Empire State Realty Trust (ESRT), owner of the iconic Empire State Building, faces a potential shake-up as activist investor Bruce Schanzer’s Erez Asset Management acquires a 5.8% stake in the company. Led by chairman and CEO Anthony Malkin, ESRT has been under the Malkin family’s ownership since 1961, spanning three generations.
According to a Securities and Exchange Commission filing, two Erez entities paid a combined $43 million for the stake on October 1. Schanzer believes ESRT’s shares are “undervalued” and sees an “attractive investment opportunity.” An ESRT spokesperson didn’t immediately respond to Bisnow’s request for comment.
ESRT Struggles with Declining Value
ESRT, traded on the New York Stock Exchange, has seen its shares lose roughly a third of their value this year. The Empire State Building’s observation deck, a longtime revenue generator, has struggled with declining visitor numbers due to increased competition. The company’s performance remains heavily tied to this signature asset, despite its diverse portfolio.
The company wrote down the deck’s value by $166 million in the second quarter, with net operating income falling from $24 million to $12.4 million year-over-year. Despite a 4.7% rise in stock price following the disclosure of Schanzer’s stake, ESRT’s stock had been on a downward trend, falling 14% the day of the announcement. This decline reflects broader challenges in the company’s financial performance.
Erez Pushes for Change
Erez, founded by Schanzer in 2022 after his 11-year tenure as CEO of Cedar Realty Trust, specializes in taking equity stakes in REITs and pushing for changes to boost shareholder value. The firm has already demonstrated its activist approach at other companies, including manufactured home REIT UMH, where Schanzer has been advocating for a board shake-up.
This isn’t Erez’s first foray into activist investing. At manufactured home REIT UMH, Schanzer has been advocating for a board shake-up, launching a website, SaveUMH.com, and criticizing the board for “insufficient oversight” despite the company’s valuable assets. A week ago, Erez launched the site with a presentation titled “Right Horse, Wrong Jockey,” highlighting UMH’s undervalued portfolio.
ESRT’s Portfolio and Future
ESRT’s portfolio includes 7.5 million square feet of office space in NYC, 800,000 square feet of retail in Williamsburg, and three apartment buildings totaling 743 units. While occupancy has risen to 89.4%, the company’s performance remains heavily tied to the Empire State Building. This reliance on a single asset has contributed to its financial challenges.
It remains to be seen what specific changes Schanzer will push for at ESRT. The NYC real estate market is experiencing a resurgence, with retail occupancy in prime corridors at a 10-year high, soaring office rents, and a tight rental market with vacancy below 2%. Schanzer’s involvement could signal a significant shift for ESRT as it handles this changing market, potentially leveraging the broader industry recovery to enhance its position.
