Empire State Building Investors Seek to Block Settlement

A group of investors in the company that controls the Empire State Building sought to block a settlement which would allow the iconic New York skyscraper to be included in a real estate investment trust.

Empire State Realty Trust Inc. (ESB), which has applied to become a REIT, agreed in September to pay $55 million to investors who sued claiming the company and Malkin Holdings LLC, the supervisor of the company that holds the title to the tower, breached their fiduciary duties.

Malkin Holdings proposed to consolidate Empire State Building Associates LLC and 20 other properties in a $5 billion transaction creating the real estate investment trust, which would offer its stock to the public in an initial public offering, according to the complaint, filed yesterday in New York state court in Manhattan.

“The proposed settlement -- just $55 million -- amounts to barely one percent of the value of the roll-up,” Stephen B. Meister, an attorney for the dissident investors, said in the filing. “The settlement is both grossly inadequate and unfairly apportioned.”

Helmsley Estate

Malkin Holdings supervises property partnerships led by Peter Malkin and his son Anthony Malkin. It owns the 2.9 million-square-foot (269,000-square-meter) Empire State Building in conjunction with the estate of Leona Helmsley.

Empire State Realty Trust said on Feb. 13 that it planned to raise as much as $1 billion in the IPO, giving investors a chance to own a piece of the landmark 102-story Manhattan skyscraper.

The U.S. Securities and Exchange Commission said on Dec. 26 a vote on the plan could go ahead, with about 2,800 co-investors in the tower being allowed to cast a ballot.

The dissident investors said they’re being forced to trade low-risk bond-like securities for high-risk equity securities and their iconic brand is being confiscated.

The group urged the judge to decline to approve the settlement, certify the dissident investors as a sub-class in the lawsuit and allow it to file a separate lawsuit.

A Malkin Holdings spokeswoman, Brandy Bergman, said the lawsuit isn’t a setback for the IPO.

“This is a complicated transaction with lots of moving pieces and nothing which has happened has taken us by surprise,” she said in an e-mail. “Any comment we make will be to our investors, which will be filed with the SEC and ultimately will be made public.”

The case is In re Empire State Realty Trust Inc. 650607/2012. Supreme Court of the State of New York, New York County (Manhattan).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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