Empire State Building: a buyer’s manual by The Real Deal

trophy towers

Empire State Building: a buyer’s manual

As bidders circle and IPO looms, a close-up look at the icon’s ownership and money flow

By Adam Pincus he iconic Empire State Building is on the brink of a major ownership shake-up. Its lead owner and manager, Malkin Holdings, has made headlines recently for its efforts to package the 2.9-millionsquare-foot tower into a real estate investment trust with 18 buildings and other properties. While Malkin is pushing to go public through an IPO, some of real estate’s biggest heavyweights are circling with bids topping $2.3 billion — and one of them could derail Malkin’s plan by making an offer to buy the tower that’s too good to pass up. So far, at least six companies have put in bids, including developer Joseph Sitt’s Thor Equities and Rubin Schron’s Cammeby’s Interna-

tional. And insiders say others — including Jeff Sutton, David Bistricer and Joseph Chetrit — plan to throw their hats in the ring. But the building’s complicated roster of owners — including the eager-to-cash-out Helmsley estate, which has the biggest financial stake in the building — along with how money is flowing in and out of the tower remains murky. This month, using U.S. Securities and Exchange Commission documents, TRD untangled both of those complicated issues along with other key financial factors that any new owner would need to scrutinize before signing on the dotted line. In addition, using private documents provided by a source, TRD broke down the top stakeholders (many of whom have never before been publicly identified), among the thousands of individual investors in the building.

The company operates a roughly 6,200-square-foot souvenir shop on the 80th floor, a few floors below the tower’s famed observation deck. The lease, which runs through 2020, clocks in at a stunning $823.82 per square foot and is believed to be the priciest per-square-foot rent for an aboveground-floor space in the entire city.

LinkedIn The social networking site signed a seven-year lease for nearly 32,000 square feet on the 25th floor in 2011. The lease brings in $1.2 million a year, or $39 per foot, and runs through 2018.

Coty The global perfume manufacturing firm went public through a $1 billion IPO in July, and is headquartered in a roughly 195,000-square-foot space on the tower’s 14th-19th floors. The lease brings in an annual base rent of about $8.9 million — or an average price of $45.57 per square foot — and runs through 2030.

Federal Deposit Insurance Corporation The independent government agency inked a 10-year deal in 2009, for floors 11 through 13. The lease generates a base rent of $5.5 million, at an average price-per-square-foot of $45.04.

Li & Fung A global fashion and manufacturing firm headquartered in Hong Kong, the company holds the largest (and most valuable) lease in the building. In 2011, the company inked a nearly 500,000-square-foot lease, including floors three through nine. The lease, which rakes in $19.3 million a year (or $39 a square foot) for the building, runs through 2028 with a 10-year renewal option. However, in July the firm announced it would either return about 182,000 square feet to the landlord or sublease it.

Walgreen Co. The national drug store chain rejiggered its lease in 2011, and ended up with a nearly 24,000-square-foot, ground- and second-floor retail space. The lease, which runs through 2027, generates $1.8 million a year, or $75.50 per foot. 34 September 2013 www.TheRealDeal.com

Empire State Building Company

Empire State Building Associates

(manages the building)

Top income-generating tenants Host Services of New York

he approximately $229 million that the building genert the end of 2012, there were 2,889 investors o understand the Empire State Building’s ated last year in revenue (see previous page) was colwith individual shares who owned a piece of complicated ownership lected by the ESBC, which controls and manages the ESBA, the tower’s landlord that leases the structure, a buyer must first understand what the building, and is responsible for paying all operatbuilding to ESBC. Since the shares were issued in the happened when the tower was last sold. In 1961, ing expenses and taxes. It is run by Anthony Malkin’s early 1960s, the investors have received a total of legendary real estate owner Lawrence Wien arranged Malkin Holdings. But Malkin has to work with ES$477 million — or $144,620 per original $10,000 to buy control of the building for $39 million, by securBC’s majority owner, the Estate of Leona M. Helmsshare. Last year, of the $24.2 million in overage ing a $6 million mortgage and raising $33 million by sellley. Under the terms of the ESBC’s lease with its rent that the landlord collected, $10.1 million ing 3,300 shares at $10,000 a piece to individual investors. landlord — the ESBA — it pays an annual base was set aside for debt service and other fees, leavThose investors formed the Empire State Building Associrent that’s typically $5.9 million. On top of that, as ing $14.1 million. Of that, $846,000 was paid to ates, an entity that still exists today. In addition to those thousands of individuals, there are a few investors with part of the agreement Wien hammered out in 1961 Malkin Holdings and $13.3 million was distriblarge stakes in the building, through another entity called through an innovative tax structure, the ESBC also uted among the nearly 3,000 investors. the Empire State Building Company. That company gives the association 50 percent of the building’s net controls the property through a master lease that operating income above $1 million, called overage runs until 2076. The serious buyers sniffing rent. It keeps the other 50 percent — which last year around the building today are looking to eiamounted to $19.9 million — and distributes much of ther buy both or one of these companies that among its partners. For the purposes of the IPO, the as a way to wrest control of ESBC was appraised at $1.2 billion of the building’s total $2.5 the tower. billion value.

(landlord of the building)*

Malkin family: 6.2 percent

Helmsley estate: 63.75 percent Broadcasting Antenna Radio, TV and other broadcasters paid the building $17.1 million last year to license and lease space for a 22-story antenna atop the Art Deco tower. The antenna carries their signals across a five-state area.

The Observatory The building’s famed observatory is the tower’s single biggest source of annual revenue. Last year alone, it generated $92.2 million, driven by more than 4.1 million visitors who paid an average of $20.21 each to get a glimpse of the city from the 86th and 102nd floors.

Skanska USA Buildings The international construction firm inked a deal for its New York office in 2008. The firm occupies the entire 25,000 square feet on the 32nd floor, generating $1.2 million a year, or $48.67 per foot, in rental income. The lease expires in 2024.

Manhattan Professional Group The tax advisory firm — also known as the Tax Club — has a nearly 26,000-square-foot lease that runs though 2026 on the 60th floor. The company pays the building’s coffers $1.18 million a year, or $46.08 a foot. But it’s the target of an ongoing civil lawsuit brought by the U.S. Federal Trade Commission. It’s denied the charges, but it’s unclear how the suit will impact the company’s lease.

Taylor Global The sports-and-lifestyle public relations firm signed a lease in 2007 that runs through July 2018, paying $1.12 million per year. The firm occupies nearly 26,000 square feet on the 38th floor at a cost of about $43.47 per square foot.

Bank of America The banking giant has a 14,234-square-foot storefront on the 34th Street side of the building, with a lease running through April 2015, with a five-year renewal option. The lender brings in $1.15 million a year in rent, or about $80.97 per square foot. But that’s far below most asking rents on that stretch of 34th Street. Indeed, on that side of the street, rentals top $300, brokers said.

The extended Malkin family, including the Morse and Nelson families as well as Anthony Malkin himself, make up the largest chunk of ESBA, with a 6.2 percent stake. Based on the $1.3 billion appraised value for ESBA, that stake is worth about $80.8 million. But it’s divided among more than a dozen trusts and family members.

Lawrence Wien and Harry Helmsley were business partners and friends. As a result, the Helmsley estate owns 63.75 percent of the ESBC, which gives it ownership of the largest single chunk of the building’s NOI. The estate has notified the Malkins that it’s going to cash out, even if the building is not included in the planned IPO. Based on the $1.2 billion appraised value, the Helmsley stake is worth $832.9 million.

Malkin family: 23.75 percent Peter Malkin married Wien’s daughter, Isabel. Now, three Malkin-controlled entities hold a combined 23.75 percent stake of the ESBC, which is worth about $290.6 million. Anthony Malkin, Peter’s son and Wien’s grandson, leads Malkin Holdings today.

Blumenthal family: 2.5 percent

BUILDING EXPENSES IN 2012

In 1982, Cynthia Malkin, Anthony’s sister, married Richard Blumenthal, an attorney who’s now a U.S. senator from Connecticut. The Blumenthal family stake is worth an estimated $33.3 million.

Tenants’ and building alterations, repairs and maintenance:

$39 million

Joan Konner: 5 percent Veteran journalist Joan Konner owns a 5 percent stake worth about $61.2 million. Konner, a former dean of the Columbia University Graduate School of Journalism, is also the daughter of the late textile manufacturer and real estate investor Martin Weiner. Konner declined to comment.

Payroll and related costs:

$37.9 million Taxes:

$26.3 million

$20 million

The partnership headed by Sanfurd Bluestein owns 5 percent, also valued at $61.2 million. Bluestein, who did not respond to a request for comment, is Weiner’s son-in-law. His wife Iris, Konner’s sister, died several months after her father in 1969.

Bluestein Family Foundation, M&T Weiner Foundation: 2.5 percent Both Bluestein and Konner have family foundations that each own 1.25 percent stakes. Those stakes are worth an estimated $15.3 million each.

The Massachusetts-based university owns a stake valued at about $29.8 million. Although he did not attend Brandeis, Wien was a major contributor to the school, and solicited other investors to donate their shares to the school.

Konner’s heirs: 1.52 percent Konner’s daughter Rosemary and a granddaughter — as well as a trust in the name of a daughter who died — have a combined stake of $19.8 million.

Gilliland family: .95 percent The Gilliland family, which has been invested in real estate in Memphis for more than 100 years, owns a stake in the ESBA valued at $12.5 million.

Richard and Claire Morse: .76 percent Observatory expenses:

Bluestein Family Partnership: 5 percent

Brandeis University: 2.3 percent

Richard Morse and his wife, Claire, own a stake valued at about $9.9 million. Richard is the brother of Lester Morse Jr., Wien’s son-in-law.

Warner Funds: .76 percent Utilities, professional fees:

$42.2 million Base rent:

John Steel and Lewis Steel (pictured with wife Kitty), the step-grandchildren to Warner Brothers movie studio co-founder Albert Warner, each lead a nonprofit that combined hold a stake that is worth about $9.9 million.

$10.2 million Lawrence A. Wien Scholarship Fund, ($5.9 million in Columbia University: .47 percent annual rent plus Wien was a major donor to Columbia, where he received undergraduate and law degrees. The fund owns a stake estimated to be mortgage payments) worth about $6 million. Administrative:

$4 million

Where did the money go? From the $229 million collected in revenue last year, the ESBC paid out about $180 million in expenses, according to documents filed with SEC. Above is a breakdown of where the money went.

Joan Konner: .46 percent Konner is another of the few investors to own stakes in both entities. Her ESBA stake is worth just over $6 million. *Only some of the Empire State Building Associates’ biggest owners are listed here. There are thousands of ESBA owners, the vast majority of which are families and individuals with ownership stakes worth a fraction of a percent. The ESBA and ESBC, which manages the building through its master lease, split the net operating income of the building (see story).