According to the REIT research firm Green Street Advisors, office property values in Midtown Manhattan have increased by 87 percent since 2009. In an effort to capitalize on investors’ appetite for a slice of that real estate, Malkin Holdings recently announced highly publicized plans to launch a new real estate investment trust. But a lawsuit filed earlier this week in New York County Supreme Court is aiming to derail those efforts and could have repercussions for sustainability efforts across the commercial real estate market in New York City.
Some background: proceeds from Malkin’s proposed offering – which could raise close to $1 billion – would pay investors who wish to cash out of their equity in existing Malkin entities, service debt, and fund the remaining renovation work at the LEED-EB Gold Empire State Building (between $55 and $65 million, according to the offering’s SEC filing). The companies that Malkin intends to consolidate within the REIT currently own 12 buildings with 7.7 million square feet of office space; 7 of those properties and 5.8 million square feet, including the Empire State Building, are located in Midtown Manhattan. The other 5 are in Westchester (NY) and Fairfield (CT) counties.
But in the complaint (which doesn’t appear to be available online yet), one of Empire State Realty Trust’s investors claims that the company and Malkin Holdings “seek to consummate [the public offering of shares in the REIT] 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 planned transaction.”According to a press release, part of the relief that the investor-plaintiff seeks includes a declaratory judgment that the REIT conversion is “inequitable” and an injunction enjoining the defendants from completing the transaction “via a process that is not fair and equitable.”
The REIT, which would be publicly traded as Empire Realty Trust, the name of the eponymous company that currently owns the Empire State Building, would strategically focus on the leasing of commercial office space at Malkin’s existing Manhattan office properties. However, the REIT would also use a portion of the funds that its public offering could raise to acquire additional properties. Given Malkin’s commitment to sustainability in commercial real estate, the REIT could eventually become a vehicle to deploy advanced building technologies across an increased number of New York City office buildings. At this early stage in the litigation, how and whether this action impacts those efforts obviously remains to be seen.