Malkin Takes Manhattan: After Snag, IPO Vote Next Month Expected to Succeed

“If I’m the widow or the son of an heir, I don’t trust these real estate guys,” Mr. Longua said, explaining how earlier legal struggles may have influenced stakeholders’ decisions on the IPO.

The plan would give unit-holders half of the skyscraper’s appraised $2.53 billion value in REIT shares, but critics claim no documentation exists supporting the idea that the investors should get only half the value, and they contend that the planned REIT would rob them of a predictable income stream from the building’s rents.

Cousins Richard and Steve Edelman, whose grandparents purchased a stake in the building in 1962, are leading a group of opponents to “vote no” on the proposal or not vote at all, which would be the equivalent of disapproval.

“In a lot of cases the current owners are the children of original owners—these are family heirlooms,” Richard Edelman told The Financial Times earlier this month. “Well over half of these owners are in their 80s and have no interest in going into something akin to the stock market.”

One unit-holder, Robert Machleder, wrote a letter last week urging others to vote “no,” stating that although investors were aware of the potential for a future sale or refinancing, the IPO does not constitute a “capital transaction,” as the Malkins have stated, calling the argument “weightless as a feather, fanciful as a fairy tale.”

But the Malkins argue that their proposal would give investors liquidity, greater growth and diversification opportunities. Mr. Malkin balked at the Edelmans for spearheading the attempts to thwart the IPO.

“I believe that Richard and Stephen Edelman and those working with them are spreading lies and deception and that anyone who acts based upon their advice could be economically damaged and have a claim against them,” Mr. Malkin told The Commercial Observer last week.

In addition, the plan does have support among some of the more senior investors.

“To me it’s like a bonanza—like it fell out of the sky,” Leon Jonas, 85, a retiree in Delray Beach, Florida, who originally invested $10,000, told Bloomberg last year. “I would welcome it in a minute.”

The Umbrella Partnership REIT, or UPREIT, would allow the Malkins to defer capital gains taxes, helping them pay for the massive, $550 million, three-year makeover of the building that was designed to cut energy use, upgrade offices and ultimately bring higher rents. The Malkins hoped the recapitalization of the building and the REIT’s deferred tax structure, which would be passed along to investors, as “operating units” instead of cash or shares, would help convince investors that the REIT was viable, some said.

“I think he’s disappointed that it’s come to this, yet I think he’s very excited to get it done and energized by the fact that it’s heading closer to his direction,” said the Malkin colleague, who refused to be identified because of the sensitivity of the matter. The backlash began when a group of investors, led by investor Leon Meyers, filed a lawsuit to stop the planned $1 billion IPO offering in March of last year.

Andrew Penson, owner of Manhattan’s Grand Central Terminal, last month filed two affidavits in support of a group that is trying to block the reported $55 million settlement of that lawsuit. In the filings, Mr. Penson said the IPO would inflict “vast harm” on the about 2,800 co-investors in the building.

In a court response to Mr. Penson, the Malkins called the lawsuit and pending litigation “a publicity stunt, engineered by a handful of investors who have campaigned against the transaction using half-truths and outright lies.”