Empire State Building investors dig in against REIT plan

Reuters News
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Posted: Jul 17, 2012 9:45 PM
Empire State Building investors dig in against REIT plan

By Ilaina Jonas

NEW YORK (Reuters) - Malkin Holdings LLC, which has proposed creating a real estate investment trust with the Empire State Building as its centerpiece, has spent more than $10 million of the iconic building's owners' money, raising the ire of some investors who are organizing an opposition against the whole plan.

Malkin Holdings spent $10,237,424 chiefly on fees to consolidate 18 properties into a REIT, a first step toward an proposed initial public offering of Empire State Realty Trust Inc, according to an April filing with the U.S. Securities and Exchange Commission.

On July 3, Empire State Realty Trust filed a copy of the 1962 participating agreement, issued when money was raised to buy the lease on the building and the land. The agreement governs the powers of the supervisor and partners who manage Empire State Building Associates, the partnership which holds a master lease on one of the world's most famous buildings and as of 2002 owns it.

Some who oppose the REIT point to the agreement, which states that the partnership cannot convert into a REIT, corporation or any other form of ownership, "without the consent of all of the Participants," meaning the investors. They said the money was spent without their consent.

"If management can spend $10 million of investors' money without a required vote, then why not $20 million, $50 million, or even $100 million?" said Edelman, whose grandparents were among the original investors in the 1961 real estate syndication.

It became the latest focal point of the controversial proposed REIT and underscores the acrimony between the investors in Empire State Building Associates and Malkin Holdings, which supervises the investment company and manages the property.

Some investors have filed lawsuits against the proposal for the REIT. Others have formed a grassroots effort, reaching out to some of the other 2,824 investors, to challenge Malkin Holdings' proposal and Malkin's leader, Anthony Malkin.

So far 1,150 have contacted the group via a web site, www.empirestatebuildinginvestors.com, said investor Richard Edelman, who last year spearheaded the opposition to the REIT. Since then, he has gained the help of other investors and their heirs.

Not everyone contacting the website opposes the REIT. Most requested more information. Others object to the proposed 50-50 split of the value of the Empire State Building between Empire State Building Associates and the management company owned by the estate of Leona M. Helmsley and Malkin Holdings.

The group has held conference calls, and Malkin has objected to some of the statements made during them. Malkin Holdings issued a letter on Tuesday to two of the investors on the call demanding that they stop making what Malkin said were untrue statements, an investor said.

Malkin Holdings said it could not comment because of a quiet period after filing for the IPO. However, a person familiar with the situation but not authorized to speak on the record, said the agreement allows the those in charge of the investors broad powers. It is very specific about circumstances in which the supervisor needs an 80 percent vote by investors, including selling, mortgaging or transferring the property.

In fact, when Empire State Building Associates bought the property, investors had to approve the purchase, but Malkin Holdings had the authority to incur costs for legal and other pre-purchase services that amounted to under $1 million needed prior to the acquisition, the source said.

Some of the investors, who bought units in the Empire State Building Associates in 1961 and 1962 have filed lawsuits to challenge the consolidation of the 18 properties into a REIT.

(Reporting By Ilaina Jonas; Editing by Eric Meijer)