By: Benyamin Davidsons
Vornado Realty Trust has long been working on redeveloping the area surrounding Penn Station, to add a wealth of commercial space. In its enthusiasm, last year, it announced a plan to sell shares of stocks so that investors can get in on the redevelopment. Vornado’s CEO Steven Roth had described the shares as “our moonshot, the highest growth opportunity in our portfolio.”
As reported by Crain’s NY, however, now Roth is moving a step back on the plans for a stock tracking the Midtown redevelopment. “We just don’t think the timing is right,” Roth said on a conference call last Tuesday. Plans for the tracking shares are on hold indefinitely for now. When an analyst expressed his surprise at the change of plans, Roth replied: “I’m unhappy you’re surprised. I have nothing further to say.”
Roth said the plans for the Midtown redevelopment tracking stock were on hold. It’s unclear, however, if the plans can ever be revived. The Manhattan office market is different now than it was then. Last year, in his yearly letter to shareholders, Roth had projected that the redeveloped area around Penn Station would over time “almost certainly command premium pricing.” Now though, in the aftermath of the pandemic, with employees still working from home, commercial real estate has taken a big hit. Roth said tenants at his buildings, which include a lot of the city’s big players and business leaders, are still trying to lure employees back to their desks in Manhattan. For now, buildings are just 30% occupied, he said. “I still have conviction about the concept” of a tracking stock, Roth said. “This is not the right time to launch something like we contemplated for success, okay? I couldn’t be clearer.”
The stocks the CEO had intended to put out for the Penn Station redevelopment are called tracking stock. As per Crain’s, it is a way to raise capital for a specific project or a part of a company without giving investors outright ownership or a say in the corporate division. Tracking stocks provide investors with just a minority interest in a particular unit. Their market value is based on the unit’s earnings and other performance metrics. The first ever tracking stock was debuted by General Motors in 1984. The instrument gained popularity in the 1990s, particularly for media and telecommunications multinational corporations. In a majority of cases, the tracking stocks proved to be lackluster investments. A study in 2001, revealed that tracking stocks had an average annual return of about 7.3% between 1984 and 1998, in contrast to the overall market which gained 19.3 percent.
