Vornado goes to "Plan B"; closing Virgin Times Sq

By Ilaina Jonas

NEW YORK, June 3 (Reuters) - Vornado Realty Trust (VNO.N) executives on Tuesday laid out alternative plans that call for a scaled back redevelopment of Madison Square Garden and the Hotel Pennsylvania, after ambitious projects were killed by government delays and the credit crisis.

It also said it plans to close the Times Square Virgin Megastore.

Vornado owns 8 million square feet of property in Pennsylvania Plaza district, an area roughly bounded by 38th to 32nd streets and 9th and Sixth avenues.

The real estate investment trust said it may renovate the Hotel Pennsylvania in midtown and add about three floors of retail space which would connect to the adjacent Manhattan Mall, which Vornado owns and one of the few traditional indoor malls in Manhattan.

An alternative plan calls a huge tower, to be built at the site, if Vornado can land a major tenant, or build three floors of retail property attached to the Manhattan Mall and a tower above it.

At the Pennsylvania Station/Madison Square Garden complex, Vornado plans to remove the theater, build a grand entrance to Eighth Avenue underneath the seating of the arena and another grand entrance to the train station on 7th Avenue.

The Garden is across from the Moynihan Station, a Beaux Arts style post office completed in 1914. Vornado and partner Related Cos. are redeveloping the structure.

"What that will do is to create a new grand train station," Chairman and Chief Executive Steven Roth said during an investor meeting. "What happens with this Moynihan and Madison Square Garden is to increase the value of our adjacent 8 million square feet."

But the concepts are a far cry from original plans that called for Vornado to move Madison Square Garden to the back of the Moynihan Station, opening up the commuter train station that lies underground.

The original deal also would have given Vornado about 5 million square feet of air rights. That would have allowed the company to build beyond height restrictions on adjacent properties.

Government approval delays prompted Cablevision Systems Corp. (CVC.N), which owns Madison Square Garden, to renovate the arena instead of moving.

"Either the (city and state) governments are going to get their act together, which they probably will not or we'll go to plan B," Roth said.

Vornado also intended to build a 3 million square-foot- tower for Merrill Lynch & Co Inc's MER.N new headquarters on the site of the Hotel Pennsylvania. But Merrill Lynch's credit problems scratched the plans for the tower.

For Times Square, Vornado plans to close the Virgin Megastore in the first quarter of 2009, said Sandeep Mathrani, Vornado's executive vice president and head of its Retail Real Estate Division.

Vornado and Related Cos bought Virgin Megastores North America last year. "We bought the Virgin business to wind it down to get a hold of the real estate," Mathrani said.