Empire State Building and 34th Street frontage
By Adam Pincus
Tabak and Pilevsky offer relies on increasing value of stores, group says
Large investors are salivating over the possibility of reinventing the undermarket retail space in the Empire State Building, real estate insiders told The Real Deal. New details are emerging today about a $2.1 billion offer for the iconic tower by Joseph Tabak and Philip Pilevsky — and their plan hinges on retail, including a hotel.
Theirs is not the first deal to likely have a retail angle. On Wednesday, one of the city’s most active retail developers — Joseph Sitt, CEO of Thor Equities — submitted a bid “north of $2.1 billion” for the 2.9 million-square-foot building, which draws millions of visitors a year.
Tabak, CEO of Princeton Holdings, and Philip Pilevsky, chairman of Philips International, are focusing on increasing the value of the tower’s store space, a member of the investing team told TRD.
“We plan on maximizing the use of the [retail in the] building considering the unparalleled pedestrian traffic it enjoys compared to almost any other building in Manhattan,” said Michael Pilevsky, who is co-president with his brother, Seth, at Philips International, founded by their father, Philip.
The Tabak and Pilevsky group was the second venture to bid on the property, which is controlled by the Malkin family’s Malkin Holdings.
Rubin Schron, founder of Cammeby’s International, launched what could turn into an outright bidding war when he made an all-cash offer of $2 billion June 18. The Tabak and Pilevsky offer is also all cash. Sitt did not disclose his specific offer but made it clear it is more than $2.1 billion. His broker, Jason Meister, a vice president at Avison Young, would not reveal the exact amount either, but said it could be in all cash.
Malkin Holdings is seeking to fold the building into a real estate investment trust, Empire State Realty Trust, composed of more than 17 properties. Malkin has the approval of about 90 percent of the Empire State Building investors. In a filing this week with the U.S. Securities and Exchange Commission, Malkin said it was reviewing the first two bids.
Tabak and Pilevsky plan to develop a hotel in the 102-story tower and convert the base into a destination retail hub, industry sources said.
Tabak and Pilevsky have the backing of long-time Middle Eastern and European equity investors, and the group is speaking with a large overseas bank that could provide a debt financing, insiders revealed. Tabak has some cash available, as he recently pocketed a hefty profit after Princeton Holdings and Bluestone Group sold their interest in a stake in the Ring brothers’ Manhattan portfolio for $74 million, to Extell Development.
Real estate sources say the retail at the Empire State Building is underutilized, considering the booming rents on the stretch of 34th Street from Fifth to Seventh avenues. In May, the Real Estate Board of New York reported asking rents in that district have risen 30 percent over the past year, from $558 per foot to $724 per foot.
“Thirty-fourth Street is a transportation and shopping hub. Current ownership has done a remarkable job leasing and upgrading the retail over the past 10 years. And as 34th Street continues to improve there is always room for better retailers on the stretch,” Lisa Rosenthal, managing director at retail focused brokerage Lansco, said. She is not involved with any of the bidding groups.
Retailers currently occupy about 127,256 square feet of the building; tenants include drug store Walgreens, restaurant Heartland Brewery and discount clothing chain Strawberry.
The retail value could be increased, insiders say, even though the exterior and the main lobby are city landmarks. Retail sources said the ceilings are low and the building has a uniform signage rule, limiting the ability for a retailer to brand their space. The Tabak and Pilevsky group has already reached out to the city’s Landmarks Preservation Commission to explore redevelopment options, sources said.
Philip Pilevsky first suggested the investment idea to Tabak, while they were hammering out another deal in the city over lunch.
“‘How about we do this?’” Tabak recalled Pilevsky asked him.
The Tabak and Pilevsky group has not submitted an offer to top the Sitt bid, but the group wants to speak directly with the Malkins and hash out a deal.
“We invite a sit-down meeting with the Malkins to finalize the deal,” Michael Pilevsky said. “We can do the deal in a tax-efficient, cooperative structure with their existing investors.”
The group was optimistic about its chances, even though industry sources told TRD that other unidentified retail investors are also eyeing the tower as long as it is not folded into the REIT.
“The question is, if it trades,” Tabak said. If it does sell, they predict they will come out on top. “We are adamant about getting this deal done.”