Re: Filene's
Downtown Crossing's money pit
By Paul McMorrow
March 22, 2010
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Sending your articleYour article has been sent. E-mail| Print| Reprints| Yahoo! Buzz| ShareThisText size ? + BOSTON MAYOR Thomas Menino resorted to bluster and pleas to try to restart the stalled $700 million redevelopment of the downtown Filene?s. Neither worked. Eminent domain was the mayor?s trump card. And now Menino has nothing else left to hit the project?s New York developers with.
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COMMENTS (11)
In City Hall?s view, threatening the Filene?s developers with eminent domain was also an act of vengeance. Not so for Vornado, the Manhattan development giant; an eminent domain seizure could actually turn out to be a welcome way of closing out a disastrous downtown Boston adventure.
There?s a reason it seems like Vornado couldn?t care less about that giant hole festering in the middle of Downtown Crossing. And that reason is, it doesn?t.
The company?s bloated balance sheet feasts on the nation?s biggest office markets, New York and Washington, DC. For Vornado, Boston is a bush league market. Their local development partners sold Vornado?s execs on mammoth profits and the chance to remake a neighborhood. And now they own a hole in the ground in a city that could go a decade between office tower ground-breakings. Vornado has the financial wherewithal to finance the Filene?s project. The company doesn?t believe in the city enough to come out of pocket, though.
People who know Steve Roth, Vornado?s chairman, describe him as shrewd and ruthless. He didn?t come to head a $13 billion development company by being stupid or careless. That was actually the point of his profane, chest-puffing speech at Columbia University, the one that put Roth face to face with eminent domain in the first place.
Menino?s strident letter led with Roth chuckling over all the concessions he was able to extract from blight-phobic New York politicians ? who, he said, were so eager to see him develop the Midtown hole he?d dug at the site of the former Alexander?s department store that they gladly tossed fistfuls of cash at him. Those goodies were the punchline to Roth?s speech. But they weren?t the lesson he was trying to deliver.
During the years when he let the Alexander?s site on Lexington Avenue lie fallow, New York newspapers, Roth complained, believed, ?I couldn?t make a decision; I didn?t know what I wanted to do.?? Roth then cursed and explained, ?I knew exactly what I wanted to do. I wanted the price to go up. A lot. And I was willing to wait.??
The moral: There?s no need to force the issue. If you frustrate somebody enough, they?ll eventually give you what you want. It was true at Alexander?s, and it?s true at the Filene?s site too.
Menino floated the idea of seizing the Filene?s site through eminent domain months ago. He backed off because of concerns over the cost of an eminent domain taking, and then launched his recent public threat because he felt that Roth?s comments showed he and his administration had been lied to. The time between was spent in a series of meetings that looked to be heading toward a breakthrough accord.
Publicly shaming a notoriously volatile mayor is not the most frictionless means of obtaining tax-free financing for one?s stalled development project. So that option?s off the table now. But it likely doesn?t matter to Roth and Vornado. Project or no project, they get paid either way.
Vornado put up $50 million of the construction partnership?s initial $100 million property purchase, and has been bankrolling pre-construction work. It has already written off $37 million of that investment.
As the biggest investor in the stalled $700 million Filene?s project, Vornado has the biggest exposure to the money-sucking Downtown Crossing site. And ironically, it?s Vornado that has the most to gain from an eminent domain taking.
Menino won?t get the blighted hole for free. If City Hall takes the land, it has to pay. It may have to pay a lot ? perhaps $100 million, potentially more, depending on the persuasiveness of Vornado?s attorneys. Whatever the price is, Vornado will get half. It?s likely to be enough to put a serious dent in the company?s losses from the Filene?s project. Instead of waiting around, paying millions in tax bills and site maintenance costs, and waiting for an uncertain market rebound, the company could get paid to take a walk from a city it was never in love with. Not a bad consolation prize at all.
