The Real Deal New York

Empire State Building: a buyer’s manual

As bidders circle and IPO looms, a close-up look at the icon’s ownership and money flow

September 03, 2013
By Adam Pincus

Empire State Building

Empire State Building

The iconic Empire State Building is on the brink of a major ownership shake-up. Its lead owner and manager, Malkin Holdings, has made headlines recently for its efforts to package the 2.9-million-square-foot tower into a real estate investment trust with 18 buildings and other properties. While Malkin is pushing to go public through an IPO, some of real estate’s biggest heavyweights are circling with bids topping $2.3 billion — and one of them could derail Malkin’s plan by making an offer to buy the tower that’s too good to pass up. So far, at least six companies have put in bids, including developer Joseph Sitt’s Thor Equities and Rubin Schron’s Cammeby’s International. And insiders say others — including Jeff Sutton, David Bistricer and Joseph Chetrit — plan to throw their hats in the ring. But the building’s complicated roster of owners — including the eager-to-cash-out Helmsley estate, which has the biggest financial stake in the building — along with how money is flowing in and out of the tower remains murky.

This month, using U.S. Securities and Exchange Commission documents, TRD untangled both of those complicated issues along with other key financial factors that any new owner would need to scrutinize before signing on the dotted line. In addition, using private documents provided by a source, TRD broke down the top stakeholders (many of whom have never before been publicly identified), among the thousands of individual investors in the building.

Top income-generating tenants

Host Services of New York
The company operates a roughly 6,200-square-foot souvenir shop on the 80th floor, a few floors below the tower’s famed observation deck. The lease, which runs through 2020, clocks in at a stunning $823.82 per square foot and is believed to be the priciest per-square-foot rent for an above-ground-floor space in the entire city.

LinkedIn
The social networking site signed a seven-year lease for nearly 32,000 square feet on the 25th floor in 2011. The lease brings in $1.2 million a year, or $39 per foot, and runs through 2018.

Coty
The global perfume manufacturing firm went public through a $1 billion IPO in July, and is headquartered in a roughly 195,000-square-foot space on the tower’s 14th-19th floors. The lease brings in an annual base rent of about $8.9 million — or an average price of $45.57 per square foot — and runs through 2030.

Federal Deposit Insurance Corporation
The independent government agency inked a 10-year deal in 2009, for floors 11 through 13. The lease generates a base rent of $5.5 million, at an average price-per-square-foot of $45.04.

Li & Fung
A global fashion and manufacturing firm headquartered in Hong Kong, the company holds the largest (and most valuable) lease in the building. In 2011, the company inked a nearly 500,000-square-foot lease, including floors three through nine. The lease, which rakes in $19.3 million a year (or $39 a square foot) for the building, runs through 2028 with a 10-year renewal option. However, in July the firm announced it would either return about 182,000 square feet to the landlord or sublease it.

Walgreen Co.
The national drug store chain rejiggered its lease in 2011, and ended up with a nearly 24,000-square-foot, ground- and second-floor retail space. The lease, which runs through 2027, generates $1.8 million a year, or $75.50 per foot.

Broadcasting Antenna
Radio, TV and other broadcasters paid the building $17.1 million last year to license and lease space for a 22-story antenna atop the Art Deco tower. The antenna carries their signals across a five-state area.

The Observatory
The building’s famed observatory is the tower’s single biggest source of annual revenue. Last year alone, it generated $92.2 million, driven by more than 4.1 million visitors who paid an average of $20.21 each to get a glimpse of the city from the 86th and 102nd floors.

Skanska USA Buildings
The international construction firm inked a deal for its New York office in 2008. The firm occupies the entire 25,000 square feet on the 32nd floor, generating $1.2 million a year, or $48.67 per foot, in rental income. The lease expires in 2024.

Manhattan Professional Group
The tax advisory firm — also known as the Tax Club — has a nearly 26,000-square-foot lease that runs though 2026 on the 60th floor. The company pays the building’s coffers $1.18 million a year, or $46.08 a foot. But it’s the target of an ongoing civil lawsuit brought by the U.S. Federal Trade Commission. It’s denied the charges, but it’s unclear how the suit will impact the company’s lease.

Taylor Global
The sports-and-lifestyle public relations firm signed a lease in 2007 that runs through July 2018, paying $1.12 million per year. The firm occupies nearly 26,000 square feet on the 38th floor at a cost of about $43.47
per square foot.

Bank of America
The banking giant has a 14,234-square-foot storefront on the 34th Street side of the building, with a lease running through April 2015, with a five-year renewal option. The lender brings in $1.15 million a year in rent, or about $80.97 per square foot. But that’s far below most asking rents on that stretch of 34th Street. Indeed, on that side of the street, rentals top $300, brokers said.

Empire State Building ownership structure

The approximately $229 million that the building generated last year in revenue was collected by the ESBC, which controls and manages the building, and is responsible for paying all operating expenses and taxes. It is run by Anthony Malkin’s Malkin Holdings. But Malkin has to work with ESBC’s majority owner, the Estate of Leona M. Helmsley. Under the terms of the ESBC’s lease with its landlord — the ESBA — it pays an annual base rent that’s typically $5.9 million. On top of that, as part of the agreement Wien hammered out in 1961 through an innovative tax structure, the ESBC also gives the association 50 percent of the building’s net operating income above $1 million, called overage rent. It keeps the other 50 percent — which last year amounted to $19.9 million — and distributes much of that among its partners. For the purposes of the IPO, the ESBC was appraised at $1.2 billion of the building’s total $2.5 billion value.

To understand the Empire State Building’s complicated ownership structure, a buyer must first understand what happened when the tower was last sold. In 1961, legendary real estate owner Lawrence Wien arranged to buy control of the building for $39 million, by securing a $6 million mortgage and raising $33 million by selling 3,300 shares at $10,000 a piece to individual investors. Those investors formed the Empire State Building Associates, an entity that still exists today. In addition to those thousands of individuals, there are a few investors with large stakes in the building, through another entity called the Empire State Building Company. That company controls the property through a sublease that runs until 2076. The serious buyers sniffing around the building today are looking to either buy both or one of these companies as a way to wrest control of the tower.

At the end of 2012, there were 2,889 investors with individual shares who owned a piece of the ESBA, the tower’s landlord that subleases the building to ESBC. Since the shares were issued in the early 1960s, the investors have received a total of $477 million — or $144,620 per original $10,000 share. Last year, of the $24.2 million in overage rent that the landlord collected, $10.1 million was set aside for debt service and other fees, leaving $14.1 million. Of that, $846,000 was paid to Malkin Holdings and $13.3 million was distributed among the nearly 3,000 investors.

Empire State Building Company (investors)

Helmsley estate: 63.75 percent
Lawrence Wien and Harry Helmsley were business partners and friends. As a result, the Helmsley estate owns 63.75 percent of the ESBC, which gives it ownership of the largest single chunk of the building’s NOI. The estate has notified the Malkins that it’s going to cash out, even if the building is not included in the planned IPO. Based on the $1.2 billion appraised value, the Helmsley stake is worth $832.9 million.

Malkin family: 23.75 percent
Peter Malkin married Wien’s daughter, Isabel. Now, three Malkin-controlled entities hold a combined 23.75 percent stake of the ESBC, which is worth about $290.6 million. Anthony Malkin, Peter’s son and Wien’s grandson, leads Malkin Holdings today.

Joan Konner: 5 percent
Veteran journalist Joan Konner owns a 5 percent stake worth about $61.2 million.
Konner, a former dean of the Columbia University Graduate School of Journalism, is also the daughter of the late textile manufacturer and real estate investor Martin Weiner. Konner declined to comment.

Bluestein Family Partnership: 5 percent
The partnership headed by Sanfurd Bluestein owns 5 percent, also valued at $61.2 million. Bluestein, who did not respond to a request for comment, is Weiner’s son-in-law. His wife Iris, Konner’s sister, died several months after her father in 1969.

Bluestein Family Foundation, M&T Weiner Foundation: 2.5 percent
Both Bluestein and Konner have family foundations that each own 1.25 percent stakes. Those stakes are worth an estimated $15.3 million each.

Empire State Building Associates (top investors)

Malkin family: 6.2 percent
The extended Malkin family, including the Morse and Nelson families as well as Anthony Malkin himself, make up the largest chunk of ESBA, with a 6.2 percent stake. Based on the $1.3 billion appraised value for ESBA, that stake is worth about $80.8 million. But it’s divided among more than a dozen trusts and family members.

Blumenthal family: 2.5 percent
In 1982, Cynthia Malkin, Anthony’s sister, married Richard Blumenthal, an attorney who’s now a U.S. senator from Connecticut. The Blumenthal family stake is worth an estimated $33.3 million.

Brandeis University: 2.3 percent
The Massachusetts-based university owns a stake valued at about $29.8 million. Although he did not attend Brandeis, Wien was a major contributor to the school, and solicited other investors to donate their shares to the school.

Konner’s heirs: 1.52 percent
Konner’s daughter Rosemary and a granddaughter — as well as a trust in the name of a daughter who died — have a combined stake estimated at $19.8 million.

Gilliland family: .95 percent
The Gilliland family, which has been invested in real estate in Memphis for more than 100 years, owns a stake in the ESBA valued at $12.5 million.

Richard and Claire Morse: .76 percent
Richard Morse and his wife, Claire, own a stake valued at about $9.9 million. Richard is the brother of Lester Morse Jr., Wien’s son-in-law and business partner.

Warner Funds: .76 percent
John Steel and Lewis Steel (pictured with wife Kitty), the step-grandchildren to Warner Brothers movie studio co-founder Albert Warner, each lead a nonprofit that combined hold a stake that is worth about $9.9 million.

Lawrence A. Wien Scholarship Fund, Columbia University: .47 percent
Wien was a major donor to Columbia, where he received undergraduate and law degrees. The fund owns a stake estimated to be worth about $6 million.

Joan Konner: .46 percent
Konner is another of the few investors to own stakes in both entities. Her ESBA stake is worth just over $6 million.

*Only some of the Empire State Building Associates’ biggest owners are listed here. There are thousands of ESBA owners, the vast majority of which are families and individuals with ownership stakes worth a fraction of a percent. The ESBA and ESBC, which manages the building through its sublease, split the net operating income of the building (see story).

Breakdown of 2012 expenses

Tenants’ and building alterations, repairs and maintenance: $39 million

Payroll and related costs: $37.9 million

Taxes: $26.3 million

Observatory expenses: $20 million

Utilities, professional fees: $42.2 million

Base rent: $10.2 million ($5.9 million in annual rent plus mortgage payments)

Administrative: $4 million

Where did the money go?
From the $229 million collected in revenue last year, the ESBC paid out about $180 million in expenses, according to documents filed with SEC. Above is a breakdown of where the money went.

Correction: In the September story “Empire State Building: a buyer’s manual,” TRD incorrectly stated that the Empire State Building Company controls the Empire State Building through a master lease. In fact, the company controls the property through a sublease.

 

  • Raj Shah

    Hi , Very informative and valuable and educational informations indeed .
    Thank You.

MENU

Subscribe to our email newsletters

New York Real Estate News
South Florida Real Estate News