An unidentified bidder offered to buy New York’s Empire State Building for $2.1 billion, the second takeover proposal reported before a planned initial public offering that would include the skyscraper.
Two unsolicited bids were made last week and are being reviewed, according to a regulatory filing today by building supervisor Malkin Holdings LLC. One offer has come from Rubin Schron, a New York real estate investor, who proposed buying the tower for $2 billion in cash.
The buyout bids offer Malkin Holdings an alternative to an IPO at a time when shares of real estate investment trusts have been hurt by the prospect of rising interest rates. Chairman Peter Malkin and his son Anthony, the company’s president, began an effort 16 months ago to form a REIT that would include the landmark Manhattan tower and take it public. They last month won enough votes from investors in the building to proceed with the transaction following a fight with an opposition group.
An acquisition bid “certainly does gum up their IPO,” said Lawrence Longua, clinical associate professor at New York University’s Schack Institute of Real Estate. With an offer, particularly if it’s in cash, “you’re not betting on the success of the REIT or the market value of the shares after it goes public.”
Malkin Holdings is proceeding with plans for the IPO, notifying opposing investors they would receive $100 for units projected to be worth more than $300,000 apiece, according to today’s filing. They have 10 days from getting the buyout notice to change their minds.
“We are reviewing the offers and their terms,” Peter and Anthony Malkin said in a letter to investors dated June 24. “We consider all matters, including unsolicited offers, consistent with our fiduciary duties, to form a judgment on what action is appropriate.”
The Malkins won’t comment further until the review is completed, they said in the letter.
An appraisal of the Empire State Building values the property at $2.53 billion the Malkins have said in separate filings.
Empire State Realty Trust Inc. (ESB:US), as the company would be called, is seeking to raise about $1 billion in what may be the second-biggest U.S. IPO of a REIT. The Bloomberg REIT Index has fallen 13 percent from an almost six-year high on May 21 amid speculation that the Federal Reserve will reduce bond purchases, which have kept borrowing costs close to record lows.
“This is what I’ve been talking about all along,” said Andrew Penson, a New York real estate investor who owns Grand Central Terminal and controls a company that owns 10 Empire State Building units. “The investors would be better off accepting a sale of the Empire State Building than going along with the IPO,” even if the offer were lower than the appraisal, especially given the current volatility in equity markets, he said.
Hugh Burns, a spokesman for the Malkins with Sard Verbinnen & Co., declined to comment on the offers.
Penson was among a group of unit-holders who unsuccessfully challenged the $100 buyout provision in court, calling it coercive. An appeal of that decision is pending. Schron’s buyout offer was made through Stephen Meister, the lawyer for dissident investors in that case.
Jason Meister, a vice president at brokerage firm Avison Young, who represented Schron and is Stephen Meister’s son, said in an e-mail he is awaiting a response from the Malkins. Schron’s offer would allow unit-holders to retain their interest in the Empire State Building if they so choose, he said.
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