Tuesday, June 10, 2014

Exchange Offer and Transcript of the June 5, 2014 Conference Call

Below is a conversation that occurred on our recent ESBA Conference Call. This call is being transcribed so it will be available in a printed version. The full transcription will appear on the Empire State Building Investors site (http://www.empirestatebuildinginvestors.com/) as it becomes available.

You may want to postpone your decision on the Exchange deal we are being offered until after you read or listen to the conference call: (1-267-507-0255, code 53580847).

It is thought that by creating a written document of this call, it will enhance understanding of the details of this deal, assist investors in talks with their professional advisers, or other interested persons, and may be a document you can share with your elected officials.

We intend to make printed versions available of this conference for those who are not comfortable with computers.

Here is a conversation from the conference to give you a feel for the information many knowledgeable people provided:

From Area Code: 973
I just wanted to point out that in addition to be limited to a 60 cent distribution there is also a question whether that distribution will be categorized as guaranteed payments which is very clearly stated in this document … and guaranteed payments generally will appear on your K1, in addition to your net income distribution, which is, of course, part of your tax return. The guaranteed payment will be another piece. So …

You are getting into some minutia there that is important and they do point that out there in the document that the current OP units you own get to claim depreciation, and these won’t because these are debt, not ownership.

Right. So there would be another tax issue with regard to not only your piece of the income of ESBA, but also you would have guaranteed payments on top of that.

Right. So it shows the tax treatment is less favorable than the current one.

I think so, yeah, because the guaranteed payments will be deductions to the partnership.

Ah, so you are saying that once again the people who don’t do this benefit at the expense of those that do.

Yes, I believe so, because the deductions for the partnership is for the guaranteed payments. It is basically for the use of capital. It is not for performance which is normally the reason for guaranteed payments when a partner provides a service to the partnership and they get a guaranteed amount and that is for services rendered but in this case it is for the use of capital, this guaranteed payment that they have been talking about.

I would think that most people, I mean you know, it is crazy to think that 60 cents is all we will ever get out of it this deal if things go even the way, you know, we heard in the past, it has been projected that things are going to get even better.

Well, I think that is exactly why we didn’t want to sell it. We had the Duff and Phelps numbers showing our numbers doubling as of next year, then tripling in soon in years after, and the reason why those of us who where against it, among other things, is that we were wanted to keep that upside to ourselves, but we were deluded and now we will only have a portion of that.

They also, mention, I think, that if they don’t get 1.2 million units tendered, then I guess they don’t have to go ahead with any of it.

Right. And look, someone said to me, and they weren’t serious, but they wanted to point out that it is not in my interest, my family’s interest, to tell people not to do this because we will benefit, as I have been saying, at the expense of those who do and you know of course, that is not the spirit of the way I think that we have been operating from the beginning, that we felt that whatever was done, should be best for everyone and this has not been operated that way this is sort of a zero sum game and we are holding this conference call now, because we know that this is important to people who don’t have access to someone like you who is giving insight to things they will never hear, which is another reason they should pause before they leap.

One last question, I heard someone mention today that the liquidation value was twice the $16.62, I don’t quite understand that comment.

Well, in other words, in the event that let’s say the REIT was purchased at some point, they would have to retire it, the redemption is 200% of what the value was when they published the thing and sent it to us, so that is the potential upside if there was some sort of sale.

Obviously, I am sure there is no plan for a sale and that probably should be a big hint that there isn’t because why would they do this transaction if it would diminish our returns in a sale. So, that is significant. That is significant, and why they chose that number, I have no idea.

OK, well that is very interesting too. That’s barely where the stock price is today for even for the ESBA units, very close to that figure, today, $16.25 it is quoted at today.

Right, right. Look, so our families made these investments 50+ years ago, and most people I have spoken to and heard on these calls, plan to pass this along to their children, their grandchildren, their favorite nephew, niece and we have been long-term believers in this investment and I think the point has to be made over and over again, that anyone who decides to go forward with this particular exchange, no longer is an owner. There are merely someone that loaned the company money at a fixed rate and if there is an upside, you won’t share in it.

And also, the issue of why would anyone go into this with just a slight (I’ll call it slight) with a 75% increase in current dividend not knowing where this could go in the future. It doesn’t make any sense.

Well, actually they do know because they have the Duff and Phelps, because at least they have the Empire State Building which is really the driver of the stock and the earnings cause the other buildings in most cases are fully rented, so the growth in the next couple of years is going to come from repositioning the space and re-renting it at higher rates so we actually are in a position to know that it is going to go up and that 60 cents which obviously is higher than today, 2 or 3 or 4 years from now might look like it was a horrible deal.

The only people who would ever be interested in doing this, is if they were so dependent on the income from the investment. 

Right, and I would say that, but if someone really needed that, and they asked me what my opinion is, this is just one person’s opinion, I would say wait until October, convert your ESB to REIT stock, sell it, pay the taxes, and you could probably reinvest it into solid dividend paying stocks, that pay equal or more than what this 3.6% is and you would still have your liquidity and your principle. So there are alternatives even for people who say, you know, I could really use the money if they are willing to wait and just do what a sensible person would do or if they went to a stock broker and explain what they wanted to do they could be put into a safe utility, and not give up the future.

Monday, January 27, 2014

"Our lives begin to end the day we become silent about things that matter." - Martin Luther King, Jr.

Inspired today by press and a film documentary about the tragedy of Aaron Swartz (who has changed the world and could have done so much more given his gifts). (See The New Yorker and Boston Magazine)

How long can fear-mongering, greed and power rule our lives? Found the following worth thinking about as guiding principles that could give leaders qualities most of us would appreciate. Too often it seems they have mindlessly ignored their own reputations, value systems and the lives of those they serve.

Wondering what do we teach out children?

Random Quotes:

"What are boundaries? They are made up of two essential things: what you create and what you allow." 
"... leaders (directly responsible people) own it (their enterprise). They are the ones who define and create the boundaries that drive the behavior that forms the identity of teams and culture and sets the standards of performance. Leaders define the direction and are responsible for making it happen. And they are responsible for the accountability systems that ensure that it does happen. It always comes back to leadership and the boundaries they allow to exist on their property."
 ― Henry Cloud, PhD [Leadercast Network] 

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
― Thomas Jefferson

“I have a higher and grander standard of principle than George Washington. He could not lie; I can, but I won't.”
― Mark Twain

“Once a government is committed to the principle of silencing the voice of opposition, it has only one way to go, and that is down the path of increasingly repressive measures, until it becomes a source of terror to all its citizens and creates a country where everyone lives in fear.“
[Special Message to the Congress on the Internal Security of the United States,
August 8, 1950]
― Harry S. Truman

“Trust is the glue of life. It's the most essential ingredient in effective communication. It's the foundational principle that holds all relationships.”
― Stephen R. Covey

Basketball coach legend Rick Pitino
captured the principle of honesty 
simply and profoundly:
Lying makes a problem part of the future;
truth makes a problem part of the past.
―quoted by Stephen R. Covey

Seven Dangers Of Human Virtue:
  1.  Wealth without Work
  2.  Pleasure without conscience
  3.  Knowledge without character
  4. Business without ethics
  5. Science without Humanity
  6. Religion without sacrifice
  7. Politics without Principles
― Mahatma Gandhi

“Sometimes facing reality is difficult, especially when hearing it from others. But we demean and insult other people when we treat them as anyone other than accountable, responsible, choice-making individuals. If, in the name of being nice and kind, we start protecting them, we begin the process of the codependency and silent conspiracy that eventually results in the lowest level of initiative – Wait until told.
― Steven R. Covey

“The last of human freedoms - the ability to choose one's attitude in a given set of circumstances.” 
― Viktor E. Frankl

Finally, let's never forget this:
“It is well known that humor, more than anything else in the human make-up, can afford an aloofness and an ability to rise above any situation, even if only for a few seconds.” 
― Viktor E. Frankl, Man's Search for Meaning

Tuesday, September 17, 2013

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Thursday, September 12, 2013

Empire State Conference Call Remarks 9/12/2013

I am heartened to know that the Empire State Building is desirable to several people with the means to acquire it. Almost more importantly, those folks have had creative ideas about how best to be fair to all of us within the complications of this ownership.

The respect and fairness deserved by this loyal group of owners, has not been demonstrated by the Malkins throughout the process of this deal. Without the knowledge or approval of the owners, the Malkins secretly set up the REIT while hiring assistance from outside firms at our expense. We then saw the language in their communications change to undecipherable legal gibberish. Before we knew what was up, they were submitting their proposal to the SEC under the cloak of secrecy.

Approved at last by the SEC, they bombarded our diverse group of people with threats and half-truths at best, in reaching for the 80% approval they needed to approve the deal. A despicable ruse.
This building had no appraised value before the SEC demanded it. Nor projected income figures that I know of. This prevented anyone on the outside from submitting bids, if indeed that would have been allowed by law as the REIT played through.

The buyout deal before us is a much better deal for ESB owners and it should be pursued.

I have created an internet blog site to encourage narrative amongst us outside of these conference calls. Please search for Empire State Legacy Owners Blog. Please visit; your voice is welcome there. Thank you.

Tuesday, August 27, 2013

Wow ...

Bill Moyers' interview with Mark Leibovich, author of:

This Town: Two Parties and a Funeral-Plus, Plenty of Valet Parking!-in America's Gilded Capital

It has been puzzling listening to the praises of Malkin Holdings as long time supervisors of the Empire State Building, only to suddenly feel Malkins crash down on the 50 year ownership group of 2800 people from all walks of life. Surprising, confusing, perhaps uncharacteristic strategies for getting rid of the owners of the building, while charging our accounts millions of dollars to accomplish this. Armed with mis-information and deception, they worked for more than a year to make owners believe that their plan was the only plan for moving into the future with the ESBA investment. And now private bidders who should have been offered the opportunity in the beginning, are creatively offering a much better deal.

Bill Moyers' interview with Mark Leibovich, long time NYT reporter, on his book about the way our financial and political systems have changed seems to go a long way in explaining the unexplainable. Riveting. Makes sense that Merrill Lynch, Goldman Sachs, MacKenzie Partners, and the like are wheeling this deal in the manner described in Mr. Leibovich's book.

At least that is the story I am telling myself at the moment.

You can watch this fascinating interview here: Bill Moyers and Mark Leibovich Video

or listen to it here: Bill Moyers and Mark Leibovitz Podcast

Amazon: This Town: Two Parties and a Funeral-Plus, Plenty of Valet Parking!-in America's Gilded Capital by Mark Leibovich (Jul 16, 2013)

This look at a changed way of doing business and politics in our country ought to appeal uniquely to participants in this investment.

Goliath, do you hear David knocking at your door?

Friday, August 23, 2013

Much Simpler, Much Fairer, Yet No Word from Our Management Team

After more than a year of being cajoled, pushed with unsubstantiated threats, while given no alternative route other than the one our Supervisors dreamed up to roll lots of properties together to form an REIT, we are now being offered attractive bids on the Empire State Building alone (which should have been solicited by management at the beginning of this fiasco). Bidders are coming up with excellent plans for dealing with the complications of this ownership.

Why is management so silent? There are deadlines on these bids. Will this stall endanger the bidding process as (one assumes) efforts are being made to save the REIT, which is now not the only option for owners to consider?

It seems to us that a straight up sale of the Empire State Building is simple enough, fair enough and in the best interests of all of the owners of this investment, yet the deal is again being manipulated by our management team. Presumably they and their friends in high places who'd like some of what they haven't earned nor deserve.

Just watched the movie Inside Job about the financial debacle ... is this more of that?

Just think how this investment could flow into the needs of its many investors (college educations, retirement funds, charities, and so much more), rather than staying in the hands of the already very wealthy.

We, along with many, demand an accounting of this unusual process.

Tuesday, April 30, 2013

There are too many pieces to the puzzle of the Empire State Building, which make answers to a complex, obfuscated proposal difficult to find.

What we need is a straight forward, honest approach before our puzzle of ESB ownership decisions can be completed.

The following scenario, simplified, seems to make some sense:

1. Under the 1961 contract, signers were given a solid deal for a solid investment which had a long lifespan.

2. Between now and then, these same investors or their heirs were consulted about various changes to ownership, building improvements, etc. and gave their consent to forego revenue to add to the value of their investment.

3. Income sacrifices have played a large roll in glorifying the Empire State Building. Appraised values reflect not only this iconic piece of property and its location, but the improvements paid for by the investors.

4. In considering the deal before us, payback to the investors for their loss of income over the years in addition to the market value of the building and payback of any expenses allocated from revenues used for the expenses incurred in putting together the REIT need to be itemized and presented to the owners. If this arithmetic is in the documents, it seems to be hiding somewhere.

5. Unlike other changes undertaken by management, 

this deal was never presented to the owners before it was launched.

6. This puzzle is a confusing one. It would be interesting to see if "there is a train about to come down the track" which is not yet clearly in focus, perhaps lost in our sea of paperwork. And / or "hidden agendas" hinted at and unfortunately often put to use in the business dealings of our times.

7. It is hard to say "yes" when the puzzle is incomplete.