Business | Investment

Empire State shareholder split on IPO

The share sale stands to be the highest-profile REIT IPO since the 1990s

  • Washington Post
  • Published: 13:06 August 31, 2012
  • Gulf News

  • Image Credit: Asghar Khan/Gulf News
  • An evening view of Empire State building in New York. The complex ownership structure of the building may become an hurdle in the plans to form a real estate investment trust.

New York: Al Weiner’s stake in New York’s Empire State Building came to him by way of his grandfather’s death in a 1950 train crash in Richmond Hill, Queens. His grandmother sued the Long Island Rail Road, and her lawyer was Lawrence Wien, a family friend.

The money from the settlement made the Weiners a natural call when Wien was reaching out to his network of friends and business associates in the early 1960s to buy what was then the world’s tallest skyscraper. The family and more than 2,000 others purchased shares of the Empire State Building under a syndication orchestrated by the lawyer and his partner, real estate investor Harry Helmsley. Half a century later, that complex ownership structure may stand between Wien’s successors, Peter Malkin and his son Anthony, and their plans to form a real estate investment trust and take the Empire State Building public.

The Malkins, who need 80 per cent approval from the 3,300 units held by the legacy investors, are facing opposition by stakeholders like Weiner, who say they will be shortchanged in the deal and lose a steady income stream that is poised to jump in value, sacrificing safety for the vacillations of the stock market.

“My grandma said don’t ever sell these,” said Weiner, 53, who runs a business out of Jericho, New York, that sells artisanal cheeses to restaurants. “The cheques come in like clockwork.” Peter and Anthony Malkin, Wien’s son-in-law and grandson, respectively, have taken notice. The entity they control, Malkin Holdings, has filed four documents with the Securities and Exchange Commission in the last month disclosing efforts to reach out to stakeholders and saying that the dissident holders’ conclusions can’t be relied upon.

“We believe certain individuals are creating an environment of confusion through incorrect statements about their company and the proposed transaction,” the Malkins wrote in an August 6 letter to investors. Distributions probably will increase more over time as part of the deal than if the Empire State Building was left as a standalone investment, they said.

The Malkins declined to comment for this story because of the quiet period for pending IPOs. They are seeking to form a real estate investment trust (REIT), to be known as Empire State Realty Trust Inc, to gain greater efficiencies and access to capital, and because the Helmsley estate is liquidating its holdings following the death of Harry Helmsley’s wife, Leona. In addition to the 102-story tower, the REIT would include 18 other properties, ranging from midtown Manhattan office buildings to a development site in Stamford, Connecticut, that would be added to the legacy investors’ holdings.

The Malkins’ valuation firm, Duff & Phelps Corp, estimates the value of the entities that hold all the buildings to be included in the REIT at $3.99 billion (Dh14.67 billion). About $2.5 billion is from the Empire State Building. The share sale stands to be the highest-profile REIT IPO since the 1990s, when big office landlords such as Boston Properties Inc and SL Green Realty Corp went public, said Lawrence Longua, director of the REIT Centre at New York University’s Schack Institute of Real Estate.

“There have been a number of IPOs but nothing of this scale or visibility,” he said. “This is in a class by itself.”

Small investors such as Weiner own stakes in an entity called Empire State Building Associates LLC, which holds the deed to the Empire State Building. The investors are entitled to about half of the tower’s value - one of the points of contention — because the other half is assigned to the building’s sublease holder, according to an evaluation by Duff & Phelps.

The firm’s appraisal of the Empire State Building at $2.5 billion indicates that each of the 3,300 units, priced at $10,000 in 1960, would be worth about $330,000 today. The small investors may lose close to half that amount after taxes should they take shares of the REIT, and then would have trouble finding an alternative place for their money that offers the same dependable returns, said Richard Edelman, a grandson of an original investor who receives payments as part of a trust.

The Malkins have come up with an alternative to address the tax implications. Edelman runs a website, www.empirestatebuilding investors.com, that tracks the IPO process. He, Weiner and several others have formed a loose group of unitholders who have been telephoning and emailing investors. Edelman estimates they have reached about half the stakeholders, and said they have encountered enough opposition to block the REIT deal.

“I speak to people one on one, just trying to educate them on the investment and the goodness that it’s been for the last 51 years, and the fact that this might not be the best deal for us at this point in time,” Weiner said.

“If they agree, that’s great. If they don’t, they have that right to do so. We’re trying to be mensches about this.”

Many of the investors are retirees in their 80s and 90s, or are second- and third-generation holders like Edelman and Weiner. Many of them don’t have computers, so the group sent them postcards inviting them to call a toll-free 800 number answered by a live operator. Many investors regard their stake as an “heirloom” to be passed down to the next generation, Edelman said.

Five separate lawsuits were consolidated into a single class action on June 27 in New York State Supreme Court in Manhattan. The lawsuit is “baseless,” Hugh Burns, a Malkin Holdings spokesman, said in an email.

The Malkins first filed plans for the IPO in February. The REIT application is undergoing review by the Securities and Exchange Commission. There is no specific timetable for its approval, or for when the share sale would occur.

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