Vornado Realty Trust (NYSE:VNO) is one of the largest owners and managers of real estate in the United States with a portfolio of approximately 64 million square feet, located primarily in the Washington D.C. and New York areas.[1] The New York based real estate investment trust (REIT) primarily makes money by developing, renting, and selling real estate.

Unlike other REITs, which tend to focus on a particular property type, Vornado holds a diverse portfolio spanning a large range of mostly commercial property (office, retail, merchandise marts, warehouse/industrial, etc). Its commercial focus has an added advantage of shielding it from downturns in the residential housing market. Vornado's properties are also largely located in NYC and Washington DC, markets with high barriers to entry due to limited buildable land and tough building regulations. Vornado's retail division takes a similar strategy by investing in large shopping centers across the country; attaining building permits for shopping centers of such scale is difficult for competitors. Having properties in such high profile cities does, however, leave the company particularly vulnerable to terrorism and a potential increase in the cost of terrorism insurance.

Also, since most of its properties are located in large metropolitan areas, its geographical diversity is relatively limited, exposing VNO to the real estate trends of those areas.

Company Overview

Business Financials

In 2009, VNO earned a total of $2.74 billion in 2009.[2] This was a slight increase from its 2008 total revenues of $2.69 billion. However, despite the increase in total revenues, VNO's net income actually declined. Between 2008 and 2009, VNO's net income declined from $411 million in 2008 to $128 million in 2009.[3]

Key Trends and Forces

Economic Cycles Particularly in NYC/NJ/DC Areas

Since a large portion of Vornado's properties are in the New York City/New Jersey and Washington, DC metropolitan areas, Vornado is particularly affected by the economic cycles and risks inherent to those areas. Factors affecting economic conditions in these areas include industry slowdowns, business relocations, changing demographics, increased telecommuting, financial performance and productivity of the publishing, advertising, financial, technology, retail, insurance, and real estate industries, and ultimately occupancy rates.[4]

What a neat aritcle. I had no inkling.

Risk of Terrorism

As many of Vornado's properties are located in high-profile metropolitan areas, in the aftermath of a terrorist attack, tenants may relocate to less populated, lower-profile areas that are perceived to be less likely targets of future terrorist activity. This would cause a decrease in demand, so that Vornado would have to renew leases to remaining tenants on less favorable terms. Insurance coverage limits are also lower for terrorism losses than most other factors, so in the event of a terrorist attack significantly damaging one of Vornado's properties, Vornado would more likely have to absorb a direct loss.[5]

Rising Rates of Inflation

Although inflation has not materially impacted Vornado's operations in the recent past, increased inflation could have a negative impact on earnings, as costs for mortgage and debt interest expense and general and administrative expenses could increase at a rate higher than rents. Inflation could also have a negative effect on consumer spending which could decrease market rents particularly on retail properties.


Most of Vornado's direct competition comes from other United States based REITs, most of which are also publicly owned. Competing REITs within the US include:

  • Equity Office Properties Trust (EOP) is a privately held REIT headed by real estate tycoon Sam Zell. EOP owns more than 125 office buildings in about 15 metropolitan areas. EOP was recently acquired by the Blackstone Group for almost $40 billion after a fierce bidding war with Vornado in one of the largest private equity transactions ever.[6]
  • IStar Financial (SFI) is a commercial REIT that invests in the top tier of commercial real estate.
  • Simon Property Group (SPG) focuses on regional malls, Premium Outlet Centers®, The Mills®, community/lifestyle centers, and international properties, and either owns or has an interest in 379 properties comprising 256 million square feet of gross leasable area.[7]
  • Boston Properties (BXP) owns primarily first-class office space, a hotel, and retail properties[8] located mostly in Boston, Manhattan, San Francisco, and Washington DC.[9]
  • Brookfield Properties (BPO) owns nearly 50 million square feet in commercial properties across the US and Canada.[10]
  • Apartment Investment and Management Company (AIV)

I'm impressed! You've managed the almost impsoisble.


  1. VNO company website
  2. VNO 10-K 2009 Item 6 Pg. 30
  3. VNO 2006 10-K, Item:2, page 17
  4. VNO 2006 10-K, Item:2, page 17
  5. Yahoo Finance: Equity Office Properties Trust company overview
  6. Simon Property Group company website
  7. Boston Properties company website
  8. Hoovers: Boston Properties company overview
  9. Hoovers: Brookfield Property company overview
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