The proposal to move Madison Square Garden and remake Penn Station would create a billion dollar profit for Vornado Realty Trust, which has bought up much of the real estate around the Garden over the past 10 years.

The chairman of Vornado, Steven Roth, told investors yesterday that the plan would generate “$1.2 billion in value creation,” from the higher rents Vornado would command on nearly 7 million square feet of property in the near vicinity.

“We are about making money here on a grand scale,” Mr. Roth said at the REITWeek conference at the Waldorf-Astoria.

For those big shareholder gains to be realized, though, Mr. Roth will have to sell his grand plan to refashion the neighborhood and build new towers on the existing Garden site to a different audience less enthralled by developer profits – the city,state,and federal governments. The state’s top development official, Charles Gargano, recently criticized another developer, Larry Silverstein, as “greedy” amid negotiations aimed at getting a better deal for the state at ground zero. Mr. Roth’s comments yesterday could hurt his negotiating position with the governments.

Currently, Vornado and another big developer, the Related Companies, are working with the state to remake the landmarked Farley Post Office into Moynihan Station, a $900 million new train station to welcome commuters to Manhattan in style less dingy than today’s Penn Station.

Recently, the developers met with city officials and civic groups about increasing the scale of the changes: In addition to creating Moynihan Station, they would rebuild Madison Square Garden at the west side of the Farley building, open up the old Penn Station to daylight with vaulted glass ceilings and expand its capacity, and develop two or three towers on today’s Garden site, between Eighth and Ninth Avenues and 31st and 33rd streets. Mr. Roth said the plan would take more than seven years to complete.

“Our objective has nothing to do with Madison Square Garden. As an unintended consequence the city will benefit enormously from a new worldclass arena and facility,” Mr. Roth said.

“Our objective as developers,” he continued, “is to get our hands on the 5.5 million square feet of development rights that goes with the Madison Square Garden site.”

Currently, Vornado has a stake in at least eight properties on the blocks surrounding the Garden. As part of the Moynihan Station deal, the company is entitled to develop with Related two more towers, one residential and one commercial or hotel tower, on sites nearby, including one that is now a public plaza. A source familiar with the deal said building those towers could also involve condemnation of some properties nearby through the use of eminent domain. Vornado also owns the Hotel Pennsylvania, across the street from the Garden, which will likely be either razed and rebuilt as a larger residential tower or renovated, according to real estate experts.

As Mr. Roth said yesterday, his Midtown south plan depends on “an awful lot of heavy lifting among multiple governments” to gain the necessary approvals.

That could include zoning, environmental, and landmark approvals from the city, which must also decide how to deal with a property tax exemption that Madison Square Garden enjoys in its existing site, and wants to keep.

Success would also involve an agreement with the state to use the back of the Farley Post Office to rebuild the Garden. So far, state officials have said they agree Penn Station needs fixing, but they do not want the project to interfere with Moynihan Station, which was scheduled to seek final approval this summer, but could be delayed.

The developers will probably need to negotiate with the federal government. According to the city’s department of finance, Amtrak National Railroad Passenger Corporation owns the land and subterranean rights underneath the Garden. Amtrak now leases track and platform space to both the Long Island Railroad and New Jersey Transit. A spokesman for Amtrak, Cliff Black, said the railroad is interested in looking at any proposals that would improve the busiest station in the nationwide system.

Lastly, there is the owner of the Garden, Cablevision, which owns the much-desired air rights. The terms of the agreement between Cablevision, Vornado, and Related is not public, and may never be. Sources familiar with the deal said it is assumed that in exchange for the Garden air rights, the developers would build a new arena for free, and perhaps pay other compensation on top of that.

For Mr. Roth, a billionaire according to Forbes, the Penn Plaza development would be an opportunity to leave a mark on Midtown South in much the same way that Mr. Silverstein will remake Lower Manhattan.In 2001,before the twin towers were destroyed, Mr. Roth made the highest bid for a longterm lease on the World Trade Center, but the deal never closed and the lease went to Mr. Silverstein instead.

Yesterday, Mr. Roth said that when the project is completed, Vornado would control more space on the Penn Station super-block – more than 7 million square feet – than exists at Rockefeller Center. In the surrounding area, including the new towers connected to the Moynihan deal,Vornado could control more than 14 million square feet.

Much of Vornado’s Midtown South holdings were acquired when it bought the real estate portfolio of developer Bernard Mendik in 1997 for $656 million. Mendik died in 2001, and his right-hand man, David Greenbaum, now heads Vornado’s Manhattan office portfolio and is leading the MSG plan along with Mr. Roth.

The founder of the 34th Street Partnership, Daniel Biederman, who has seen the developers’ plans, said that it would require complex engineering and expensive designs by world-class architects. He said the developers would need to get commercial rents as high as $70 to $80 a foot to make the deal feasible. Currently, the highest rents in the area are believed to about $55 a square foot in One Penn Plaza, owned by Vornado.

“That’s a big leap,” Mr. Biederman said.

Still, he said the transportation makes the Garden site unique. Penn Station already is the busiest transit hub in the country, and capacity could be increased with several planned infrastructure projects, including a connector to Grand Central and an extra tunnel to New Jersey.