DJ - One of Government's Largest Landlords, Vornado, Pays Millions Each Year to Trump Company -- WSJ

By Alexandra Berzon and Peter Grant

President Donald Trump's company receives tens of millions of dollars a year from Vornado Realty Trust, which relies on the federal government for a significant portion of its revenue and is vying for new work from Mr. Trump's administration.

Mr. Trump and Vornado's founder and chairman, Steven Roth, have forged a yearslong relationship, with Mr. Trump's family company a minority owner of two skyscrapers controlled by Vornado. Messrs. Trump and Roth are friends, and Mr. Trump said in January that he had appointed Mr. Roth as co-chairman of a council charged with overseeing the president's potential $1 trillion infrastructure-spending plan.

Mr. Trump has said that while he is in the White House, he won't personally be involved in his real-estate business, which is being run by his sons. He has rejected calls to sell his assets or put them in a blind trust, and he remains the assets' owner.

Two of the most valuable real-estate assets in Mr. Trump's company, the Trump Organization, are 30% stakes in a pair of office buildings controlled by Vornado.

The Trump Organization's stake in 1290 Sixth Avenue in Manhattan is worth $428.9 million, according to an analysis for The Wall Street Journal by a financial-services firm that provided the data on the condition it not be named. The 43-story skyscraper generates about $14.7 million in annual cash flow for Mr. Trump's company, according to the analysis.

The Trump Organization also owns 30% of 555 California Street in San Francisco, with Vornado holding the other 70%. The Trump stake is worth $322.6 million, the analysis shows. That 52-story building, previously named the Bank of America Center, produces an estimated $8 million in annual cash flow for Mr. Trump's company, according to the analysis.

The amount of money the Trump Organization gets annually from its Vornado partnerships isn't affected by how much government business Vornado gets. But the Trump administration's decisions could benefit -- or hurt -- Vornado's bottom line. And at the same time, Vornado decides how much Mr. Trump's company -- the properties' only other owner -- receives from the partnership each year, according to people familiar with the matter.

Vornado has full control of both buildings' finances. It is up to Vornado to decide how much of their incomes are held for capital upgrades and other long-term expenses and how much of the income is profit. Of that bottom-line figure, Vornado has to distribute 30% annually to Mr. Trump's company, the people said.

The Trump Organization declined to comment and the Trump administration didn't respond to requests for comment for this article.

Messrs. Roth and Trump haven't reached new deals in recent years, the people said. Mr. Roth on Tuesday was circumspect about his relationship with President Trump when discussing the infrastructure council on a conference call with analysts to discuss Vornado's earnings. "I know President Trump. I've known him for a very long time. We have had dealings together," he said.

Mr. Roth also said he was "honored" to be named to the council and pointed out that he wasn't "in any way an employee of the government."

Vornado also had a business relationship with Jared Kushner, the president's son-in-law and now a senior White House aide. In 2011, Vornado bought a 49.5% stake in the mixed-use tower at 666 Fifth Avenue in Manhattan from Kushner Cos., where Mr. Kushner at the time was chief executive. The next year, Vornado purchased retail space in the building for $710 million.

Mr. Kushner resigned from his family company and is selling some of his sizable portfolio to family members and taking other steps to avoid conflicts of interest, according to people familiar with the matter.

Vornado, meanwhile, has much riding on its relationships with the federal government.

The company, a major owner of buildings in Washington and other U.S. cities, counts the U.S. government as its largest tenant. Vornado reported that the U.S. government represented around 6% of its annual lease revenue in the third quarter of 2016, or around $140 million.

Vornado is among the developers bidding to build a new Federal Bureau of Investigation headquarters in Washington's suburbs, a $2 billion project, the Washington Post has reported. The selection process will be run by the U.S. General Services Administration, or GSA, part of the executive branch. Vornado has declined to comment on this report.

People familiar with the GSA process say it has protocols in place to prevent influence or favoritism. The bureaucratic process means that the bidding and leasing process can take years.

"It creates a big distance between people who have immediate political interests and the actual ability to execute them," said Dan Tangherlini, a former GSA administrator. The GSA didn't respond to a request for comment.

Vornado also is involved in a high-profile New York project dependent on federal funds. Last fall, a team of Vornado, Related Cos. and Skanska AB was named under New York Gov. Andrew Cuomo's administration, to create a $1.6 billion train hall and retail space in the James A. Farley Building in Manhattan, currently the home of a post office facility. A portion of the funds is expected to come from the federal government, Mr. Cuomo has said, but all of the commitments haven't been made.

If the project goes ahead, it would give Vornado a boost because the company is the largest office building owner in the surrounding area. On an earnings call in August, when asked about the James A. Farley project, Mr. Roth called the area the "big kahuna" for Vornado.

The Washington region is Vornado's second-largest market after New York. In 2016, Washington made up around 21% of the company's $2.5 billion in revenue, according to company financial documents.

In recent years, Vornado has been on the losing end of federal decision-making. The Department of Defense pulled out of 2.4 million square feet of Vornado office space and moved to military bases as part of a plan first initiated by the George W. Bush administration to relocate military offices.

Mr. Roth in 2013 estimated that the Pentagon's office relocations cost Vornado $70 million in earnings a year. Government vacancies, he said on an investor conference call that year, are "the eye of the storm for our company."

At the end of 2016, the company gave a massive Virginia complex once used primarily as Department of Defense offices over to debtholders after that property struggled to maintain occupancy amid the military realignment. That caused revenue in the fourth quarter from government leases to drop significantly, according to analysts. Vornado reported that in the fourth quarter of 2016 its revenue from the government declined to 3.8% of its total revenue.

Over the next four years, Vornado is set to negotiate renewals on 28 expiring leases with the federal government, according to people familiar with the company.

ornado is planning a spinoff of its Washington office buildings and apartments, the company has said. The transaction, slated for completion by the second quarter of 2017, would combine Vornado's holdings in the region with those of JBG Cos., a Washington landlord. The merger would create a landlord named JBG Smith with 12.6 million square feet of office space and more than 4,400 apartments in the area. Vornado shareholders will own a 74% stake in the merged company. Mr. Roth will be its nonexecutive chairman.

Write to Alexandra Berzon at alexandra.berzon@wsj.com and Peter Grant at peter.grant@wsj.com

  

Corrections & Amplifications

This article was corrected February 19, 2017 at 5:02 p.m. ET to reflect that Vormado is planning to combine its holdings in the Washington, D.C., area with JBG Cos., a Washington landlord, to create a company named JBG Smith. The original version of this article incorrectly said that Vornado is planning to combine its holdings in the Washington, D.C., area with JBG Smith Cos.