Bloomberg News

Grand Central Owner Opposes IPO of Empire State Building

February 21, 2013

The owner of Manhattan’s Grand Central Terminal is part of a legal battle against the supervisors of the Empire State Building, teaming with investors opposed to an initial public offering of the landmark tower.

Andrew Penson, who controls a company that bought the terminal in 2006, filed two affidavits in support of a group of Empire State Building investors trying to block a settlement of a class-action lawsuit against Malkin Holdings LLC, which is seeking to include the skyscraper in a real estate investment trust that will go public. In the filings, Penson said the IPO would inflict “vast harm” on the about 2,800 co-investors in the Midtown tower whose votes the Malkins are soliciting.

Penson is among higher-profile investors in a dispute between Malkin Holdings and a number of the unitholders in Empire State Building Associates LLC, which owns the building. The dissidents say disadvantages to a REIT (BBREIT) include the potential loss of a reliable income stream that should rise as renovations are finished, while the Malkins have said their proposal would give investors liquidity and greater growth opportunities.

“You’ve got an awful lot of litigative real estate owners in New York,” Lawrence Longua, an associate professor at New York University’s Schack Institute of Real Estate, said in a phone interview. “But they’re usually litigative with respect to their tenants and brokers. To see this happening at this level, if you will, I would use the word extraordinary,” he said of Penson and Malkin.

Court Today

The plaintiffs in the class-action case on Jan. 18 asked for preliminary approval of the settlement. The Penson group filed a request on Jan. 28 asking for permission to intervene in the case and to file a separate complaint. The next day, the group objected to preliminary approval of the settlement.

A New York judge granted preliminary approval today, and denied the motion by the investor group to intervene in the case. He allowed them to argue a claim that a provision allowing the buyout of investors who vote against the proposal for a fraction of the value of their investment violates the state’s limited liability company law.

Penson is a member of a limited liability company that owns about 10 Empire State Building Associates units, he said in an affidavit filed two days ago in the New York State Supreme Court in Manhattan. In that statement, he claimed Malkin Holdings President Anthony Malkin listened in on a conference call with about 450 investors and an attorney in the case, even after the call’s coordinator requested that any representatives of the family disconnect.

Listening In

“After the call concluded, Anthony Malkin called me,” Penson said in the affidavit. “Among other things, he told me he had listened in on the call.”

Penson declined to comment for this story.

Malkin didn’t listen to the call, nor did he “represent” that he did, Hugh Burns, an outside spokesman for Malkin Holdings with Sard Verbinnen & Co., said in an e-mailed statement.

“However, Malkin Holdings is a large ESBA investor itself and members of its management team act as agents for all ESBA investors,” Burns said. “Therefore it is entirely appropriate for representatives from Malkin Holdings to listen to ESBA investor calls such as the one held Feb. 7, and they intend to do so in the future.”

Penson, in an affidavit filed Jan. 28, called the proposed class-action settlement “grossly unfair to participants of ESBA such as myself.”

‘Disgruntled Investors’

In an answer filed with the court and dated Feb. 8, attorneys for Malkin said the motion by “six disgruntled investors, including the sophisticated owner/operator Andrew Penson” is “a publicity stunt, engineered by a handful of investors who have campaigned against the transaction using half-truths and outright lies. Apparently realizing that they are likely to lose the current ongoing vote, they seek to confuse the investors, delay the process and thwart an obviously beneficial settlement.”

The unitholders in Empire State Building Associates hold 3,300 shares worth $323,803 or $358,670 each, depending on certain conditions, according to the prospectus for the transaction. The Malkins, in the prospectus, have asked them to vote to approve the REIT by March 25. Voters representing 80 percent of the units must approve the plan for the IPO to proceed.

Grand Central

A Penson-controlled company, Midtown Trackage Ventures LLC, bought Grand Central Terminal in 2006 from companies holding the assets of the bankrupt Penn Central Railroad. The terminal is leased to New York’s Metropolitan Transportation Authority.

Penson’s investment firm, Argent Ventures LLC, controls about 1.3 million square feet of transferable development rights, which may become more valuable if a plan to allow for taller skyscrapers in the Grand Central area becomes law. Argent also owns Hollywood, California’s landmark Capitol Records building and once owned a stake in New York’s Chrysler Building, according to the company’s website.

The case is Meyers v. Empire State Realty Trust Inc. (ESB:US) 650607/2012, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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