Bloomberg News

Empire State Building Gets $2 Billion Offer as IPO Alternative

June 19, 2013

Empire State Building Gets $2 Billion Offer as IPO Alternative

About half of the Empire State Building's value has been assigned to unit-holders, while the rest would go to a sublease holder that's majority-owned by the estate of Leona Helmsley, which is seeking to liquidate its interest. Photographer: Keyur Khamar/Bloomberg

Rubin Schron, a New York real estate investor, offered to buy the Empire State Building for $2 billion in cash as the skyscraper’s supervisor prepares to make it the centerpiece of an initial public offering.

Schron’s company, Cammeby’s International, submitted the bid yesterday to the attorney for Malkin Holdings LLC, which sparred with a minority of investors over its plan to consolidate the iconic tower and 20 other properties into a real estate investment trust. Schron, a partial owner of lower Manhattan’s Woolworth Building, would make a non-refundable deposit of $50 million when a contract is signed and complete the deal within 90 days, according to a letter by Stephen Meister, a lawyer representing opponents of the IPO.

The offer faces hurdles. Malkin Holdings is proceeding with plans to form the REIT after receiving consent from investors representing more than the required 80 percent of the 3,300 Empire State Building units. An appraisal of the landmark tower values the property at $2.53 billion, according to the Malkins’ valuation firm.

A deal may depend on the reversal of a court ruling allowing the Malkins to buy out dissident investors for a token $100 a share, according to Meister, who has appealed that decision. Meister said he sought a potential buyer as an alternative to the IPO (ESB:US) in the event that the vote approving the plan is voided along with the buyout.

“We trust that Malkin Holdings, consistent with its fiduciary duties, will give serious consideration to this offer,” Meister said in the letter to Thomas E.L. Dewey, Malkin Holdings’ attorney.

Hugh Burns, a spokesman for Malkin Holdings with Sard Verbinnen & Co., declined to comment on Schron’s offer.

$100 Buyout

Malkin Holdings -- led by Chairman Peter Malkin and his son Anthony, its president -- has the right to proceed toward the IPO as long as it isn’t enjoined by the court, according to Meister. He asked the New York State Supreme Court’s appellate division to block the offering, claiming the $100 buyout provision violates state laws and coerces investors to accept the REIT because their shares are potentially worth more than $300,000 apiece.

Notices were sent last week to unit-holders who rejected the plan, giving them 10 days to reverse their decisions.

Schron’s proposal includes an option for unit-holders to retain their interests and become non-managing members of the new ownership entity. The offer was reported late yesterday on the website of the Wall Street Journal.

Bragging Rights

On a June 13 conference call, Meister said a purchase of the tower “would perhaps accommodate the varying interests of the participants” in Empire State Building Associates LLC, which holds title to the 102-story landmark. Those voting to approve the REIT tended to want the ability to sell their shares eventually, while opponents favored keeping a steady income stream and the bragging rights that come with owning a piece of such an iconic property.

“The beauty of this offer is if you want cash, you can get cash, and if you want to roll your interest back into the building, you can do that too,” Meister said on the call, which was hosted by Richard Edelman, a critic of the REIT plan.

Empire State Realty Trust Inc., as the new company would be called, is seeking to raise about $1 billion in what may be the second-biggest U.S. IPO of a REIT. Only the 2006 debut of Santa Monica, California-based Douglas Emmett Inc. (DEI:US) was larger in the industry, at $1.6 billion, data compiled by Bloomberg show.

The skyscraper represents more than half the total value of the REIT, according to the offering prospectus. About half of the tower’s value has been assigned to unit-holders, while the rest would go to a sublease holder that’s majority-owned by the estate of Leona Helmsley, which is seeking to liquidate its interest.

Cammeby’s International in April agreed to buy the Monterey, a 521-unit apartment tower on Manhattan’s Upper East Side, for about $250 million. Cammeby’s, in a joint venture with the Witkoff Group, owns the bottom 28 floors of the landmark Woolworth Building.

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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