By Adam Pincus
One of New York City’s largest commercial landlords, Vornado Realty Trust, is battling the ground fee landlord at the office building 330 West 34th Street in Hudson Yards over a $225 million ground lease reset, according to papers filed last week in New York State Supreme Court.
The value of the property has an enormous impact on the amount of rent Vornado will have to pay annually to the fee landlord, Haymes Investment Company, for the 30-year period from January 1, 2021 to December 31, 2051.
Vornado’s determination of the property value was $145 million, and the landlord’s was $225 million, and a “neutral arbitrator” through an arbitration process picked $225 million as the value, the court records said. The final determination letter is available here. The landlord Haymes Investment Company, owns the fee at the 646,464-square-foot 330 West 34th Street as well as owns and operates the 611,625-square-foot 5 Penn Plaza at the corner of Eighth Avenue and 34th Street, and the 15,000-square-foot retail building at 2473 Broadway at the corner of 92nd Street on the Upper West Side.
Vornado alleges there was a miscalculation in value on the part of the neutral arbitrator, according to its petition to modify the arbitration.
Vornado owns scores of office and retail properties in New York City totaling nearly 20 million square feet.
330 West 34th Street and 5 Penn Plaza share the same tax block with 330 West 34th Street midblock between Eighth and Ninth avenues and 5 Penn Plaza fronting all of Eighth Avenue. They are separated by another large commercial building.
Despite the new lease period starting in January 1, 2021, the parties had not agreed on a value. So the parties deliberated for eight days, from December 6, 2021 through December 15, 2021, in what is known as baseball-style arbitration proceeding, also known as final offer arbitration or pendulum arbitration. In this process, the arbitrator selects one or the other party’s number, instead of seeking to determine a third option that may be in between the parties’s figures. The intention is to have the parties negotiate a figure since one of the parties is going to suffer a significant loss.
In this case, the arbitrator picked the Haymes’s number, $225 million and notified the parties through a letter in January. Vornado disputed that figure, and on February 10, 2022, sought a modification of the award. On March 1, 2022, the arbitrator denied the request for modification. The Haymes State Supreme Court petition seeks to confirm the arbitration at $225 million.