By Konrad Putzier
New year, old story: the seemingly never-ending string of accusations and lawsuits over the Empire State Building’s IPO will continue in 2014.
On Christmas Eve, Peter and Anthony Malkin received a summons from the New York State Supreme Court. Marc Postelnek, an investor in the Empire State Building, is suing them on behalf of 3,000 other investors for breach of fiduciary duty. According to the complaint, the Malkins in bad faith deprived the skyscraper’s investors of a total of $410 million by taking it public rather than selling it to a private bidder.
On October 1, the Empire State Building went public along with 17 other Malkin-controlled properties as Empire State Realty Trust, for $13 a share. The Malkins, who controlled the Empire State Building through their stake in the building’s profitable 114-year lease, had previously won the necessary approval of 80 percent of the investors.
So far, so good. But the complaint alleges that the Malkins received several private bids for the skyscraper starting in June 2013 of up to $2.3 billion – significantly more than the $ 1.89 billion it ended up fetching through the IPO.
“The Malkins spurned the all-cash premium offers even though they knew or had reason to know that the prices offered by the bidders were hundreds of millions of dollars greater than the value that the Malkins reasonably could achieve for the Empire State Building through the IPO,” Postelnek said in the complaint.
“By rejecting these offers and proceeding with the public REIT, the Malkins unjustly enriched themselves at the expense of the Participants, whose interests they were required by fiduciary duty to safeguard and promote.”
The complaint alleges the Malkins wanted to pursue the IPO at the expense of the investors because it allowed them to package several less attractive properties with the Empire State Building, raising their value.
“Our goal is not to undo the IPO, but to obtain money damages for all those who were harmed by the Malkins’ refusal to consider the bids,” the plaintiff’s attorney John Rizio-Hamilton said. He added that the court hasn’t released a schedule for the case yet.
A spokesperson for the Empire State Realty Trust dismissed the accusations: “These claims are wholly without merit, and we will respond to them in court.”
This isn’t the first lawsuit to challenge the IPO. In May, a class-action suit by investors led to a $55 million settlement. A separate lawsuit was directed against a forced buyout of those investors who opposed the IPO.
The Plaintiff Postelnek is the heir to one of the original investors in the Empire State Building in 1961. That year, Lawrence Wien and Harry Helmsley took control of the Empire State Building with the help of a myriad of small-time investors. While the investors owned the building, the two tycoons secured a 114-year lease that gave them a large share of the building’s profits and has become immensely profitable.
In the 1990s, Wien’s and Helmsley’s heirs, Peter Malkin and Leona Helmsley, fought for control of the building’s management in several lawsuits. Following Leona Helmsley’s death, Peter Malkin and his son Anthony effectively became managers of the Empire State Building.
The Malkins had been working on the IPO for more than two years before it finally succeeded. The new REIT, with Anthony Malkin as chairman, includes 18 office and retail properties in Manhattan, Fairfield County and Westchester. On Monday, December 30, at noon, the REIT was trading at $15.30 a share.