Boston Mayor Thomas Menino has abruptly put eminent domain at the stalled Filene’s redevelopment site back on the table, according to a caustic letter Menino sent to Vornado Realty Trust Chairman Steven Roth yesterday.
Menino’s letter cited a rare public lecture that Roth gave at Columbia University last week. The New York Observer reported that Roth told Columbia’s architecture and planning students he had deliberately left a Manhattan redevelopment site sit in a state of blight for years. He said he did it to drive up the site’s real estate value and extract concessions from nervous government officials.
New York newspapers, Roth 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."
"The quotes attributed to you on this subject are simply outrageous," Menino wrote, adding that Roth’s comments showed "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," the mayor added.
Menino closed the letter by saying he is weighing eminent domain and considering yanking the project’s existing permits, because the Filene’s redevelopment "is too important to Downtown Crossing and the entire city of Boston to be used as a bargaining chip to improve your bottom line."
The $700 million Filene’s redevelopment is a joint venture between Vornado, Gale International, Mack-Cali Realty and JP Morgan. Vornado owns 50 percent of the project.
The venture paid $100 million in cash for the former department store site in January 2007. Work on the project stalled in late 2008 when project lenders pulled out, and the joint venture was unable to find other lenders willing to finance construction of the planned 39-story tower.
The Filene’s redevelopment team has had a rocky relationship with City Hall. Menino has criticized Vornado’s cash stockpile and stock price on several occasions.
Banker & Tradesman reported in January that city officials were weighing seizing the Filene’s site from Vornado’s team if they couldn’t demonstrate progress. In response, the development partnership has been considering a phased construction plan that would allow for the construction of an underground parking garage and street-level retail. The project’s tower component would wait until credit markets normalize and commercial demand increases.
Annual reports from Vornado and Mack-Cali show in 2008, the Filene’s joint venture partners booked a $69.5 million impairment charge on the project. New SEC filings from each company show no such write-down in 2009 – a year in which commercial markets deteriorated significantly. Several industry sources told Banker & Tradesman the decision not to recognize a second impairment may have been made with an eye towards having to defend a high project value before an eminent domain jury.
The strategy employed by Vornado – insisting on funding the Filene’s project with a secured construction loan – stands in sharp contrast to the financing strategy being employed across town, at Russia Wharf. Boston Properties hasn’t touched its Russia Wharf construction loan, finding it cheaper to fund the tower’s construction off its own balance sheet, thanks to strong investor demand for unsecured corporate bonds.
Both companies are real estate investment trusts. Vornado boasts a bigger market capitalization, although Vornado’s cash war chest decreased by $2 billion in the fourth quarter of 2009.
A full eminent domain taking at Filene’s could set the city back several hundred million dollars. One solution the city might weigh is the same strategy the state used in constructing North Station – seize the land and low-rise development rights, but not the air rights to build above the taken real estate.
