MANHATTAN (CN) - The family that manages the Empire State Building cost stakeholders more than $400 million by bundling it for sale with 17 other properties they controlled, for their own profit, rather than selling the historic building on its own, an investor claims in a class action.
Lead plaintiff Marc Postelnek claims Anthony and Peter Malkin rolled the landmark building into a real estate investment trust they controlled to boost the value of their other properties in the New York City area and to collect millions of dollars in management fees.
He sued the Malkins and Malkin Holdings in New York County Supreme Court, on behalf of thousands of shareholders.
Postelnek, as trustee for the Mabel Abramson Irrevocable Trust, claims his grandmother was one of the original shareholders in Empire State Building Associates (ESBA), the entity that controlled the fee title and master lease to the Empire State Building until the Malkins established the real estate investment trust.
In 1961, Peter Malkin and his father-in-law took over management of the building with partner Harry Helmsley, after raising $33 million from 2,800 small investors who paid $10,000 per unit.
After Helmsley's death, Peter Malkin and his son Anthony decided to transfer the building to an investment trust with other Malkin-controlled properties and take it public, to avoid losing control of the building when the Helmsley estate sold its share, according to the lawsuit, filed on Christmas Eve.
Malkin, who already owned the 114-year lease on the Empire State Building, bought the building in 2002, becoming both owner and manager.
"As of June 2013, the Malkins were poised to complete a transaction that would provide them with hundreds of millions of dollars in unique and personal benefits not shared with the participants - namely, the roll-up of the iconic Empire State Building with 17 other Malkin-controlled properties into a consolidated real estate investment trust ('REIT'), which would then issue shares through an initial public offering ('IPO')," the complaint states.
"Threatening to derail the Malkins' favored deal, beginning in June 2013, numerous interested bidders made premium all-cash offers for the Empire State Building and ESBA. As described below, the Malkins spurned the all-cash premium offers even though they knew or had reason to know that the prices offered by the bidders were hundreds of millions of dollars greater than the value that the Malkins reasonably could achieve for the Empire State Building through the IPO. By rejecting these offers and proceeding with the public REIT, the Malkins unjustly enriched themselves at the expense of the participants, whose interests they were required by fiduciary duty to safeguard and promote. This action arises from the Malkins' bad faith response to the premium offers for the Empire State Building and ESBA that they received between June and September 2013.
"Before the premium offers were presented in June 2013, the Malkins had gone to great lengths to garner the support of 80 percent of the participants for the IPO plan - a prerequisite for proceeding with the REIT. Among other things, the Malkins represented to participants that the Empire State Building was worth in excess of $2.5 billion as of June 30, 2012, implying that each of the participants' units was worth approximately $330,000 in the planned REIT. By late May 2013, the Malkins had procured the necessary consents from the participants.
