AG to review Helmsley sale of Empire State Building stake

By Adam Pincus | November 21, 2013 01:42PM

The New York Attorney General’s office will review the estate of Leona M. Helmsley’s sale of its stake in a portfolio of properties, including the Empire State Building, according to several insiders’ interpretations of the oversight process, which is outlined on the agency’s website.

The review is part of the oversight duties of the agency, which regulates charities, and not related to any particular aspect of the sale.

Though the $4 billion Leona M. and Harry B. Helmsley Charitable Trust trumpeted its $660 million windfall from the estate sale, the sum was far lower than the $1 billion figure bandied about in the months leading up to the creation of an 18-property real estate investment trust.

Malkin Holdings, the manager of the Empire State Building and the driving force behind the REIT, frequently referred to the $1 billion number as the “exchange value” for the trust’s interest in the Empire State Building, the Fisk Building at 250 West 57th Street and One Grand Central (the former Lincoln Building) at 60 East 42nd Street, among others. Anthony Malkin is CEO of Malkin Holdings and the Empire State Realty Trust.

However, a review of public records shows the property transfers total only $727 million, and the trust has reportedly pegged the number at $660 million. The reason for the difference was not clear, and the trust did not respond to a request for comment for this article.

Thousands of Empire State Building investors received about 25 percent less than the exchange value, compared to the current cash value for the stocks in the REIT, known as Empire State Realty Trust, as The Real Deal reported. The stock opened trading today at $14.10 per share, and has generally traded for between $13 and $14.50 per share since the initial public offering on Oct. 2.

However, unlike the stockholders, who can hope for the value of their shares to rise, the charity sold off its stake in the properties entirely. The trust was created to support nonprofit causes through the endowment created by the sale of the Helmsleys’ assets. The Helmsleys were major property owners for decades and long-time investors in the Empire State Building and other landmarks.

The REIT paid the estate $491.6 million for its stake in the Empire State Building, $82.1 million for its share of 1333 Broadway, $52.6 million for its share of 60 East 42nd Street and 301 Madison Avenue, $46.9 million for its share of 1350 Broadway, $30.3 million for its share of 1765 Broadway, and $23.5 million for its share of 501 Seventh Avenue and 1359 Broadway, according to a review of city property records.

The AG’s office is expected to review the transactions after the executors of the Helmsley estate file a final accounting of the sale of all its assets, according to the process described on the AG’s website. The estate is believed to be liquidated with the sale of the assets above, including the Empire State Building.

“The only required financial report [from a charitable estate] is the executor’s final accounting, which is filed when the estate is ready to be closed,” the AG’s website said.

The final accounting is expected in the next six to 12 months, based on typical filing schedules and the complexity of this case, several insiders said. The report can be filed directly with the AG’s office or in court, according to the AG’s website.

Several attorneys familiar with charities law predicted the estate would file in court because of the complexity and because the executors will likely be seeking their commission for handling the substantial amount of work done to manage the estate.

While most executors receive up to 2 percent of the value to manage the disposition of the estate, the handling of the vast Helmsley assets would likely be negotiated for a fee. The executors of the estate include attorney Sandor Frankel, Helmsley friend John Codey, and Leona’s grandchildren, David and Walter Panzirer. They did not respond to a request for comment.

The Helmsley estate wanted to sell its stake in the properties as part of a liquidation of its real estate holdings. The Helmsleys’ estimated exchange value of $1 billion was about a quarter of the total value of the 18 properties and other assets that were rolled up in the REIT, which was given an exchange value of $4.2 billion.

In addition, third party investors such as David Bistricer and Thor Equities had made offers of $2 billion and above. Thor offered more than $2.2 billion in a proposal submitted by Avison Young Vice President Jason Meister. That could have brought the estate a gross sale price of about $700 million for the Empire State Building alone, given the REIT’s relative valuation for the building at the time.