Vornado/ESG? Maybe not.

Vornado Realty Trust is reportedly in negotiations to buy Insignia Financial Group Inc., according to published reports.

If an agreement were reached, it would result in the merger of Vornado, the city's largest commercial landlord, with Insignia, the city's largest commercial and residential real estate brokerages. According to news reports, Vornado chairman Steve Roth has reportedly had preliminary discussions with Insignia chairman Andrew Farkas regarding the proposed deal, but neither company would comment on the report.

Steve Iaco, Insignia's senior managing director for corporate communications, said the company would not comment.

"There's always a lot of rumors floating around about us and our policy is not to comment on them," Iaco, said.

Calls to Vornado last week for comment were not returned, but David Greenbaum, chief executive officer of the Mendik Company, joked about the news report during a Cushman & Wakefield's Forecast 2001 event.

"If we're considering another deal, I guess I'll read about it in Grain's," he said.

Some industry officials are questioning the veracity of the report. One source close to the dealings, who did not want to be identified, told Real Estate Weekly that the published story was false. GlobeSt.com, an on-line real estate news provider, published a story citing an unnamed source that also said the story was untrue.

Among factors contributing to the potential deal is a new law regulating real estate investment trusts that will become effective January. Under the change, it will become easier for REITs to acquire service businesses without losing special tax benefits. Under the old law, REITs were afforded those tax privileges only if they restricted themselves to property ownership. Many say the change will result in numerous deals such as the only purportedly being considered by Vornado and Insignia.

Vornado controls $3 billion in property, making it the largest publicly traded real estate investment trust in the country. During the third quarter, the company signed 250,000 square feet in new leases, with average rents increasing 39 percent during the quarter. The average rent for leases that expired during the quarter was $35 a square feet, but the average rent for new leases was $50 a square foot.

According to Costar Group, Vornado, based in Saddle Brook, N.J., owns 24 buildings in Manhattan, including 20 Broad St. and 866 United Nations Plaza. The company also owns numerous buildings in the Madison Square Garden area, such as 1, 2, 11, and 15 Penn Plaza, and 7, 160, 162, and 330 West 34th Street.

If Vornado offered a premium price of $15 a share for Insignia, the deal would cost less than $600 million. Analysts said acquiring Insignia is attractive to Vornado because it would bring the company strong cash flows at a bargain price, according to published reports.

Insignia Financial Group owns Douglas Elliman, one of the largest residential real estate brokerage firms in the city. It also owns Insignia/ESG, which is the leasing company for 88 buildings in Manhattan that contain office, retail, and warehouse space. Among buildings Insignia is the leasing agent for are two that have yet to be built, a 570,000-square-foot office tower at West 42nd Street and Broadway and a 375,000-square-foot building at 130 Varick Street in Hudson Square.

Although they were paying close attention to news stories about the alleged negotiations, officials from other real estate investment trusts were reluctant to discuss the purported negotiations. Lips were sealed at SL Green Realty Corp. and Boston Properties.

Others further removed from the possible merger viewed it as a positive move for Vornado.

"It would be very wise for Vornado to do this. The markets will view it as a good move," said Neil Binder, co-principal of Bellmarc Realty. "You have to look at how huge Insignia is. It was once Ed Gordon's firm, it was all about his personality. But today, it is about the entity itself."

Lawrence Fiedler, a professor at New York University's Masters in Real Estate Program, agreed with Binder.

"I see it as another bright move by Steve Roth. I'd even say it is a terrific move, but I don't know the inside thinking," Fiedler said.