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Empire State Building IPO: It’s No King Kong

Published: February 14, 2012 | 3:15 pm
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You’ll soon have a chance to buy a piece of the Empire State Building, the art deco-style, 102-story skyscraper at the corner of 34th Street and Fifth Avenue in Manhattan.

A realty trust controlling the tower and 11 other properties in Manhattan, upstate New York, and Connecticut will attempt a $1 billion public offering in the coming months. Named for the group’s iconic crown jewel, Empire State Realty Trust will list on the New York Stock Exchange and trade under the “ESB” ticker, according to its Securities and Exchange Commission fillings.

Most real estate ventures—especially those in New York—are traditionally kept private. Throughout the U.S., roughly 90 percent of all real estate is private, analysts say. The notable exception: shopping malls.

So, this IPO is certainly a rarity. But should you spring for a share?

Well, the trust certainly won’t be the 800-pound gorilla in the room when compared to other REITs with Manhattan holdings. Many trusts far surpass Empire State Realty in terms of market cap. Vornado Realty Trust, which controls the area around New York’s Penn Station, has a $15.63 billion market cap, while Boston Properties, which owns Grand Central Tower, has $15.47 billion. The group behind the World Financial Center, Brookfield Properties, trades at $9.11 billion.

Many of these trusts hold international properties and stakes scattered across the United States. Together, Empire State Realty manages 7.7 million square feet of space, including 5.8 million in Manhattan. 79.9% of its New York space is currently leased. The trust also has the option to acquire two more Manhattan properties, adding another 1.4 million square feet, according to SEC fillings.

The area around Midtown South is not known for remaining cutting edge. The renovation behind Penn Plaza has stalled; scaffolding stretches across Madison Square Garden, and construction vehicles frequently idle overnight near Penn Station’s  entrance at 33rd street and 8th Avenue. Talk lingers about what the neighborhood could become. “Clearly, we’re not there yet,” says David Harris, a real estate market analyst at Imperial Capital.

But in the past 12 months, REITs, real estate investment trusts, have outperformed Standard & Poor’s 500 index. The REIT-tracking fund iShares Cohen & Steers Realty is up 7.92%. Compare this to the SPDR S&P 500 ETF which gained 1.61%.

Once Empire State Realty goes public, it’s certain to lure investors simply for the chance of owning part of the skyscraper than because of any metric.

It’s certainly kept the Malkin family hooked since the late 20th century. The trust is currently helmed by CEO Anthony Malkin, who joined his father, Peter, in 1989 as a principal. Prior to 2002, his father had owned the 114-year lease on the property. From 2002 to 2006, the Malkins wrestled day-to-day control of the building away from Helmsley-Spear, a management company that the Malkins say mismanaged the building. Forming the publicly traded REIT will allow the Malkins to consolidate management functions and its portfolio, according to its SEC fillings.

Source: Forbes


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