Empire State Building to Be Sold to Public in $4.2B IPO

May 29, 2013 -- The Empire State Building's shareholders today approved the sale of the New York City landmark to the public in an IPO valued at $4.2 billion, according to a Security and Exchange Commission filing.

The decision ended a dispute between two groups of owners of the iconic 102-story tower. One group wanted to keep the building's ownership just as it had been since 1961, when the Empire State Building was purchased by a syndicate of some 2,800 owners created by Malkin Properties. The other group wanted to roll up the Empire State landmark with 18 other New York area properties into a real estate investment trust, or REIT, and sell shares of it to the public.

So, will these public shares be any different from those of any other REIT?

No, said Lawrence Longua, a professor at New York University's Schack Institute of Real Estate. "It's a plain vanilla REIT," he said, "with a big, famous building attached."

Buyers, as with any REIT, won't be able to claim depreciation, as they would if they'd bought the real estate itself. They will, however, as with other REITs, get a dividend. Management, explained Longua, is required to pay a dividend of at least 90 percent of the taxable income.

"So, in an indirect way, you're getting the benefit of depreciation but paying taxes on the dividend," Longua said.

All investors, he said, were eligible to buy in.

But should they? Longua said that whenever he's asked now about prospects for commercial real estate in New York City, he has to first "take a deep breath."

He's not confident, he said, about the demand for office space, in part because a lot of new supply, including ground zero's One World Trade Center, with its 3.5 million square feet of space, will be coming on the market later this year.

"It's not just the new construction," he explained. The financial services industry continues to contract and to consolidate, softening demand.

"I looked recently at rents for the past five years," Longua said. "They've been flat. A lot of recent trades have had prices that were not different from 2007."

The rents now being asked, he said, "aren't justified by the numbers." The commercial market, he predicted, was "more likely to go sideways than up."

The Malkin family, prime movers in the pro-IPO campaign, had argued that creation of a REIT would deliver needed liquidity, aid capital appreciation, increase distribution and render management more accountable and more transparent.

When Richard Edelman, who had headed the anti-IPO faction, spoke earlier this year with ABC News, he said his family, like those of many of the original 1961 buyers, were not sophisticated or wealthy investors but rather middle-class.

"My grandparents, Max and Sophie Edelman, for some remarkable reason, had $100,000 available to purchase units," he said.

That stake could now be worth $3.2 million.

Most of the original families, said Edelman, bought units for the predictable income they paid and never intended to sell. Instead, they hoped to pass ownership down to their children and grandchildren.

The Empire State Building was the largest skyscraper in the world until the World Trade Center surpassed it in 1973. With that skyscraper's destruction in the terror attacks of September 2001, the Empire State Building, at 1,454 feet, was again the tallest structure in the city.

It has now been surpassed by the new ground zero building, which tops out at 1,776 feet.