Pit Boss

New York real estate mogul Steven Roth wowed Boston in 2006 with plans for a gleaming skyscraper that would replace the old Filene's and spark a Renaissance of downtown crossing. Five years later, the project is on indefinite hold, and the only thing Roth has delivered is a mammoth crater in the heart of the city.

I was not there when Mayor Menino learned of those Roth comments. But I like to imagine that they made him spit his cereal out onto his newspaper and run in circles around his kitchen with steam gushing out of his ears. His public reaction was about that subtle, anyway. The parallels between the Alexander’s and Filene’s situations were obvious. “Inflicting pain on people, businesses and communities to inflate the return to your enormously profitable company is reprehensible,” Menino immediately wrote in a letter to Roth. The fuming mayor threatened to take the Filene’s site by eminent domain (though most believe this isn’t a realistic option), and by November the BRA had revoked Vornado’s building permits.

Even though John Hynes has no ownership in the Filene’s site and, as he says, no say in what Vornado does with it, he has also felt Menino’s wrath. “The mayor’s made it pretty clear what he thinks about me,” the Boston developer says. “He’s got me painted with this Filene’s brush. I got him into this mess.” Hynes says the hard feelings have hindered his Seaport Square project on the South Boston waterfront, as well. “We don’t have the relationship we had,” he says. “He’d prefer not to talk to me, because he’s upset.”

For all his fulminating, though, Menino — who declined to comment for this piece — also has himself to blame. After all, his BRA did allow the project to speed through the approval process. In any case, we find ourselves at a stalemate today. But what Menino — and all of us — should fear is not that Roth and Vornado are in some way encouraging blight to win more government dollars. They’d have to be delusional at this point to expect any handouts from the city. What we should very much fear is just how damn patient Vornado is willing to be — how long Roth is willing to wait for that perfect deal.

When Vornado and its partners bought the Filene’s site back in 2006, they imagined that the return on investment would come from lucrative office-space rentals and condo sales. Today, the consensus in Boston real estate circles is that while there’s a market to build apartments in the city (rental prices have never been higher here), office and condo demand is still soft. Since apartment buildings aren’t as profitable as those other alternatives, there’s little incentive for Roth and Fascitelli to build now.

Vornado and friends paid cash for the site and have no debt obligations on it. Waiting doesn’t cost them much. Roth’s firm has written off $36 million in costs on the project, but that’s a drop in the bucket to Vornado, which has some 250 properties, more than 100 million square feet of space, and assets worth over $20.5 billion. “They can hold this thing indefinitely,” the analyst Fasulo says. In the grand scheme of Vornado, it’s just not a big deal. Tellingly, not one of the several analysts I talked to for this piece — people whose job is explicitly to follow Vornado — were intimately familiar with the Filene’s project.

But what’s nothing to Vornado means everything to Boston. That’s why Menino has demanded that the company take whatever it can get for the property and unload it to someone who’s willing to build now. Vornado’s allegiance, however, is to its shareholders, not our city. Though it put the site up for sale in the fall of 2010, it has yet to find a buyer to its liking. Vornado is apparently only interested in moving the property at its price: roughly $100 million, according to Hynes. That is, of course, the same price Vornado and its partners bought the Filene’s block for at the height of the real estate market. Though, as Hynes notes, the partnership has put another $90 million of work into it.

Local insiders regard that asking price as laughably high. “We all have our dreams,” says developer Dean Stratouly. “I don’t see how you get to it.” George Fantini, a Boston real estate veteran and the chairman and principal at real estate financing firm Fantini & Gorga, says $100 million would be “very difficult to support.” Others around town had a similar reaction, especially since recent rounds of bidding reportedly brought back offers in the $40- to $60-million range.

But Hynes insists that three bidders recently approached Vornado’s asking price. “There have been a few that have gotten close and have been accepted, only to fall out of bed before they closed,” he says. Someone else familiar with the sale process confirms that in May, “two or three” bidders, all from out of town, came in above $90 million. Hynes says that one prospective buyer, an investor group led by the Hanover Company out of Houston, all but had a deal, only to have it fall apart at the last minute. Another source close to the negotiations indicated that talks for a deal in the $90- to $95-million range were in “advanced stages,” but broke down when a member of Hanover’s investor group backed out. Both Hynes and the source say that Hanover intended to build apartments on the site.

As of right now, Hynes contends that including Hanover, there are six potential buyers — all from outside Boston — engaged in the sale process. Each of them, he says, is well aware of Vornado’s asking price. He adds that there could also be a scenario in which Vornado forms some sort of partnership with other investors to get the project going. (That there are six groups from outside Boston was corroborated by another source close to the process.)

In one form or another, though, Hynes insists that action is imminent. “Is it going to happen?” he says. “Yes. Is it going to happen soon? Yes.” He believes that Vornado will announce a decision by the beginning of October. If you find that hard to believe, then, Hynes says, you’re probably from around here. There’s a reason, he asserts, that all of the bidders are from out of town: “There isn’t a local player that has that kind of money.” But it’s not just an issue of finances, he adds. “The local players are, I find, they’re a little tainted. You know, they’re too close to the trees. They don’t see the location like out-of-towners do.”

Hynes concedes that mistakes have been made. “The building probably should not have been demolished,” he says. “It was done with the best of intentions, and everyone’s getting slaughtered for it. But it took some balls to go buy that building and get it going.”

That said, it’s also more than possible that Vornado has absolutely no intention of selling right now and is just weighing offers in order to stall for time. On the same day I spoke with Hynes, Menino got up at a conference and launched yet another attack on Vornado. “They are a scurrilous group that should not be in the real estate business,” he reportedly said. It’s hard to believe the mayor would have been in such a bellicose mood if he thought a deal was in the works.

Economically, the smartest play for Vornado seems to be to wait and develop the project itself. That would be consistent with its track record, too. Why voluntarily take a loss? Then again, Vornado does have some interest in appeasing local politicians. Despite owning only one other building here (the Boston Design Center), Vornado has a 20 percent stake in Suffolk Downs, one of the sites clamoring for a casino if the state legalizes gambling. Menino could well thwart the East Boston track’s expansion plans. That alone could be incentive for Vornado to move on from Filene’s.

The reality, though, is that there is only one thing of which we can be certain: Whatever Roth, Fascitelli, and Vornado choose to do with the hole at the Filene’s site, it will not be motivated by even the smallest bit of caring about the city of Boston. Even if Vornado does give in to Menino’s demands, it will almost surely be because Roth sees a bigger score down the road. Steven Roth doesn’t leave a penny on the table for anyone.