It's been a tough year for investors in Empire State Realty Trust, and a shake-up could be coming next.
Activist investor Bruce Schanzer's Erez Asset Management has acquired a 5.8% stake in ESRT, which owns the Empire State Building as well as a handful of office, retail and multifamily properties in Manhattan and Brooklyn, according to a Securities and Exchange Commission filing.
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ESRT, whose shares are traded on the New York Stock Exchange, has lost roughly a third of its value this year. Its longtime cash cow, the Empire State Building's observation deck, has struggled to retain visitors amid increasing competition.
Two Erez entities disclosed that they paid $43M combined on Oct. 1 for a 5.8% stake in ESRT. Schanzer believes that ESRT's shares are “undervalued and represent an attractive investment opportunity,” according to the filing.
ESRT's stock rose 4.7% in trading on Tuesday following the disclosure of Schanzer's stake.
Schanzer was CEO of Long Island-based shopping center REIT Cedar Realty Trust for 11 years before founding Erez Asset Management in 2022. The company takes equity stakes in REITs and pushes their management to make changes to boost shareholder value.
Erez has already reached out to ESRT's leadership “regarding capital allocation, business management and operations, and strategy and plans of [ESRT], including a potential strategic review of some or all of the Issuer's assets,” the filing states.
Schanzer declined to comment beyond the filing and confirming that he acquired a 5.8% stake. An ESRT spokesperson didn't immediately respond to Bisnow's request for comment.
Empire State Realty Trust is led by chairman and CEO Anthony Malkin, the third generation of the Malkin family that has owned the Empire State Building since 1961.
The REIT owns 7.5M SF of NYC office space, 800K SF of retail concentrated in Williamsburg and three apartment buildings totaling 743 units. But its performance is largely tied to its signature asset.
ESRT wrote down the value of the Empire State Building observation deck by $166M in the second quarter amid a sluggish summer with dwindling profits. The net operating income of the asset fell from $24M to $12.4M year-over-year.
The REIT's stock price fell 14% the day of the disclosure and had been steadily falling since before Erez's purchase.
Its real estate portfolio, which had been struggling during the pandemic, has started to fill up again, with occupancy rising to 89.4% from 88.2% three months prior.
It remains to be seen what changes Schanzer pushes for at ESRT amid a resurgent year for the city's real estate market. Retail occupancy in prime corridors is at a 10-year high, according to JLL, office rents are soaring, and vacancy in the city's rental market is below 2%.
At another Erez target, manufactured home REIT UMH, Schanzer has been agitating for a board shake-up for months. A week ago, Erez launched a website called SaveUMH.com, with a presentation titled "Right Horse, Wrong Jockey.”
“UMH owns a genuinely attractive portfolio in one of the most durable asset classes in real estate; those assets have grown dramatically in value over the last 20 years, none of which has been reflected in share price appreciation,” Schanzer wrote in a LinkedIn post. “The problem has never been the horse. It has been twenty years of mismanagement with a board that has provided insufficient oversight. Shareholders deserve better.”
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