By Orlando Lee Rodriguez
The initial public offering for the Empire State Building could be in jeopardy if a Supreme Court judge presiding over the case decides in favor of stakeholders who are against forming a REIT.
Malkin Holdings LLC — which manages the portfolio — has said it will buy out investors at $100 for every $10,000 they paid for a stake in the world famous office building if they don’t vote in favor of REIT formation.
Now Justice O. Peter Sherwood has to decide whether that is even legal.
The proposed Empire State Realty Trust, owned by Malkin Holdings LLC, has told stakeholders that it is delaying a vote on its IPO until at least April 8, the date Judge Sherwood has given both parties to file briefs on the buyout, according to Bloomberg News.
In a preliminary conference in the case — Meyers, Leon vs. Empire State Realty Trust — in the Civil Branch of the New York County Supreme Court, Justice Sherwood adjourned the case until May 2 for trial, according to New York State Unified Court System records.
The buyout proposal, if found legal, would mean that once a majority vote of 80 percent is reached, investors who are opposed would have 10 days to switch their vote or be penalized with a $100 share buyout. In a Securities and Exchange Commission filing dated March 22, Malkin referenced a March 14 letter to stakeholders saying that close to 60 per cent of stockholders support the plan. The SEC filing also says that Malkin Holdings has the right to alter the voting dates.
“As most participants are aware, at a court hearing on February 21, an attorney who represents a small group of dissident investors attempted to stop the vote process for ESBA,” Peter and Anthony Malkin said in the SEC filing. “The judge in the case has stated he intends to rule on the matter by May… during this time, Malkin Holdings will continue to move forward with the vote on the proposals.
“We remind everyone that the sooner the proposed consolidation is approved, the sooner the expenses may be brought to an end, and the sooner participants can receive the many benefits of the proposed consolidation.”
The IPO, which is being underwritten by Bank of America and Goldman Sachs, would be the second largest ever for a real estate investment trust in the United States, according to the Wall Street Journal. If completed, the REIT would be listed on the New York Stock Exchange.
However, stakeholder Andrew Penson, president of Argent Ventures, which owns Grand Central Terminal, said that the proposed REIT structure could be problematic when it comes to price valuation. Penson has filed two affidavits in support of opponents.
“There’s a Class A, Class B voting structure here, wherein Malkin keeps voting control for himself essentially,” Penson told Bloomberg News. “That is a structure that institutional investors, mutual funds and the like really stay away from.”
Empire State Building Investors, an independent group of stakeholders, maintains a website that outlines how owners can vote “no” on the IPO proposal. The site contains links to class action court filings, building cash flow statements and news articles.
“In a lot of cases, the current owners are the children of original owners, these are family heirlooms,” said stakeholder Richard Edelman to the Financial Times. Edelman’s grandparents bought a stake in the Empire State Building in 1962.
“Over half of these owners are in their 80s and have no interest in going into something akin to the stock market,” he said. “About 40 per cent [of Empire State Building investors] are telling us they are voting no.”