysis. Now the properties could propel the most lucrative real estate deal involving Trump’s company during tenure in the White House.
Vornado Realty Trust, which holds the remaining 70% in the buildings, said this week it’s seeking to recapitalize them. People familiar with the matter said Vornado is looking to sell the high-rises and would lead the effort, meaning Trump’s family would be a step removed from talks. The Trump Organization is likely to sell its stakes as part of a deal, the people said.
The president bucked decades of tradition by declining to divest from his family business when joining the White House, and he has been dogged by lawsuits alleging his businesses open the door to spending by favor-seekers. In any sale, opponents and ethics organizations will surely scrutinize the buyer’s motives and the fairness of terms. A deal could yield hundreds of millions of dollars that the president’s company could plow into new investments, which could benefit from some of the real-estate friendly tax policies and banking regulations enacted by his administration.
Vornado declined to comment. The Trump Organization didn’t respond to requests for comment.
The two office buildings occupy prime commercial zones in two of the U.S.’s priciest cities, with tenants including Cushman & Wakefield and Neuberger Berman in Manhattan, and Microsoft Corp. and Goldman Sachs Group Inc in San Francisco. Vornado’s stakes in the two could be worth $2.6 billion, according to an analysis by Green Street Advisors, a real estate advisory firm. That implies that Trump’s stake could be worth as much as $1.1 billion before accounting for his share of debt.
The 45-floor Sixth Avenue building generated $63 million of net cash flow after debt payments last year, according to loan disclosures compiled by Bloomberg. Trump’s share of that, $19 million, is more than the combined $15 million in net cash flow after debt generated by offices at two of his marquee office properties, Trump Tower and 40 Wall Street.
“This is is a significant asset,” said Danny Ismail, an analyst at Green Street. With more than 2 million square feet, it has a roster of blue chip tenants and gets healthy rents given its quality and location, he said. ”It would be a good North Star in terms of where investors are valuing NYC office buildings.”
Beyond the challenges posed by a minority partner who is running for re-election, it is an uncertain time to be marketing office properties. A recent report from Savills found that asking rents in Manhattan could plunge 26% to the lowest level since 2012 in the event of a prolonged recession.
Companies are re-evaluating their need for space as the continuing coronavirus surge in the U.S. has left millions of workers uncertain about when they’ll return to their offices.
“Last week everything was looking pretty good. Now all of a sudden we have new outbreaks so maybe things aren’t so good,” said Joshua Stein, a New York-based real estate attorney. “The value of this building could change by the minute.”
Such a sale could give Vornado the chance to make a statement about the value of its portfolio of commercial properties, after the coronavirus pandemic helped depress its shares in March to levels reminiscent of the troughs of 2009. The stock is down about 45% for the year after slipping 3.4% on Friday in New York to $36.64.
Both properties have rent rolls filled with tenants in long leases that are likely to outlast the economic upheaval. To handle the sales, Vornado turned to two firms that specialize in high-end commercial real estate. San Francisco’s 555 California is being brokered by Eastdil Secured, a real estate investment banking company. Cushman & Wakefield, which has handled an assortment of billion-dollar transactions in Manhattan in recent years, is representing 1290 Sixth Avenue.
Trump’s office properties are his company’s most reliable income generators, and throughout the years have helped fuel the companies acquisition of higher-risk assets, including golf courses.
This isn’t the first time that Vornado’s chairman, Steve Roth, has featured prominently in Trump family dealings. Kushner Cos., the family firm of Trump’s son-in-law Jared Kushner, co-owned another midtown office building, 666 Fifth Avenue, with Vornado prior to its sale in 2018.
--With assistance from Noah Buhayar and Gillian Tan.
To contact the reporters on this story:
Caleb Melby in New York at [email protected];
Natalie Wong in New York at [email protected];
David Kocieniewski in New York at [email protected]
To contact the editors responsible for this story:
Jeffrey D Grocott at [email protected]
Pierre Paulden
© 2020 Bloomberg L.P.