Developers pledging to spruce up Filene's site
But construction plans still on hold
By Donovan Slack, Globe Staff | April 15, 2009
Developers of the Filene's redevelopment site in Downtown Crossing are promising to spruce up the parcel that now resembles a war zone in the heart of Boston.
Representatives of the developers, New York-based Gale International and Vornado Realty Trust, agreed on Monday to seal the roof of the Filene's building and cover the exposed side of the building's shell with mesh, said city officials.
In a tantalizing touch meant to instill confidence in the site's future, the mesh will be emblazoned with graphics promoting the site's development.
The developers also pledged to fix fencing around the perimeter of the site and outline a plan for keeping down the dust from the demolition and foundation crater, according to Ellen Lipsey, executive director of the Boston Landmarks Commission.
A spokeswoman for Gale did not return a phone call seeking comment. A spokeswoman for Vornado declined to comment. The developers have refused to speak publicly about the status of the project since construction ground to a standstill on their proposed $700 million development, a condominium and office tower flanked by a hotel and retail space.
Last year, the developers demolished two buildings at the site, tore another in half, stripped away the side of Filene's, and dug a gaping hole between the structures before halting construction in November because they said financing for the project had not materialized.
After the Globe reported two weeks ago that the city had fast-tracked demolition and construction permits for the project, allowing the developers to begin work without adhering to key elements of the city's zoning code, the mayor fired off a letter to Gale and Vornado demanding they fix up the site. In his letter, Menino gave the developers until April 15 to submit a plan and until May 1 to begin implementing it.
The arrangements to button up the parcel are the latest sign that construction remains unlikely for the foreseeable future.
The Globe reported last week that a law firm that had committed to leasing a substantial amount of office space in the new development pulled out and is moving to South Boston instead.
Vornado, the partner responsible for the bulk of the project's funding, wrote off as a loss $37 million it spent on demolition at the Filene's site, according to an annual report released last week. Analysts say that indicates the company may be abandoning the project altogether.
"Clearly they've decided they're not going to expect any profits from it," said David Trainer, president of New Constructs, a Nashville-based independent market research firm. "Vornado is a for-profit company, so either they've broken from that and are doing charity work or they're potentially giving up on the project."
"I think it's pretty safe to say that nothing's going to happen with that site for a number of years," said Craig Guttenplan, an analyst with Credit Sights who covers Vornado.
Still, Vornado executives have told Boston officials as recently as last week that the company is trying to scrape together financing to continue construction.
Vornado is one of the largest owners and managers of real estate in the United States, including more than 100 million square feet in the New York and Washington, D.C., areas. As a real estate investment trust, the company invests shareholders' money in real estate and real estate development loans.
A Globe review of public records and news reports found that the company has sent a litany of mixed messages since it first proposed redeveloping the Filene's block in late 2006.
Before demolition began, top Vornado executives said publicly that financing for such projects had evaporated. In December 2007, Michael Fascitelli, Vornado president, told the Globe that the capital flow for commercial real estate investments had "just stopped." Several months later, in July 2008,
Steven Roth, Vornado chief executive officer, said he didn't expect the commercial lending market to rebound for "two years or more," according to the Wall Street Journal.
In the meantime, demolition at the Filene's site went forward in spring 2008.
But in August 2008, as Vornado executives told Boston officials they were having trouble financing the project, the company announced it was sinking $250 million into a new venture, building shopping centers in India. The company also has bought a $44 million stake in another realty investment company and has been pitching new development projects in other cities.
Analysts say Vornado has plenty of cash and credit upon which to draw. It has $1.8 billion in cash on hand and another $1.86 billion in unused revolving credit lines, according to the annual report released last week. A Fitch report on Vornado said the company also had $15.2 billion in debt as of Sept. 30, 2008, but three-quarters of that was secured and the company was well positioned to pay off the loans as they come due.
"Today, between the availability under their lines of credit and their cash in the bank, they have $4 billion in capacity," said Janice Svec, an analyst with Fitch assigned to cover Vornado. "If they truly wanted to put more equity into this project they could."
But Svec said the company is being prudent, holding onto its cash in an uncertain market.
As for the demolition site that Vornado executives have left in Boston, she said, "If you ask them, I think, if they had to do it over again, they would have left that building up."
