The Real Deal New York

It’s official: Empire State Building worth $300M less in REIT

October 16, 2013 05:32PM
By Hiten Samtani and Adam Pincus

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Meister-Schron-ESB-Malkin1

From left: Jason Meister, Rubin Schron, Empire State Building and Anthony Malkin

The Empire State Building has officially transferred over to the nascent Empire State Realty Trust for $1.89 billion — a far cry from the $2.2 billion and more that investors such as Joseph Sitt and Rubin Schron offered for the iconic tower before it was packaged into the real estate investment trust.

The transfer was completed in three separate transactions, according to city records filed today. The sublease, which is controlled by Empire State Building Company, an entity majority-owned by the estate of Leona M. Helmsley, transferred to the REIT for $784.5 million. The REIT also shelled out $999.4 million for the master lease controlled by Empire State Building Associates, the entity that was formerly owned by more than 2,800 individual investors including the Malkin family.

And finally, the transfer included a $111 million fee ownership controlled by Empire State Land Associates – an entity owned by the ESBA. The city tax bill on the transactions? About $20.86 million, city records show.

The initial public offering forced investors to pay “for the privilege of getting them hundreds of millions of dollars less than they could have in the open market with virtually no costs,” said Jason Meister, a vice president at Avison Young and a vocal critic of the REIT.

Meister, who represented Sitt and Schron, said he was not surprised by the sum, given that the REIT’s $13 share price was on the low end of estimates, and he said it cost $280 million to take the portfolio public.

Sitt’s last offer for the ESBA and the ESLA was $1.4 billion, a figure that Meister noted was “significantly higher than the value the public markets price them at.” Even Schron’s initial $2 billion offer for the entire tower was higher than the public valuation, Meister added.

However, Malkin Holdings said in a Sept. 19 filing with the U.S. Securities and Exchange Commission that Sitt’s $1.4 billion offer for the two entities was worth “materially less” to investors than what they would gain from the IPO. A spokesperson for Malkin Holdings declined to comment for this story.

Among other things, the offer, according to the Malkins, “obligates ESBA to pay down $300 million in debt and transfer taxes of up to $42 million” and “nullifies participants’ share of the class action settlement proceeds,” referring to the outside offers to buy the building.

To be sure, industry observers have commented that any sale of the building that occurred outside the IPO would see Malkin Holdings reap a huge commission, so the payoff to investors would not be as high as Meister indicated.

But it’s evident that the stock market has given the REIT a lukewarm reception, as The Real Deal reported. ESRT’s current share price is $13.71, a 5.5 percent increase from its opening price of $13 at the beginning of this month but still on the low end of a $13 to $15 share price estimate by analysts before the IPO.

3 Responses to “It’s official: Empire State Building worth $300M less in REIT”

  1. October 17, 2013 at 8:56 am, dealwalker said:

    Jason Meister is a vocal critic of the REIT? He would not have been where he is without his Dad at the law firm, firm of Meister Seelig & Fein and he stood to benefit with a commission if the building did not become a REIT.

  2. October 17, 2013 at 10:18 am, DM said:

    dealwalker, that is absolutely irrelevant. The point of this article is that the original investors in the ESB did not fare well in this deal and would have done much better in a private sale, something that many of us believed and fought for. Yes, WE. I am one of those people. None of us have any problem with the Jason Meister or for that matter, the Malkins or anyone else benefiting from commission, as long as whatever deal had been equitable to investors.

  3. October 17, 2013 at 10:28 am, Graveshift said:

    For starters, given the nature of these unsolicited spoiler bids, and the cast of characters involved, can ANY of you confirm that the ESB’s entire financials, stacking plans, leases, etc… were properly made available to these “bidders” to allow for an entire due diligence review of the ESB to validate these were bonafide offers? As far as I’m concerned this was a publicity stunt and “shots from the hip” to thwart Malkin’s attempt to take one of the world’s most inconic buildings public. Meister is just a kid, lets not get too excited here.

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