"Hey buddy--wanna buy the Empire State Building?" If one faction of a dispute between current owners of the iconic New York City landmark gets its way, that's just what you'll be able to do: buy shares in the legendary 102-story tower.
Two groups of owners are pitted against each other. One wants to keep the building's ownership just as it has been since 1961, when the Empire State was purchased by a syndicate of some 2,800 owners created by Malkin Properties. The other wants to roll up the Empire State with 18 other New York area properties into a Real Estate Investment Trust or REIT and sell shares of it to the public.
If the IPO faction prevails, and shares do become available for purchase, will they be any different from those of any other REIT?
No, says professor Lawrence Longua of New York University's Schack Institute of Real Estate. "It's a plain vanilla REIT," says Longua, "with a big, famous building attached."
Buyers, as with any REIT, won't be able to claim depreciation (as they would if they bought the real estate itself). They will, however, as with other REITs get a dividend. Management, explains 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."
Any investor, he says, would be eligible to buy.
But should they? Longua says that whenever he's asked now about prospects for commercial real estate in New York City he has to first "take take a deep breath."
He's not sanguine, he says, 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, is coming on the market, likely late this year.
"It's not just the new construction," he explains: The financial services industry continues to contract and to consolidate, softening demand.
"I looked, recently, at rents for the past five years," he says. "They've been flat. A lot of recent trades have had prices that were not different from 2007." The rents now being asked, he thinks, "aren't justified by the numbers." The commercial market, he predicts, is "more likely to go sideways than up."
A spokesman for the Malkin family, prime movers in the pro-IPO campaign, declined to comment when contacted by ABC News. In their public statements, however, they have argued that creation of a REIT would deliver needed liquidity, aid capital appreciation, increase distribution and render management more accountable and more transparent.
Richard Edelman, head of the anti-IPO faction, spoke freely to ABC. He says 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 Edleman, for some remarkable reason had $100,000 available to purchase units." (That stake today would be valued at $3.2 million.)
Most of these families, he says, bought units for the predictable income they paid and never intended to sell. Rather, they hoped to pass ownership down to their children and grandchildren. "My daughter Sophie," says Edelman, "I hope she someday will benefit."
What happens next? Owners, says Edelman, were supposed to have voted to approve or reject the REIT on March 25. That deadline has now been extended. "As of last week," he says, "the REIT was not approved. The no's are prevailing for the moment."
Edelman contends the 2,800 owners would be better off retaining the existing ownership structure. "It's better the way it is," he says. "We own the most famous building in the world."
Its financial health, he says, is only getting better: A $600 million renovation and improvement program, when completed, should allow the building to replace existing tenants, he thinks, with new ones paying twice as much rent. "So, it won't just be the most famous building in the world, but the most profitable in the world."
The Empiree state Building was the largest skyscraper in the world until it was surpassed by the World Trade Center in 1973. With that building's destruction in the terror attacks of 2001, Empire State was once again the tallest in the city. It has now been surpassed by the new ground zero building which will top out at 1,776 feet. That compares with Empire State's 1,454 feet.