Meta Exits 275K SF at 770 Broadway

Vornado execs predict earnings will hit bottom in 2024.

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Facebook plans to cut more of its New York City office presence.

Its parent company Meta will downsize its office at 770 Broadway by 275,000 square feet when its lease expires later this year, landlord Vornado Realty Trust said in an earnings call Tuesday morning. 

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The social media giant was a massive boon to the city’s leasing market in recent years — signing a blockbuster, 730,000-square-foot lease at Vornado’s Farley Post Office development in 2020 — but has started to reverse course. Facebook previously walked back its plans to expand at the landmarked 1.2 million-square-foot 770 Broadway and instead will shrink its footprint by about 35 percent. 

Facebook also cut about 250,000 square feet from its 1.9 million-square-foot Hudson Yards offices in 2022 and terminated its 200,000-square-foot lease at 225 Park Avenue South when it moved into the Farley building that same year.

All told, Facebook expected to spend at least $2.9 billion last year to get out of leases around the country, and it appears it might not be done.

A spokesperson for Meta did not immediately respond to a request for comment.

Facebook’s decision to drop space at 770 Broadway was one reason Vornado predicts its 20 million-square-foot Manhattan portfolio will take a hit in 2024 before the leasing picture brightens.

Vornado President and Chief Financial Officer Michael Franco said earnings will take a “ding” this year, partly thanks to tenant turnover at 770 Broadway, 1290 Avenue of the Americas and 280 Park Avenue

“We have already leased up a good chunk of this space, but the [generally accepted accounting principles] earnings from these leases won’t begin in 2024,” Franco said. “We expect 2024 will represent the trough in earnings, and for earnings to increase meaningfully from there.”

And it wasn’t just losing Facebook that made Vornado’s earnings call less than stellar. 

Vornado’s funds from operations fell from $139 million in the fourth quarter of 2022, or 72 cents per share, to $123.8 million, or 63 cents per share, in the fourth quarter of 2023, according to the REIT.

Meanwhile, revenue fell slightly in that time from $446.9 million to $441.9 million while its office occupancy rate dropped from 91.6 percent in the third quarter of 2023 to 90.7 percent in the fourth quarter.

Vornado ended 2023 with $508.2 million in funds from operations, a drop from the $608.9 million it had in 2022, according to its earnings report. 

The REIT’s stock price fell more than 7 percent Tuesday morning to a low of $24.50 per share after its earnings report. 

Vornado took some heat for suspending dividends for part of 2023, paying 67.5 cents per share by year’s end. In the year ahead, Vornado anticipates it will pay one dividend in the fourth quarter of 2024.

“What we did with the dividend was correct,” Chairman and CEO Steven Roth said. “It’s just not the most efficient use of capital.”

While Vornado didn’t have a great 2023, and 2024 won’t be much better, Roth thinks things will get better thanks to upcoming income in Manhattan’s Penn District and the potential to turn a profit by selling off more assets.

Roth predicts about $100 million in income will begin flowing from Vornado’s Penn 1 and Penn 2 office towers toward the end of 2024. 

“Our occupancy is going to climb from 90,” Roth said. “And so that’s going to increase our earnings. And the big thing is, over the next two years Penn 2 will rent, and the income from that will come online.”

While it’s hard to imagine a return to the 97.2 percent peak office occupancy Vornado reached in 2018, the office market “is on the foothills of recovery,” Roth said.

“New York City has bottomed and is recovering rapidly,” Roth said. “While rents have a way to go to reach peak pricing of five years ago, we feel very good about the activity level.”

And the REIT had some success selling off Manhattan properties for a profit, something it expects to do a bit more of in the next two to three years.

Vornado made $100 million from the sale of four retail condos at 510 Fifth Avenue, 48–150 Spring Street, 443 Broadway and 692 Broadway last August. It also sold a parcel of vacant land in Rego Park, Queens, for $71 million, handed off the Armory Show last year for $24.4 million, and sold two condo units for $24.48 million.

Franco hinted at plans for “a handful of assets that we intend to exit over the next two to three years,” but the proceeds he expects the REIT will realize are “TBD.”

Plus, the challenges facing the capital market could spell good news for Vornado.

“Foreclosures and givebacks are still in front of us, and therefore so is the opportunity,” Roth said. (Vornado itself hasn’t been spared from some distress, with its loan tied to 280 Park Avenue hitting special servicing in January.)

Roth also remains bullish on the Penn District, where Vornado owns 9 million square feet across three blocks between Avenue of the Americas and Ninth Avenue, making it the largest property owner in the district. 

Vornado has nearly completed the $750 million redevelopment of the 1.6 million-square-foot Penn 2 tower and is planning a 2.7 million-square-foot tower on the former Hotel Pennsylvania site across Seventh Avenue called Penn 15 next. 

“That’s a hell of a neighborhood,” Roth said. “We’re very, very happy with our position.”

Despite losing some major tenants, Roth said Vornado’s leasing team “won a gold medal” last year.

Tenants signed on for 840,000 square feet of office space across Vornado’s portfolio in the fourth quarter, paying an average of $100.33 per square foot. That’s a little over 10 percent of the total 8.2 million square feet of leasing volume Manhattan’s office market saw during the same period, according to a fourth-quarter market report by Colliers

And it’s orders of magnitude above the 154,000 square feet of office space signed in the fourth quarter of 2022 at an average rent of $84.58 per square foot.

Abigail Nehring can be reached at anehring@commercialobserver.com.