Vornado: Investing in New York City

12/17/2019 5:00 am EST

Focus: REITS

John Freund

Income Specialist, Todd Shaver's Bull Market Report

Vornado (VNO) is the largest commercial landlord in New York City — perhaps the best real estate location in the world, observes income investing expert John Freund, editor of The Bull Market Report.

Vornado owns office and retail space throughout Manhattan’s prime locales, including SoHo, the Upper East Side, Time Square and 5th Avenue. The company leases to brand name tenants like Apple, Bloomberg, Google, Cartier, Harry Winston and many others whom you’ve no doubt heard of.

This reduces the company’s tenant default risk, and protects its retail business from being negatively impacting by the rise of e-commerce, since many of Vornado’s retail customers own storefronts as mere loss-leaders. A Cartier store on 5th Avenue is less about turning a profit and more about building brand awareness.

Downward pressure on this stock is in part due to concerns of an oversupply in office and retail space in New York. Yet these concerns have long-existed in New York, which always finds a way to attract new businesses and retailers. A physical presence in New York City is viewed as a sign of success for many companies and brands, and that’s not changing any time soon.

Plus, Vornado is currently completing its long-awaited Penn Plaza development, which will bring even more flagship office and retail space to the heart of New York City, where rents are sky-high on a price-per-square-foot basis.

Yes, the REIT is facing some short-term headwinds given the current oversupply. But that won’t last. The company is the largest Real Estate owner in New York, and as the global economy improves expect more companies and brands to scoop up Vornado’s properties.

Additionally, REITs like Vornado represent a strong defensive play against any threat of a continued trade war, or even an economic downturn, given the fixed income component. So while Vornado didn’t have the best 2019, there’s a lot to get excited about here as 2020 approaches. We’re confident this stock will rebound, as we have faith in the New York real estate market.

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