Editor: David Reiss
Brooklyn Law School

May 17, 2013

Reiss on the State of the Empire REIT

By David Reiss

I was quoted by Bloomberg News in Empire State Building IPO Has Almost All Votes Needed.  The story opens,

A plan to form a real estate investment trust holding New York’s Empire State Building has almost all of the votes needed to proceed, Malkin Holdings LLC said today.

Holders of 79.6 percent of the units of Empire State Building Associates LLC, which owns the Manhattan landmark, have voted in favor of the transaction, Malkin Holdings said in a regulatory filing. That’s up from 75 percent as of April 3, the most recent update. Eighty percent approval is needed.

The votes indicate that Malkin Holdings Chairman Peter Malkin and President Anthony Malkin, who control the tower, are edging closer to victory in their plan for an initial public offering of the building and 20 other properties. The Malkins, who have been fighting opposition from some of the investors, recently won two court rulings that eliminated potential obstacles to the plan.

The filing, a letter being mailed to all investors, “creates a sense that the vote is a fait accompli,” said David Reiss, a professor of real estate finance at Brooklyn Law School who isn’t involved in the transaction. “It is an effective document for creating a sense that this is a done deal.”

Court Rulings

On May 2, New York Supreme Court Justice O. Peter Sherwood said he intended to approve a $55 million settlement of a class-action lawsuit by a set of unit-holders. He has yet to make his approval official. Two days earlier, he denied a request by objectors to the settlement to declare a provision illegal which could result in opponents getting a token $100 a share if they didn’t switch their votes to “yes” within 10 days of official approval by 80 percent of the building’s units.

Malkin Holdings had said it would leave the voting on the IPO open until Sherwood ruled on the $100 provision, or until May 2. The voting has been open since late January, and the Malkins have the option to extend the ballot period until the end of 2014.

Each Empire State Building unit may be worth more than $300,000, according to the offering statement.

In today’s filing, investors are reminded that the buyout provision is “legally binding and enforceable.”

While the Malkins may invoke the provision to get the needed unanimity, they “may not enforce the $100 price,” Reiss said.

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