Tag Archives: buyout provision

Empire State Bidding War?

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I was quoted in a Law360 Story on the ongoing Empire State Building saga, Empire State Bids Soar Over Approaching REIT Deal (behind a paywall).  It reads in part:

the bidders that have come out of the woodwork since Schron’s left-field offer may be banking on the assumption that Malkin and its shareholders could be willing to part with the iconic skyscraper in an all-cash deal that would avoid some of the drama associated with the REIT proposal.

“The owners … may lose the prestige by losing control of the Empire State Building, but they may end up making more money,” said David Reiss, a professor of real estate law at Brooklyn Law School, on Friday. “They may be more than happy to sell to the highest bidder if they’re going to get more than what the REIT would get them for it.”

The bidders appeared to think the unhappy shareholders would find value in their offers as well.

In connection with his bid, Schron agreed to enter into a contract with Malkin with a $50 million nonrefundable deposit immediately and to close the all-cash deal in 90 days. As part of the deal, investors would be able to choose to remain invested in the building and receive a membership interest in Schron’s Cammeby’s International Group in lieu of cash, according to an offer letter revealed last week.

The offers that followed — one from Thor Equities that was “north of $2.1 billion,” one from a group of investors including Phil Pilevsky and Joseph Tabak, and another from an unnamed bidder — reportedly offered similar assurances.

In addition to the chance to own one of the most famous buildings in the world, experts say those who have thrown their hats into the sudden bidding war for the skyscraper are also keen to take advantage of its retail potential.

“I think there’s a belief that this is a valuable property, and that particularly the retail portion of it — and to some extent the office portion too — is undervalued,” Israel said. “I think they feel they could do a major upgrade.”

Those who may have been previously interested in the building also now have the assurance, after a May court ruling in one of the lawsuits over the proposed deal, that verified the legality of a controversial $100-per-share buyout provision, according to Reiss.

Potential buyers now know “that the buyout provision is valid and … that a good bid can get the requisite votes,” he said.

An appeal of the ruling on the buyout provision remains pending.

Reiss on the State of the Empire REIT

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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.