Empire State Building IPO Has Almost All Votes NeededDavid M. Levitt
A plan to form a real estate investment trust holding New York’s Empire State Building has almost all of the votes needed to proceed, Malkin Holdings LLC said today.
Holders of 79.6 percent of the units of Empire State Building Associates LLC, which owns the Manhattan landmark, have voted in favor of the transaction, Malkin Holdings said in a regulatory filing. That’s up from 75 percent as of April 3, the most recent update. Eighty percent approval is needed.
The votes indicate that Malkin Holdings Chairman Peter Malkin and President Anthony Malkin, who control the tower, are edging closer to victory in their plan for an initial public offering of the building and 20 other properties. The Malkins, who have been fighting opposition from some of the investors, recently won two court rulings that eliminated potential obstacles to the plan.
The filing, a letter being mailed to all investors, “creates a sense that the vote is a fait accompli,” said David Reiss, a professor of real estate finance at Brooklyn Law School who isn’t involved in the transaction. “It is an effective document for creating a sense that this is a done deal.”
On May 2, New York Supreme Court Justice O. Peter Sherwood said he intended to approve a $55 million settlement of a class-action lawsuit by a set of unit-holders. He has yet to make his approval official. Two days earlier, he denied a request by objectors to the settlement to declare a provision illegal which could result in opponents getting a token $100 a share if they didn’t switch their votes to “yes” within 10 days of official approval by 80 percent of the building’s units.
Malkin Holdings had said it would leave the voting on the IPO open until Sherwood ruled on the $100 provision, or until May 2. The voting has been open since late January, and the Malkins have the option to extend the ballot period until the end of 2014.
Each Empire State Building unit may be worth more than $300,000, according to the offering statement.
In today’s filing, investors are reminded that the buyout provision is “legally binding and enforceable.”
While the Malkins may invoke the provision to get the needed unanimity, they “may not enforce the $100 price,” Reiss said.
“For the hypothetical person in a coma or who is otherwise unavailable during the 10-day period, they would get terrible PR and may face a serious legal challenge on those facts,” he said in an e-mail.
Sherwood found that the opponents didn’t have standing to challenge the buyout, which Thomas E.L. Dewey, an attorney for the Malkins, argued was done to protect small minorities from thwarting actions that majorities wanted. The provision was disclosed from the inception of the partnership more than 50 years ago.
The opponents’ attorney, Stephen Meister, is pursuing an appeal of the ruling.
The 3,300 Empire State Building units are divided into three 1,100-unit groups, and 80 percent of each group has to approve the transaction. That threshold has been achieved in one of those three groups, the Malkins said in today’s filing.
“The math is very simple: Far more investors support the transaction than oppose it,” Brandy Bergman, a spokeswoman for Malkin Holdings with Sard Verbinnen & Co., said in an e-mail. “We are proceeding with our solicitation to deliver what the vast majority of our investors want. We encourage all investors who have yet to vote in favor of the transaction to do so now.”
The Malkins are also close to getting approvals from investors in two other midtown Manhattan buildings slated for the REIT: 60 E. 42nd St., formerly called the Lincoln Building, and the Fisk Building at 250 W. 57th St.
They have more than the required votes from Fisk Building unit-holders, and they have 98.8 percent of the approvals they need from an unspecified number of groups of 60 E. 42nd St. investors, according to the filing.
Voters are permitted to change their decision in either direction as long as the solicitation period remains open. Non-votes are equivalent to rejecting the plan.
Opposing investors have battled with the Malkins over various provisions they thought were unfair, including assigning roughly half of the Empire State Building’s estimated $2.5 billion value to a sublease holder majority-owned by the estate of Leona Helmsley. The REIT conversion is in large part driven by the estate’s need to liquidate, the Malkins have said.
Dissidents have said a REIT conversion would mean giving up a reliable income stream that should rise as renovations on the Empire State Building are completed. The Malkins have said their plan would give unit-holders liquidity, regular dividends and greater growth opportunities.
“The proposed REIT, with a projected dividend of 1.8 percent, is still a lousy alternative to current ownership,” Richard Edelman of Solana Beach, California, a unit-holder who operates a website critical of the plan, said in an e-mail. “Fifty days after the original voting deadline, the REIT is still not approved.”