Vornado, which currently owns 34% of Smith Commercial, will acquire the remaining 66% of the company for $599 million in stock and $985 million in debt. In return, Vornado will take over ownership and management of Smith Commercial's 12.4 million sf of office space in the District, as well as the management of 5.8 million sf of office and other commercial space in the Washington, DC region.
The transaction is expected to close in the first quarter of 2002, at which point the company will increase the size of its board of trustees from seven members to nine. Officially, Smith Commercial will become Charles E. Smith Commercial Realty, a division of Vornado Realty Trust.
Company executives and industry analysts say the acquisition will not adversely effect Smith Commercial's 225 employees. "It's going to be run as a separate division," said Salomon Smith Barney analyst Gary Boston. "There will be, over time, some cost savings but there shouldn't be much of a change in the day-to-day operations."
Real estate industry experts speculate that the Washington market--which has a reported vacancy rate of 8.5%-will become even tighter as the federal government expands its defense offices in the new war against terrorism. Most of Smith Commercial's tenants are government agencies or consultants and the company is expected to benefit from increased tightening.
With the acquisition of Smith Commercial, Paramus, NJ-based Vornado will become the fourth largest real estate investment trust in the country. "It's a big transaction," Boston added. "Vornado will be the largest building owner in Manhattan, which it already is, and in the DC area."
A fully integrated REIT, Vornado owns and operates 66 million sf of real estate in various states and in Puerto Rico. In New York City alone the company owns 22 office buildings, which account for 14.4 million sf.
Headed by investor Steve Roth, the company made a name for itself by purchasing faltering but highly valuable properties during the slow economy of the early 1990s. And had the Port Authority not taken a dim view of Roth's negotiating tactics for the 99-year lease on the World Trade Center earlier this year, Vornado's $3.3 billion bid for the ill-fated complex might have been accepted.
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