As New York’s high-stakes competition involving developers jostling to win a casino gaming license heats up, heavyweight real estate firm Vornado Realty Trust said it doesn't expect to be at the table.

“It’s highly likely we will not pursue a casino license,” CEO Steven Roth said on Vornado's third-quarter earnings conference call Tuesday, without elaborating. He had said earlier this year Vornado was “mulling” and “studying” a possible bid but had yet to make up its mind.

The developer was said to originally consider a potential casino on the site of the recently demolished century-old Hotel Pennsylvania as part of its Penn District development surrounding Manhattan’s Penn Station transit hub.

Major developers including SL Green Realty, Manhattan’s largest office landlord; Related Cos., the firm behind Hudson Yards; and Silverstein Properties, key to rebuilding the World Trade Center complex in lower Manhattan, are among those that have thrown their hats in the ring for a coveted gaming license in the city. The Soloviev Group, known for projects such as New York’s iconic 9 W. 57th St. office tower overlooking Central Park, recently added affordable housing units to boost its odds of a mixed-use casino resort just south of the United Nations headquarters.

Roth, echoing other executives including that from Blackstone Group, said the Federal Reserve’s rate hikes “will slow the economy” despite it having “held up better than expected.” With higher rates seizing up financing activity, Vornado is “protecting” its balance sheet, including paying “a reasonable and low dividend to preserve cash,” he said.

The “real estate capital market remains challenged. Read: frozen,” Roth said. It “makes it extremely difficult to finance or sell assets. Capital is scarce and back-breakingly expensive.”

Still, the short-term pain aside, Roth said the high cost of financing will “shut down almost all new building” development, eventually squeezing the supply of in-demand office properties.

“If history is our guide, as demand recovers, the market will tighten and Class A rent value will benefit tremendously,” he said.

Amid tight financing along with banks being pressured to reduce their office loan exposure, Vornado is in active talks with existing lenders to extend maturities for debt due the next two years, Michael Franco, president and chief financial officer, said on the call, adding the “lion’s share” of its debt is nonrecourse.

Vornado’s third-quarter profit and funds from operations both declined, hurt in part by higher interest expense.

On the leasing front, New York’s occupancy declined to 89.9% last quarter from 90.1% in the second quarter and 90.3% a year earlier. Office occupancy totaled 91.6% while the retail rate totaled 74.3%. However, retail cash mark-to-market rent on previously occupied space jumped more than a third even as that for office space fell slightly.

“As we said a few quarters ago, retail has bottomed,” Franco said, adding retail vacancies have dropped while asking rent is rising in several neighborhoods. New York’s retail recovery is driven by tourism and retailers' sales rebounding back to pre-pandemic levels, he said.

Vornado has seen “noticeable pickup” in its leasing activity in the past three to four months with almost all of its retail properties getting tenant interest especially on Fifth Avenue, Times Square and the Penn District, he said.

On the office front, Roth said the office utilization rate among its buildings in the city has recovered to 65% with Monday through Thursday “pretty back to normal.”

Despite that, deals are taking longer to get done, said Glenn Weiss, who heads office leasing at Vornado. SL Green recently also said office leasing is taking longer to get done.

Tenant improvement allowances, concessions and free rent given have “stabilized,” Weiss said. In-demand buildings such as 280 Park Ave., Penn 1 and 1290 Avenue of the Americas even saw rent go up, he said.

A case in point, law firm Selendy Gay Elsberg signed more than 100,000 square feet at 1290 Avenue of the Americas, paying what CoStar data shows as $110 per square foot in rent.

“There’s a clear trend with tenants demanding space in better buildings around two main transit hubs in the city, which is where our portfolio is situated despite marketwide Class A vacancy being in the high teens,” Franco said. As Penn 2 redevelopment above Penn Station is nearing completion, he said the building is competing against development west of it. That includes both Brookfield's Manhattan West and Related's Hudson Yards.

At Merchandise Mart in Chicago, also known as The Mart, occupancy dropped to 76.8% from 87.3% a year earlier while 555 California St. in San Francisco saw the level dip to 94.5% from 94.7%.

“The Mart remains challenging,” Franco said.