Empire State Building IPO hurt investors, lawsuit claims

Thu Dec 26, 2013 2:46pm EST
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By Jonathan Stempel

NEW YORK (Reuters) - Investors in the Empire State Building have filed a lawsuit accusing the real estate magnates who took it public of short-changing them $300 million by refusing to sell the iconic skyscraper at a premium price.

According to a complaint filed on Tuesday in a New York state court in Manhattan, Peter Malkin and his son Anthony put their own interests ahead of the building's investors by spurning all-cash offers of as much as $2.3 billion for the building and $1.4 billion for Empire State Building Associates LLC, which held the title and master lease.

Instead, the Malkins put the landmark building and 17 other properties into Empire State Realty Trust Inc (ESRT.N: Quote), whose October 1 IPO valued the property at just $1.89 billion and ESBA at just $1.1 billion, according to the complaint.

The lawsuit by plaintiff Marc Postelnek seeks class-action status on behalf of more than 2,800 investors who hold shares in ESBA, which was created in 1961 and was supervised by a Malkin company, Malkin Holdings LLC.

It claimed the Malkins acted in bad faith by aborting a "bidding war" for the building, and instead enriched themselves by hundreds of millions of dollars through an IPO.

"Given their positions of control and authority over the fate of the Empire State Building, the Malkins had a duty to act in the best interests of their investors," the plaintiffs' lawyer, John Rizio-Hamilton, a partner at Bernstein Litowitz Berger & Grossmann, representing Postelnek, told Reuters. "By failing to properly consider offers to maximize the building's value, the Malkins breached that duty."

The lawsuit seeks to recover profit that building investors allegedly lost because of the Malkins' refusal to sell.

Empire State Realty Trust, a real estate investment trust, is a successor to Malkin Holdings.   Continued...

The moon rises behind the skyline of New York and the Empire State Building (R), as seen from Jersey City, New Jersey, December 18, 2013. REUTERS/Gary Hershorn