Late last year, the investors who challenged Malkin Holdings’ plans to convert their ownership interests in the Empire State Building into a publicly traded REIT settled their lawsuit for $55 million. That deal took another step forward last week when New York County Supreme Court Judge Peter Sherwood granted his preliminary approval. A final hearing will be held on May 2.
The hearing was necessary after another group of investors objected to the settlement plan. That plan remains contingent on Malkin raising at least $600 million during the REIT conversion process and would include 80 percent cash and 20 percent in shares in the new REIT, which will consolidate 18 other properties along with the Empire State Building. The May 2 hearing will consider whether the settlement agreement is “fair, reasonable, and adequate.”
According to GlobeSt.com, the investors objecting to the settlement are claiming that the REIT conversion is illegal on the basis that the plan’s buyout per share price of $100 for investors who object to the conversion is significantly below fair market value of $325 to $350 per share. The investors claim that a fair market value buyout is required by New York’s limited liability company law, and are claiming $800 million in damages.
But counsel for the investors who have settled disagrees, telling GlobeSt.com that “[t]here are several incorrect factual and legal conclusions in the objectors’ position on this. One thing is clear: if 80 percent of the Empire State Building investors approve the deal, all the non-voting or no-voting investors will then be given an opportunity to participate in the consolidation, and if they choose to do so, will receive exactly the same as all the other investors (i.e., stock or units estimated to be worth approximately $330,000 per $10,000 initial investment).
We’ve followed these proceedings closely here at BMO because of the REIT conversion’s potential for a significant impact on advance building technologies throughout the local real estate industry. As we’ve noted before, the REIT would be traded publicly as Empire Realty Trust and use a portion of the $1 billion in funds it expects to raise in an IPO to acquire additional properties and likely retrofit them as it has the Empire State Building.