Facebook Inks Major Lease Deal at Vornado’s Farley Building

John Jordan | August 2020

Facebook will be occupying all of the office space at Vornado Realty Trust’s Farley Building in the Penn District.

NEW YORK—Vornado Realty Trust announced on Aug. 3 that Facebook has leased all of the office space at The Farley Building totaling 730,000 square feet in Vornado’s Penn District.

Vornado also released its second quarter financial results and the tremendous impacts caused by the coronavirus pandemic on its operations and finances.

The Farley Building is a cornerstone of Vornado’s new Penn District, where Vornado owns 10 million square feet and is in the midst of a more than $2 -billion district-wide transformation of the neighborhood alongside government infrastructure and transportation improvements of more than $3 billion.

The Farley Building occupies a double-wide block between 31st and 33rd streets and stretches from 8th to 9th Avenues and is adjacent to Penn Station and across the street from Madison Square Garden.

Farley is an iconic Beaux Arts New York City landmark designed by McKim, Mead & White that Vornado is converting into a state-of-the-art, mixed-use development featuring best-in-class creative office space, while retaining the rich history of the building’s original design. Farley’s large floorplates offer a horizontal campus unique to Manhattan and similar to tech offices in Silicon Valley. The full complex will include Facebook’s office space; the majestic Moynihan Train Hall; and 120,000 square feet of retail space with food and beverage, full-service restaurants and curated lifestyle brands. The project is expected to be completed in phases beginning by year-end 2020.

Steven Roth, chairman and CEO of Vornado, said, “We are delighted to welcome Facebook to The Farley Building, a property like no other in New York City. Facebook’s commitment to Farley expands our long-standing relationship and advances our vision for the Penn District, the new epicenter of Manhattan. Facebook’s commitment is a further testament to New York City’s extraordinary talent and reinforces New York’s position as the nation’s second tech hub.”

“Facebook first joined New York’s vibrant business and tech community in 2007. Since that time, we’ve continuously grown and expanded our presence throughout the city. The Farley Building will further anchor our New York footprint and create a dedicated hub for our tech and engineering teams. We look forward to being a part of this iconic New York City landmark’s future for years to come,” said Robert Cookson, VP of Real Estate and Facilities, Americas, EMEA and APAC at Facebook.

In New York City, in addition to The Farley Building, Facebook leases office space at Vornado’s 770 Broadway and in nearby Hudson Yards. The Farley development is owned 95% by Vornado and 5% by The Related Companies.

Gov. Andrew Cuomo released a statement in connection with the Facebook lease, stating, “This is a significant moment in New York’s road to build back better and stronger and demonstrates our continuing resilience. Once complete, the Penn-Farley complex will be a world-class 21st century transportation, retail and business hub that maintains its extraordinary and historic architectural character. Vornado’s and Facebook’s investment in New York and commitment to further putting down roots here—even in the midst of a global pandemic—is a signal to the world that our brightest days are still ahead and we are open for business. This public-private partnership fortifies New York as an international center of innovation.”

COVID 19’s Impact on Vornado’s Finances

Vornado Realty Trust also released its second quarter financial results on Aug. 3. The firm reported a net loss attributable to common shareholders for the quarter ended June 30, 2020 at $197,750,000, or $1.03 per diluted share, compared to net income attributable to common shareholders of $2.400 billion, or $12.56 per diluted share, for the prior year’s quarter. Adjusting for the items that impact period-to-period comparability listed in the table on the following page, net loss attributable to common shareholders, as adjusted (non-GAAP) for the quarter ended June 30, 2020 was $8,599,000, or $0.04 per share, and net income attributable to common shareholders, as adjusted for the quarter ended June 30, 2019 was $42,552,000, or $0.22 per diluted share.

The REIT noted in its financial disclosures that its properties, concentrated in New York City, Chicago and San Francisco, have been adversely affected as a result of the COVID-19 pandemic and the preventive measures taken to curb the spread of the virus.

Some of the effects of the pandemic delineated in its report included:

• With the exception of grocery stores and other “essential” businesses, many of its retail tenants closed their stores in March 2020 and began reopening when New York City entered phase two of its state-mandated reopening plan on June 22, 2020.

• While its buildings remain open, many of its office tenants are working remotely.

• It has temporarily closed the Hotel Pennsylvania and has cancelled trade shows at theMART for the remainder of 2020.

• As of April 30, 2020, Vornado placed 1,803 employees on temporary furlough, which included 1,293 employees of Building Maintenance Services LLC, a wholly owned subsidiary, which provides cleaning, security and engineering services primarily to our New York properties, 414 employees at the Hotel Pennsylvania and 96 corporate staff employees. As of July 31, 2020, 542 employees have been taken off furlough and returned to work, which included 503 employees of BMS and 39 corporate staff employees.

In terms of its tenant lease obligations, Vornado stated, “While we believe our tenants are required to pay rent under their leases, in limited circumstances, we have agreed to and may continue to agree to rent deferrals and rent abatements for certain of our tenants.”

For the quarter ended June 30, 2020, Vornado collected 88% (94% including rent deferrals) of rent due from our tenants, comprised of 93% (98% including rent deferrals) from its office tenants and 72% (78% including rent deferrals) from its retail tenants. Rent deferrals generally require repayment in monthly installments over a period not to exceed 12 months.

Based on its assessment of the probability of rent collection of its lease receivables, Vornado has written off $36,297,000 of receivables arising from the straight-lining of rents, primarily for the JCPenney lease at Manhattan Mall and the New York & Company, Inc. lease at 330 West 34th Street, both tenants have filed for Chapter 11 bankruptcy, and $8,822,000 of tenant receivables deemed uncollectible, resulting in a reduction of lease revenues and its share of income from partially owned entities for the three and six months ended June 30, 2020. Prospectively, revenue recognition for these tenants will be based on actual amounts received.

Vornado stated that the future impacts of the COVID-19 pandemic on its finances and operating results remain “highly uncertain but the impact could be material.” Those impacts could include lower rental income and potentially lower occupancy levels at its properties.

Vornado also reported that it has concluded that its investment in Fifth Avenue and Times Square JV is “other-than-temporarily” impaired and recorded a $306,326,000 non-cash impairment loss, before non-controlling interests of $467,000, on its consolidated statements of income for the second quarter of 2020.

John Jordan
Editor, Real Estate In-Depth