Businessweek
Grand Central Owner Opposes IPO of Empire State Building
By David M. Levitt on February 20, 2013


The owner of Manhattan’s Grand Central Terminal is part of a legal battle against the supervisors of the Empire State Building, teaming with investors opposed to an initial public offering of the landmark tower.

Andrew Penson, who controls a company that bought the railway terminal in 2006, has filed two affidavits in support of a group of Empire State Building investors who are trying to block a settlement of a class-action lawsuit against Malkin Holdings LLC, which is seeking to include the skyscraper in a real estate investment trust that will go public. In the filings, Penson said the proposed IPO will inflict “vast harm” on the about 2,800 co-investors in the tower whose votes the Malkins are soliciting.

Penson is among higher-profile investors in a dispute between Malkin Holdings and a number of the unitholders in Empire State Building Associates LLC, which owns the Midtown tower. The dissidents say disadvantages to a REIT (BBREIT) include the potential loss of a reliable income stream that should rise as renovations are finished, while the Malkins have said their proposal would give investors liquidity and greater growth opportunities.

“You’ve got an awful lot of litigative real estate owners in New York,” Lawrence Longua, an associate professor at New York University’s Schack Institute of Real Estate, said in a phone interview. “But they’re usually litigative with respect to their tenants and brokers. To see this happening at this level, if you will, I would use the word extraordinary,” he said of Penson and Malkin.

Hearing ScheduledThe plaintiffs in the class-action case on Jan. 18 asked for preliminary approval of the settlement. The Penson group filed a request on Jan. 28 asking for permission to intervene in the case and to file a separate complaint. The next day, the group objected to preliminary approval of the settlement. The judge is scheduled tomorrow to hear arguments on those requests.

Penson is a member of a limited liability company that owns about 10 Empire State Building Associates units, he said in an affidavit filed yesterday in the New York State Supreme Court in Manhattan. In that statement, he claimed Malkin Holdings President Anthony Malkin listened in on a conference call with about 450 investors and an attorney in the case, even after the call’s coordinator requested that any representatives of the family disconnect.

“After the call concluded, Anthony Malkin called me,” Penson said in the affidavit. “Among other things, he told me he had listened in on the call.”

Penson declined to comment for this story.

Malkin didn’t listen to the call, nor did he “represent” that he did, Hugh Burns, an outside spokesman for Malkin Holdings with Sard Verbinnen & Co., said in an e-mailed statement.

Listening In“However, Malkin Holdings is a large ESBA investor itself and members of its management team act as agents for all ESBA investors,” Burns said. “Therefore it is entirely appropriate for representatives from Malkin Holdings to listen to ESBA investor calls such as the one held Feb. 7, and they intend to do so in the future.”

Penson, in an affidavit filed Jan. 28, called the proposed class-action settlement “grossly unfair to participants of ESBA such as myself.”

‘Disgruntled Investors’In an answer filed with the court and dated Feb. 8, attorneys for Malkin said the motion by “six disgruntled investors, including the sophisticated owner/operator Andrew Penson” is “a publicity stunt, engineered by a handful of investors who have campaigned against the transaction using half-truths and outright lies. Apparently realizing that they are likely to lose the current ongoing vote, they seek to confuse the investors, delay the process and thwart an obviously beneficial settlement.”

The unitholders in Empire State Building Associates hold 3,300 shares worth $323,803 or $358,670 each, depending on certain conditions, according to the prospectus for the transaction. The Malkins, in the prospectus, have asked them to vote to approve the REIT by March 25. Voters representing 80 percent of the units must approve the plan for the IPO to proceed.

A Penson-controlled company, Midtown Trackage Ventures LLC, bought Grand Central Terminal in 2006 from companies holding the assets of the bankrupt Penn Central Railroad. The terminal is leased to New York’s Metropolitan Transportation Authority.

Penson’s investment firm, Argent Ventures LLC, controls about 1.3 million square feet of transferable development rights, which may become more valuable if a plan to allow for taller skyscrapers in the Grand Central area becomes law. Argent also owns Hollywood, California’s landmark Capitol Records building and once owned a stake in New York’s Chrysler Building, according to the company’s website.

The case is Meyers v. Empire State Realty Trust Inc. (ESB) 650607/2012, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: David M. Levitt in New York at [email protected]

To contact the editor responsible for this story: Kara Wetzel at [email protected]


http://www.businessweek.com/news/2013-02-20/grand-central-owner-opposes-ipo-of-empire-state-building

By Ilaina Jonas

NEW YORK | Tue Feb 19, 2013 9:10pm EST


(Reuters) - An offer by MacKenzie Capital Management LLC to buy 170 units from the owners of the Empire State Building has largely fizzled, according to regulatory documents filed on Tuesday.

MacKenzie made the offer of $110,000 per unit to investors in Empire State Building Associates LLC in December. By the February 8 deadline, MacKenzie had acquired only 13.83 units, according to the filing. There are 3,300 units in total.

The offer came as Malkin Holdings LLC, which manages the building and its investors, continued trying to persuade them to back its plan to make the skyscraper the centerpiece in a publicly traded real estate investment trust. The proposed REIT, to be called Empire State Realty Trust Inc (ESB.N), would contain more than 18 other properties, with most located in Manhattan. MacKenzie has said it would cast its votes in favor of the REIT proposal.

The plan requires the approval of holders of at least 80 percent of each of three groups owning 1,100 units. Malkin Holdings has estimated that in an initial public offering, each unit would be worth about $324,000, according to SEC filings. Those units originally sold in 1961 to small investors for $10,000.

MacKenzie, based in Moraga, California, offered to buy the units on behalf of funds it manages. The company specializes in buying illiquid real estate-backed securities, such as non-traded REIT shares, limited partnership units and private real estate notes.

(Reporting by Ilaina Jonas, editing by Prudence Crowther)

http://www.reuters.com/article/2013/02/20/us-empirestatebuilding-tenderoffer-idUSBRE91J03I20130220

David Robertson New York
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.

 By Kaitlin Ugolik
Law360

 New York (January 29, 2013, 2:38 PM ET) -- A group of investors in the company that owns the Empire State Building sought Monday to intervene in a putative class action over the owner's plans to take its assets public, saying the $55 million settlement reached in November is “grossly inadequate and unfairly apportioned.”

Several investors in Empire State Building Associates, who originally bought public securities issued for the purpose of owning the iconic building in the 1960s, argue that the court should deny a recent request to certify the existing class and that ESBA participants should be admitted as a subclass.

The ESBA participants claim they would be uniquely harmed by the proposed roll-up of Malkin Holdings LLC's properties and the associated $1 billion initial public offering because, as part of their original investment agreement in the Empire State Building, they obtained an explicit ban on such a conversion of the property without their consent.

“The proposed settlement — just $55 million — amounts to barely 1 percent of the value of the roll-up, and is a tiny fraction of what the Malkin defendants are stealing from the ESBA investors,” the ESBA participants said in their memorandum in opposition to the class' recent motion for certification. “To add insult to injury, while the Helmsley estate — the majority owner of the operating lessee of the ESB — is paying a portion of the settlement, it is unclear how much if anything the Malkin defendants are paying.”

Malkin Holdings announced in February that it planned to allow the public to invest in 12 office buildings in New York and Connecticut, including the 102-story Empire State Building, through shares offered by a new publicly listed REIT to be known as Empire State Realty Trust Inc.

Many investors promptly objected, with at least five separate lawsuits filed in March, including the group of investors who filed the present class action, claiming Malkin Holdings breached its fiduciary duty by agreeing to a transaction that could deprive the investors of millions of dollars.

After months of negotiations and a change to the proposed IPO's tax terms, Malkin Holdings and the estate of Leona M. Helmsley agreed in November to pay the class $55 million to settle their claims.

But the ESBA investors say they are not adequately represented by the class, which is made up primarily of investors in the other properties that would be rolled up to create the REIT.

They are allegedly being forced to trade their low-risk, bond-like securities for high-risk equity securities, losing their iconic brand and the corporate opportunity to buy the Helmsley estate's interest, all on top of years of alleged self-dealing and other fiduciary abuses at the hands of Malkin Holdings, according to the memo.

In addition, the settlement — of which they would only get a small amount — has been disingenuously described as being worth much more than $55 million thanks to the deal's organization as a tax-deferred exchange, according to the ESBA participants.

They also allege that Malkin Holdings has threatened to buy out any investor who opposes the deal at a substantially discounted price, and claim that the company has improperly allocated the value of the Empire State Building roughly 50/50 between ESBA and a joint venture known as the Empire State Building Co., which holds a net sublease at the building — an issue that will only affect the ESBA investors, they argue.

“Their position is very simple: they need to be their own class because they have [endured] special wrongs,” Stephen B. Meister, an attorney for the ESBA investors, told Law360 on Tuesday.

Counsel for the Helmsley estate declined to comment Tuesday, while counsel for the Malkin defendants did not immediately respond to requests for comment.

The ESBA investors are represented by Stephen B. Meister, Thomas L. Friedman and Remy J. Stocks of Meister Seelig & Fein LLP.

The proposed class of investors is represented by Lawrence P. Kolker, Gregory M. Nespole and Lydia A. Keaney of Wolf Haldenstein Adler Freeman & Herz LLP.

The Malkin defendants are represented by Thomas E.L. Dewey and David S. Pegno of Dewey Pegno & Kramarsky LLP. The Helmsley estate is represented by Ronald S. Rolfe and Greg C. Cheyne of Cravath Swaine & Moore LLP.

The action is Leon Meyers et al. v. Empire State Realty Trust Inc. et al., case number 650607/2012, in the Supreme Court of the State of New York, County of New York.

--Editing by John Quinn.
http://therealdeal.com/blog/2013/01/29/empire-state-bldg-investors-decry-ipo-settlement/

Empire State Building REIT Said to End Archaic Structure
By David M. Levitt 
Bloomberg
January 29, 2013 12:35 PM EST
 

A plan to put the Empire State Building into a real estate investment trust will provide simpler management and better access to capital, said Anthony Malkin, president of the company that controls the tower.

The current ownership is “a very inefficient, archaic structure, mostly established by my grandfather for tax purposes,” Malkin said in an interview today on Bloomberg Television’s “In The Loop” with Betty Liu. “It was a way to avoid double taxation and providing a shield from liability for the small investor.”

Malkin is seeking the votes of more than 2,700 investors in the Empire State Building in a solicitation that began last week as he aims to form the REIT and take it public. Some beneficiaries of the company that owns the skyscraper have mounted a campaign to oppose the plan, claiming it shortchanges them. Malkin, in his first public comments about the proposed initial public offering, said today that many of the arguments put forth by two dissidents, cousins Richard and Steve Edelman, are “lies and deceptions.”

A separate group of Empire State Building co-investors today filed a lawsuit in New York State Supreme Court to block a $55 million settlement reached with another set of holders. Stephen Meister, attorney for the plaintiffs, said in the filing that the settlement is “grossly inadequate and unfairly apportioned.”

Malkin declined to comment on the lawsuit after the television interview.

A spokeswoman, Brandy Bergman, said the lawsuit isn’t a setback for the IPO.

“This is a complicated transaction with lots of moving pieces and nothing which has happened has taken us by surprise,” she said in an e-mail. “Any comment we make will be to our investors, which will be filed with the SEC and ultimately will be made public.”

Richard Edelman operates a website critical of the offering. The information in his communications with investors is based directly on the Malkins’ filings with the Securities and Exchange Commission, he said in an e-mail today.

“This is a wonderful deal only if your name is Malkin or Helmsley,” he said.

Steve Edelman, who has conducted conference calls with investors, said he couldn’t immediately address Malkin’s comments.

Among the claims Richard Edelman has made is that representatives of the Malkins have misrepresented their voting rights by telling them that only a yes vote would guarantee that they keep the value of their shares. Malkin, in a Jan. 25 letter, told unitholders that was deceptive.

Richard Edelman is “not being truthful with our investors,” Bergman said. “Our documents are the fact set to which our investors should look for their information to assist them in making their decisions.”

To contact the reporter on this story: David M. Levitt in New York at [email protected]

To contact the editor responsible for this story: Kara Wetzel at [email protected]

Empire State Building IPO Faces Another Potential Setback

By Craig Karmin
Wall Street Journal

In another potential setback to the public sale of the Empire State Building, a group of investors late Monday asked a New York court to block a class action settlement that had paved the way for investors to vote on the sale.

The group of Empire State Building investors is trying to overturn that settlement. It plans to file its own complaint seeking damages of more than $800 million, nearly 15 times the amount of the class action settlement.

The Malkin family, which manages the Empire State Building and is spearheading the sales process, is looking to roll up the building with 20 of its other properties into a new real estate company known as Empire State Realty Trust.

In the fall, the Malkins settled a class action lawsuit by agreeing to pay $55 million, which would be distributed to investors in all buildings that would become part of the publicly-traded company.

The new group of investors say that the amount is too low and that any payment should go directly to owners of the Empire State building, not split among investors in the other properties.

“The proposed settlement is grossly unfair to the Empire State Building investors,” Stephen Meister, an attorney representing the investor group looking to block the settlement, said in an email. “They must have their own separate class and counsel.”

A spokeswoman for the Malkins said they declined to comment.

The new group will ask the New York State Supreme Court to consider their complaint, which says the proposed sale “arises from an unfair and tainted process that results in undervalued interest” for investors.

Many of their objections have been raised by investors previously. For example, the suit says the independent firm that appraised the value of the Empire State Building “assigned valuation figures based exclusively upon data provided by the Malkin defendants.”

The complaint also alleges that the IPO would provide the Malkins with $200 million in “excessive and unfair” fees related to projected future profits from the Empire State Building.

If the court approves the request, it could delay the Malkins plan for the IPO. It’s unclear how the court will respond.

The Malkins need 80% of the shares held by 2,800 investors to approve the REIT proposal. Investors have until at least the end of March to vote on the proposed sale.

The Malkins spent much of last year responding to criticism of their plan. While the family has told investors that opponents represent a minority view, it hasn’t stopped the Malkins from personally taking on some of the dissidents.

In a letter sent to investors dated Jan. 25, and filed with the Securities and Exchange Commission, the Malkins wrote about two prominent opponents to the plan:
“Richard Edelman and Steven Edelman have been and are making statements and assertions which are in our view nothing more than lies and deceptions.”

Richard Edelman said he used SEC documents, filed by the Malkins, “to support my argument.”

By Ilaina Jonas and Joseph Ax
Reuters

NEW YORK | Mon Jan 28, 2013 11:09pm EST


Jan 28 (Reuters) - A group of investors in the company that owns the Empire State Building filed a motion on Monday to block a proposed settlement of a lawsuit against a group looking to create a public company with the historic building as its centerpiece.

Several investors in Empire State Building Associates (ESBA), which owns the building, said their skyscraper and investment are vastly different than the other properties involved in the settlement. As such, they believe they should not be bound by the proposed settlement.

"The settlement is both grossly inadequate and unfairly apportioned," the filing in the New York State court said. "The ESBA investors must be treated as a separate class and must be independently represented."

Malkin Holdings LLC's plans to roll up more than 18 properties into the Empire State Realty Trust Inc, which would become publicly traded if the investors approve the roll-up.

Last year, investors in several of the properties sued to stop the plan, in part because they objected to the tax treatment they would face.

In October, Malkin Holdings and other defendants agreed to pay $55 million payment to settle the suit. Under the proposed agreement, which must receive court approval, the class participants have agreed to support roll-up and the proposed initial public offering. The payment and the settlement are conditional upon the approval of the roll-up and the IPO.

But the investors who objected to the settlement on Monday say they have different interests than investors in the other properties and should not be grouped in with them, according to court documents. They said they are being forced to trade their bond-like, low-risk participation units for high-risk equity shares. They also said the roll-up would dilute the brand of the Empire State Building, one of the world's most recognized skyscrapers.

A representative from Malkin Holdings declined to comment.

Many of the 2,800 investors in the Empire State Building are the children or grandchildren of the original investors who paid $10,000 apiece in 1961 to buy the lease on the property. The building was then subleased for 114 years to a joint venture between Lawrence Wein, a pioneer in real estate syndication ownership, and Harry Helmsley.

The Malkin Group is led by Peter Malkin, Wein's son-in-law, and Anthony Malkin, Wein's grandson. The Empire State Realty Trust was proposed after the Helmsley Trust said it needed to cash out its position.

http://www.reuters.com/article/2013/01/29/property-empirestatebuiding-idUSL1N0AY0M920130129

By Ilaina Jonas

NEW YORK | Tue Jan 22, 2013 11:32am EST


(Reuters) - The company that controls the Empire State Building has begun asking investors to vote on a plan to fold the iconic building into a new real estate investment trust (REIT) that will eventually be publicly traded, according to regulatory documents filed Tuesday.

Malkin Holdings LLC is asking investors in one of the world's most recognizable buildings to vote on the plan to make the building the centerpiece of more than 18 properties in Empire State Realty Trust Inc, according to a filing with the U.S. Securities and Exchange Commission.

The more than 2,800 investors have until March 25 to vote. Although investors in two other properties will also cast votes, the viability of the proposed REIT depends upon the inclusion of the Empire State Building.

If the Empire State Building investors approve the proposal, the new company will move ahead with its plan to become a publicly traded company, launching an initial public offering (IPO) of shares.

The REIT proposal has divided the Empire State investors. Some believe Malkin is getting too much from the split of the ownership at their expense, while others support the plan as a way to cash out of a long-term investment they inherited from parents and grandparents.

The 2,824 investors hold 3,300 units that originally were sold for $10,000 in 1961 in Empire State Building Associates, the company that owns the building. The investors were divided into three groups holding 1,100 units per group. The REIT plan requires the approval of holders of at least 80 percent of the units in each of the three groups.

The initial $10,000 investment is estimated to be worth about $323,803 or $358,670 depending upon how the initial investor opted to structure the investment more than 50 years ago, according to the filing. However, that could be different than ultimate value to be determined by the stock market if the IPO proceeds.

As of September 30, 2012, the Empire State Building's office space was 67.4 percent leased, with tenants including Coty Inc. Its retail space was 85.9 percent leased.

(Reporting by Ilaina Jonas; editing by Matthew Lewis)

Bloomberg News Empire State Building IPO Vote Can Proceed, SEC Says
By David M. Levitt on December 28, 2012

http://www.businessweek.com/news/2012-12-26/empire-state-building-ipo-vote-can-proceed-u-dot-s-dot-regulators-say

 The company that controls the Empire State Building can go ahead with a vote to allow the iconic New York skyscraper to be included in a proposed real estate investment trust.


The U.S. Securities and Exchange Commission issued a “notice of effectiveness” today for the plan to ask about 2,800 co-investors in the tower to approve the conversion of their interests into units of Empire State Realty Trust Inc. (ESB), a REIT proposed by Peter Malkin and his son Anthony. Empire State Realty filed in February to raise as much as $1 billion in an initial public offering.

The determination means the SEC believes the offering document contains enough information for the investors to make an informed decision, said Thomas Voekler, an attorney at Richmond, Virginia-based Kaplan Voekler Cunningham & Frank Plc who specializes in real estate public offerings. A group of investors whose parents and grandparents bought shares in the tower in the early 1960s have challenged the Malkins, saying the offering shortchanges them.

While today’s filing says nothing about the merits of the proposed offering, “it’s a very important step,” Voekler said in a telephone interview. After months of amendments, “the disclosure document is set where it’s going to be set.”

The Malkins want to consolidate the tower and 18 other properties they control in Manhattan and Westchester County in New York and Fairfield County, Connecticut, into a publicly traded company. Malkin Holdings LLC confirmed that the SEC declared the offering statement, known as an S-4, effective.

Investor DissentThe company “will commence its solicitation of investors in due course,” Hugh Burns, a spokesman, said in an e-mail.

Empire State Realty hasn’t specified the number of shares it plans to sell or the price range. The $1 billion is a placeholder amount used to calculate fees and may change when the terms are set.

The Malkins need 80 percent approval from the 3,300 units held by the co-investors to include the skyscraper in the IPO. Unitholders of companies that control 1 Grand Central Place, formerly known as the Lincoln Building, and the Fisk Building at 250 West 57th St. also must approve the plan.

Richard Edelman, a beneficiary who lives in California and runs a website critical of the offering, has said the proposal would deprive unitholders of a reliable income stream that is poised to jump in value as renovations of the Empire State Building are completed. The Malkins have challenged him and other dissidents, saying the planned REIT would reward investors with liquidity and greater growth opportunities.

“You have people who have held onto certificates that have been in their family for a long time,” Voekler said. “This tugs at the heartstrings.”

A separate set of investors agreed in September to settle a class-action lawsuit challenging the proposed offering.

To contact the reporter on this story: David M. Levitt in New York at [email protected]

To contact the editor responsible for this story: Kara Wetzel at [email protected]