Blackstone Finds Vornado No Pushover in Takeover Battle for Office Tower REIT
By HUI-YONG YU, BLOOMBERG NEWS
PARAMUS Just when everyone thought Blackstone Group LP, led by Stephen Schwarzman, could get whatever it wanted in the buyout world, along comes Steven Roth of Paramus-based Vornado Realty Trust to spoil his party.
Roth outbid Schwarzman on Jan. 17 by offering $37.6 billion for Equity Office Properties Trust. Equity Office’s collection of office towers is the largest in the U.S. and the prize in a takeover battle as landlords vie to dominate coastal cities such as New York, Washington and Los Angeles where rents are rising the fastest. Billionaire Sam Zell, Equity Office’s chairman, is playing Blackstone against Vornado to extract the highest price.
“We just got topped by a few dollars,” Schwarzman said at a Jan. 19 conference at the University of Pennsylvania in Philadel-phia where he talked about Blackstone’s $36 billion offer for Equity Office. “We’ll see what happens.”
Blackstone, which has never had a rival scotch a real estate purchase once its proposal was accepted, faces the most significant challenge in 15 years to its real estate ambitions as Schwarzman seeks an additional $10 billion from investors. Roth, who in June said every deal Vornado passed up in the past decade was “a mistake,” is going after properties on the two coasts, and partners Starwood Capital Global Group LLC and Walton Street Capital LLC would divide up the rest of Equity Office’s 543 office buildings with 103 million square feet.
Equity Office in November accepted Blackstone’s offer and left the door open to higher bids by saying it would pay a $200 million breakup fee to Blackstone if it does a deal with anyone else. Blackstone has the right to match any rival offer. Equity Office this week opened its books to Vornado and its two real estate partners and said it expects a definitive proposal from the Roth- led group by Jan. 31.
The fight for Chicago-based Equity Office pits Roth, 65, who built Vornado over 27 years from an owner of discount department stores into Manhattan’s biggest commercial landlord, against Schwarzman, 59, who has helped lead about $160 billion of leveraged buyouts since he co-founded Blackstone in 1985. Schwarzman now oversees companies with annual revenue of $85 billion and 380,000 employees.
Blackstone’s real estate group is among the world’s most active, having made 181 transactions with a total value of more than $43 billion, including debt.
Roth founded Interstate Properties in the 1960s with David Mandelbaum, a New Jersey attorney who still sits on Vornado’s board. Together they invested in Vornado Inc., an appliance maker that owned Two Guys Discount Department Stores, a chain of outlets in New Jersey. By 1980, they gained control of Vornado in a proxy battle, closed the stores and developed strip malls on the sites.
Roth declined to comment, as did officials from Starwood and Walton Street.
Vornado and Blackstone are competing for Equity Office after a year when takeovers of property companies doubled to almost $200 billion, with investors from shareholder activist Carl Icahn to developer Larry Silverstein pursuing acquisitions, data compiled by Bloomberg show.
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