New Suit Over the Empire State Building REIT's Formation

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Self dealing, forced buyouts, unjust enrichment, breach of fidiciary duty, and hundreds of millions in damages.

In other words, just another suit against the Empire State Realty Trust, the NYSE-traded REIT that launched its October IPO blanketed by controversy over the principal shareholders' buyout provisions.

Now, a suit filed yesterday adds more on the refusal to consider offers for the REIT's centerpiece, the Empire State Building, by Malkin Holdings, the family-dominated majority shareholders that also was the owner of 17 other area properties now consolidated into the REIT.

There were several bids for the Empire State Building alone, and some minority shareholders have said consistently that the building should have been auctioned.  Now, they're saying that the top offers were worth more than $500 million above what the entire REIT is worth--about $1.89 billion post-IPO--and the Malkins and other officers failed their fiduciary duties to investigate a possible sale.

And the plaintiffs are asking for that $500 million in damages in the class action suit.

The suit comes on the heels of . . . another suit, filed Dec. 24, by a trustee for one of the investors in the old Empire State Building LLC.  It also is a class-action filing, and alleges similar self dealing and undervaluation.

In fact, yesterday's suit alleges that the Malkins and the majority holders didn't investigate at all.  "The Malkin Defendants refused to meet with any of the bidders," the suit alleges, "and, to the best of Plaintiffs' knowledge, never had one substantive word of dialogue with any of them. Instead, they moved forward with the [REIT] consolidation transaction--because of the hundreds of millions in self-dealing benefits the Malkin Defendants stood to reap from the [REIT] consolidation transaction--paying lip service to, but in reality wantonly breaching, their fiduciary duties to ESBA Participants."

The plaintiffs in the new suit are two of the former company's shareholders, and the ESBA Participants are the plaintiffs as well as the similarly situated formerly investors on whose behalf they filed the suit yesterday in New York Supreme Court, the state's trial court.

The court papers detail the fine points of the various offers, noting that a "spontaneous bidding war erupted in the summer of 2013" that produced eight offers for the Empire State Building.

The filing also notes that there is still an action on appeal to unwind the IPO altogether.  It focuses on the terms of the so-called forced buyout, which some minority shareholders claimed left them with no option other than to sell their shares for less than they were worth to participate in the new company, or forfeit their holdings altogether.

You can read the new complaint in full HERE. You can see the background on the current case as well as the Dec. 24 complaint, and information on the forced buyout suit, at the Empire State Building Investor's site, which was set up by shareholders of the old LLC that opposed the REIT consolidation and IPO, HERE.

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