"You can make more money on a single real estate deal than as a REIT," he said at the 16th annual REIT symposium hosted by the N.Y.U. Schack Institute. Mr. Ackman, who made at least some of his many millions by buying stock in General Growth, a once-bankrupt REIT, made an exception for good pal Steven Roth: "Vornado," he said, "is the only REIT that's opportunistic."

In fact, while SL Green, led by Marc Holliday, has been amassing a solid portfolio of Class B assets in New York City, and Boston Properties, led by Mort Zuckerman, has bought up a handful of marquee assets, Vornado Realty Trust, led by Mr. Roth, its chairman, has pursued an enigmatic yet aggressive strategy that has quietly allowed it to become the most widely spread REIT in town.

Vornado now owns or has a stake in 95 properties in New York City, according to data obtained by The Commercial Observer from CoStar. In comparison, SL Green owns or has a stake in 61 properties around the city, and Boston Properties trails distantly at 14.

Mr. Roth almost never gives media interviews and is said to turn in the other direction if he sees a reporter coming, so what we know of his strategy for taking over New York, New Jersey and a small slice of D.C. comes from public appearances and the statements therein, such as one he gave at the Pierre on Thursday. Mr. Roth, with a football coach's build and brusque tones, is, well, bullish. "I've fallen in love with a graph."

"Try a woman," Equity Group Investments' Sam Zell cackled.

But Mr. Roth plunged ahead. The graph, he explained, shows the rental market in New York going back 25 years. Following every recession, office rents have come back at three times the rate of decline. "I keep it under by pillow," he added. "My office buildings are going up in value." 

Mr. Roth painted his strategy as simple and low-risk: Just focus on New York City. But Vornado is playing a more high-stakes game than he let on.

Vornado recently took a 25 percent stake in special servicer LNR Property Corporation, suggesting it plans to become a bigger player in the distressed-assets market. For years, Vornado has owned a substantial stake in McDonald's but has since sworn off similar investments. Still, in Vornado's largest acquisition since 2007, the REIT last year bought a $600 million stake in J.C. Penney. (And, coincidentally, its latest flag-planting came in a joint venture with SL Green to recapitalize 280 Park Avenue in exchange for a stake in the building.)

VORNADO has come a long way since 2007, when it lost out to Blackstone in a bidding war over Mr. Zell's Equity Office Properties. "They didn't have the luxury as a public company of being able to lever up as much as the non-public companies," Larry Longua, the director of the REIT Center at the Schack Institute, told The Commercial Observer.

But suppose, for example, the commercial real estate market turns and Vornado's stock drops dramatically after it's broken ground on what is supposed to be the city's third-tallest tower, 15 Penn Plaza? "That's a big risk and a concern for me that [REITs] are in development," Mr. Longua said. "REITs really did not want to be seen as just baby-sitting an existing portfolio. It became harder and harder for them to create value." 

In 2010, Vornado more than doubled its funds from operations to $1.1 billion, or $6.05 per share, compared to the $583.6 million, or $3.36 per share, in 2009. But for the firm, as with all REITs, the question is how to prolong success once equity becomes easier for private investors to come by. Longer term, the larger question is whether real estate is growing enough to support the ravenous appetite of the public markets for growth. As Mr. Zell asked at the Pierre: "How much real estate does this country really need?" 

Mr. Roth frowned, but did not disagree. "The country has $14 trillion of debt," he said. "Japan has been in a funk for 20 years."

lkusisto@observer.com

The planned 1,200-foot skyscraper—which is theoretical in that it would not likely be built until Vornado is able to get a tenant some unknown number of years down the road—was delivered a near-unanimous (non-binding) rejection by the community board last month, with members citing too much density and discontentment over the transit benefits being offered by the developer. Had Mr. Stringer given a negative recommendation as well, the tower would likely have faced something of a political climb to get through the City Council.

But Mr. Stringer was on board with the concept of a large office tower on the site, and his recommendations pertained mostly to pedestrian flow issues, open space and a number of smaller issues that are likely surmountable.

From the recommendation:

The proposed development represents a unique opportunity to encourage high-density transit-oriented development, strengthen the nation's largest central business district, and improve local and regional mass-transit systems. The scale of the proposed project is consistent with buildings in the surrounding area and the City's development goals and policies, and is appropriate for the development site.

The plan for the tower, named 15 Penn Plaza, now goes to the City Planning Commission and then to the City Council. 

ebrown@observer.com

Like many a large public/private project, the deal has been subject to the whims of the real estate market and, for the second time in two cycles, has been relegated to indefinite stagnation, with no tenants in sight.

At the Port Authority's Tuesday board meeting, Vornado, in a partnership with Lawrence Ruben, was given another extension on its exclusive development agreement with the Port Authority, bringing the next expiration date to August 2011.

The Port Authority first gave Vornado an extension in 2008 on the 1.3 million-square-foot tower, a time by which the agency had hoped to be moving forward on the projcet, which was to bring it $500 million.

But the lack of a tenant and any real prospect of developing the building pushed the deal off. At one point, the Port Authority had hoped to get Vornado to agree to invest in the retail at the terminal, but that apparently did not come to fruition. In the deal announced Tuesday, Vornado would manage the retail for a fee. In exchange, the agency said, it would extend Vornado's development option.

From the language of the resolution approved Tuesday by the board:

In exchange for 20X Square's participation as the retail manager, the Port Authority would extend the North Wing exclusivity period for the development of an office tower. Since the execution of the Exclusivity Agreement, 20X Square has developed a familiarity with the PABT and its operations, and would therefore need less time to move forward with the air rights development project when the real estate market recovers.

The building planned for the site was to be a Richard Rogers-designed slender office tower, with a skylobby over the bus terminal and elevators on the exterior of the building, not in the center (Mr. Roth has said this would provide the benefit of a large open floorplate). 

ebrown@observer.com

Major landlord Vornado Realty Trust was rebuffed by the local community board on Thursday night in its effort to clear the road for what would be the city's third-tallest tower to rise in place of the Hotel Pennsylvania across from Madison Square Garden.

Manhattan's Community Board 5 voted 36-1 against the plan, and did not even offer a list of conditions—typically community boards will give a road map for a compromise—as numerous board members told the developer to come back at some later time when the firm actually had a tenant in-hand. Vornado in 2007 had a short-lived handshake agreement with Merrill Lynch to build a new headquarters there as the first step in a remade office district. Now, it is seeking approval to allow for a faster construction process should it ever have a tenant.

The vote came after a parade of fellow landlords and business owners—many of which were enlisted by Vornado to come speak—testified in favor of the plan, given that it would involve more than $100 million in transit improvements, including opening an underground passageway between Sixth and Seventh avenues. The Durst Organization and Madison Square Garden were among those in favor of the project, and there was also support from the Regional Plan Association and the Tri-State Transportation Campaign.

Many community board members seemed almost offended that Vornado had requested both an air rights bonus for its transit improvements and an additional increase in the density beyond what they would normally be allowed (one called it "double dipping"). Still, community boards often vote against projects, and some board members did acknowledge that this was a good space for a tall building. 

The rezoning plan now goes to Borough President Scott Stringer for his non-binding recommendations. Ultimately, the City Council must approve or deny the plan, and the local  member is Council Speaker Christine Quinn. 

ebrown@observer.com

Mr. Roth told a Columbia audience earlier this month that he left the Bloomberg LP tower site in New York a blight for years, in part to gain public sector incentives. ("I was thinking in my own awkward way, that the more the building was a blight, the more the governments would want this to be redeveloped; the more help they would give us when the time came.")

Given that he currently has a prominent stalled site in Boston, this apparently struck a nerve for Mr. Menino, who responded by firing off a letter that threatened the use of eminent domain to take the property.

The Boston Herald now reports that Mr. Roth met with Mr. Menino to apologize about the stalled site:

One week after Menino threatened to seize the former Filene's property by eminent domain, Steven Roth, Vornado Realty Trust's chairman, met with the mayor to apologize for comments he made that ignited a firestorm in the Hub.

'Mr. Roth called to say he felt bad that the Filene's project was stalled and that his comments were not productive,' said Mitchell Weiss, Menino's chief of staff. 'He didn't give us any indication of his next move, but said he doesn't want to leave a hole in the ground. He was going to try to figure out what they could do and get back to us as soon as possible. He understands the frustration in Boston.'

Of course, if Boston is anything like New York development, the use of eminent domain to speed development would seem quite the extreme choice given that the public sector inevitably takes years to auction off any large site it owns, as any plan gets caught in a web of politics and bureaucracy.

ebrown@observer.com

At the beginning of a panel entitled “The View From 10,000 Feet,” part of the N.Y.U. Schack Institute of Real Estate’s 15th Annual REIT Symposium on Thursday afternoon, the always outspoken Steve Roth had a question for moderator Robin Panovka.

“Is there press in the room?” asked Mr. Roth, chairman of Vornado Realty Trust.

Perhaps Mr. Roth was wary because of a controversial talk a week earlier, after which he came under fire from the mayor of Boston for remarks about blight. Nonetheless, he spoke relatively openly about the state of the industry and of REITs, along with Sam Zell, chairman of Equity Group Investments and William L. Mack, chairman of AREA Property Partners, in the trio’s fifth annual gathering (it was dubbed “Round V”).

The setting was the swanky Pierre Hotel at 2 East 61th Street, replete with chandeliers, small bottles of Evian water and many, many business suits, with talks throughout the day on real estate investment trusts, or REITs, companies that are traded on the stock market and perceived by some as more resilient in the face of the real estate downturn.

Although the outlook was far less apocalyptic than when Messrs. Roth, Zell and Mack gathered last year, they still had much to be concerned about.

“This is a demand recession,” said Mr. Zell. “Nothing of any consequence has been built since July of ’07.” He said that he invests in distressed properties in the U.S., focusing on properties overseas. In January, he purchased three New York rental towers from Harry Macklowe and a vacant lot from Shaya Boymelgreen, the first deals in three years by his company, Equity Residential.

Some of Mr. Zell’s reluctance to invest in the U.S. comes from frustration with the Obama administration’s regulations of the industry. “In foreign countries you have growth and no rule of law. In the U.S., you have no growth and no rule of law,” he said.

Vornado focuses on “well-located assets with fair prices” in the Washington, D.C., and New York areas, said Mr. Roth, but it has seen a shortage in desirable properties on the market. The company is reportedly looking into the landmarked 510 Fifth Avenue.

The lack of desirable property was a major sticking point for the three landlords, but they also acknowledged that “human nature” could very well lead to another boom-and-bust cycle. Nonetheless, Mr. Zell encouraged the 100 or so N.Y.U. graduate students from Schack to keep their chins up and – and tried to dispel any notion that it was any easier when he was young.

Mr. Roth was less sympathetic. “Get out of my business,” he joked. “The old guys should get the spoils.”

rli@observer.com

The Port Authority, the New York-New Jersey-controlled bureaucracy that is developing the tower and shopping around an ownership stake, late last month dropped two developers vying to take a piece of the 1,776-foot tower, according to people familiar with the process. Out of the running: Steven Roth's Vornado Realty Trust and Brookfield Properties, run by CEO Ric Clark.

That leaves four developers standing: Mort Zuckerman, Douglas Durst, Stephen Ross and Gerald Hines, who respectively control Boston Properties, the Durst Organization, the Related Companies and Texas-based Hines Interests.

The skyscraper is on the rise in Lower Manhattan, with a hulk of steel currently more than 200 feet above ground. With symbolism and security guiding its design and purpose, it is surely a money drain for the Port Authority, at least in the short run, and costs more than $3 billion, twice the price of the 2,716-foot Burj Khalifa in Dubai, where labor is cheaper.

Thus the agency, searching for the developers with brokerage Cushman Wakefield, wants to bring in some money-it's looking for an investment of about $100 million to take a piece of equity-and to install a well-known developer as the public face of the tower.

Of course, this is not the first time the agency has tried to sell off a piece of the tower. Back during the Spitzer administration, Mr. Ross was in advanced discussions to put up capital and claim the tower for Related Companies as part of a different financing arrangement, according to people familiar with the discussions at the time. That plan fell apart, and two years later, here we are again.

In a statement, the Port Authority said it is "encouraged by the strong private sector interest" in the tower.

In a letter dated Monday, Mr. Menino wrote to the Vornado Realty Trust chairman, threatening the use of eminent domain to seize the company's Boston property and expressing outrage over remarks Mr. Roth made about blight and development last week during a talk at Columbia. During the talk, Mr. Roth suggested he intentionally left Manhattan's Bloomberg LP tower site vacant to attract subsidies. We reported on the remarks at the time, and then the Wall Street Journal's Developments blog had a piece questioning whether Mr. Roth is employing the same tactic at a prominent site in Boston.

From the letter:

The quotes attributed to you on this subject are simply outrageous. Admitting that you embraced a deliberate policy of long-term blight, at a major commercial location in New York City, exhibits a callous disregard for the well-being of the city and its people.

...

The notion that you would purposefully cause this to occur-not due to financing difficulties or other problems beyond your control, but as an intentional cynical ploy to extract concessions from the public sector-is inexcusable"

Mr. Menino's issue is with the site of a former Filene's department store in Boston. It has sat vacant since Vornado began demolition on the site in early 2008. But in fairness to Mr. Roth, no one is building commercial buildings anywhere, as financing is non-existent (and an earlier tenant that had initially committed to the site apparently backed out in 2009).

Nonetheless, Mr. Menino said he would explore property seizure.

"I am directing the Boston Redevelopment Authority to examine eminent domain options," he wrote.

Menino Letter

Chairman of giant REIT Vornado Realty Trust, he avoids the media—Vornado's press strategy is to decline comment on most everything—and yet is tremendously candid and hyperbolic in the uncommon moment when he opts to make a public appearance, be it a call with investors or an occasional panel.

All of which made it ever more the treat Wednesday night when Mr. Roth went up to Columbia's Graduate School of Architecture, Planning and Preservation to deliver a lecture.

In a sprawling, two-hour talk, with some questions moderated by Vishaan Chakrabarti, director of the school's real estate development program, the articulate Mr. Roth carped about his regret in recent years ("I bought cheap as opposed to buying the best—the cheap got to be expensive, but the best got to be ridiculously, stupidly expensive"); explained his theory on management with a strong single leader at the top ("Shit goes downhill"); and admonished aspiring developers to have patience and a sense of caution, qualities often not associated with many in the world of New York real estate.

Patience, of course, is one of the words first associated with Mr. Roth, at least in terms of development. This reputation comes from his experience in building the Bloomberg LP tower at Lexington Avenue and 59th Street on the former Alexander's department store site, which for years in the mid-'90s sat vacant with no clear plans to develop.

Mr. Roth, who bought Alexander's in large part for its real estate holdings, offered his take on his reticence to build, and why he let the site sit empty for so long:

The New York newspapers, he complained, said "I couldn't make a decision; I didn't know what I wanted to do.

"Bullshit. I knew exactly what I wanted to do. I wanted the price to go up. A lot. And I was willing to wait because I had almost no basis in the land."

There was another plus to waiting, he noted, offering a refreshingly candid developer's take on one way to pursue government subsidies:

"My mother called me and said [of the site], 'It's dirty. There are bums sleeping in the sidewalks of this now closed, decrepit building. They're urinating in the corners. It's terrible. You have to fix it.'

"And what did I do? Nothing.

"Why did I do nothing? Because I was thinking in my own awkward way, that the more the building was a blight, the more the governments would want this to be redeveloped; the more help they would give us when the time came.

"And they did."

Laughter followed.

It's not clear from a quick search just what incentives Mr. Roth received. In the run-up to building the tower, Bloomberg LP was granted $14 million in retention incentives from the Giuliani administration, but later withdrew the request.

(Mr. Roth also offered a similar take on getting approval from City Planning Director Amanda Burden, who is heavily focused on design, often irking developers. Of a new mall in Rego Park, he said, it is "tomato-colored, thank you Amanda Burden. I didn't give what shit the color was so long as I got the approvals to build.")

Mr. Roth bemoaned the failure of his dream for a redeveloped Penn Station, one that would have moved Madison Square Garden to the rear of the neighboring Farley Post Office. The tremendously complex deal would have created a new Penn Station on the MSG site, expanded it into the Farley building as well, and unlocked more than 6 million square feet of development in a bid to completely remake the area. Over $14 billion in total development was envisioned, but the deal collapsed as Governor Spitzer left office in 2008.

"It just broke our hearts," Mr. Roth said. "Every time you go into Penn Station you should be a little bitter. Spit on the floor."

As for current projects, Mr. Roth did not talk about what Vornado might buy (he was cagey when asked about General Growth Properties), although he did speak of the plans to build a Richard Rogers–designed tower over the Port Authority Bus Terminal, a deal he has been negotiating for years with the agency.

Putting up a glimmering rendering of the building, he described it as "something that will never, ever get built."

He later was a bit less brash on the topic, and expressed great interest in staying with the project.

"It's a great building that deserves to get built," he told me. "We're desperately trying to do it."

ebrown@observer.com 

Just as the markets were starting to unwind in October 2007, real estate titan Steve Roth thought he'd hooked a giant fish. Merrill Lynch had been through a tortuous, hard-fought search for a firm to build its new world headquarters, and after pitting Mr. Roth and his Vornado Realty Trust against developer Larry Silverstein and landlord Brookfield Properties, the investment bank's CEO, Stan O'Neal, gave Mr. Roth the nod. Merrill Lynch wanted a new, Vornado-built headquarters across from Penn Station, on the site of the Vornado-owned Hotel Pennsylvania.

But just days later, preoccupied with $7.9 billion in write-downs, Merrill's board held off on voting on the headquarters plan, instead ousting Mr. O'Neal. The proposed $3 billion tower plan followed him out the door.

Now Mr. Roth, the hard-charging billionaire chairman of Vornado, is doing what can best be described as readying himself for the next Merrill.

On Feb. 8, Vornado began the city's land-use review process, the seven-month cavalcade of criticisms, recommendations and demands from residents and officials, which is the most significant public approval needed to demolish the hotel and build a new tower in its place. The reason for the review's start, according to statements Vornado representatives have made to government officials and others, is not because demolition of the Hotel Pennsylvania is imminent. Rather, the firm wants to be ready to pull the trigger should it ever find another tenant, saving itself the uncertainty and time requirements that come with public approval.

The Pelli Clarke Pelli-designed tower Vornado is proposing to build would be a giant arched obelisk, one that, at 1,216 feet, would soar to a few hairs short of the Empire State Building's peak and would eclipse all but the under-construction 1 World Trade Center to become the city's third tallest building. Vornado has been mostly silent on the topic publicly, but based on plans filed with the Department of City Planning, the firm has two similar designs it is putting through public review: One is for a single office tenant with a podium of large trading floors; the other, a slightly smaller tower, allows for more retail.

To win this shot of added density on the site, Vornado is offering an inducement of transit improvements, including the reopening of the "Gimbels Passageway," an underground walkway linking Penn Station and Herald Square, which has been closed for nearly three decades.

"It's going to be a tough one," Kevin Finnegan, Community Board 5's land-use chairman, said of the tower proposal. "It's really big. It's humongous," he added. "At the same time, it is an ideal place for a large building because of its access to transit, and there are significant and important improvements to the transit infrastructure."

THE EFFORT TO PREPARE the Hotel Pennsylvania for an office tower is part of a far larger scheme of Mr. Roth's. In the mid-1990s, he bought up much of the neighborhood surrounding Penn Station in a bet that an expanding midtown Manhattan would next sprout office towers in the long-grungy, transit-rich district. At the same time, he pursued a redevelopment and expansion of Penn Station that stood to open up millions of square feet of new development.

But despite his anxious and bullish stance, Mr. Roth has earned a reputation for being one of the more patient developers in the city. For about a decade, he sat on the vacant site of Alexander's department store on 59th Street and Lexington Avenue before he ultimately signed the expanding Bloomberg LP and built its new headquarters.

He's now waited an entire real estate cycle with no major steps toward the transformative goals for the "Penn Plaza" area (though rents did rise), apparently content to keep sitting on his 7 million square feet of property until the time is right.

To that end, the 1919-built Hotel Pennsylvania holds little nostalgic value in Vornado's heart. Talking to Vornado investors in 2008, Mr. Roth referred to it as "a placeholder, sort of like a parking lot," until a tenant can once again be wooed to the area. Then again, the firm has vacillated at times, saying it might renovate the hotel to draw a higher-end clientele.

At the market's peak, the Pennsylvania, with its dimly lit lobby and dingy rooms, was a cash cow, as demand for hotel rooms skyrocketed while the supply stayed mostly constant. In 2007, Vornado reported $38 million in earnings on the hotel; in 2008 it grew to $42 million. (Vornado and other partners paid just $159 million for it in 1997.)

But this year, with tourism down and smaller, limited-service hotels opening their doors, its numbers have tanked. Through September, at the latest filing, Vornado reported $7.8 million in earnings from the hotel, down $21 million through the same period the year before.

As of yet, it's unclear just how high the hurdle will be for Vornado to win public approval of its tower. Local residents are sure to have concerns with the density—its proposed size is larger than the Empire State Building—and there is a set of preservationists who have been trying to landmark the McKim, Mead & White-designed Hotel Pennsylvania, to no avail thus far.

On the other hand, Vornado is permitted to build a rather tall building without any approvals at all, and it is entitled to a "transit bonus" of density, provided that the transit agencies and community are content with the improvements being offered.

And then there are the union workers in the hotel, who have not yet made much noise about the proposed tower (though they did join in a push to landmark the hotel in late 2007). A new office tower would, after all, mean the demolition of the 1,700-room hotel and the jobs inside, but given the economy and the dearth of would-be tenants lining up to occupy the tower, it's not as though a wrecking ball is imminent.

Whatever resistance there is will become clearer in the coming weeks. The plan goes before the community board, which may give a nonbinding recommendation on the tower. Ultimately, any changes would likely come as a result of pressure from the City Planning Commission or from Council Speaker Christine Quinn, the local representative for the tower. Both must vote in favor of the project if it is to proceed.

ebrown@observer.com