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Another Investor Sues to Stop Sale of Empire State Building

3/7/2012

2 Comments

 
By Craig Karmin Wall Street Journal
Another investor is suing to stop the public sale of the Empire State Building, marking the second time in a week that investors have gone to court to halt the process.

Using similar language as in the first suit, the complaint filed on Wednesday alleges that the Malkins, the family overseeing the initial public offering process, are short-changing the investors who own the famous building.

The lawsuit says that the Malkins received excessive fees for their role as manager of the building and that the Malkins “structured the transaction to benefit their own interests at the expense of” other investors.

Like the first complaint filed last week, the second lawsuit was also filed in New York state supreme court and asks the court to block any IPO process that isn’t “fair and equitable.”

While the new lawsuit echoes the charges of the first, legal experts say it is a sign that some attorneys feel the charges could have some merit or that the investors have a case.

A spokeswoman for the Malkins said in a statement: “This is a baseless lawsuit and it goes without saying that we will vigorously oppose it.”

The Empire State Building is controlled through a complex structure in which some 2,800 investors have a say in the deal.

Last month, the Malkins filed a prospectus with the Securities and Exchange Commission to create a real estate investment trust, known as the Empire State Realty Trust Inc., that would include the Empire State Building and 17 other Malkin properties. The filing said the famous skyscraper was valued at $2.52 billion and the offering is expected to raise up to $1 billion.


Click here for link to article at WSJ website.  Subscription to WSJ may be required.
2 Comments
Robert A. Machleder
3/9/2012 10:45:36 pm

One radical aspect of the proposed offering by Malkin Holdings is the matter of the “overrides.” The governing agreements for the entities in the proposed roll-up and consolidation are clear that the overrides to the supervisor (presently Malkin Holdings) are contingencies. They are not nor were they ever grants of equity interests in the properties. They were designed as a contingent benefit based on the particular property’s performance; a percentage of actual distributions to the investors after the investors received a designated return on investment. In this proposed REIT the Malkins have converted the overrides into an equity interest in the consolidated entity. They have capitalized their past overrides -- by a method that has not been described or disclosed (and does not appear to have involved the “independent valuer,” Duff & Phelps) -- and awarded themselves what amounts to an equity interest valued in excess of $300 million for which they will receive stock and/or operating partnership units in the REIT. This equity interest is concrete -- not contingent upon or subject to future distributions to the investors. In fact, the “overrides” will stand in pari passu with the equity interests of the investors; the shares allocated to the overrides will receive distributions at the same rate as the shares allocated to the investors and will be saleable just as other shares in the REIT.

The underlying objective of the Malkin proposal is to dismantle the fundamental economic dynamic of the investments created by Lawrence Wien and create an entirely different dynamic; one that dilutes the interests of the existing investors, freezes out entirely those who are “non-accredited,”and, through this radical transformation, shifts the primacy of economic benefit from the investors to themselves.







Reply
Revsykes
3/2/2013 08:05:04 am

Mr. Machleder:

I am an investor in ESB and am interested in your suit. The Malkins' contention that the granting of the override was voluntary is a bald-faced lie. I received their correspondence at the time. If ESB investors did not grant them the rights they sought, they threatened to buy out the holdouts' interests at a low price, the same as they are doing now. They tell investors that the Malkins are getting the same deal as other investors. Hogwash. They are getting the same deal as us plus 10% of all we get forever. If it such a good deal, let them waive the override and take the same deal as those the investors. They have little shame -- did you see they are now offering investors a name on a plaque in the Empire State Building? How stupid do they think investors are?

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