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For a company that tries to keep a low profile, Vornado Realty Trust is certainly making a lot of headlines. And most of them involve retail real estate, where the New York-based REIT long ago learned that under every teetering retailer lies a potential goldmine of real estate assets.

Zelig-like, Vornado has popped up in key situations, including the Kmart-Sears deal. Over three months late last year, Vornado quietly built a 4.3 percent stake in Sears, Roebuck & Co., with an eye toward leveraging the struggling chain's real estate assets. News of its acquisition of Sears shares sent the retailer's stock to its (then) 52-week high. That was just two weeks before Kmart Holding Corp.'s leading shareholder, Eddie Lampert of ESL Investments Inc., announced his plan to buy Sears and, like Vornado, scour the real estate portfolio for opportunities. Vornado's consolation prize: A $114 million profit on its Sears stake.

More recently, Vornado partnered with private equity groups Bain Capital and Kohlberg, Kravis, Roberts & Co. to acquire struggling chain Toy's ‘R’ Us in a $6.6 billion deal, which is also predicated on the value of a 1,500-store portfolio. In April, Vornado paid $113 million for the ritzy retail portion of the former Westbury Hotel on Madison Avenue.

Vornado shares have jumped from $47 last spring to $73, only slightly off the January high of $77. On average, retail REITs gave up nearly 8 percent in the first quarter, according to NAREIT. Vornado, which controls 87 million square feet of space spread in four categories, now has a market cap of $9.4 billion. For comparison, Simon Property Group, with its 200 million square feet, has a market cap of $13.9 billion.

Despite its rising prominence, Vornado continues to shun the spotlight. Its executives maintain a low profile and rarely grant interviews. The company refused requests for comment by founder, chairman and CEO Steven Roth for this story.

Not Toying Around

“Roth is the ultimate Mr. Patience and utterly brilliant,” says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm headquartered in New York City. Davidowitz has consulted with Vornado on two deals over the years, including its entree into retail with the acquisition of Two Guys, a New Jersey-based discount store chain, which it liquidated in 1980. That was the first transaction in which Vornado took a flagging retailer and juiced its returns by extracting the value of the chain's underlying real estate.

The Toy's ‘R’ Us deal gives Vornado a lot of opportunity — and quite a bit of challenge. The chain, battered by competition from Wal-Mart and other discounters, has been in a strategic free-fall. Whatever the turnaround plan, the real estate will play a huge role. “Worst-case scenario, if Toy's ‘R’ Us domestic toy business blows up, Vornado is an expert at selling, re-leasing or redeveloping space,” says analyst Brendan Thorpe with Fitch Ratings, a debt rating service.”

Vornado is among the most patient of real estate investors. Consider Alexander's, the budget department store that Vornado purchased from the Farkas family (who went on to found Insignia Financial Group Inc.) in 1990. Alexander's flagship store, across 59th Street from Bloomingdale's sat empty starting in 1999 as Roth waited for the right project to jell. Finally, in 2001, he blessed a plan for a $650 million mixed-use building. The 700,000-square-foot property has Home Depot as the ground-floor anchor. Upstairs is the new headquarters of Bloomberg LP.

Its other recent deal, the Westbury Hotel, looks to be a more conventional play. The Manhattan property occupies the entire Madison Avenue block front between 69th and 70th streets and contains approximately 17,000 square feet of storefronts. This retail space is fully occupied by luxury retailers, Cartier, Chloe and Gucci under leases that expire in 2018. For most buyers that's a dream transaction. For Vornado, it's pretty vanilla.

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