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Old Posted Mar 28, 2011, 2:22 PM
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http://online.wsj.com/article/SB1000...922583306.html

Vornado Project Hits Hard Spot






By ELIOT BROWN
March 28, 2011


Quote:

Just when developer Steven Roth thought he had cleared his biggest hurdle for a planned new skyscraper on Central Park's southern edge, here comes Gary Barnett.

For more than five years, Mr. Roth's Vornado Realty Trust has been trying to clear out the renters in its 20-story apartment building at 220 Central Park South. The goal was to knock down the building and erect a soaring luxury condo tower with sweeping views of the park in its place. Vornado agreed in December to spend $40 million paying off the remaining apartment tenants, who are now moving out.

But Vornado has a final and unlikely holdout: Mr. Barnett, the rival developer and president of Extell Development Company.

A few years ago, Mr. Barnett bought the lease to the parking garage in the white-brick apartment building, according to people familiar with the situation. Mr. Barnett has thus far rebuffed the attempts of Mr. Roth to purchase the lease, the people said.

While talks continue between the parties, Extell's continued hold on that underground garage's lease would block, or greatly complicate, Vornado's attempts to demolish the 1950s building.

Mr. Barnett's strategy remains unclear. But holdouts often succeed in extracting big payments from developers eager to break ground. Mr. Barnett also owns an adjacent property and has expressed a desire to develop in the area.


"I have the greatest respect for Vornado and its team of executives," Mr. Barnett said Sunday in a statement. "We hope to resolve any issues concerning these buildings in a mutually satisfactory manner."

Battles between developers and holdouts are common in the bare-knuckled culture of New York real estate, often tying projects up for years. The Durst family, for instance, waited more than three decades to buy out the last property owners for a site on 42nd Street and Sixth Avenue and develop the Bank of America tower.

Rarely, however, do the fights involve high-profile developers at opposite sides of the table. Vornado is one of the city's largest office landlords, built up over the past 30 years by Mr. Roth, a hard-charging negotiator. Mr. Barnett, a former diamond trader, is among the city's most active developers and is currently building a 75-story high-end hotel and apartment tower across from Carnegie Hall.

Vornado, along with development partner Clarett Group, bought the 124-unit building at 220 Central Park for $131 million in 2005. The developers planned a 41-story condo tower to rise in its place. Central Park is prime real estate, and new apartment buildings aren't built there very often. Vornado's latest quarterly regulatory filing put the development's cost at between $400 million and $425 million.

Soon after Vornado bought it, the project ran into resistance from rent-regulated tenants in the building. They sued in 2007, arguing that Vornado hadn't followed the law for removing them.

The legal challenge dragged on until December 2010, when the remaining tenants settled. Vornado spread $40 million to buy out renters of 26 units, according to property records.

Mr. Barnett remains. His lease lasts about six more years, people familiar with the matter said.

Mr. Barnett's ownership of a neighboring lot on 58th Street could factor into negotiations. He has filed plans with the Department of Buildings for a permit to construct an 18-story apartment building there. That lot is sandwiched by another property owned by Vornado and Clarett, a small building at 229 West 58th Street.

If Mr. Barnett doesn't budge, Vornado might be able to still erect its building over the existing garage. But it would be much more expensive, if even possible.

This isn't the first time Mr. Barnett has butted heads with a heavyweight in New York City real estate. A decade ago, he unsuccessfully sued to block construction of the New York Times tower on 41st Street after the state tried to seize land owned by Mr. Barnett for the Forest City Ratner project. And in 2005, he made an unexpected bid to the M.T.A. in an attempt to offer an alternative to another Forest City project, the Atlantic Yards basketball arena and housing development in Brooklyn.

It also isn't the first time the Columbus Circle neighborhood has seen a clash of the real estate titans. Last year, Stephen Ross, chairman of the Related Companies, made an unsuccessful hostile bid to foreclose on and demolish 1775 Broadway, a building a block away owned by large landlord Joseph Moinian.
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