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.
Virgin pays only a $54 per square foot when the market rent in the are is about $700, Mathrani said.
Vornado is sitting on a mountain of cash it can have at its disposal. As of May 27, it had $1.4 billion in cash and a revolving credit line of $2.6 billion. It has only $71 million of debt maturing in 2008, $431 million in 2009 and $1.101 billion in 2010.
The credit squeeze has made debt, which is critical to financing of commercial real estate, expensive and difficult to get. Roth said he believed that the markets are still too unstable for acquisitions. But he is keeping the money available for when an opportunity arises, as he expects it will.
“There is an enormous amount of uncertainty in the market right now,” Roth said. “Having liquidity and waiting until you see the whites of their eyes is a good thing.”
The company has a dimmer view on retail properties.
“We’ve been pretty scared about the environment,” Vornado President Michael Fascitelli said. “We think there’s a recession going on. We think it could get much tougher in the retail sector.” (Reporting by Ilaina Jonas; Editing by Tim Dobbyn)