Vornado Realty Trust appears to have abandoned plans for an office tower near Madison Square Garden as the commercial real estate downturn worsens.
Bloomberg reports the site of the once-planned 61-floor office tower in Manhattan could be "temporarily" converted to tennis courts for the US Open. Vornado's website said the site has the potential for basketball courts, New York Fashion Week, or even a giant billboard.
The new office tower was set to replace Hotel Pennsylvania at 401 Seventh Avenue (15 Penn Plaza) in Manhattan, across from Pennsylvania Station and Madison Square Garden. The hotel was demolished in 2023, and Vornado has not built the new office tower due to CRE turmoil.
But Vornado put the tower plan on hold along with parts of the massive redevelopment plan to remake Penn Station last year after high interest rates and the shift to working from home triggered a crisis in the commercial real estate market. -Bloomberg
A Vornado spokesperson told Bloomberg: "We are currently considering a number of potential interim options for the Hotel Pennsylvania site."
Chief Executive Officer Steven Roth told investors in an earnings call this week that there's a "total blacklisting of office in the capital markets." Hence, this is why Vornado can't find the financing for the new tower. He also warned about "office apocalypse" spreading across Midtown.
The construction delay also came as office supply nationwide developed into a sizeable surplus as demand evaporated. This was noted by Morgan Stanley analyst Ronald Kamdem in a note this week titled "Where Is The Highest Supply Risk Across CRE Sectors?"
What's unfolding is a slow-motion trainwreck in the CRE space. Financing for new office towers is becoming increasingly difficult to secure, and some properties, such as the one in Manhattan, are being repurposed into tennis courts.
