Vornado Realty Trust has created a compensation pool aimed at encouraging its executives to raise third-party money for future projects.
The first payout totals $6.4 million, with the largest amount going to Chairman and CEO Steven Roth, according to a filing Wednesday with the Securities and Exchange Commission.
The high-profile developer, known for its Penn District project surrounding New York’s Penn Station transit hub, said in the filing that the pool will help to “incentivize and reward” its management to seek more third-party capital. This will help to diversify risk and enhance Vornado’s "economics," the filing said.
The pool also will help the New York real estate investment trust retain employees, according to Vornado.
A company spokesperson declined to comment to CoStar News.
The pool is made up of a portion of development fees received by Vornado and its affiliates from third parties involved with 350 Park Ave. and from all future projects, Vornado said.
Since the close of a transaction involving 350 Park in the first quarter, Vornado said in the filing it’s received an initial $25 million installment of development fees for that project.
Based on the company’s anticipated 36% interest in the joint venture, $6.4 million was available in the development fee pool. On Dec. 15, the compensation committee of Vornado's board approved cash payments to its top executives led by $2.2 million to Roth and $1.4 million each to President and Chief Financial Officer Michael Franco; Executive Vice President of Office Leasing and Co-Head of Real Estate Glen Weiss; and Executive Vice President of Development and Co-Head of Real Estate Barry Langer, Vornado said.
The developer said the development fee pool will be adjusted accordingly if its interest in the 350 Park joint venture turns out not to be 36%.
Vornado has reached agreements with hedge fund giant Citadel and an affiliate of its billionaire CEO Ken Griffin as well as Rudin, one of New York’s largest privately owned real estate companies, to master lease Vornado’s 585,000-square-foot tower at 350 Park and Rudin’s adjacent 390,000-square-foot property at 40 E. 52nd St.
Vornado also entered into a joint venture with Rudin to buy 39 E. 51st St. for $40 million with plans to combine that property with 350 Park and 40 E. 52nd to create what it has called a “premier development site” for a new major office tower.
Griffin, from October 2024 to June 2030, will have the option to buy a 60% interest in a joint venture with Vornado and Rudin that would value the site at $1.2 billion.
The development fee pool is "a head scratcher," Evercore ISI analyst Steve Sakwa said Thursday in a note to clients, adding Vornado's senior management is "well compensated" to drive shareholder value over time.
"If these payments had been directed to employees directly in the development process of 350 Park who are not in the C-Suite and their retention was critical to the value creation process, we could understand these payments as retention tools. ... We’d hope that any future payments, if they are made at all, are directed to key employees one or two steps below the C-Suite."