Initial public offerings by real estate companies have been all the buzz in the New York City area. 2012 was a good time to turn to Wall Street to raise money from the public markets. Companies including the real estate website Trulia, the private equity firm the Carlyle Group and Realogy, and the residential brokerage Corcoran Group and Citi Habitats have all capitalized by using massive IPOs. These companies have also reaped the rewards of cash infusions as a real estate investment trust also known as REIT.
This year is not expected to be as sizzling as 2012, resulting from multiple firms already listed on the stock exchange, and many having more luck drumming up capital without Wall Street as the cost of debt comes down. Observers predict some real estate IPO activity. The real estate industry can expect to see IPOs from less-obvious real estate firms, including storage and outdoor billboard advertising companies.
Ron Hershco, a real estate developer in New York City agrees that IPOs can come from large to small companies. There was an element of surprise in 2012 and it will be interesting to know what 2013 will bring.
In turn the most anticipated real estate IPO of the year is a portfolio that includes Manhattan’s landmark Empire State Building. Owner of the building’s lease Tony Malkin, President of Milkans Holdings LCC, is looking to issue an IPO for the famous Empire State Building. Last month Empire State Realty Trust investors commenced voting on the fate of the company’s IPO aimed to provide liquidity for the new REIT anchored by the world famous office tower.
The notorious cloud buster provides momentous sources of revenue through its office and retail leases, observatory operations and broadcasting licenses. The portfolio consists of 12 total office properties reaching approximately 7.7 million rentable square feet of office space, most located in the Manhattan area.
According to filings from the Malkin family, they have offered investors a variety of options including class A shares, operating partnership units, or a combination of OP units and class B shares. This includes tax deferred options that gives investors flexibility in tax deferral. In a video released by Malkin, the argument is aimed at broader diversification and better banking terms. He said, “By putting these properties together, we believe all investors will benefit through ongoing dividends with the potential to increase through property performance, better financing, more efficient operation and beneficial acquisitions. The potential for increased distributions from dividends and stock appreciation over time offers benefit for all investors.”
With REITs holding at least 75 percent of their assets in real estate, The Malkins aren’t the only ones that will be attempting to create a REIT in 2013. The New Year rang in a booming stock market, resulted in a focus on sector-dominating companies that have assembled blue-chip portfolios of the best income-producing assets in multifamily housing, regional malls, strip centers, office buildings, and distribution facilities. In a low interest rate environment investors have flocked to the high yielding dividend of REITs. Many companies offer yields in excess of 10 percent. “REITs are not taxed at a corporate level, but you’re required to dish out at least 90 percent of its taxable income as dividends to investors. The improving U.S. housing market has tremendously helped boost investors’ interest for real estate investment trusts,” said Ron Hershco.