A New York judge signaled on Monday he would probably allow the group that controls the Empire State Building to include the fabled New York landmark in a public stock offering, despite objections of dissident investors.
Malkin Holdings wants to roll the 102-story tower in midtown Manhattan into a real estate investment trust with 18 other properties and launch shares on the New York Stock Exchange through an IPO that could generate $1 billion. The REIT, Empire State Realty Trust Inc, is estimated to be valued at about $4.2 billion.
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A small group of investors, some of whom have held small stakes in the building for decades or inherited them, is seeking to stop Malkin, but on Monday they received a clear indication they were heading for defeat.
"My tentative view is that this matter is pretty straightforward," said New York State Supreme Court Justice O. Peter Sherwood, noting that he was leaning toward giving the green light to the Malkin plan. He said he would issue his written decision by the end of Tuesday at the latest.
The building, which ranked as the world's tallest for four decades after its completion in 1931, is one of the most recognizable features of the New York City skyline.
For the Malkin group - which has ownership in all the properties proposed for the REIT - the plan would value its stake as much as $714 million after the REIT goes public.
The Leona Helmsley estate, a major investor in the company that sublets and manages several of the properties proposed for the REIT, could see its stake valued at about $1.03 billion, according to an filing with the U.S. Securities and Exchange Commission. It would reap about $672 million of the total in cash.
The Empire State Building's complicated ownership goes back more than 50 years, when attorney Lawrence Wien pioneered some of the first real estate syndications that allowed smaller investors to own a piece of big office buildings, once only available to the very wealthy.
He formed a partnership, Empire State Building Associates LLC, in 1961 to raise money by selling 3,300 participation units at $10,000 a piece to buy the 114-year master lease on the building. As part of the offering, the lease was sublet to Empire State Building Co, which he and real estate mogul Harry Helmsley created to control the property.
Wien, who gave millions of dollars to his alma mater Columbia Law School, Brandeis University, and to Lincoln Center for the Performing Arts, died in 1988.
His son-in-law Peter Malkin had served as his partner since 1958. In 1989 Peter Malkin was joined by his son Anthony Malkin to manage the investment along with several others.
The elder Malkin is now chairman of Malkin Holdings and his son is president.
OBJECTIONS TO PLAN
The Malkin plan requires the support of at least 80 percent of each of three groups of investors in the tower.
Once Malkin reaches that threshold, it claims the right to force holdouts to sell back their units for $100 each unless they drop their opposition. The units, held by 2,824 investors, could be worth more than $320,000 apiece if the REIT goes public.
One such investor is James Bogin, whose grandparents were original investors in the Empire State Building and some of the other syndications. He receives payouts of about $10,000 a year from those investments and voted in favor of the REIT plan because of the liquidity publicly traded shares provide.
"Instead of getting a couple of checks for $10,000 a year, I'd have something that I could sell if I wanted to, or I could keep it and collect the dividends just as I do now," said Bogin, managing member of Legend Capital Management LLC, a California hedge fund.
Some of the opponents object to the 50-50 split of ownership of the property between the investors and the company that subleases Empire State Building though 2076. The Helmsley estate owns a majority of the management company, while the Malkins own a small minority.
Opponents of the REIT plan contend that Malkin lost the right to force holdouts to sell their holdings in 2001, when he converted Empire State Building Associates into a limited liability company from a partnership. They argue that the forced-buyout provision violated a 1994 state law.
But the judge said he was leaning toward ruling that the investors were not members, who run and make most of the decisions for the limited liability company, but were participants who are considered to own passive stakes with limited decision-making powers.
Richard Edelman, who along with his cousin spearheaded the campaign against the proposed REIT, said he would have no choice but to vote for it if Malkin is successful in getting the 80 percent.
"Of course we do that," Edelman said. "I'm not an idiot. We've been talking about it for a year. All that was in question was that the status quo could prevail or the Malkins could suffer a horrible loss, and the status quo prevailed."
A spokeswoman for Malkin Holdings declined to comment on the judge's statement.
Last month Malkin filed regulatory documents that said it had garnered about 95 percent of the investor votes it needs to cross the 80 percent threshold.
A representative for Malkin Holdings declined to disclose the number of units that had been cast for the plan.
Malkin, which began soliciting votes in January, can continue to do so until the end of next year and can stop once it reaches the threshold.
(Reporting by Ilaina Jonas; Editing by Frank McGurty and Steve Orlofsky)