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VORNADO ADDS BOSTON’S LANDMARK FILENE’S TO PORTFOLIO

By Curt Hazlett

Except for Fenway Park, no place is more distinctly Boston than a crowded little area called Downtown Crossing, a once vibrant but now shopworn retail district just a block from Boston Common. Generations of Bostonians have trooped to Downtown Crossing to shop at Filene’s, neighboring Macy’s (née Jordan Marsh) and the smaller stores that grew up around them. The area’s lure faded over the years as suburban centers and upscale urban venues like Copley Place drew shoppers away. Now Filene’s itself is gone, shut by Federated Department Stores as part of its consolidation under the Macy’s name.

It has been a bumpy ride, but it appears that Downtown Crossing may now be headed for a rebirth. Federated’s announcement last year that it would sell the Filene’s store — actually four connected buildings occupying a full city block — drew bids from four development groups and vows from city officials to make the most of the redevelopment opportunity.

Vornado Realty Trust, a Paramus, N.J.-based REIT, was the winner, edging out the partnership of New York City developers Alex Adjmi and Robert Cayre. Vornado said in late April that the deal’s closing was “imminent” without disclosing a date.

A successful redevelopment of the Filene’s building “is crucial to the city,” according to Anne Meyer, president of the Downtown Crossing Association, which was formed in 1980 to reinvigorate the area. “Everybody was very sad to see Filene’s go,” Meyer said. “It was obviously a major change for Downtown Crossing, but once the decision was made, this turned into the kind of opportunity that doesn’t come along very often.”

The competition to acquire the property offered a glimpse into the world of Boston real estate development, which is known for both its insular nature and its political complexity. Boston is a tight-knit city with a rich history, and developing a property requires the blessings of those in power, including the mayor — currently Thomas Menino — and the Boston Redevelopment Authority.

According to the Boston Business Journal, the Adjmi-Cayre team surprised Menino and others when it announced publicly in February that it had the inside track in the competition to buy the property — information that Cincinnati-based Federated had not communicated to city officials. Such openness, the newspaper said, was a sign that the New Yorkers were unfamiliar “with the way deals get done in Boston.”

Vornado revealed little to the press about its involvement (the firm maintains a long-standing order against talking to the press that has no doubt been vindicated by the Adjmi-Cayre experience) and apparently committed no such political gaffes. By mid-April Menino began referring to Vornado as the property’s buyer. He also dubbed the Adjmi-Cayre team “phantom developers,” because, he said, he had never met them. (Although Vornado is based in New Jersey, it has at least one strong hometown connection: Christopher Kennedy, president of the firm’s Merchandise Mart Properties division, is the son of the late Sen. Robert F. Kennedy, who was born in Boston and whose family has deep roots there.)

Few details of either the sale or Vornado’s plans for the property have been revealed. But Sandeep Mathrani, executive vice president of Vornado’s retail real estate division, told analysts in May that Vornado had a signed sale contract and that Menino was happy to see the asset being redeveloped. “Our relationship with Federated Department Stores got us this deal,” Mathrani said. (Federated is one of Vornado’s largest tenants.) Mathrani called Washington Street, which fronts the Filene’s property, “the 34th Street of Boston.”

“There are 33 million square feet of office space within a 10-minute walk,” he said of Downtown Crossing. “We have developed a business of buying tired retail projects,” and the Filene’s is “another tired structure, another opportunity.”

The existing buildings total about 600,000 square feet. Mathrani says the redeveloped structure will cover roughly 1 million square feet, about half of which will comprise retail, with the rest being residential and office space. “It’s too early to tell you the math,” he told the analysts, but the office and residential portion “is pure gravy.”

Boston’s real estate community has greeted the prospect of a renewed Downtown Crossing with similar enthusiasm. “In five to seven years, Washington Street is going to be a different place,” said Jason Weissman, president of Advisors Retail, a unit of the Boston Realty Advisors brokerage. “People want to be in Downtown Crossing.”

Weissman says the transformation has already begun with the construction of a deluxe hotel and some 1,000 condominium units nearby. “There is a need for a major supermarket and big-box retail, something like a Target,” he said. As evidence of the change, he notes that he has just completed a deal to bring a 14,000-square-foot Japanese restaurant to Washington Street.

Retail rents in the area now range from $30 a square foot on the once raunchy southern end of Washington Street to as high as $130 farther north, says Weissman. “Once this project is done, in three to five years, I think this will be a three-figure street on average,” he said.

But before Vornado can take part in that transformation, it has plenty of challenges to surmount. To begin with, Downtown Crossing is one of the city’s most congested areas. Three subway lines converge there, and Boston’s famously narrow and crooked streets often slow traffic to a crawl. (Washington Street in front of the Filene’s and Macy’s stores was closed to traffic in 1978 to create a pedestrian mall.)

Making the project even more complicated is the fact that the original Filene’s Basement discount store, now owned by Retail Ventures but still a mecca for bargain lovers, has a long-term lease and will remain in the building’s basement while work goes on overhead.

All of this means the developer will have to satisfy multiple demands in order to move forward. “All permitting processes are tough in Boston,” said Meyer. And with so much going on nearby, he said, “figuring out not just what to do but how to get it done is going to take a while. But I’m sure it’s doable, and everybody at the Downtown Crossing Association is looking at it as a great opportunity.”

Vornado’s task got tougher still in early May, when the powerful Boston Landmarks Commission voted unanimously to give protected status to the Filene’s property. The vote, which was expected, means that the facades of two of the four buildings must be retained as part of the new structure. One of the buildings dates to 1905 and the other, designed by Chicago’s Daniel Burnham, to 1912; the other two were built in 1951 and 1973 and are expected to be demolished.

Although the finished project will probably contain several floors of retail, no one has yet described the overall design. Mayor Menino told reporters in April that he believes the project will include retail, office, residential and hotel space. “I’d be surprised if Vornado knows yet exactly what they are going to do,” he said.

Menino has pledged the city’s support in restoring Downtown Crossing’s appeal. The city has promised $500,000 for aesthetic improvements, and Menino has asked area businesses to contribute an additional $350,000 to the effort.

But will Downtown Crossing ever be the retail center it once was? Meyer bristles a bit at the question. “That implies that it’s not a retail center now, and it is,” she said. “It’s the historical center of retailing in the city, and I expect it’s going to stay that way.”