As the Empire State Building entered the new year faced with existential questions about the future of office, its owner was halfway around the world igniting an international incident.
Tony Malkin, the oddball real estate scion shepherding the world’s most famous office building through this Kierkegaardian crisis, spent New Year’s Eve at his compound in New Zealand, where his errant fireworks display set a hill on fire.
The rural community of Dalefield has become popular with 1 percenters and doomsday preppers. But tensions have been growing between the billionaires and bunker builders and the area’s longtime residents: well-to-do New Zealanders who live the good life raising and riding horses.
Many had implored Malkin to call off his fireworks, fearing it would spook their animals.
“Everyone was shocked he had the arrogance to ignore the plea of animal owners,” said Peter Newport, managing editor of Crux.org, a community news website. “You wouldn’t have to be a scientist to know the risk of a fire was 100 percent.”
Back home, Malkin is facing another kind of risk. The Empire State Building opened in the teeth of the Great Depression, lived through 15 recessions and survived a plane crashing into it. But the shift away from the office may be its greatest threat yet.
Malkin’s firm, Empire State Realty Trust, has seen its stock drop 55 percent over the past five years. How it responds might set the tone for other stewards of skyscrapers, those bearing storied brands but struggling to compete with their shiny new counterparts.
Game day
Last month, ahead of Super Bowl LVII, the Empire State Building lit up green for the Philadelphia Eagles — a sacrilegious act for many New Yorkers who share a bitter rivalry with the City of Brotherly Love. “A stunning betrayal,” the New York Post called it. “This is absolutely ridiculous,” said Keith Powers, majority leader of the City Council.
Malkin brushed it off.
“First of all, to be fair, that was very funny,” he said when asked about the blowback on ESRT’s Feb. 16 earnings call. “It became actually an international phenomenon, and that’s what the Empire State Building is.”
The strategy for the 2.7 million-square-foot, 102-story skyscraper has been to present it as the best 92-year-old building on the market. It’s not necessarily going to compete with new skyscrapers like One Vanderbilt or those at Hudson Yards, but it will be affordable premium space for tenants upgrading from obsolete buildings, or so goes the company’s pitch.
A spokesperson for ESRT pointed to increases in occupancy and leasing across the company’s portfolio last year.
“If anything, the tide has turned and now the call by major businesses is a return to office,” the spokesperson wrote in an email.
Part of the draw is more communal offerings. This year, the building is adding a pickleball court and golf simulator to its 65,000 square feet of amenities. In November, Starbucks opened a three-story, high-end Reserve location in the building.
The property underwent a $550 million renovation in 2006 that overhauled its infrastructure. It’s not clear how long after such an overhaul a building can still claim to be best in class. The average rent in the tower was a little more than $65 per occupied square foot at the end of last year.
“We really got dumped on when we announced our first multifamily transaction.”
Tony Malkin, ESRT
“Since then, there have been so many other buildings that have been renovated to compete with new product,” said John Kim, a REIT analyst at BMO. “To say it’s best in class … I think it’s among the best of its class.”
Company executives said they signed an engineering firm to 65,000 square feet in January, on top of 100,000 square feet leased last year, making the building 87 percent leased. It was 82 percent occupied at the end of the year.
On the earnings call, Malkin said the tenant came from Park Avenue South.
“So an area that was hot before,” he said. “And they’re coming to quality with more amenities, energy efficiency, indoor environmental quality, with a specific mandate to get a space that will be an attraction to talent.”
The ultimate office-to-resi?
Could a Manhattanite one day call the Empire State Building home?
It wouldn’t be the first time a residential conversion has been pitched. When Donald Trump tried to wrest control of the skyscraper in the 1990s, he proposed converting its upper floors to condos.
“Doing apartments at the top of that building would be a great idea,” Trump said, according to Mitchell Pacelle’s 2001 book “Empire: A Tale of Obsession, Betrayal, and the Battle for an American Icon.”
“The floor sizes are great,” Trump said. “You’d have people that live on Fifth Avenue buying apartments there just because it would be so cool.”
Alchemy Properties’ Ken Horn, who converted the upper portion of the Woolworth Building to condos, said renowned Art Deco towers have inherent appeal.
“I would certainly capitalize on the chance to live in an iconic structure that can’t be duplicated,” he said.
But Horn noted that the Empire State Building does face some challenges — namely that 34th Street and Fifth Avenue isn’t much of a neighborhood, lacking basic things like a grocery store.
Lilla Smith, who’s overseeing the design of Macklowe Properties’ residential conversion at One Wall Street in the Financial District, snarkily came up with “the Science and Business Library” when asked what amenities Midtown has.
Smith did point out that residential conversions are starting to make their way down Fifth Avenue, like Vlad Doronin’s Aman condos atop the Crown Building, but said there’s still a long way to go before 34th Street feels residential. A hotel might make more sense, she said.
In other areas of the city, ESRT’s residential ambitions are more concrete.
Malkin overhauled the REIT in 2020, stepping in as president and hiring former TPG private equity executive Aaron Ratner as chief investment officer — a big shift for a firm that hadn’t done much, if any, buying or selling of real estate.
The company has since sold suburban office buildings and reinvested that money into Manhattan apartments. ESRT paid $307 million for a majority stake in two Fetner Properties rental buildings with about 625 units, and in December it bought a 98-unit NoHo building for $115 million.
“We really got dumped on when we announced our first multifamily transaction,” Malkin said last month. “We thought it was the right time to do it. Everybody thought it was the wrong thing to do.”
Malkin’s used to going against the grain, and he’s quick to point out when he’s proven his doubters wrong. The 61-year-old was among the first to champion green building at a time when it was seen as an idealistic distraction. Now every serious landlord touts their environmental credentials, and regulations are making sure others pay attention, too.
Malkin had been a staunch critic of WeWork from the get-go, refusing to rent space to the firm even when every landlord in the city was eager to grab a share of that SoftBank cash. That stance now looks prescient, as his compatriots are still working out how to collect.
Speaking to analysts on the call, Malkin recalled prognosticators from 2019 who said that within five years, 30 percent of offices would be used by short-term flex space providers.
“Well, clearly that hasn’t happened and it won’t happen,” he said, adding that he feels confident the office will play a central role in businesses going forward.
Heads up to the denizens of Dalefield: Tony Malkin may have a reason to party next New Year’s.