Empire State Building REIT IPO Has Necessary ApprovalDavid M. Levitt
Empire State Building Realty Trust Inc. has received the votes needed from investors in the tower for an initial public offering, indicating the approval process is close to an end after dissension from some holders.
As of yesterday, more than the required 80 percent supermajority of Empire State Building Associates LLC holders have approved the consolidation of the building and 20 other properties into a real estate investment trust, Malkin Holdings LLC, which controls the tower, said in a regulatory filing today. Voting for the plan remains open, said Hugh Burns, a spokesman for Malkin Holdings with Sard Verbinnen & Co.
“We are pleased to deliver to our investors a proposal which has received such support,” Burns said in an e-mailed statement. “We will terminate the solicitation in due course. We urge all investors who have not yet voted in favor of the proposed consolidation and IPO to do so immediately.”
The approval marks a victory for Malkin Holdings Chairman Peter Malkin, 79, and his son, Malkin Holdings President Anthony Malkin, 50, who for more than a year have been battling a minority of investors who argue that the IPO plan sells them short. Under the agreements that established the Empire State Building syndication more than 50 years ago, unanimity is required among the 2,800-plus unitholders before a sale or refinancing can proceed.
The dissident holders have said that too much of the Empire State Building’s estimated $2.5 billion value was assigned to a sublease holder, which is majority-owned by the estate of Leona Helmsley, and that the Malkins were taking too large a stake under rules that treat the REIT conversion as a sale, among other objections.
Investors favoring the plan said it offered liquidity by allowing them to sell their shares if needed. The Malkins also said that the Manhattan tower has been hamstrung by an archaic governance structure, and that as part of a REIT it would be able to raise debt and equity to boost growth prospects.
Holders of another office building slated to be part of the REIT, 60 East 42nd St., formerly known as the Lincoln Building, have mostly approved the IPO, according to the Malkin filing today. Six of the seven groups into which that building’s investors are divided have provided the necessary supermajority, which is 90 percent. The REIT can proceed without the completion of that vote, according to the filings.
Once the Malkins declare the voting closed, holdout investors in the Empire State Building will have 10 days after receiving official notice to reverse their votes, or else receive a token $100 for each of their shares, estimated to be worth more than $300,000 apiece.
The Malkins may be keeping voting open to avoid having to offer the buyouts to too many investors, said David Kaufman, a partner at the Chicago law firm Thompson Coburn LLP, who isn’t involved in the transaction.
“They could close this thing tomorrow,” said Kaufman, who has led more than $8 billion of securities offerings, according to his firm’s website. “The calculus must be that once you got over that threshold, a bunch of the dissenters will now just fall in line.”
A group of Empire State Building investors, including Grand Central Terminal owner Andrew Penson, were rejected last month in New York State Supreme Court when they sought to have the $100 provision declared illegal under the state’s limited liability law. They argued that the provision unfairly coerces them into voting for the transaction.
The group has appealed the decision, and has filed a motion for a stay. They were denied interim relief.
“The decision of the appellate court on whether the vote was conducted illegally under New York state LLC law is what investors in the Empire State Building are waiting for,” Richard Edelman, a leader of the dissenting group, said in an e-mailed statement. “Like a presidential election and national health care, judges in robes are the deciding vote.”