- The Washington Times - Wednesday, March 20, 2002

The market for icons has softened.
A New York real estate investor will buy the 70-year old Empire State Building for a relatively modest $57.5 million.
Donald Trump and his partners will sell the 102-story building now the city's tallest to a group led by Peter L. Malkin in a deal that has surprised commercial real estate professionals. A sale had been rumored since Sept. 14, when Mr. Malkin filed documents with the Securities and Exchange Commission indicating he would make a bid for the building, but the terms of the deal were unexpected.
"The price is surprising surprisingly low. One would have thought it would go for much more," said Stephen J. Riker, co-chairman of Colliers ABR Inc., a New York real estate firm that manages 18 million square feet of commercial property.
A range of circumstances may have depressed the price of one of the city's most recognizeable buildings.
Most importantly, a convoluted relationship between the ownership and the lease created more than 30 years ago could have lowered the sale price.
Hideki Yokoi bought the Depression-era building in 1991 for $40 million.
But Mr. Malkin's group, Empire State Building Associates, bought the master lease in 1961 for $36 million. The lease runs through 2076. The deal marks the first time since 1961 that the lease and the deed to the building were held by the same group.
Mr. Yokoi died in 1998, but his heirs and Mr. Trump, who joined the investment group in 1994, are paid just $1.97 million a year from Mr. Malkin's group. Mr. Malkin's master lease is the more valuable part of the equation because the building actually generates about $100 million a year in rent from the estimated 950 tenants.
The length and terms of the lease likely made it difficult to sell the building.
The price for the building also may have been depressed by concern about leasing space in tall buildings following the September 11 terrorist attacks, Mr. Riker said. The Empire State Building hasn't escaped tragedy. In an unusual accident, a B-25 bomber rammed into the 79th floor of the Empire State Building on July 28, 1945, after its pilot got lost in fog.
Of the building's 2.25 million square feet of rentable space, about 303,333 square feet are empty, according to CoStar Group Inc., a Bethesda company that gathers and sells information about commercial real estate. The 13.5 percent vacancy rate is higher than New York City's 8.3 percent vacancy rate for commercial properties.
In response to softening demand, rents have fallen at the Empire State Building from $42.25 per square foot a year ago to $34.29 now, according to CoStar. Rents have been lowered, but the change was due to market conditions and not directly related to the September 11 attacks, according to a public relations firm representing the building managers.
While Mr. Trump's group was able to command just $57.5 million for the Empire State Building, Mr. Malkin is likely to have a more valuable investment because his group has consolidated ownership of the building and master lease, said Woody Heller, managing director of Jones Lang LaSalle, a New York real estate and investment management services company.
"The two pieces are worth more together," Mr. Heller said.
The consolidation also increases the likelihood that the aging building will get the investment it needs to fix up the property, Mr. Riker said.


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