Lawsuit Claims Empire State Building IPO Hurt Investors

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The Empire State Building's managers deprived investors of as much as $410 million by choosing to take the building public, according to a lawsuit filed by investors. 

According to a complaint filed this week in a New York state court, managers Peter Malkin and his son Anthony turned down all-cash offers of as much as $2.3 billion for the building and $1.4 billion for Empire State Building Associates LLC, which held the title and master lease. Instead, they chose to place the iconic building and 17 other properties into Empire State Realty Trust Inc.

"The Malkins knew or had reason to know that these cash offers, if accepted, would derail the proposed REIT and eviscerate their opportunity to enjoy hundreds of millions of dollars of benefits for themselves," Marc Postelnek, an investor in the lease-holder, said in the complaint.

The building's IPO on October 1 valued the property at just $1.89 billion and ESBA at $1.1 billion, according to the complaint. 

With the lawsuit, Mr. Postelnek seeks class-action status on behalf of more than 2,800 investors who own shares in ESBA, which was formed in 1961, Reuters reports. Empire State Realty Trust is a successor to Malkin Holdings. 

The lawsuit claims the Malkins put their interests ahead of those of investors with the building's IPO. 

"Given their positions of control and authority over the fate of the Empire State Building, the Malkins had a duty to act in the best interests of their investors," the plaintiffs' lawyer, John Rizio-Hamilton, a partner at Bernstein Litowitz Berger & Grossmann, representing Postelnek, told Reuters. "By failing to properly consider offers to maximize the building's value, the Malkins breached that duty." 

The lawsuit would recover profit for buildings investors allegedly lost by the Malkins' decision to take the building public. 

"These claims are wholly without merit and we will respond to them in court," a spokeswoman for the REIT said on Thursday.

Peter Malkin, who already owned the 114-year lease on the building, purchased the building in 2002, according to the building's website. The 103-floor Empire State Building opened in 1931 and was the tallest skyscraper until it was passed by the original World Trade Center's north tower in the 1970s.