Pit Boss

Photograph of site by Fawn DeViney

Steven Roth is a stone-cold business killer, plain and simple. “You can’t get every last ounce of blood,” an exasperated executive once told the New York Times after negotiating with the Vornado Realty Trust head. “It’s very hard to live that way.” But Roth has. While other big real estate firms keep it simple by focusing on one type of property, Roth is known for going after anything he thinks will make him a profit. One of the largest commercial landlords in New York, he’s earned a reputation as not just an outside-the-box thinker, but also as a nail-spitting back-alley brawler, loath to ever leave a penny on the table.

Roth looks the part: He is bald, with gray hair on the sides and eyes that squint just narrowly enough to give him the appearance of the quintessential movie-villain financier. In private, he’s known for his salty and entertaining speech. But in public, he hardly ever says a word. He refuses to talk to the press. (He declined repeated requests for comment for this story — nobody from his company would talk.)

Such is Roth’s veil of mystery that Vornado, a publicly traded real estate investment trust, doesn’t even bother with routine matters of communication, like, say, quarterly earnings calls. “It’s very unusual for a company of their size,” says one analyst who follows the firm. Instead, Vornado releases information to its investors in an end-of-year letter — allowing Roth to control the flow of information. “Most of the sector would get punished for holding that as an operating standard,” the analyst says. In other words, investors would balk at such unresponsive management. But because Vornado puts up the numbers — its first-quarter profit this year was $412.7 million, up from $214.6 million last year — its opaqueness simply adds to the Roth mystique. It’s an advantage. He gets away with it.

Roth has long pressed every advantage he could. A native New Yorker, he graduated from Dartmouth in 1962, earned an MBA from the same university a year later, and soon cofounded Interstate Properties, an outfit that bought and ran strip malls. As he rose from New Jersey real estate obscurity, Roth’s business model was essentially to see a vulnerable animal, shoot it, and then sell the fur for more than the thing was ever worth alive.

His first such hunting expedition came in 1979, with a company called Vornado Inc., which operated the struggling New Jersey discount department store chain Two Guys. Because of its prime locations, Roth figured Two Guys’ true value was in its real estate, not its retail business. So Interstate bought a 16.37 percent stake in Vornado and proceeded to wage a proxy battle against incumbent board members. Roth wanted to shut down Two Guys and rent the land. Vornado’s board members wanted to try to save the chain. Roth eventually got his way and quickly moved to liquidate the 60 Two Guys department stores. Now in control of Vornado, Roth turned the company’s focus primarily to real estate.

Even before he’d finished shutting down all of the Two Guys stores, he set out to repeat his triumph, this time eyeing a bigger prize: Alexander’s, the storied New York department store chain. Its flagship midtown Manhattan location, at 59th and Lexington, sat on particularly valuable land, and clearing out the six-story store and replacing it with a 60-story tower could make someone a fortune. So in September 1980, Roth’s Interstate Properties bought 7.1 percent of the publicly traded Alexander’s, increasing its stake to 9.3 percent over a few months. Roth was primed for another proxy battle.

Standing in his way was Sandy Farkas, the eldest of Alexander’s founder George Farkas’s four boys. Of the three sons still involved in the business, Sandy was the most committed to Alexander’s as a retail operation. He wanted no part in bringing in an outsider, let alone a real estate speculator. Sandy’s brothers Robin and Bruce, though, were more open to change. They were intrigued by the value of the real estate, and Roth ultimately convinced them to see things his way, which earned him influence with the board. Over the next decade, Roth slowly built up his holding in Alexander’s to 28 percent. Then in May 1992, after outmaneuvering Donald Trump — who owned 27 percent of the chain but was forced to give up his shares to cover debts — Roth pushed Alexander’s into bankruptcy and shut down its 11 New York–area stores. Five thousand Alexander’s employees were suddenly out of work.

The Chapter 11 filing struck Newsday business columnist Allan Sloan as strange: “Alexander’s cash and the proceeds of its going-out-of-business sale were enough to pay its suppliers in full and close its stores without resorting to Chapter 11,” Sloan wrote at the time. “So why file? That way, no one can blame Alexander’s board of directors for closing the stores and putting 5,000 employees on the street. No blame attaches to Alexander’s dominant shareholder, a low-profile real estate developer named Steven Roth.”

Alexander’s was a struggling business that very well may have died anyway, but someone familiar with how the closings went down says there were members of the leadership team who wanted to try to turn the chain around. More notable, at least to this person, was Roth’s attitude about the employees who lost their jobs. “Bottom line: I don’t think it bothered him a whit,” says the source, who, because he still deals with Roth, requested anonymity. “There were people who had been with the company for 20, 30 years.”

It was a classic Steven Roth move: calculated, stealthy, and brilliant. “He will do anything for a profit. He is very, very effective,” the source says. “Don’t get in his way.”

After the Alexander’s takeover, Roth continued to grow his business. In 1993, he took the private Vornado Inc. public, renaming the firm Vornado Realty Trust. Then, in a major coup three years later, he brought on Michael Fascitelli, head of the Goldman Sachs real estate investment banking group, as his second in command. In 1997, Roth made his biggest move yet: the $656 million acquisition of seven midtown Manhattan office buildings — totaling 4 million square feet — from the Mendik Company. Today Roth serves as Vornado’s chairman — he was CEO until he handed that position over to Fascitelli in 2009 — and very much remains the firm’s guiding light.

Roth has never been interested in hitting singles, says Dan Fasulo, the managing director of Real Capital Analytics, a New York City–based real estate research firm. Instead, he likes to load up and swing for the downs. And in the steroid era of real estate, few have hit more out of the park. His success has been due in no small part to his willingness to wait for the perfect deal.

Consider, for example, Alexander’s. Roth spent more than a decade trying to get his hands on that 59th and Lexington location, and a funny thing happened once he did: nothing. Roth shut down the department store in 1992 and let the building sit…and sit…and sit. A high-rise office project with retail on the bottom floors seemed like the obvious choice, and Roth considered all sorts of potential tenants, always rejecting them. There were meetings with everyone from Barnes & Noble to Planet Hollywood to Sotheby’s and Christie’s to the Ritz-Carlton. Nothing happened.

Then, in 1999, New York announced it was going to change its zoning laws. The Alexander’s site had previously been zoned for a tower of up to 800 feet, but would now be limited to 495 feet. Rushing to grandfather his land, Roth demolished the Alexander’s store. With the foundation cleared before the new laws took effect, Roth kept the right to go tall. Midtown Manhattan, meanwhile, now had — and stop me if you’ve heard this one before — a giant hole in the ground. It sat there for a very long time. Roth was called the “Hamlet of Lexington Avenue” for his inability to make a decision about what to do with his pit.

Finally, in May 2001, nine years after Alexander’s closed, he got the deal he wanted when Bloomberg agreed to build its headquarters on the site. The result was a $630 million, 55-story shimmering glass tower, complete with retail at street level and condos on the top floors. The Bloomberg Tower has been a home run.

In March 2010, with Vornado sitting pretty as one of the largest real estate trusts in the country, and the Filene’s hole in Boston simply sitting, Roth reflected on the Alexander’s affair while delivering a lecture at Columbia University. As originally reported by the New York Observer, the real estate tycoon scoffed at his depictions in the New York press. “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.

“My mother called me and said [of the site], ‘It’s dirty. There are bums sleeping in the sidewalks of this now closed, decrepit building. They’re urinating in the corners. It’s terrible. You have to fix it.’

“And what did I do? Nothing.

“Why did I do nothing? Because I was thinking in my own awkward way, that the more the building was a blight, the more the governments would want this to be redeveloped; the more help they would give us when the time came.

“And they did.”