Last updated at 12:01AM, January 30 2013
An $800 million roadblock has been thrown in front of the proposed stock market flotation of the Empire State Building after a group of small investors objected to the “theft” of their property.
The shareholders filed a motion on Monday night seeking to block an earlier compensation settlement that would have given them $55 million (£35 million) to allow the initial public offering to go ahead. The investors are demanding at least $800 million and may block the listing entirely.
The flotation of the $2.5 billion Empire State was proposed last year by Malkin Holdings, the family controlled property company that manages the landmark building and owns about 8 per cent of the shares in it.
The Malkin family plans to roll between 18 and 21 Manhattan properties into a $4 billion real estate investment trust that would have the Empire State as its crown jewel.
The Empire State Reit would be listed on the New York Stock Exchange, enabling investors in the various buildings to convert their holdings into tradeable shares.
The Malkins agreed to pay $55 million to investors in the various Reit buildings to settle a number of claims, including concerns that the deal would net the company about $200 million in fees.
However, small investors believe they are getting a bad deal out of both the IPO and the compensation settlement. Many of them inherited their shares in the Empire State from the building’s original backers. To finance its construction, which began in 1930, the developers sold shares, or units, to their friends and acquaintances for $10,000 each. Those shares are now worth about $330,000 each. Many of the investors regard them as family heirlooms and are unhappy about losing control of the building.
The shareholders have also complained that the valuation of the building is based on data supplied by Malkin Holdings and have taken issue with a proposal that would give the Malkins 50 voting shares for every common share the family owns in the Empire State, in effect handing them control of the Reit.
The investors are seeking damages for the economic value that they claim they will lose as a result of the IPO.
The motion states: “The proposed settlement — just $55 million — amounts to barely 1 per cent of the value of the [Reit] and is a tiny fraction of what the Malkin Defendants are stealing from [Empire State] investors. Their damages are both vast and unique. They are being forced to trade low-risk bond-like securities for high-risk equity securities; their iconic brand is being confiscated so that the investors in the other properties can benefit at [their] expense.”
A spokesman for Malkin Holdings said: “This is not a new lawsuit, but rather a motion filed by a handful of ESBA investors seeking to block the settlement entered into last fall with a group of investors representing all of the entities. Typically, the lawyers who bring these sorts of motions hope to collect significant fees if their motion is successful.
“This motion contains numerous false allegations and misleading statements, which we will address in communications with our investors and which will be filed with the SEC and ultimately become public. Importantly, no matter what the outcome of this process, we are proceeding with the consent solicitation and, upon investor approval, the consolidation and IPO. We have been told by the plaintiffs’ attorneys with whom we settled that they will oppose this motion vigorously, and we have agreed to support them in that opposition.”
The Empire State Building is undergoing a $550 million investment to upgrade its office space and help it to attract larger companies as tenants.