Empire State Building loan may be used for purchases

By Adam Pincus | May 28, 2008 01:08PM

The real estate firm that controls the Empire State Building is asking the tower’s investors to agree in principal to the purchase of additional real estate with funds obtained through a refinancing of the iconic tower, according to a financial statement.

In a filing yesterday with the U.S. Securities and Exchange Commission, real estate firm Wien & Malkin LLC sought consent from investors in Empire State Building Associates, which owns the tower and the land under it, to use funds from a refinancing to purchase property.

The firm wrote in its statement that financing for purchases would “exploit favorable buying opportunities” at a time when “highly leveraged investors can no longer buy property and may be forced to sell.”

Thomas Keltner, general counsel of Wien & Malkin, which leads the Empire State Building Associates, said the firm would not comment.

In April, Peter Malkin, the chairman of Wien & Malkin, asked investors to sign off on $660 million in financing for an ambitious renovation. The loan would increase the debt load of the building by 10-fold from its current $60.5 million first mortgage.

The 2.7-million-square-foot building, the tallest in New York City, is valued at $2 billion, according to analysts. The refinancing is capped at 50 percent of the appraised value of the property held.

The building joined the W&H Portfolio in 2007. The firm controls nine office towers, including the Lincoln Building at 60 East 42nd Street, 250 West 57th Street, 1359 Broadway and 501 Seventh Avenue.

The Empire State Building was 78 percent leased as of May. New office leases range from $53 to $63 per square foot, up from $32 to $42 per foot the year before, the firm reported.

Wien and Malkin proposed a $625 million renovation in the filing, including a $13 million restoration of the landmarked lobby, a $53 million refurbishment of the observation decks and the consolidation of smaller spaces into entire floorplates, in an effort to increase rents.

Eric Anton, executive managing director with brokerage Eastern Consolidated, said the weakening property market made it a good time for the owners to use the building’s equity to finance additional purchases.

“It sounds good to me, it makes a lot of sense,” Anton said. “It is tax efficient and a good time to buy.”

Arnold Bressler, a partner at the law firm Moses and Singer, which specializes in corporate and securities law and was not involved in the proposal, said the owners likely wanted to have equity to move quickly if an attractive property became available.

“This is a way for management to respond more flexibly to opportunities because this is a pretty cumbersome process,” he said. “The real estate market would not necessarily allow for that kind of timetable.”

The federal filing, known as a pre 14A, was submitted as a preliminary notice to shareholders about issues that will be voted on at a future shareholders meeting.