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Empire State Building paid $10 million for REIT fees

4/11/2012

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Empire State Building IPO could bring big tax bill

4/10/2012

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By Ilaina Jonas

NEW YORK, April 9 | Mon Apr 9, 2012 8:07pm EDT

(Reuters) - Malkin Group's plans to make the Empire State Building the centerpiece of a real estate investment trust have hit another snag -- long-time investors in the building could be vulnerable to huge tax hits, according to filings with the U.S. Security and Exchange Commission.

The tax bills could be triggered by differences in the type of shares investors would receive compared with the type of shares the Malkin family would receive.

Under the plans, much of the Malkin Group's contribution, including the operating companies owned by another Malkin family company, the Wein Group, would be paid in B shares and operating, or OP, units. Such units are often granted to owners who contribute their property into a REIT and are granted the same dividends and often the same voting power as shares.

OP units are used in estate planning because they do not trigger U.S. taxes until they are converted to shares. That is usually done after the original contributor's death, whose heirs then face much lower taxes.

Under plans for the REIT's IPO, the long-time investors and their heirs are given no such OP units. Their shares face a 180-day lock-up in which they cannot be sold but can be taxed.

The Helmsley Trust, which stands to make the biggest windfall, has negotiated a deal to take its shares in cash. As a charity, it pays no taxes. Small investors' cash portion cannot exceed 15 percent of the offering, according to one of the SEC documents.

An initial public offering in the REIT also would give the Malkins super-charged Class B shares worth 50 votes, while the Class A shares given to the original investors who own the building have only one vote per share.

A spokeswoman for the Malkin Group declined to comment.

Fighting between the Malkins and some of the nearly 3,000 investors who bought into the partnership in 1961 has so far ignited five lawsuits. Investors want class-action status and the removal of Malkin Group President Anthony Malkin as supervisor, according to the lawsuits.

The lawsuits say that plans for the REIT, to be called Empire State Realty Trust Inc, are skewed in favor of Malkin Group. Investors have accused the Malkin Group and the Helmsley Trust of incorrectly claiming half the ownership of the building and two other properties, the lawsuits show.

The same family company and the trust own less than 10 percent of the three properties, including the Empire State Building, according to the lawsuits.

"The partners are caught in a bind here because most of them would like the opportunity to free up their shares. But they would like a fair deal presented to them," said Lawrence Sucharow, an attorney for one of the investors.

The Malkin family's shares and operating units would be valued at about $642.2 million, according to the SEC filings.

They would also receive $328.5 million in "override interests," which the plaintiffs have called "excess management fees," according to the lawsuits.

The SEC is reviewing the IPO filing, and the company expects to submit several preliminary filings to address any SEC comments, according to a letter recently sent by the Malkin Group to investors.

In the letter, the group said it expected several months to pass before the SEC would allow it to present an IPO plan to investors, who would then have to vote on it.

In 1961, Anthony Malkin's father, Peter Malkin, and others created the Empire State Building Associates partnership, which sold 3,000 units at $10,000 each to buy the lease on the building. The partnership was later converted into a limited liability company. In 2002 Empire State Associates, run by the Malkin Group, bought the land and the building.

Late last year the Malkin Group filed to combine 18 properties and create Empire State Realty Trust. It filed for an IPO for the REIT in February.

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Empire State Building IPO would shield Malkins from tax liability, other investors exposed

4/9/2012

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The Washington Post

Empire State Building IPO would shield Malkins from tax liability, other investors exposed

By Associated Press, Updated: Monday, April 9, 3:27 PM

Never mind King Kong. Some of the Empire State Building’s owners may face a tighter squeeze from Uncle Sam.

Investors who have a stake in the Manhattan skyscraper could face a towering tax bill if plans to turn the company into a publicly traded real estate investment trust go forward.

Malkin Holdings LLC, which runs the building, filed plans in February to consolidate three of its companies and raise up to $1 billion by selling stock in the new company, Empire State Realty Trust.

Under the plans for the stock offering, Malkin would be allowed to trade some of its interest for operating partnership units. Most other investors in the original companies would get stock and face a heavier tax burden.

That disparity, spelled out in a regulatory filing, could further stoke investor opposition to the IPO. Investors have filed at least three lawsuits in recent weeks taking issue with the structure of the offering.

“There’re two standards — the one that’s good for them and tough on everybody else,” said Richard Edelman, whose grandfather was among the first investors to buy a stake in the skyscraper owner more than 50 years ago.

Edelman, who works in San Diego, launched a website in February that is critical of the IPO and aims to help fellow investors wade through the clutter of regulatory filings.

Under terms of the IPO, Malkin Holdings and affiliates would generally receive operating partnership units instead of common stock. The stock that it does get, plus the operating partnership units, would be tax-deferred.

That’s not the case for the most other investors, who are advised in the filings to consult with a tax adviser because, in some cases, an investor might not be able to receive sufficient cash to pay their tax liabilities.

Investors generally have to recognize a gain or a loss for federal tax purposes, depending on the value of shares of stock they receive.

A Malkin Holdings spokesman declined to comment.

Millions of tourists visiting New York ascend its heights to gape over the city from its observation deck, made famous in films such as “Sleepless in Seattle.” It was 1933’s “King Kong” that showed a giant ape clutching Fay Wray and fending off airplanes atop the tower.

Empire State Realty, which owns and operates 12 properties in Manhattan and greater New York, expects to trade on the New York Stock Exchange under the stock ticker symbol ESB.

By going public, Empire State Realty will be able to tap the equity markets for cash, something real estate investment trusts have had a lot of success doing, even in a wobbly economy.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Empire State Owners Go Ape Over IPO Tax Issue

4/8/2012

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Wall Street Journal

Empire State Owners Go Ape Over IPO Tax Issue

COMMERCIAL REAL ESTATE
Updated April 8, 2012, 8:47 p.m. ET

Empire State Owners Go Ape Over IPO Tax Issue

By CRAIG KARMIN

The fight over the proposed Empire State Building public offering, which has aroused King Kong-size passions, has moved to a new battleground: a spat between small investors and the Malkin family over taxes arising from the iconic skyscraper's coming listing.

The tax bill from the initial public offering could more than wipe out any cash many of the 2,800 investors would initially receive from the sale, according to filings with the Securities and Exchange Commission.

Enlarge Image

Everett CollectionIPO of Empire State Building, pictured in 'King Kong,' fuels a tax spat

The Malkins, who control the building and are spearheading the IPO, would receive a different treatment. They would be allowed to defer some of their tax and could be reimbursed about $83 million for other tax liabilities, the filings say. A spokeswoman for Anthony Malkin, president of Malkin Holdings LLC, declined to comment about their tax treatment.

"Some people could end up sending Uncle Sam a couple hundred grand," said Peter Benjamin, an investor with a small stake who retired near Greenville, S.C. "I question whether this truly is the best deal for investors."

Robert Robbins, head of the corporate-securities practice at Pillsbury Winthrop Shaw Pittman LLP, said it is unusual for certain investors to get different tax treatment than the rest.

"Many of these people are going to have an enormous tax bill that is way in excess of any cash they will receive from the IPO," he said.

The tax issue is the latest criticism from Empire State Building investors of this closely watched proposed public offering. Some investors have owned stakes since control was acquired in 1961 by Harry Helmsley and Lawrence Wien, Mr. Malkin's grandfather.

Five lawsuits have been filed in New York State Supreme Court attempting to block the sale by alleging that it isn't fair and equitable or to challenge the offering's terms. A spokeswoman for the Malkins has called the lawsuits "baseless."

The plan requires approval from 80% of the partnership units held by approximately 2,800 current investors. No date has been set for that vote. The Malkins control the voting rights for about 8% of these units, while the Helmsley stake is primarily in a separate partnership that isn't part of that vote.

Some think tax concerns are so severe that owners will either reject the proposed sale or force the Malkins to rewrite tax treatment and other parts of the offering, subject to change.

"I'm not happy to give my consent on a plan that may have unfair consequences for some of the investors," said Jeff Klein, an investor in Stamford, Conn.

A number of investors have been meeting or emailing each other to discuss the IPO's tax ramifications and, in some cases, organize opposition. Many are retired seniors and may not be in position to pay their taxes without dipping into savings. One investor near San Diego has created a website to generate opposition to the IPO under its current terms. "We are getting shortchanged by this process," said Richard Edelman, creator of the website, who added that thousands of visitors have clicked on it.

The proposed IPO has no set timetable but is expected to be months away. The new company, to be named Empire State Realty Trust Inc., will include 17 other properties in New York and Connecticut and be a real-estate investment trust valued at about $4 billion. The Empire State Building alone was appraised at $2.52 billion.

A nonprofit foundation named for Leona and Harry Helmsley would receive the largest stake in the REIT, valued at about $1 billion, according to the filings. The trust won't be taxed because it is a charity.

The Malkin real-estate family would get the second-largest stake, valued at $642 million.

Taxes on capital gains would be coming due for thousands of investors, because the value of the Empire State Building has appreciated severalfold over 50 years.

Under the proposed structure, the 2,800 owners initially must take most of their stake in the new company in stock and are limited to no more than 15% in cash, the filings say. These restrictions were applied so the new company could qualify for favorable tax treatment from New York, the filings say. The investors have to wait six months before they can sell any stock, according to the offering. But federal and local tax bills on the full amount of their gains could hit them faster. That would amount to between 24% to 35% of those gains, tax attorneys estimated. Some may end up paying more.

Those tax liabilities could be due the April following the IPO. "As a result of the cap on the cash option…you may not be able to receive sufficient cash to pay your tax liabilities, " the SEC filings say.

"It's all quite mysterious," said Robert Wachs, a New York City-based investor, of his tax implications. For now, he said, "I'm absolutely not voting for it."

The new public company, led by Mr. Malkin, will also be able to delay future share sales if they feel it will flood the market and hurt the price. Investors can sell half their shares six months after the IPO but may not be able to sell the rest for up to 18 months, the filings say.

The SEC documents also spell out the different tax treatment for the Malkins. "Unlike other holders of participation interests" the Malkins "will receive their interests in what are expected to be tax-deferred transactions," the documents say.

The Malkins may also be reimbursed for certain tax liabilities related to some Connecticut properties. that are being rolled into the new company. The Malkins' tax reimbursement could be for around $83 million, according to securities filings.

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The Malkin family will have too much control over the Empire State Building

4/8/2012

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Voice of America April 6, 2012

Article: American Life & CultureThe Empire State BuildingVoice of America's Learning English Service 06 April 2012

Read and listen to the article. Then open the activities on the right side of the page to improve your English!

Or download MP3 (Right-click or option-click and save link)

The Empire State Building

The Empire State Building is in New York City. It has 102 floors. There is an observatory on the 86th floor. An observatory is a place where people can go to see a great view of the city. People from all around the world visit the observatory. It is one of New York City’s most popular tourist attractions.

A company owns the Empire State Building. This company wants to sell one billion dollars in shares. A “share” is a part of a business that people own. The public will be able to buy some of these shares.

The Malkin family owns a lot of shares. The family spent almost $500 million dollars on the Empire State Building. They wanted to fix it and make it modern. The family plans to buy more shares. They will spend millions of more dollars on the building.

Some people are not happy. They think the Malkin family will have too much control over the Empire State Building. They want a judge to stop the Malkin family from buying more shares

Click here for Article

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Empire State Building paid $10 million for REIT fees

Empire State Building IPO could bring big tax bill

Empire State Building IPO would shield Malkins from tax liability, other investors exposed

Empire State Owners Go Ape Over IPO Tax Issue

The Malkin family will have too much control over the Empire State Building

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