Investors Fight IPO on Empire State Building

MANHATTAN (CN) - An Initial Public Offering on the Empire State Building has been rigged to favor owners of its investment trust, with the blessing of Leona Helmsley's estate, investors claim in a class action.

Real estate titan Anthony Malkin filed for the Art Deco landmark's initial public offering in February, as president of the Empire State Realty Investment Trust.

On March 1, six investors cried foul on what they called a "one-sided, unfair 'roll up' transaction," in a 28-page complaint in New York County Court.

"Defendants seek to consummate this proposed transaction through self-interested consent solicitations that fail to provide the participants with material information sufficient to allow them to make informed decisions regarding whether to support the proposed transaction," the complaint states. "Further, the Malkin defendants failed to consider reasonable alternatives to the proposed transaction, which were potentially more beneficial to the participants but less likely to be economically beneficial to the defendants."

The proposed class includes thousands of passive investors in seven private entities formed between 1953 and 1969 to acquire the Empire State Building and other properties.

If the Empire State Building were to be sold publicly, those entities would be merged with companies owned by the Malkin family into a new corporation, the Empire State Realty Trust Inc., a real estate investment trust (REIT), that will be listed on the New York Stock Exchange, according to the complaint.

"The Malkin defendants, either by ownership and/or by management control, control all of the entities to be merged into the REIT, and, by virtue of the 50:1 'super voting' stock that they will receive, will control the REIT as well," the complaint states. "The Malkin defendants, unilaterally and without consulting the participants, set the terms of the proposed transaction. Further, the Malkin defendants instructed the 'independent' valuer how to allocate value among the various merged entities. The 'independent' valuation firm was retained and directed exclusively by the Malkin defendants."

According to the complaint, the Malkin family did not hire anyone to evaluate the interests of the other investors.

"The proposed transaction's terms and conditions are unfair to plaintiffs and other participants, inter alia, because: (1) it provides excessive and unfair 'override' interests to the Malkin defendants; (2) the 'fifty/fifty' allocation of value between the Public LLCs (as the property owners) and the property manager entities is the result of an undisclosed and self-serving valuation process, performed by the Malkin defendants, that does not accurately value the public LLCs participants' interests in the proposed transaction; and (3) it provides for an improper allocation of almost $16 million to the supervisor and management companies, all of which are controlled by the Malkin defendants," the complaint states.

The plaintiff investors blasted the Helmsley Estate for approving the "one-sided transaction."

"Finally, the management defendants and the Helmsley estate aided and abetted the Malkin defendants in their breach of fiduciary duty by negotiating and agreeing to the terms of this one-sided transaction, which benefits the management defendants and the Helmsley estate at the expense of the participants in the public LLCs and the private entities," the complaint states.

Defendants include the Empire State Realty Trust, Empire State Realty Op LP, Malkin Holdings LLC, Malkin Properties LLC, Malkin Properties of New York LLC, Malkin Properties of Connecticut Inc., Malkin Construction Corp., Anthony E. Malkin, Peter L. Malkin and the estate of Leona M. Helmsley.

The investors seek unspecified damages for breach of fiduciary duty and an injunction stopping the public offering.

They are represented by Lawrence Kolker, with Wolf Halderstein Adler Freeman & Herz.

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