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Categorized | Property

Empire State investors lose legal challenge

Posted on April 30, 2013

A New York judge has ruled in favour of the group that controls the Empire State Building, thwarting a legal challenge by dissident investors keen to scupper a controversial $1bn public stock offering.

Malkin Holdings seeks to create a real estate investment trust traded on the New York Stock Exchange, by bringing together the landmark skyscraper and other New York-area properties in its portfolio.

    But a cluster of investors have been reluctant to give up the sentimental value of owning part of the Empire State Building, and argue the proposal may result in a loss of income.

    Six of these opponents failed to convince Justice Peter Sherwood in the New York State Supreme Court that the plan’s buyout provision, for those investors who fail to consent to the transaction, was illegal.

    Malkin said on April 3 that 75 per cent of the skyscraper’s 3,300 ownership units whose consent is needed had voted in favour of the consolidation. Eighty per cent have to grant approval for the offering to move forward. An IPO would likely be executed within two months following the approvals, people with knowledge of the matter have said.

    “We are pleased by the court’s ruling and are proceeding with our solicitation with the intention of closing as soon as we reach the approval threshold. The fact is that far more investors support this transaction than oppose it. We are focused on delivering the majority what they want as quickly as possible,” a spokesperson for Malkin said.

    Under the terms of the Malkin proposal, investors who fail to consent within 10 days of an 80 per cent majority vote approving the transaction will be bought out at a nominal value – $100 for every $10,000 originally invested.

    Empire State Realty Trust, as the new company would be called, consists of 12 office properties and six standalone retail properties, of which the Empire State Building is its largest revenue earner. Malkin argues the IPO would give investors liquidity and greater growth opportunities.

    Malkin estimates that the costs of the IPO will be $75m.

    Alongside foreign and institutional investors, who have long coveted high quality New York City buildings as a more defensive investment strategy, an offering would also allow retail investors to get a slice of one of the world’s most famous buildings.

    The 102-floor midtown Manhattan skyscraper has been at the centre of bitter wrangling between Malkin and dissident investors for more than a year.

    Opponents filed five class actions, or group lawsuits, in New York state court last year, accusing the trust and Malkin – which took over day-to-day management of the tower in 2002 and gained full control in 2010 – of breaching its fiduciary duty. The trust announced a $55m settlement of the cases in November.

    Malkin, which is calling holdouts one-by-one to garner the remaining votes, said they would leave the voting open at least until Justice Sherwood’s final hearing on the settlement on May 2.

    Richie Edelman, whose grandparents purchased a stake in 1962, said: “I hope the Meister law firm and six investors who brought case win on appeal. But our plan has never been to have the courts win the votes for us.

    “The owners of the Empire State Building did not approve the proposal after the initial 60-day voting period even after 90 days, they have not got the votes,” he said.