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.”
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