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Item 1A. Risk Factors

2021-02-26 compared with 2020-02-28 · 409 added, 662 removed, 57 unchanged (95% of the section changed)

You should carefully consider these risk factors, together with all of the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities.

You should carefully consider these risk factors, together with all other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before you decide whether to retain or make an investment in our securities.

The risks set out below are not the only risks we face.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could have a material effect on our results of operations, cash flow, financial condition, market price of our securities, and our ability to service debt make distributions to our securityholders (including those necessary to maintain ESRT’s REIT qualification).

In such case, the value of our securities and the trading price of our traded OP units could decline, and you may lose all or a significant part of your investment.

Additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial could have a material adverse effect on us and our REIT qualification).

In such case, the trading price of our securities could decline, and you may lose all or part of your investment.

Some statements in the following risk factors constitute forward-looking statements.

See the section entitled “Forward-Looking Statements.”

Risks Related to Our Properties and Our Business

All of our properties are located in Manhattan and the greater New York metropolitan area, in particular midtown Manhattan, and adverse economic or regulatory developments in this area could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

All of our properties are located in Manhattan and the greater New York metropolitan area, in particular midtown Manhattan, as well as nearby markets in Fairfield County, Connecticut and Westchester County, New York.

Nine of our 14 office properties are located in midtown Manhattan.

As a result, our business is dependent on the condition of the New York City economy in general and the market for office space in midtown Manhattan in particular, which exposes us to greater economic risks than if we owned a more geographically diverse portfolio.

We are susceptible to adverse developments in the New York City economic and regulatory environment (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation).

Federal tax limits on the deductibility of state and local taxes may negatively impact demographic trends in high tax states like New York and Connecticut.

Such adverse developments could materially reduce the value of our real estate portfolio and our rental revenues, and thus materially and adversely affect our ability to service current debt and to pay distributions to securityholders.

We could also be impacted by adverse developments in the Fairfield County, Connecticut and Westchester County, New York markets.

We cannot assure you that these markets will grow or that underlying real estate fundamentals will be favorable to owners and operators of office or retail properties.

Our operations may also be affected if competing properties are built in either of these markets.

Adverse economic and geopolitical conditions in general and in Manhattan and the greater New York metropolitan area commercial office and retail markets in particular, could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders .

Our business may be affected by volatility and illiquidity in the financial and credit markets, a general global economic recession and other market or economic challenges experienced by the real estate industry or the U.S.

economy as a whole.

Our business may also be materially and adversely affected by local economic conditions, as substantially all of our revenues are derived from our properties located in Manhattan and the greater New York metropolitan area, particularly in Manhattan, Fairfield County and Westchester County.

Because our portfolio consists primarily of commercial office and retail buildings located principally in Manhattan, we are significantly more vulnerable to risks in these industries and in this geography than if we owned a more diversified real estate portfolio.

In particular, the retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States.

General conditions that might materially and adversely affect our results of operations, cash flow, financial condition, ability to service current debt and to make distributions to our securityholders include:

a general consumer shift to online shopping has reduced demand for physical retail space and thus reduced the value of street level premises, which typically commanded the highest rental rates per square foot in office;

the financial condition of our tenants, many of which are consumer goods, financial, legal and other professional firms, may be adversely affected, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or other reasons;

significant job losses in the financial and professional services industries have occurred and may continue to occur, which may decrease demand for our office space, causing market rental rates and property values to be impacted negatively;

our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities, engage in our redevelopment and repositioning activities and refinance existing debt, reduce our returns from both our existing operations and our acquisition and development activities and increase our future interest expense;

reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;

reduced liquidity in debt markets and increased credit risk premiums for certain market participants may impair our ability to access capital or make such access more expensive;

the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investments or other factors.

These conditions may continue or worsen in the future, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

There can be no assurance that the redevelopment and repositioning program of our Manhattan office properties will be completed in accordance with the anticipated timing or at the anticipated cost, or that it will achieve its expected results , which could materially and adversely affect our results of operations, cash flow and financial condition.

We have been undertaking a comprehensive redevelopment and repositioning program of our Manhattan office properties which has included physical improvements through upgrades and modernization of, and tenant upgrades in, such properties.

Circumstances we might not be able to anticipate or control may delay or preclude program completion.

Further, the program may lead to temporary increased vacancy rates at the properties undergoing redevelopment.

In addition, we may not be able to lease available space on favorable terms or at all.

There can be no assurance that our redevelopment and repositioning program will be completed in its entirety in accordance with the anticipated timing or at the anticipated cost, or that it will achieve its expected results, which could materially and adversely affect our results of operations, cash flow and financial condition.

We rely on six properties for a significant portion of our rental revenue .

For the year ended December 31, 2019 , six of our properties, the Empire State Building, One Grand Central Place, 111 West 33rd Street, 1400 Broadway, 250 West 57th Street and First Stamford Place together accounted for approximately 73.1% of our portfolio’s rental revenues, and no other property accounted for more than approximately 5.0% of our portfolio’s rental revenues.

For the year ended December 31, 2019 , the Empire State Building individually accounted for approximately 32.9% of our portfolio’s rental revenues.

Our revenue and cash available for distribution to our securityholders would be materially and adversely affected if the Empire State Building, One Grand Central Place, 111 West 33rd Street, 1400 Broadway, 250 West 57th Street or First Stamford Place were materially damaged or destroyed.

Additionally, our revenue and cash available for distribution to our securityholders would be materially adversely affected if a significant number of our tenants at these properties experienced a downturn in their business which may weaken their financial condition and result in their failure to make timely rental payments, defaulting under their leases or filing for bankruptcy.

The observatory operations at the Empire State Building are not traditional real estate operations, and may be negatively impacted by competition, adverse weather, and changes in tourist trends caused by public health crises, including the novel coronavirus (COVID-19), among other factors, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

During the year ended December 31, 2019 , we derived approximately $128.8 million of revenue from the Empire State Building’s observatory operations, representing approximately 39.2% of the Empire State Building’s total revenue for this period.

The Empire State Building’s observatory is one of New York City’s main destination attractions and we have undertaken various projects to modernize and optimize visitor experience, which was substantially completed in November 2019.

We currently compete against two existing observatories in New York City, and additional observatories are in the construction pipeline, with the Hudson Yards observatory projected to be completed in the first quarter 2020 and the One Vanderbilt observatory projected to be completed by year end 2021, which could have a negative impact on revenues from our observatory operations.

Despite the Empire State Building’s iconic status, location, and updated visitor experience, existing and new observatory competition may divert visitors from our observatory and negatively impact observatory revenue.

Visitor demand for our observatory is highly dependent on domestic and international tourism.

While New York City tourism has been consistent in recent years, economic and geopolitical factors might negatively impact tourist influx in the future.

Additionally, we are susceptible to reductions in visitor demand due to adverse weather patterns, in particular during peak visitor periods.

Increased competition, a downturn in domestic and international tourist trends and adverse weather may negatively impact visitor demand for our observatory, which could have a material adverse effect on our results of operations, cash flow,

financial condition, and our ability to service debt and make distributions to our securityholders.

We may be unable to renew leases or re-lease vacant space on favorable terms or at all as leases expire, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

See “Forward-Looking Statements.”

Risks Related to Our Business and Properties

Risks Related to the COVID-19 Pandemic

The current COVID-19 pandemic has had, and any future public health crisis could have, serious adverse effects on our and our tenants’ businesses, operations and financial condition, and on local, national, and global economic activity, including by creating volatility and negative pressure in the financial markets.

The COVID-19 pandemic has impacted the entire U.S., including New York and Connecticut where our properties are located.

Measures taken by authorities to limit its impact, including quarantines, social distancing, restrictions on travel, business operations and construction, have affected, and continue to affect, adversely our and our tenants’ businesses, operations and financial condition.

The foregoing impacts have reduced, and will likely continue to reduce, many of our tenants’ ability and/or willingness to pay rent, and court backlogs and obstacles from government moratoriums that abridge the enforcement of lease obligations also affect our ability to enforce payment.

Certain tenants have made, and may continue to make, requests for rent deferral, rent abatement or lease termination, and/or have taken actions to challenge lease enforceability, defaulted on lease obligations or invoked insolvency protection, all of which have reduced, and may continue to reduce, our revenue.

The scope and duration of the foregoing events are uncertain and unpredictable.

In addition, as a result of such restrictions, we had to close the observatory to the public from March 16, 2020 to July 20, 2020, with the 102 nd floor observation deck not reopening until August 24, 2020, and during such closure substantially all observatory revenue was discontinued.

Since then, due to continued travel restrictions, visitor volume has lagged our expectations, and we cannot predict when we may achieve visitor volume comparable to 2019 when approximately 64% of our visitors were from other countries.

During the fourth quarter of 2020, visitor volume declined by 93.8% compared to the corresponding period in 2019.

Additionally, observatory revenue for 2020 was $29.1 million, a 77.4% decline compared to 2019.

Moreover, real estate companies like us may be subject to claims from employees, tenants, vendors, visitors or the public that they were exposed to COVID-19 by our inadequate protective measures or were unnecessarily inconvenienced or damaged by our excessive protective measures.

Additionally, the COVID-19 pandemic has had, and any future public health crisis could have, a material adverse effect on our operations, cash flows and financial condition due to, among other factors:

adverse effect on our human capital management, as our employees, including senior management, remain subject to risk of illness, and certain employees continue to work remotely, which strains efficiencies and management oversight, cybersecurity, and morale;

downturn in national and/or local economies, which impairs prospects for new and renewal leases, decreases demand and rental rates for office and retail space, and/or increases lease terminations and vacancy, all with an adverse impact on the value or market price of our assets;

delays to and/or cancellations of our plans to execute capital projects, successfully or on the anticipated timeline or at the anticipated costs;

potential impairment of our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due, to comply with covenants in existing debt agreements, to borrow additional funds or to enter into new financings;

volatility and downward pressure on the market price of ESRT’s Class A common stock and our publicly traded partnership units, which may also reduce our access to capital and/or our equity currency for new acquisitions;

and reduction of our cash flows, which could negatively impact our ability to pay dividends and potentially affect ESRT’s REIT qualification;

and potential impairment of our ability to ensure business continuity if current plans are not effective or properly implemented during pandemic conditions.

The rapid developments regarding the COVID-19 pandemic preclude reliable predictions as to its ultimate adverse impact, which largely arises from factors beyond our control.

To the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described under this section.

Risks Relating to Portfolio Concentration

Our properties are geographically concentrated in New York and Connecticut, and adverse state or local economic or regulatory developments could have a material adverse effect on our operations, cash flow and financial condition.

All of our properties are located within the greater New York metropolitan area, in particular midtown Manhattan (9 of 14 properties), and nearby markets in Fairfield County, Connecticut and Westchester County, New York.

As a result, our business is dependent on the New York City economy in general and the market for office space in midtown Manhattan in particular, which exposes us to greater economic and regulatory risks than if we owned a more geographically diverse portfolio.

These risks include business layoffs, downsizing, industry slowdowns, and relocations of businesses as well as increases in real estate and other local taxes, and regulatory compliance costs.

The current federal tax limits on the deductibility of state and local taxes as well as higher individual tax rate proposals may negatively impact demographic trends in high tax states like New York and Connecticut.

We cannot guarantee that the greater New York City metropolitan market will grow or that underlying real estate fundamentals will be favorable to owners and operators of office or retail properties.

The threat or occurrence of a terrorist event, particularly in New York City, may materially and adversely affect the value of our properties and our ability to generate cash flow.

As a result of the threat, or occurrence, of a terrorist event, tenants in Manhattan and the greater New York metropolitan area may choose to relocate to less populated, lower-profile areas of the United States that are not as likely to be targets.

This could trigger a decrease in the demand, occupancy and rental rates for space in Manhattan and the greater New York metropolitan area, which may materially affect the value of our properties and our ability to generate cash flow.

Such negative consequences may be even more likely in a high-profile property like the Empire State Building and its Observatory.

Additionally, a terrorist event could cause insurance premiums at certain of our properties to increase significantly, thus impairing net cash flows.

We rely on six properties, in particular the Empire State Building and its Observatory, for a significant portion of our revenue.

For the year ended December 31, 2020, six of our properties together accounted for approximately 74.8% of our portfolio’s rental revenues, with the Empire State Building individually accounting for approximately 32.8%.

Our revenue and cash available for distribution would be materially and adversely affected if any of these six properties were materially damaged or destroyed or if a significant number of our tenants at these properties experienced financial strain that resulted in their failure to make timely rental payments, defaults under their leases or filing for bankruptcy.

Additionally, for fiscal years ending December 31, 2018, 2019 and 2020, we derived approximately $131.2 million, $128.8 million and $29.1 million, respectively from the Empire State Building’s Observatory operations.

Loss of revenue from the Observatory, as we have experienced in 2020 as a result of the COVID-19 pandemic, has had and can in the future have a material adverse impact on our total revenue and financial condition.

Our five largest tenants represented approximately 14.3% of our total portfolio’s annualized rent as of December 31, 2020.

As of December 31, 2020, our five largest tenants together represented 14.3% of our total portfolio’s annualized rent, with our largest tenant leasing an aggregate of 0.4 million rentable square feet of office space at one of our office properties, representing approximately 3.6% of our total portfolio rentable square feet and approximately 4.1% of our total portfolio annualized rent.

Our significant tenants may experience financial strain that could potentially result in their failure to make timely rental payments, default under their leases or file for bankruptcy.

In many cases, we have made substantial upfront investments in leases, through tenant improvement allowances and other concessions, as well as typical transaction costs (including professional fees and commissions) that we may not be able to recover.

In the event of any tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.

Our financial condition could be materially adversely affected if any of our significant tenants were to suffer a downturn in their business, and/or become bankrupt or insolvent, default under their leases, fail to renew their leases or renew their leases on terms less favorable to us than their current terms.

Risks Relating to the Real Estate Market

A sustained shift away from in-person work environments to remote work, increased use of a hoteling desk layout or a move towards a city hub and suburban spoke geographic model could have an adverse effect on the overall demand for office space.

For our office tenants, limitations on in-person work environments caused by the COVID-19 pandemic could lead to a sustained shift away from in-person work environments, increased use of hoteling desk layout or a move to a city hub and suburban spoke geographic model, which would have an adverse effect on the overall demand for office space across our portfolio.

These trends and the related effects may continue after the COVID-19 pandemic, which could make it difficult for us to renew or re-lease our properties at rental rates equal to or above historical rates, or at all.

We could also incur more significant re-leasing costs, and the re-leasing process with respect to both anticipated and unanticipated vacancies could take longer.

Adverse economic and geopolitical conditions impacting the industries of our tenants, in particular the retail industry, could cause reduced demand, rental rates and occupancy for our retail and office space.

As of December 31, 2020, approximately 16.5% of our portfolio's annualized rent was comprised of retail tenants.

In recent years, the retail industry has faced reductions in sales revenues and increased bankruptcies throughout the United States, which have been exacerbated by the COVID-19 pandemic.

In addition, there has been a general trend toward consolidation in the retail industry, and a general consumer shift to online shopping has reduced demand for physical retail space and thus reduced the value of street level premises, which typically commanded the highest rental rates per square foot in office properties.

Additionally, many of our tenants are in the financial and legal industries, in which significant job losses have occurred and may continue, which may decrease demand for our office space, rental rates and property values.

These and other adverse conditions, including the COVID-19 pandemic, could adversely affect certain of our tenants, which could result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or other reasons, and in turn result in reduced demand, rental rates and occupancy for our retail and office space.

The bankruptcy or insolvency of any tenant could result in the termination of such tenant’s lease and material losses to us.

The occurrence of a tenant bankruptcy or insolvency could diminish or terminate the income we receive from that tenant.

The COVID-19 pandemic has increased the number of tenant bankruptcies, where federal law may prohibit us from evicting such tenant, and such tenant may be authorized to reject and terminate its lease(s) with us.

Any claims against such tenant for unpaid future rent would be subject to statutory limitations that would result in our receipt of rental revenues that are likely substantially lower than the contractually specified rent, and any claim we have for unpaid past rent may not be paid in full.

Additionally, a large number of our tenants (measured by number of tenants as opposed to aggregate square footage) are smaller businesses that generally do not have the financial strength of larger corporate tenants.

Smaller businesses generally experience a higher rate of failure than large businesses and may be at higher risk of bankruptcy.

Tenant bankruptcies or insolvency could have a material adverse effect on our operations, cash flow and financial condition.

Competition in the New York metropolitan area may impede our ability to attract or retain tenants or re-lease space.

Our office properties are concentrated in highly developed areas of midtown Manhattan and densely populated metropolitan communities in Fairfield County and Westchester County.

The leasing of real estate in the greater New York metropolitan area is highly competitive.

The principal means of competition are rent rates, location, services and the nature and condition of the premises.

We directly compete with lessors and developers of similar space in the areas where our properties are located as well as properties in adjacent submarkets.

Additionally, we have seen increased competition from lessors that have converted traditional office space to flex space and offer additional amenities.

Such increased competition (through potentially newer or better equipped or located properties) could have a material adverse effect on our ability to lease or re-lease office space at our properties, and on the effective rents we are able to charge.

We may be unable to renew leases or re-lease vacant space on favorable terms or at all as leases expire.

As of December 31, 2020, we had approximately 1.1 million rentable square feet of vacant space (excluding leases signed but not yet commenced).

In addition, leases representing 6.4% and 5.5% of the square footage of the properties in our portfolio will expire in 2021 and 2022, respectively (including month-to-month leases).

We cannot assure you that expiring leases will be renewed or that our properties will be re-leased at net effective rental rates equal to or above the current average net effective rental rates.

Above-market rental rates at some of the properties in our portfolio may force us to renew some expiring leases or re-lease properties at lower rates.

If existing tenants do not renew their leases on current or similar terms or we are unable to release vacant space on favorable terms or at all, our financial condition, results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders could be materially and adversely affected.

The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may experience a decline in realized rental rates from time to time, which could have a material adverse effect on our results of operations, cash flow, and financial condition.

As a result of various factors, including competitive pricing pressure in our markets, a general economic downturn and the desirability of our properties compared to other properties in our markets, we may be unable to realize our asking rents across the properties in our portfolio.

In addition, the degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to property and among different leased spaces within a single property.

If we are unable to obtain sufficient rental rates across our portfolio, then our ability to generate cash flow growth will be negatively impacted.

In addition, depending on market rental rates at any given time as compared to expiring leases in our portfolio, rental rates for expiring leases may be higher than starting rental rates for new leases.

We are exposed to risks associated with property redevelopment and development that could have a material adverse effect on our results of operations, cash flow and financial condition.

We have engaged, and continue to engage, in development and redevelopment activities with respect to our Manhattan office properties.

In addition, we own entitled land at the Stamford Transportation Center in Stamford, Connecticut that can support the development of an approximately 415,000 rentable square foot office building and garage.

To the extent that we continue to engage in development and redevelopment activities, we will be subject to certain risks, including, without limitation:

the availability and pricing of financing on favorable terms or at all;

the availability and timely receipt of zoning and other regulatory approvals;

the potential for the fluctuation of occupancy rates and rents due to a number of factors, including market and economic conditions, which may result in our investment not being profitable;

start up, repositioning and redevelopment costs may be higher than anticipated;

the cost and timely completion of construction (including risks beyond our control, such as weather or labor conditions, or material shortages);

the potential that we may fail to recover expenses already incurred if we abandon development or redevelopment opportunities after we begin to explore them;

the potential that we may expend funds on and devote management time to projects which we do not complete;

the inability to complete construction and leasing of a property on schedule, resulting in increased debt service expense and construction or redevelopment costs;

the possibility that properties will be leased at below expected rental rates.

These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent the initiation of development and redevelopment activities or the completion of such activities once undertaken, any of which could have a material adverse effect on our results of operations, cash flow and financial condition.

We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants, which could have a material adverse effect on our results of operations, cash flow and financial condition .

We cannot be assured that expiring leases will be renewed or that our properties will be re-leased at net effective rental rates at or above the current average.

We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants.

Upon expiration of leases at our properties and with respect to our current vacant space, we may be required to make rent or other concessions to tenants, accommodate increased requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our tenants.

In addition, eight of our existing properties are pre-war office properties, which may require more frequent and costly maintenance to retain existing tenants or attract new tenants than newer

In addition, eight of our existing properties are pre-war office properties, which may require more frequent and costly maintenance to retain existing tenants or attract new tenants than newer properties.

As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants.

Additionally, we may need to raise capital to make such expenditures.

If we are unable to do so or capital is otherwise unavailable, we may be unable to make the required expenditures.

This could result in non-renewals by tenants upon expiration of their leases and our vacant space remaining untenanted, which could have a material adverse effect on our results of operations, cash flow and financial condition.

As of December 31, 2019 , we had approximately 0.9 million rentable square feet of vacant space (excluding leases signed but not yet commenced), and leases representing 7.6% and 6.5% of the square footage of the properties in our portfolio will expire in the in 2020 and 2021, respectively (including month to month leases).

Our five largest tenants - Global Brands Group, LinkedIn, Coty, Inc., PVH Corp.

and Sephora - represented approximately 17.1% of our total portfolio’s annualized rent as of December 31, 2019 .

As of December 31, 2019 , our five largest tenants together represented 17.1% of our total portfolio’s annualized rent.

As of December 31, 2019 , our largest tenant leased an aggregate of 0.7 million rentable square feet of office space at two of our office properties, representing approximately 6.6% of our total portfolio rentable square feet and approximately 6.6% of our total portfolio annualized rent.

General and regional economic conditions, may adversely affect our significant tenants, as well as other existing and potential tenants in our markets.

Our significant tenants may experience a material business downturn, weakening their financial condition and potentially resulting in their failure to make timely rental payments and/or a default under their leases.

In many cases, we have made substantial up front investments in the applicable leases, through tenant improvement allowances and other concessions, as well as typical transaction costs (including professional fees and commissions) that we may not be able to recover.

In the event of any tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.

Our results of operations, cash flow and financial condition could be materially adversely affected if any of our significant tenants were to suffer a downturn in their business, and/or become bankrupt or insolvent, default under their leases, fail to renew their leases or renew their leases on terms less favorable to us than their current terms.

The bankruptcy or insolvency of any of our tenants could result in the termination of such tenant’s lease and material losses to us, which could have a material adverse effect on our results of operations, cash flow and financial condition.

The occurrence of a tenant bankruptcy or insolvency could diminish or terminate the income we receive from that tenant’s lease or leases.

In particular, the retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States.

If a tenant becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency.

In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease or leases with us.

Any claims against such bankrupt tenant for unpaid future rent would be subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under the lease or leases.

In addition, any claim we have for unpaid past rent, if any, may not be paid in full.

We may also be unable to re-lease a terminated or rejected space or to re-lease it on comparable or more favorable terms.

As a result, tenant bankruptcies could have a material adverse effect on our results of operations, cash flow and financial condition.

Competition may impede our ability to attract or retain tenants or re-lease space, which could have a material adverse effect on our results of operations, cash flow and financial condition.

The leasing of real estate in the greater New York metropolitan area is highly competitive.

The principal means of competition are rent charged, location, services provided and the nature and condition of the premises to be leased.

We directly compete with lessors and developers of similar space in the areas where our properties are located as well as properties in other adjacent submarkets.

Additionally, we have seen increased competition from lessors that have converted traditional office space to co-working office space and offer additional amenities.

Demand for retail space may be impacted by the bankruptcy of retail companies, a general trend toward consolidation in the retail industry, and the impact of Internet retailing which could adversely affect our ability to attract and retain tenants and, in turn (i) reduce rents payable to us, (ii) reduce our ability to attract and retain tenants at our properties and (iii) lead to increased vacancy rates at our properties, any of which could have a material adverse effect on our results of operations, cash flow and financial condition.

Our office properties are concentrated in highly developed areas of midtown Manhattan and densely populated metropolitan communities in Fairfield County and Westchester County.

Manhattan is the largest office market in the United States.

Increased competition in the markets in which our office properties are located (through potentially newer or better equipped or located properties) could have a material adverse effect on our ability to lease or re-lease office space at our properties, and on the effective rents we are able to charge.

Our tenants' inability to secure financing necessary to continue to operate their businesses and pay us rent could have a material adverse effect on our results of operations, cash flow and financial condition.

Many of our tenants rely on external sources of financing to operate their businesses.

If our tenants are unable to secure the financing necessary to continue to operate their businesses, they may be unable to meet their rent obligations or be

forced to declare bankruptcy and reject their leases, which could have a material adverse effect on our results of operations, cash flow and financial condition.

Our dependence on smaller businesses to rent our office space could have a material adverse effect on our results of operations, cash flow and financial condition.

A large number of our tenants (measured by number of tenants as opposed to aggregate square footage) are smaller businesses that generally do not have the financial strength of larger corporate tenants.

Smaller businesses generally experience a higher rate of failure than large businesses and may be at higher risk of bankruptcy.

Consequently, we may be exposed to a higher rate of tenant defaults or turnover by our smaller businesses tenants, which could have a material adverse effect on our results of operations, cash flow and financial condition.

Our dependence on rental income could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

A substantial portion of our income is derived from rental income from real property.

As a result, our performance depends on our ability to collect rent from tenants.

Our results of operations, cash flow, financial condition and our ability to service debt and make distributions to our securityholders could be negatively affected if a significant number of our tenants, or any of our significant tenants:

delay lease commencements;

decline to extend or renew leases upon expiration;

fail to make rental payments when due;

declare bankruptcy.

Any of these actions could result in the termination of the tenants’ leases and the loss of rental income attributable to the terminated leases.

We cannot assure you that any tenant whose lease expires will renew that lease or that we will be able to re-lease space on economically advantageous terms or at all.

The loss of rental revenues from terminated tenants or tenants that decide not to renew their leases, and our inability to replace such tenants could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

The broadcasting operations at the Empire State Building are not traditional real estate operations, and competition and changes in the broadcasting of signals over air may subject us to additional risks, which could materially and adversely affect us.

The Empire State Building and its broadcasting mast provides radio and data communications services and supports delivery of broadcasting signals to cable and satellite systems and television and radio receivers.

This could result in non-renewals by tenants upon expiration of their leases and our vacant space remaining untenanted, which could have a material adverse effect on our operations, cash flow and financial condition.

Risks Relating to Our Properties

We face various risks related to our ground leases, including those arising from breach, expiration and eminent domain proceedings, and we have no permanent economic interest in the land or improvements at such properties.

Our interests in three of our commercial office properties, 1350 Broadway, 111 West 33rd Street and 1400 Broadway, are ground leases (i.e., long-term leaseholds of the land and the improvements), rather than a fee interest in the land and the improvements.

Pursuant to these ground leases, we, as tenant, perform the functions traditionally performed by owners:

collect rent from our subtenants, maintain the properties and pay related expenses.

We do not have a right to acquire the fee interests in these properties.

The ground leases, including unilateral extension rights available to us, expire on July 31, 2050 for 1350 Broadway, December 31, 2063 for 1400 Broadway and June 10, 2077 for 111 West 33rd Street.

If we are found to be in breach of these ground leases, the fee owner of the properties may terminate the leases, and we could lose the right to use the properties.

In addition, unless we purchase the underlying fee interest in these properties or extend the terms of the ground leases, we will lose our right to operate these properties, or continue to operate them at much lower profitability.

Additionally, we will not share in any increase in value of the land or improvements and will not receive any revenue from the property beyond the term of our ground leases.

If the government acquires the properties under its eminent domain power, we would only be entitled to a portion of any compensation awarded.

It may be more expensive for us to renew our ground leases, to the extent renewal is available at all.

We are exposed to risks associated with property development.

We have engaged, and continue to engage, in development activities with respect to our properties.

We own entitled land at the Transportation Center in Stamford, Connecticut that can support the development of an approximately 0.4 million rentable square foot office building and garage.

Development subjects us to risks beyond our control, which could have a material adverse effect on our financial condition, including, without limitation, the availability and pricing of financing;

availability and timing of zoning and other approvals;

occupancy rates and rents;

construction costs and delays (whether due to weather, labor conditions, material shortages or otherwise), and timely lease-up.

We will fail to recover expenses and management time already incurred if we abandon development.

We may not be able to control our operating costs, or our expenses may remain constant or increase even if income from our properties decreases.

Certain costs associated with real estate investment, such as real estate taxes, insurance and maintenance costs, generally are not reduced when a property is not fully occupied, rental rates decrease or other circumstances cause a reduction in income.

The terms of our leases may also limit our ability to charge our tenants for all or a portion of these expenses.

Risks Related to Our Non-Real Estate Operations

The Observatory operations at the Empire State Building are not traditional real estate operations, and may be negatively impacted by competition, adverse weather, and changes in tourist trends caused by public health crises, including COVID-19 pandemic, among other factors.

For fiscal years ending December 31, 2018, 2019 and 2020, we derived approximately $131.2 million, $128.8 million and $29.1 million from our Observatory operations.

Our revenues declined significantly in 2020, as a result of the pandemic and government mandated closures and a slow ramp-up in visitor volume after reopening in July 2020, in large part due to travel restrictions.

We cannot predict when, if at all, our Observatory revenues will return to pre-COVID-19 levels.

Any future health or other economic crisis could negatively impact tourist trends and visitor demand for our Observatory, which could

have a material adverse effect on our business.

We are also susceptible to reductions in visitor demand due to adverse weather.

We compete against existing observatories in New York City at the World Trade Center, Rockefeller Center and Hudson Yards, and an additional observatory is expected at One Vanderbilt in 2022, all of which may divert visitors and negatively impact our revenue.

The Empire State Building and its broadcasting mast provide radio and data communications services and support delivery of broadcasting signals to cable and satellite systems and television and radio receivers.

We license the use of the broadcasting mast to third party television and radio broadcasters.

During the year ended December 31, 2019 , we derived approximately $13.5 million of revenue (excluding tenant reimbursement income) from the Empire State Building’s broadcasting licenses and related leased space, representing approximately 4.1% of the Empire State Building’s total revenue for this period.

During the year ended December 31, 2020, we derived approximately $13.5 million of revenue (excluding tenant reimbursement income) from such broadcasting licenses and related leases, as compared with about $21 million at its peak a few years ago.

Competition from other broadcasting operations has had a negative impact on revenues from our broadcasting operations, and lease renewals have yielded reduced revenue, and higher operating expenses and capital expenditures.

Our broadcast television and radio licensees also face a range of competition from advances in technologies and alternative methods of content delivery in their respective industries, as well as from changes in consumer behavior driven by new technologies and methods of content delivery, which may reduce the demand for over-the-air broadcast licenses in the future.

New government regulations affecting broadcasters, including the implementation of the Federal Communications Commission's (the "FCC") National Broadband Plan, (the "FCC Plan"), also might materially and adversely affect our results of operations by reducing the demand for broadcast licenses.

Among other things, the FCC Plan urges Congress to make more spectrum available for wireless broadband service providers by encouraging over-the-air broadcast licensees to relinquish spectrum through a voluntary auction process, which raises many issues that could impact the broadcast industry.

At this time, we cannot predict how the existing legislation and FCC regulations will impact future demand from broadcasters to lease/license our broadcast space nor can we predict how further legislation or FCC regulations might otherwise affect our broadcasting operations.

Any of these risks might materially and adversely affect us.

We may not be able to control our operating costs, or our expenses may remain constant or increase even if income from our properties decreases, which could have a material adverse effect on our results of operations, cash flow and financial condition.

Our financial results depend substantially on leasing space in our properties to tenants on terms favorable to us.

As a result, cash flow from the operations of our properties may be reduced if a tenant does not pay its rent or we are unable to lease our properties on favorable terms or at all.

Under such circumstances, we might not be able to enforce our rights as landlord without delays and may incur substantial legal costs.

The terms of our leases may also limit our ability to charge our tenants for all or a portion of these expenses.

Additionally, new properties that we may acquire, develop or

redevelop may not produce significant revenue immediately, and the cash flow from existing operations may be insufficient to pay the operating expenses and principal and interest on debt associated with such properties until they are fully leased.

Our breach or the expiration of our ground leases could have a material adverse effect on our results of operations, cash flow and financial condition.

Additionally, we will not share in any increase in the value of the land or improvements beyond the term of our ground leases, and we may only receive a portion of compensation paid in any eminent domain proceeding with respect to these properties.

Our interest in three of our commercial office properties, 1350 Broadway, 111 West 33rd Street and 1400 Broadway, are long-term leaseholds of the land and the improvements, also known as ground leases, rather than a fee interest in the land and the improvements.

Pursuant to these ground leases, we, as tenant, perform the functions traditionally performed by owners, as landlords, with respect to our subtenants.

In addition to collecting rent from our subtenants, we also maintain the properties and pay expenses relating to the properties.

We do not have a right, pursuant to the terms of the ground leases or otherwise, to acquire the fee interests in these properties.

The ground leases, including unilateral extension rights available to us, expire on July 31, 2050 for 1350 Broadway, December 31, 2063 for 1400 Broadway and June 10, 2077 for 111 West 33rd Street.

If we are found to be in breach of these ground leases, the fee owner of the properties may initiate proceedings to terminate the leases and we could lose the right to use the properties.

In addition, unless we purchase the underlying fee interest in these properties or extend the terms of the ground leases before expiration on terms significantly comparable to current terms, we will lose our right to operate these properties and our leasehold interests upon expiration of the leases, or we will continue to operate them at much lower profitability, which could have a material adverse effect on our results of operations, cash flow and financial condition.

Additionally, we have no economic interest in the land or improvements at the expiration of our ground leases at 1350 Broadway, 111 West 33rd Street and 1400 Broadway, and therefore we will not share in any increase in value of the land or improvements and will not receive any revenue from the property beyond the term of our ground leases, notwithstanding our capital outlay to purchase our interest in the properties.

Furthermore, if the state or federal government seizes the properties subject to the ground leases under its eminent domain power, we may only be entitled to a portion of any compensation awarded for the seizure.

In addition, if the value of the properties has increased, it may be more expensive for us to renew our ground leases, to the extent renewal is available at all.

We may be unable to identify and successfully complete acquisitions and even if acquisitions are identified and completed, we may fail to operate successfully acquired properties, which could materially and adversely affect us and impede our growth.

Our current portfolio consists entirely of properties that we acquired (or received the right to acquire) in connection with the formation transactions.

Our ability to identify and acquire additional properties on favorable terms and successfully operate or redevelop them may be exposed to the following risks:

even if we enter into agreements for the acquisition of properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction and other conditions that are not within our control, which may not be satisfied, and we may be unable to complete an acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs;

we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all;

we may spend more than budgeted to make necessary improvements or redevelopments to acquired properties;

we may not be able to obtain adequate insurance coverage for new properties;

acquired properties may be located in new markets where we may face risks associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area and unfamiliarity with local governmental and permitting procedures;

we may be unable to integrate quickly and efficiently new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result our results of operations, cash flow and financial condition could be adversely affected;

market conditions may result in higher than expected vacancy rates and lower than expected rental rates;

we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete.

Any delay or failure on our part to identify, negotiate, finance and consummate such acquisitions in a timely manner and on favorable terms, or operate acquired properties to meet our financial expectations, could impede our growth and have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions, which may impede our growth.

We plan to acquire properties as we are presented with attractive opportunities.

We may face significant competition for acquisition opportunities in the greater New York metropolitan area with other investors, particularly private investors who can incur more leverage, and this competition may adversely affect us by subjecting us to the following risks:

an inability to acquire a desired property because of competition from other well-capitalized real estate investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, commercial developers, partnerships and individual investors;

an increase in the purchase price for such acquisition property, in the event we are able to acquire such desired property.

The significant competition for acquisitions of commercial office and retail properties in the greater New York metropolitan area may impede our growth.

Acquired properties may expose us to unknown liability, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

We may acquire properties subject to liabilities and without any recourse, or with only limited recourse, against the prior owners or other third parties with respect to unknown liabilities.

As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

Unknown liabilities with respect to acquired properties might include:

liabilities for clean-up of undisclosed environmental contamination;

claims by tenants, vendors or other persons against the former owners of the properties;

liabilities incurred in the ordinary course of business;

claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

We may acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in securityholder dilution and limit our ability to sell such assets.

In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for partnership interests in our company, which may result in dilution to securityholders.

This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases.

Our broadcast licensees also face a range of competition from advances in technologies and alternative methods of content delivery in their respective industries, as well as changes in consumer behavior, which may reduce the demand for over-the-air broadcast licenses.

Recent government regulations may materially and adversely affect our broadcast revenue by reducing the demand for broadcast licenses through making more spectrum available for wireless broadband service providers.

The impairment of a significant portion of goodwill could negatively affect our reported financial condition.

Our balance sheet includes goodwill of approximately $491.5 million at December 31, 2020, consisting primarily of goodwill associated with our acquisition of the controlling interest in Empire State Building Company L.L.C.

and 501 Seventh Avenue Associates L.L.C.

On an annual basis and whenever circumstances indicate the carrying value or goodwill may be impaired, we are required to assess any such impairment and charge to operating earnings the resulting non-cash impairment.

The closure of our Observatory due to the pandemic caused us during the second, third and fourth quarters of 2020 to perform such an assessment using a third-party valuation consulting firm, and though we determined no impairment was necessary then, we will continue such assessments when appropriate.

See “Financial Statements – Note 3 – Deferred Costs, Acquired Lease Intangibles and Goodwill.” An impairment could have a material adverse effect on our reported earnings.

Risks Relating to Acquisitions and Dispositions

We may be unable to identify and successfully complete acquisitions, and even if acquisitions are identified and completed, they may expose us to additional risks.

Our current portfolio consists entirely of properties that we acquired in connection with the formation transactions that we completed in connection with our IPO.

We plan to acquire new properties as we are presented with attractive opportunities, but we may face significant competition from other investors, particularly private investors who can incur more leverage.

We may incur significant costs and divert management attention in connection with potential acquisitions, including ones that we are unable to complete.

If we successfully identify an acquisition target and close the transaction, we may spend more than budgeted to make necessary improvements to the relevant properties and be exposed to unknown liabilities, such as environmental contamination or claims from former tenants, vendors or employees.

Additionally, acquired properties may be located in new markets where we may lack market knowledge or business relationships or familiarity with local laws.

We may acquire properties through tax deferred contribution transactions, which could result in securityholder dilution and limit our ability to sell such assets.

In the future we may acquire properties through tax deferred contribution transactions in exchange for partnership interests in our company, which may result in dilution to securityholders, reduction of tax depreciation we could deduct over the tax life of the acquired properties (as compared with an acquisition paid in cash), and requirements to protect the contributors’ tax deferral through restrictions on our disposition of the acquired properties and/or allocation of partnership debt to the contributors to maintain their tax bases.

These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.

Should we decide at some point in the future to expand into new markets, we may not be successful, which could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

If opportunities arise, we may explore acquisitions of properties in new markets.

Each of the risks applicable to our ability to acquire and integrate successfully and operate properties in our current markets is also applicable to our ability to acquire and integrate successfully and operate properties in new markets.

In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could adversely affect the results of our expansion into those markets, and we may be unable to build a significant market share or achieve a desired return on our investments in new markets.

Our inability to successfully expand into new markets, could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

Our growth depends on external sources of capital that are outside of our control, the unavailability of which may affect our ability to seize strategic opportunities, and could have a material adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and make distributions to our securityholders.

In order for ESRT to qualify as a REIT, it must distribute to its securityholders, on an annual basis, at least 90% of its REIT taxable income, determined without regard to the deduction for distributions paid and excluding net capital gains.

In addition, it will be subject to U.S.

federal income tax at the generally applicable corporate tax rate to the extent that it distributes less than 100% of its net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which its distributions in any calendar year are less than a minimum amount specified under U.S.

federal income tax laws.

Our partnership agreement provides that we will make sufficient distributions to ESRT to enable it to satisfy these distribution requirements and to avoid U.S.

federal corporate income tax and the 4% excise tax.

Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow.

Consequently, we may need to rely on third-party sources to fund our capital needs.

We may not be able to obtain financing on favorable terms, in the time period we desire, or at all.

Any additional debt we incur will increase our leverage.

Our access to third-party sources of capital depends, in part, on:

general market conditions;

the market’s perception of our growth potential;

our current debt levels;

our current and expected future earnings;

our cash flow and cash distributions;

the market price per share/unit of ESRT's Class A common stock and our traded OP units.

If we cannot obtain capital from third-party sources, we may not be able to acquire or redevelop properties when strategic opportunities exist, satisfy our principal and interest obligations or make the cash distributions to our securityholders necessary to maintain ESRT's qualification as a REIT.

If we are unable to sell, dispose of or refinance one or more properties in the future, we may be unable to realize our investment objectives, and our business may be adversely affected.

The real estate investments made, and to be made, by us are relatively difficult to sell quickly.

Return of capital and realization of gains from an investment generally will occur upon disposition or refinancing of the underlying property.

In addition, the Internal Revenue Code of 1986, as amended (the "Code"), imposes restrictions on the ability of a REIT to dispose of properties that are not applicable to other types of real estate companies, which limit our ability to sell properties without adversely affecting ESRT.

We may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy.

In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions and changes in laws, regulations or fiscal policies of jurisdictions in which our properties are located.

Our outstanding indebtedness, including preferred units, reduces cash available for distribution and may expose us to the risk of default under our debt obligations and may include covenants that restrict our financial and operational flexibility and our ability to make distributions to our securityholders.

As of December 31, 2019 , we had total debt outstanding of approximately $1.7 billion .

As of December 31, 2019 , we had approximately $265.0 million of debt maturing in 2022.

As of December 31, 2019 , our mortgages had an aggregate estimated principal balance of approximately $610.8 million with maturity dates ranging from 2024 through 2033.

See Note 4 to our consolidated financial statements for required payments of our indebtedness.

We may incur significant additional debt to finance future acquisition and redevelopment activities.

Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the distributions currently contemplated or necessary to allow ESRT to qualify as a REIT.

Our level of debt and the limitations imposed on us by our loan documents could have significant adverse consequences, including the following:

our cash flow may be insufficient to meet our required principal and interest payments;

we may be unable to borrow additional funds as needed or on favorable terms;

we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense;

If we are unable to sell, dispose of or refinance one or more properties in the future, we may be unable to realize our investment objectives.

Real estate investments are relatively difficult to sell quickly.

Return of capital and realization of gains from an investment generally will occur upon disposition or refinancing.

We may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period of time.

If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse tax consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis.

From time to time we may dispose of properties in transactions that are intended to qualify as Section 1031 Exchanges.

It is possible that any such qualification could be successfully challenged and determined to be currently taxable.

This could increase the taxable dividend income to ESRT’s stockholders, require us to file amended tax returns and require us to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties.

If the underlying property is a dealer property, our gains from sale would be subject to a 100% tax.

The current administration has also indicated its intention to modify Section 1031 in a manner that could make it more difficult or impossible for us to dispose of properties on a tax deferred basis.

Risks Relating to Our Indebtedness and Liquidity

The phase-out, replacement or unavailability of LIBOR could affect interest rates under our revolving credit facility, as well as our ability to obtain future debt financing on favorable terms.

We are subject to interest rate risk under our revolving credit facility and related term loan, which use U.S.

Dollar (“USD”) LIBOR to establish the interest rate.

In July 2017, the Financial Conduct Authority (the regulatory authority over LIBOR) stated that it would phase out LIBOR as a benchmark.

In November 2020, the Federal Reserve Board announced that banks must stop writing new USD LIBOR contracts by the end of 2021 and that, no later than June 30, 2023, when USD LIBOR will no longer be published, market participants should amend legacy contracts to use the Secured Overnight Financing Rate (“SOFR”) or another alterative reference rate.

Our debt facilities provide a mechanism to set an alternative rate of interest, but no such amendment has yet been made.

Due to the phase-out of USD LIBOR and transition to SOFR, financial markets may be disrupted.

Such disruption in the financial markets could have a material adverse effect on our financial condition and adversely affect our ability to obtain future debt on favorable terms.

Our debt and related limitations in our loan documents could adversely affect us.

As of December 31, 2020, we had total debt outstanding of approximately $2.2 billion and total mortgages of approximately $786.9 million with no maturity before 2024.

See “Financial Statements – Note 4 – Debt” for required payments.

Neither our nor ESRT’s organizational documents limit the debt we may incur, and we may incur significant additional debt to finance future acquisition and development activities.

Our current and potential levels of debt, and the related limitations in our loan documents could have significant adverse consequences to our cash flow and our ability to service and refinance our debt.

We may be forced to dispose of one or more of our properties, possibly on disadvantageous terms.

we may default on our obligations or violate restrictive covenants, in which case the lenders or mortgagees may accelerate our debt obligations, foreclose on the properties that secure their loans and/or take control of our properties that secure their loans and collect rents and other property income;

we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations or reduce our ability to make, or prohibit us from making, distributions;

our default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness.

In addition, o ur unsecured revolving credit and term loan facility and our Senior Unsecured Notes require us to maintain designated ratios, including but not limited to, total debt-to-assets, secured debt-to-assets, adjusted EBITDA to consolidated fixed charges, net operating income from unencumbered properties to interest expense on unsecured debt, and unsecured debt to unencumbered assets, and contain a minimum tangible net worth requirement.

Our unsecured revolving credit and term loan facility and our Senior Unsecured Notes do not generally contain restrictions on the payment of dividends or other distributions.

The indenture governing our outstanding senior unsecured notes - exchangeable does not contain financial or operational covenants or restrictions on the payments of dividends;

however, upon the occurrence of fundamental changes described in the indenture, holders of our outstanding senior unsecured notes - exchangeable may require our operating partnership to repurchase for cash all or part of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, subject to certain conditions.

Further, upon the occurrence of any make-whole fundamental change described in the indenture, the exchange rate for holders who exchange their notes in connection with any such make-whole fundamental change may be increased.

Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

The provisions in the partnership agreement of our operating partnership that govern the preferred units may restrict our ability to pay dividends if we fail to pay the cumulative preferential cash distributions thereon.

Management's Discussion and Analysis of Financial Condition and Results of Operations - Private Perpetual Preferred Units.”

If any one of these events were to occur, our results of operations, cash flow, financial condition, and our ability to service debt and to make distributions to our securityholders could be adversely affected.

In addition, in connection with a limited number of our debt agreements we may enter into lockbox and cash management agreements pursuant to which substantially all of the income generated by our properties will be deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders and from which cash will be distributed to us only after funding of improvement, leasing and maintenance reserves and the payment of principal and interest on our debt, insurance, taxes, operating expenses and extraordinary capital expenditures and leasing expenses.

As a result, we may be forced to borrow additional funds in order to make distributions to our securityholders (including, potentially, to make distributions necessary to allow ESRT satisfy the requirements applicable to REITs).

Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Our degree of leverage and the lack of a limitation on the amount of indebtedness we may incur could have a material adverse effect on our results of operations, cash flow and financial condition.

Neither our nor ESRT's organizational documents contain any limitation on the amount of indebtedness we may incur.

We consider various factors in determining the amount of indebtedness we incur, including debt-to-EBITDA, the purchase price of properties to be acquired with debt financing, the estimated market value of our properties upon refinancing and the ability of particular properties and our business as a whole to generate cash flow to cover expected debt service.

Our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes.

Our degree of leverage could also make us more vulnerable to a downturn in business or the economy generally.

If we become more leveraged in the future, the resulting increase in debt service requirements could cause us to default on our obligations, which could have a material adverse effect on our results of operations, cash flow and financial condition.

Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.

Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default.

Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of our portfolio of properties.

For tax purposes, a foreclosure of any of our properties that is

subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage.

If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to make distributions to ESRT in order to allow it to meet the distribution requirements applicable to REITs under the Code.

Foreclosures could also trigger our tax indemnification obligations under the terms of our agreements with certain continuing investors with respect to sales of certain properties, and obligate us to make certain levels of indebtedness available for them to guarantee which, among other things, allows them to defer the recognition of gain in connection with the formation transactions.

We may default on our debt obligations, in which case the lenders may accelerate our debt obligations and foreclose on any mortgaged properties.

Our default on one debt with cross-default provisions could result in a default on other debt.

We may fail to hedge interest rates effectively.

If any one of these events were to occur, our operations, cash flow, financial condition, and ability to service debt and to make distributions could be adversely affected.

Our debt includes restrictions on our financial and operational flexibility and distributions.

Our debt instruments may restrict our financial and operational flexibility.

For example, our lockbox and cash management agreements require income from our properties to be deposited directly into lockbox accounts controlled by our lenders from which we receive cash after funding of defined operating and capital costs.

As a result, we may be forced to borrow additional funds in order to make distributions.

Additionally, many of our debt instruments contain financial covenants that impact how we run our business, including required ratios for debt-to-assets, adjusted EBITDA to consolidated fixed charges or debt service.

Our partnership agreement may restrict ESRT’s ability to pay dividends if we fail to pay the cumulative distributions on preferred units.

See Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and “Private Perpetual Preferred Units.”

Mortgages expose us to foreclosure and loss of our investment in a mortgaged property.

Mortgage and other secured debt increases our risk of property losses because defaults may result in foreclosure.

For tax purposes, a foreclosure generally is treated as a sale of the property for a purchase price equal to the outstanding debt.

If such debt exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but not receive any cash.

Foreclosures could also trigger our obligations under tax protection agreements with certain legacy investors to indemnify them for certain taxes upon sale of specific properties where they had embedded phantom taxable income (or the failure to maintain certain levels of indebtedness available for them to guarantee).

See “Financial Statements – Note 10 – Related Party Transactions – Tax Protection Agreements.”

High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make.

If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties.

If we place mortgage debt on properties, we may be unable to refinance the properties when the loans become due, or to refinance on favorable terms.

If interest rates are higher when we refinance our properties, our income could be reduced.

If any of these events occur, our cash flow could be reduced.

This, in turn, could reduce cash available for distribution to our securityholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.

In addition, to the extent we are unable to refinance the properties when the loans become due, we will have fewer debt guarantee opportunities available to offer under our tax protection agreement.

If we are unable to offer certain guarantee opportunities to the protected parties under the tax protection agreement, or otherwise are unable to allocate sufficient liabilities of our company to those parties, it could trigger an indemnification obligation of our company under the tax protection agreement.

Some of our financing arrangements involve balloon payment obligations, which may adversely affect our ability to make distributions to our securityholders.

Some of our financing arrangements require us to make a lump-sum or "balloon" payment at maturity.

Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property.

At the time the balloon payment is due, we may or may not be able to refinance the existing financing on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment.

The effect of a refinancing or sale could affect the rate of return to securityholders and the projected time of disposition of our assets.

In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to make distributions necessary to allow ESRT to meet the distribution requirements applicable to REITs under the Code.

Our tax protection agreements could limit our ability either to sell certain properties or to engage in a strategic transaction, or to reduce our level of indebtedness, which could materially and adversely affect us.

In connection with the formation transactions, we and ESRT entered into a tax protection agreement with Anthony E.

Malkin and Peter L.

Malkin pursuant to which we have agreed to indemnify the Malkin Group and one additional third party investor in Metro Center (who was one of the original landowners and was involved in the development of the property) against certain tax liabilities if those tax liabilities result from (i) our sale, transfer, conveyance, or other taxable disposition of four specified properties (First Stamford Place, Metro Center, 10 Bank Street and 1542 Third Avenue) acquired by us in 2013 for a period of 12 years with respect to First Stamford Place and for the later of (x) October 2021 or (y) the death of both Peter L.

Malkin and Isabel W.

Malkin who are 86 and 83 years old, respectively, for the three other properties, (ii) our failing to maintain until maturity the indebtedness secured by those properties or failing to use commercially reasonable efforts to refinance such indebtedness upon maturity in an amount equal to the principal balance of such indebtedness, or, if we are unable to refinance such indebtedness at its current principal amount, at the highest principal amount possible, or (iii) our failing to make available to any of these continuing investors the opportunity to guarantee, or otherwise bear the risk of loss, for U.S.

federal income tax purposes, of their allocable share of $160 million of aggregate indebtedness meeting certain requirements, until such continuing investor owns less than the aggregate number of operating partnership units and shares of ESRT common stock equal to 50% of the aggregate number of such units and shares such continuing investor received in the formation transactions.

In addition, in connection with our and ESRT's sale of a 9.9% fully diluted interest in us to Q REIT Holding LLC, a Qatar Financial Centre limited liability company and a wholly owned subsidiary of the Qatar Investment Authority, a governmental authority of the State of Qatar ("QREIT", and together with any eligible transferee, "QIA") in August 2016, ESRT agreed, subject to certain minimum thresholds and conditions, to indemnify QIA for certain U.S.

federal and state taxes payable by QIA in connection with any dividends ESRT pays that are attributable to capital gains from the sale or exchange of any U.S.

real property interests.

If ESRT were to trigger the tax indemnification obligations under this agreement, we would be required to pay damages for the resulting tax consequences to the Malkin Group, the additional third

party investor in Metro Center or QIA, as applicable, and we have acknowledged that a calculation of damages with respect to the tax protection agreement with the Malkin Group and the additional third party investor in Metro Center will not be based on the time value of money or the time remaining within the restricted period.

Moreover, these obligations may restrict our and ESRT's ability to engage in a strategic transaction, require us to maintain more or different indebtedness than we would otherwise require for our business, and/or inhibit our selling or disposing of a property that might otherwise be in the best interest of the securityholders to do so.

We face risks which would arise if any of our tenants were designated “Prohibited Persons” by the Office of Foreign Assets Control.

Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or whose assets are otherwise blocked or who are banned from conducting business or engaging in transactions with U.S.

persons (“Prohibited Persons”).

OFAC regulations and other laws prohibit us from conducting business or engaging in transactions with Prohibited Persons (the “OFAC Requirements”).

We have established a compliance program whereby tenants are checked against the OFAC list of Prohibited Persons prior to entering into any lease.

Our leases and other agreements, in general, require the other party to comply with OFAC Requirements.

If a tenant or other party with whom we contract is a Prohibited Person or is otherwise a party with which we are prohibited from doing business, we may be required by the OFAC Requirements to terminate the lease or other agreement.

Any such termination could result in a loss of revenue or otherwise have a material adverse effect on our results of operations, cash flow and financial condition.

The continuing threat of a terrorist event may materially and adversely affect our properties, their value and our ability to generate cash flow.

In the aftermath of a terrorist event, tenants in Manhattan and the greater New York metropolitan area may choose to relocate their businesses to less populated, lower-profile areas of the United States that are not as likely to be targets of future terrorist activity.

This in turn could trigger a decrease in the demand for space in Manhattan and the greater New York metropolitan area, which could increase vacancies in our properties and force us to lease our properties on less favorable terms.

Further, certain of our properties, including the Empire State Building, may be considered to be susceptible to an increased risk of a future terrorist event due to their high-profile.

In addition, a terrorist event could cause insurance premiums at certain of our properties to increase significantly.

As a result, the value of our properties and the level of our revenues could materially decline.

Potential losses, such as those from adverse weather conditions, natural disasters, possible rise in ocean levels, terrorist events and title claims, may not be fully covered by our insurance policies, and such losses could materially and adversely affect us.

Our business operations are susceptible to, and could be significantly affected by, adverse weather conditions, natural disasters, possible rise in ocean levels and terrorist events that could cause significant damage to the properties in our portfolio.

Our insurance may not be adequate to cover business interruption or losses resulting from such events.

In addition, our insurance policies include substantial self-insurance portions and significant deductibles and co-payments for such events, and hurricanes in the United States have affected the availability and price of such insurance.

As a result, we may incur significant costs in the event of adverse weather conditions, natural disasters, possible rise in ocean levels and terrorist events.

We may discontinue certain insurance coverage on some or all of our properties in the future if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage discounted for the risk of loss.

Business - Insurance."

Furthermore, we do not carry insurance for certain losses, including, but not limited to, losses caused by war.

In addition, while our title insurance policies insure for the current aggregate market value of our portfolio, we may decide to not increase our title insurance policies as the market value of our portfolio increases.

As a result, we may not have sufficient coverage against all losses that we may experience, including from adverse title claims.

If we experience a loss that is uninsured or that exceeds our policy limits, we could incur significant costs and lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties.

In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

In addition, certain of our properties could not be rebuilt to their existing height or size at their existing location under current land-use laws and policies.

In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications and otherwise may have to upgrade such property to meet current code requirements.

Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), ground leases, our senior unsecured debt and our unsecured revolving credit and term loan facility, contain customary covenants requiring us to maintain insurance, including terrorism insurance.

While we do not believe it is likely, there can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from “all-risk” insurance coverage for losses due to terrorist acts is a breach of these debt and ground lease instruments that allows the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions for those properties in our portfolio which are not insured against terrorist events.

In addition, if lenders insist on full coverage for these risks and prevail in asserting that we are required to maintain such coverage, it could result in substantially higher insurance premiums.

Certain mortgages on our properties contain requirements concerning the financial ratings of the insurers who provide policies covering the property.

We provide the lenders on a regular basis with the identity of the insurance companies in our insurance programs.

While the ratings of our insurers currently satisfy the rating requirements in our loan agreements, in the future, we may be unable to obtain insurance with insurers that satisfy the rating requirements which could give rise to an event of default under such loan agreements.

Additionally, in the future, our ability to obtain debt financing secured by individual properties, or the terms of such financing, may be adversely affected if lenders generally insist on ratings for insurers that are difficult to obtain or result in a commercially unreasonable premium.

We may become subject to liability relating to environmental and health and safety matters, which have a material adverse effect on our results of operations, cash flow and financial condition.

Under various federal, state and/or local laws, ordinances and regulations, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or petroleum products at, on, in, under or from such property, including costs for investigation or remediation, natural resource damages, or third party liability for personal injury or property damage.

These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several.

Some of our properties have been or may be impacted by contamination arising from current or prior uses of the property or adjacent properties for commercial, industrial or other purposes.

Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials.

We also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances at such facilities, without regard to whether we comply with environmental laws in doing so.

The presence of contamination or the failure to remediate contamination on our properties may adversely affect our ability to attract and/or retain tenants and our ability to develop or sell or borrow against those properties.

In addition to potential liability for cleanup costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons.

Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination.

Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.

For example, our property at 69-97 Main Street is subject to an Environmental Land Use Restriction that imposes certain restrictions on the use, occupancy and activities of the affected land beneath the property.

This restriction may prevent us from conducting certain redevelopment activities at the property, which may adversely affect its resale value and may adversely affect our ability to finance or refinance this property.

Business - Environmental Matters.”

Some of our properties are adjacent to or near other properties used for industrial or commercial purposes or that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances.

Releases from these properties could impact our properties.

In addition, some of our properties have previously been used by former owners or tenants for commercial or industrial activities, e.g., gas stations and dry cleaners, and a portion of the Metro Tower site is currently used for automobile parking and fueling, that may release petroleum products or other hazardous or toxic substances at such properties or to surrounding properties.

In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations.

Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability.

These liabilities could affect a tenant’s ability to make rental payments to us.

Moreover, changes in laws could increase the potential costs of compliance with such laws and regulations or increase liability for noncompliance.

may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have a material adverse effect on us.

As the owner or operator of real property, we may also incur liability based on various building conditions.

For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM.

Environmental and health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements.

These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, redevelopment or demolition of a building, potentially resulting in substantial costs.

In addition, we may be subject to liability for personal injury or property damage sustained as a result of releases of ACM into the environment.

In addition, our properties may contain or develop harmful mold or suffer from other indoor air quality issues, which could lead to liability for adverse health effects or property damage or costs for remediation.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time.

Some molds may produce airborne toxins or irritants.

Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria.

Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions.

As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation.

In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs.

We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to our securityholders or that such costs, liabilities, or other remedial measures will not have a material adverse effect on our results of operations, cash flow and financial condition.

Failure to hedge interest rates effectively could have a material adverse effect on our results of operations, cash flow and financial condition.

We may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve various risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that these arrangements may not be effective in reducing our exposure to interest rate changes.

Moreover, there can be no assurance that our hedging arrangements will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations.

Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our initial obligation under the hedging agreement.

Failure to hedge effectively against interest rate changes could have a material adverse effect on our results of operations, cash flow and financial condition.

When a hedging agreement is required under the terms of a mortgage loan, it is often a condition that the hedge counterparty maintains a specified credit rating.

When there is volatility in the financial markets, there is an increased risk that hedge counterparties could have their credit rating downgraded to a level that would not be acceptable under the loan provisions.

If we were unable to renegotiate the credit rating condition with the lender or find an alternative counterparty with acceptable credit rating, we could be in default under the loan and the lender could seize that property through foreclosure.

We may incur significant costs complying with the ADA and similar laws, which could have a material adverse effect on our results of operations, cash flow and financial condition.

If we place mortgage debt on properties, we may be unable to refinance the properties when the loans become due comparable terms.

This may result in reduced cash flows and hinder our ability to make distributions to ESRT, and to raise more capital by issuing more securities or by borrowing more money.

In addition, to the extent we are unable to refinance loans, we will have fewer debt guarantee opportunities available to offer under our tax protection agreements, which could trigger our related indemnification obligation.

Our growth depends on external sources of capital that are outside of our control.

Because of the distribution requirements to maintain our status as a REIT (See Part I, Item 1, “Business - Our Tax Status”), we may not be able to fund future capital needs, including any acquisition financing, from operating cash flow and may need to rely on third-party sources.

Our access to third-party sources of capital depends, in part, on general economic and market conditions, including the cost and availability of credit, government action or inaction and its effect on the state of the capital markets, the market’s perception of our growth potential, as well as our then current financial condition.

Absent needed capital, we may not be able to acquire or develop properties when opportunities exist, satisfy our debt obligations or make cash distributions to ESRT necessary to maintain its REIT qualification.

Risks Relating to Disaster Recovery and Business Continuity

Natural disasters and climate change could adversely impact our area and business.

Our properties are concentrated in the New York metropolitan area.

Natural disasters, including earthquakes, storms, storm surges, tornados, floods and hurricanes, could cause significant damage to our properties and the surrounding area.

Climate change, including rising sea levels and extreme temperature fluctuations, could adversely impact the metropolitan areas in which we operate.

These conditions could result in declining demand for office or retail space in our buildings, compromise our ability to operate the buildings, make insurance less affordable or available, and increase the cost of energy at our properties.

Also, certain of our properties could not be rebuilt to their existing height or size under current land-use laws.

In that event, we may have to upgrade such property to meet code requirements.

Our disaster recovery and business continuity plans may not be adequate to address these risks.

Some of our potential losses may not be covered by insurance.

Our insurance may not be adequate to cover all losses to which we are subject.

Business interruption insurance generally does not include coverage for damages from a pandemic, although certain third parties have claimed such coverage in litigation, which we continue to monitor.

In addition, our insurance policies include substantial self-insurance and deductibles and co-payments for certain events.

See Part I, Item 1, “Business – Insurance.” If we experience a loss that is uninsured or exceeds our policy limits, we could incur significant costs and loss of capital or property.

If the damaged property is subject to recourse debt, we would continue to be liable for the debt, regardless of the property condition.

Our debt instruments contain customary covenants to maintain insurance, including terrorism insurance.

While we do not believe it is likely, our lenders or ground lessors could take the position that a total or partial exclusion for losses due to terrorist acts is a breach that would accelerate debt repayment or recapture ground lease positions.

In addition, if they were to prevail in requiring additional coverage, it could result in substantially higher premiums.

In the future, we may be unable to obtain insurance with insurers that satisfy the rating requirements in our agreements, which could give rise to a default under such agreements and/or impair our ability to refinance.

We may incur significant costs to comply with environmental laws, and environmental contamination may impair our ability to lease and/or sell real estate.

Our properties are subject to various laws and regulations concerning protection of the environment, including air and water quality, hazardous substances, and health and safety.

Some of our properties, or adjacent properties, have previously been used by former owners or tenants for commercial or industrial activities (e.g., gas stations, underground storage tanks, and dry cleaners), and a portion of the Metro Tower site is currently used for automobile parking and fueling, which may release hazardous substances.

The presence of contamination or the failure to remediate contamination at any of our properties may subject us to fines and impair our ability to sell, lease or finance them.

If contamination is discovered on our properties, environmental laws may restrict use or operations.

For example, our property at 69-97 Main Street in Westport, Connecticut is subject to restrictions on the use, occupancy and development of the property, which may impair our ability to sell, lease or finance this property.

Other laws and regulations govern indoor and outdoor air and water quality including abatement or removal of asbestos-containing materials, lead paint, and electrical equipment containing polychlorinated biphenyls (PCBs).

We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria, which may cause adverse health effects.

Our predecessors may be subject to similar liabilities for past activities.

We could incur fines and be liable for the costs of remedial action with respect to the foregoing.

We sometimes require our tenants to comply with environmental and health and safety laws and regulations and to indemnify us for any related liabilities in our leases with them.

But in the event of the bankruptcy or inability of any of our tenants to satisfy such obligations, we may be required to satisfy such obligations.

We may become subject to new compliance requirements and/or new costs or taxes associated with natural resource or energy usage (such as a “carbon tax”), which could increase our operating costs.

See Part I, Item 1, “Business - Environmental Matters.”

Risks Relating to Human Capital Management

The departure of any of ESRT key personnel could materially and adversely affect us.

Our success depends on the efforts of key ESRT personnel, particularly Anthony E.

Malkin, ESRT’s Chairman, President and Chief Executive Officer, whose leadership and national industry reputation benefits us in many ways.

He has led the acquisition, operation and repositioning of our assets for more than two decades.

Other members of ESRT’s senior management team also have strong industry reputations and experience, which aid us in attracting, identifying and taking advantage of opportunities.

The loss of the services of one or more members of ESRT’s senior management team could materially and adversely affect us.

ESRT’s Chairman, President and Chief Executive Officer has outside business interests that take his time and attention away from us, which could materially and adversely affect us.

Under his employment agreement, Mr.

Malkin has agreed to (a) devote a majority of his business time and attention to our business and (b) during, and for a time after, his employment with us to refrain from competition with us.

Malkin is also permitted to devote time to his other investments to the extent such activities do not materially interfere with the performance of his duties to us.

He owns interests in properties and businesses that were not contributed to us in the formation transactions, some of which are now managed by our company.

See “Financial Statements – Note 10 – Related Party Transactions – Excluded Properties and Businesses.” In some cases, Mr.

Malkin or his affiliates may have management and fiduciary obligations that could conflict with his responsibilities to our company.

We may choose to moderate or omit enforcement of our rights under this agreement to maintain our relationship with him given his knowledge of our business, relationships with our customers, and significant equity ownership in us, and this could have a material adverse effect on our business.

Our failure to maintain satisfactory labor relations could materially and adversely affect us.

As of December 31, 2020, we have collective bargaining agreements that cover 543 employees, or 72% of our workforce, that service all of our office properties.

Our inability to negotiate acceptable renewals as existing agreements expire could result in strikes or work stoppages and disrupt our operations.

In any such event for any extended period of time, we would likely engage temporary replacement workers, which would result in increased operating costs.

Risks Relating to Legal Compliance and Cybersecurity

We face risks associated with our tenants being designated “Prohibited Persons” by OFAC and similar requirements.

The Office of Foreign Assets Control of the U.

Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging in transactions in the U.

and thereby restricts our doing business with such persons.

In addition, our leases, loans and other agreements may require us to comply with OFAC and related requirements, and any failure to do so may result in a breach of such agreements.

If a tenant or other party with whom we conduct business is designated a Prohibited Person, we may be required to terminate the arrangement or face penalties.

Any such termination could result in a loss of revenue or otherwise negatively affect our business.

We may incur significant costs complying with the ADA and similar laws.

Under the Americans with Disabilities Act of 1990 (the “ADA”), all public accommodations must meet federal requirements related to access and use by disabled persons.

If one or more of the properties in our portfolio is not in compliance with the ADA, we would be required to incur additional costs to bring the property into compliance.

Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties.

We cannot predict the ultimate cost of compliance with the ADA or other legislation.

If we incur substantial costs to comply with the ADA and any other legislation, our results of operations, cash flow and financial condition could be materially and adversely affected.

Our state and local taxes could increase due to property tax rate changes, reassessment and/or changes in state and local tax laws which could have a material adverse effect on our results of operations, cash flow, financial condition and our ability to service debt and make distributions to our securityholders.

Even if ESRT qualifies as a REIT for U.S.

federal income tax purposes, we will be required to pay state and local taxes on our properties.

From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability.

A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and size of such changes.

In particular, the federal government has recently limited the ability of individuals to deduct state and local taxes on their federal tax returns, potentially leading many high-tax states to make significant changes to their own state and local tax laws.

If such changes occur, we may be required to pay additional taxes on our assets or income.

These increased tax costs could adversely affect our results of operations, cash flow and financial condition.

The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities.

Therefore, the amount of property taxes we pay in the future may increase substantially from what we have paid in the past.

If the property taxes we pay increase, our results of operations, cash flow, financial condition, and our ability to service debt and to make distributions to our securityholders could be materially and adversely affected.

We or ESRT may become subject to litigation, which could have a material adverse effect on our results of operations, cash flow and financial condition.

In the future we or ESRT may become subject to litigation, including claims relating to our operations, offerings, and otherwise in the ordinary course of business.

Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against.

We would be required to incur costs to bring any non-compliant property into compliance and could be required to make modifications to our properties upon any renovation, all of which could involve substantial costs and material adverse effect on our financial conditions.

We or ERST could become subject to litigation, which could have a material adverse effect on our financial condition.

In the past we and ESRT have been, and in the future may become, subject to litigation, including claims relating to our operations, offerings, and business, which could result in significant defense costs and potentially significant judgments against us or ESRT, some of which are not, or cannot be, insured against.

We generally intend to defend ourselves vigorously;

however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future.

Resolution of these types of matters against us or ESRT may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our financial condition, results of operations, cash flow and per share/unit trading price of ESRT's Class A common stock and our traded OP units.

Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations, cash flow and financial condition, expose us to increased risks that would be uninsured, and/or adversely impact ESRT's ability to attract officers and directors.

Please see Note 8 “Commitments and Contingencies” to the financial statements of this Annual Report in Form 10-K for a further description.

Potential security breaches through cybersecurity attacks and our failure to comply with increasingly complex related legislation could negatively impact our business.

We rely extensively on computer systems to process transactions and manage our business, and our business is increasingly at risk from, and may be impacted by, cybersecurity attacks that continue to increase in number, intensity and sophistication.

These could include internal and external attempts to gain unauthorized access to our data and computer systems to disrupt operations, corrupt data, or steal confidential information.

As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced.

Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations.

We employ a number of processes, procedures and controls to prevent, detect and mitigate these threats, which include password protection, frequent password change events, firewall detection systems, frequent backups, a redundant data system for core applications and annual penetration testing;

however, there is no guarantee such measures, as well as our increased awareness of a risk of a cybersecurity attack, will be successful in preventing such an attack.

Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.

Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.

A cybersecurity attack could compromise the confidential information of our employees, tenants, customers and vendors, and could disrupt and materially affect our business operations, including by damaging business relationships.

Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary and/or commercially sensitive in nature) and a loss of confidence in our security measures, which could harm our business.

In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevated compliance costs across multiple domestic and foreign jurisdictions where we might be exposed to liability, and any failure to comply with such laws and regulations could result in significant penalties

and legal liability.

Our failure to maintain satisfactory labor relations could have a material adverse effect on our business, results of operations, cash flow and financial condition.

As of December 31, 2019, we employed 831 employees.

There are currently collective bargaining agreements which cover 591 employees, or 71% of our workforce, that service all of our office properties.

We have not experienced a strike or work stoppage at any of our properties and in the opinion of management overall employee relations are good and no labor stoppages are anticipated.

Our inability to negotiate acceptable contracts with any of these unions as existing agreements expire could result in strikes or work stoppages by the affected workers.

If our unionized employees were to engage in a strike or other work stoppage, we could experience a significant disruption of our operations, which could adversely affect our business, results of operations, cash flow and financial condition.

In the event of a work stoppage for any extended period of time, we would likely seek to engage temporary workers to provide tenant services, which would result in increased operating costs.

Risks Related to Our Organization and Structure

Holders of ESRT Class B common stock have a significant vote in matters submitted to a vote of ESRT Securityholders.

As part of our formation, we sought to give each contributing investor an option to hold equity interests which would allow such investor to vote on Company matters in proportion to such investor’s economic ownership in the consolidated entity, whether such investor elected taxable Class A common stock or tax-deferred operating partnership units.

Thus, the original investors were offered the opportunity to contribute their interests to us in exchange for (a) ESRT Class A common stock, (b) operating partnership units, (c) a mix of one share of ESRT Class B common stock and 49 operating partnership units for each 50 operating partnership units to which an investor was otherwise entitled, or (d) any combination of items (a), (b) and (c).

Each outstanding share of ESRT Class B common stock, when accompanied by 49 operating partnership units, entitles the holder thereof to 50 votes on all matters on which ESRT Class A common securityholders are entitled to vote, including the election of directors.

Holders of ESRT Class B common stock may have interests that differ from those holders of ESRT Class A common stock and our securityholders, including by reason of their interest in us, and may accordingly vote as a stockholder in ways that may not be consistent with the interests of holders of ESRT Class A common stock and our securityholders.

This significant voting influence over certain matters may have the effect of delaying, preventing or deterring a change of control of ESRT, or could deprive holders of ESRT Class A common stock or our securityholders of an opportunity to receive a premium for their Class A common stock or units, as applicable, as part of a sale of ESRT.

ESRT Class B common stock has been issued only in connection with the formation transactions, and any such share is automatically converted to a share of ESRT Class A common stock (having a single vote) upon its holder conveying the related 49 operating partnership units to any person other than a family member, affiliate or controlled entity of such person.

The departure of any of ESRT key personnel could materially and adversely affect us.

Our success depends on the efforts of ESRT key personnel, particularly Anthony E.

Malkin, ESRT's and Chief Executive Officer.

Among the reasons Anthony E.

Malkin is important to our success is that he has a national industry reputation that benefits us in many ways.

He has led the acquisition, operating and repositioning of our assets for the last two decades.

If we lost his services, our external relationships and internal leadership resources would be materially diminished.

Other members of ESRT senior management team also have strong industry reputations and experience, which aid us in attracting, identifying and exploiting opportunities.

The loss of the services of one or more members of ESRT's senior management team, particularly Anthony E.

Malkin, could materially and adversely affect us.

Tax consequences to holders of operating partnership units upon a sale or refinancing of our properties may cause the interests of certain members of ESRT senior management team to differ from your own.

As a result of the unrealized built-in gain attributable to a property at the time of contribution, some holders of operating partnership units, including Anthony E.

Malkin and Peter L.

Malkin, may suffer different and more adverse tax consequences than other holders of operating partnership units upon the sale or refinancing of the properties owned by us, including disproportionately greater allocations of items of taxable income and gain upon a realization event.

As those holders

will not receive a correspondingly greater distribution of cash proceeds, they may have different objectives regarding the appropriate pricing, timing and other material terms of any sale or refinancing of certain properties, or whether to sell or refinance such properties at all.

As a result, the effect of certain transactions on Anthony E.

Malkin and Peter L.

Malkin may influence their decisions affecting these properties and may cause such members of ESRT senior management team to attempt to delay, defer or prevent a transaction that might otherwise be in the best interests of our other securityholders.

In connection with the formation transactions, we and ESRT entered into a tax protection agreement with Anthony E.

Malkin and Peter L.

Malkin pursuant to which we have agreed to indemnify the Malkin Group and one additional third party investor in Metro Center (who was one of the original landowners and was involved in the development of the property) against certain tax liabilities if those tax liabilities result from (i) our sale, transfer, conveyance, or other taxable disposition of four specified properties (First Stamford Place, Metro Center, 10 Bank Street and 1542 Third Avenue) acquired by us in the consolidation for a period of 12 years from the consolidation in 2013 with respect to First Stamford Place and for the later of (x) eight years from the consolidation in 2013 or (y) the death of both Peter L.

Malkin and Isabel W.

As a result of entering into the tax protection agreement, Anthony E.

Malkin and Peter L.

Malkin may have an incentive to cause us to enter into transactions from which they may personally benefit.

ESRT's Chairman and Chief Executive Officer has outside business interests that take his time and attention away from us, which could materially and adversely affect us.

Malkin, ESRT's Chairman and Chief Executive Officer, has agreed to devote a majority of his business time and attention to our business and, under his employment agreement, he may also devote time to the excluded properties, the excluded businesses and certain family investments to the extent that such activities do not materially interfere with the performance of his duties to us.

He owns interests in the excluded properties and excluded businesses that were not contributed to us in the formation transactions, some of which are managed by our company and certain non-real estate family investments.

In some cases, Anthony E.

Malkin or his affiliates have certain management and fiduciary obligations that may conflict with such person’s responsibilities as an officer or director of ESRT and may adversely affect our operations.

In addition, under his employment agreement, Anthony E.

Malkin has agreed not to engage in certain business activities in competition with us (both during, and for a period of time following, his employment with us).

We may choose not to enforce, or to enforce less vigorously, our rights under this agreement because of our desire to maintain our ongoing relationship with our Chairman and Chief Executive Officer given his significant knowledge of our business, relationships with our customers and significant equity ownership in us, and this could have a material adverse effect on our business.

ESRT's rights and the rights of ESRT's Securityholders to take action against ESRT's directors and officers are limited, which could limit your recourse in the event of actions not in your best interest.

ESRT's charter limits the liability of ESRT's present and former directors and officers to ESRT and its securityholders for money damages to the maximum extent permitted under Maryland law.

Under current Maryland law, ESRT's present and former directors and officers will not have any liability to it or its securityholders for money damages other than liability resulting from (1) actual receipt of an improper benefit or profit in money, property or services or (2) active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action.

As a result, ESRT and its securityholders may have limited rights against ESRT's present and former directors and officers, as well as persons who served as members, managers, shareholders, directors, partners, officers, controlling persons certain agents of our predecessor, which could limit your recourse in the event of actions not in your best interest.

Conflicts of interest exist or could arise in the future between the interests of ESRT Securityholders and the interests of holders of operating partnership units, which may impede business decisions that could benefit our securityholders.

Conflicts of interest exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and ESRT or any stockholder thereof, on the other.

ESRT directors and officers have duties to ESRT under applicable Maryland law in connection with their management of ESRT.

At the same time, ESRT, as the general partner of our company, has fiduciary duties and obligations to our company and our limited partners under Delaware law and our partnership

agreement in connection with the management of us.

ESRT’s fiduciary duties and obligations as general partner to our company and our partners may come into conflict with the duties of ESRT’s directors and officers to ESRT.

Pursuant to our partnership agreement, our limited partners have agreed that in the event of a conflict in the duties owed by ESRT's directors and officers to ESRT and ESRT's securityholders and the fiduciary duties owed by ESRT, in its capacity as general partner of us, to such limited partners, ESRT will fulfill its fiduciary duties to such limited partners by acting in the best interests of ESRT's securityholders.

Additionally, the partnership agreement provides that ESRT and its directors and officers will not be liable or accountable to us for losses sustained, liabilities incurred or benefits not derived if ESRT, or such director or officer acted in good faith.

The partnership agreement also provides that ESRT will not be liable to us or any partner for monetary damages for losses sustained, liabilities incurred or benefits not derived by us or any limited partner, except for liability for ESRT’s intentional harm or gross negligence.

Moreover, the partnership agreement provides that we are required to indemnify our directors and officers, ESRT and its directors and officers and authorizes us to indemnify present and former members, managers, shareholders, directors, limited partners, general partners, officers or controlling persons of our predecessor and authorizes us to indemnify members, partners, employees and agents of us or our predecessor, in each case for actions taken by them in those capacities from and against any and all claims that relate to the operations of our company, except (1) if the act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) for any transaction for which the indemnified party received an improper personal benefit, in money, property or services or otherwise, in violation or breach of any provision of the partnership agreement or (3) in the case of a criminal proceeding, if the indemnified person had reasonable cause to believe that the act or omission was unlawful.

No reported decision of a Delaware appellate court has interpreted provisions similar to the provisions of our partnership agreement that modify and reduce ESRT’s fiduciary duties or obligations as the general partner or reduce or eliminate ESRT’s liability for money damages to us and our partners, and ESRT has not obtained an opinion of counsel as to the enforceability of the provisions set forth in the partnership agreement that purport to modify or reduce the fiduciary duties that would be in effect were it not for the partnership agreement.

ESRT could increase or decrease the number of authorized shares of ESRT stock, classify and reclassify unissued ESRT stock and issue ESRT stock without ESRT stockholder approval, which could prevent a change in control of ESRT and negatively affect the market value of ESRT's shares.

ESRT’s board of directors, without stockholder approval, has the power under ESRT’s charter to amend its charter from time to time to increase or decrease the aggregate number of ESRT shares of stock or the number of ESRT shares of stock of any class or series that ESRT is authorized to issue, to authorize ESRT to issue authorized but unissued shares of ESRT common stock or preferred stock and to classify or reclassify any unissued shares of ESRT common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares.

As a result, ESRT may issue series or classes of ESRT common stock or preferred stock with preferences, distributions, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of ESRT common stock.

Any such issuance could dilute existing ESRT securityholders’ interests.

Although ESRT’s board of directors has no such intention at the present time, it could establish a class or series of ESRT preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for ESRT's common stock or that our ESRT securityholders otherwise believe to be in their best interest.

We may issue additional operating partnership units without the consent of our securityholders, which could have a dilutive effect on our securityholders and ESRT’s Securityholders.

We may issue additional operating partnership units to third parties without the consent of our securityholders, which would reduce ESRT’s ownership percentage in us and would have a dilutive effect on the interests of our existing securityholders and on the amount of distributions made to ESRT, our securityholders and to us and, therefore, the amount of distributions ESRT can make to its securityholders.

Any such issuances, or the perception of such issuances, could materially and adversely affect the market price of ESRT's Class A common stock or our traded OP units.

Certain provisions in our partnership agreement may delay or prevent unsolicited acquisitions of us.

Provisions in our partnership agreement may delay or make more difficult unsolicited acquisitions of us or changes of our control.

These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some of our securityholders might consider such proposals, if made, desirable.

These provisions include, among others:

redemption rights of qualifying parties;

transfer restrictions on operating partnership units;

ESRT's ability, as general partner, in some cases, to amend the partnership agreement and to cause us to issue units with terms that could delay, defer or prevent a merger or other change of control of us or ESRT without the consent of the limited partners;

the right of the limited partners to consent to transfers of the general partnership interest and mergers or other transactions involving us under specified circumstances;

a redemption premium payable to the holders of our operating partnership’s preferred units if our operating partnership decides, at its option, to redeem preferred units for cash upon the occurrence of certain fundamental transactions, such as a change of control.

ESRT's charter, bylaws, our partnership agreement and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our units or that of our securityholders or ESRT's common stock or that its securityholders otherwise believe to be in their best interest.

ESRT's charter contains stock ownership limits, which may delay or prevent a change of control.

In order for ESRT to qualify as a REIT no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year, and at least 100 persons must beneficially own its stock during at least 335 days of a taxable year of 12 months, or during a proportionate portion of a shorter taxable year.

“Individuals” for this purpose include natural persons, private foundations, some employee benefit plans and trusts and some charitable trusts.

To assist ESRT in complying with these limitations, among other purposes, ESRT’s charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT’s capital stock or more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT’s common stock.

These ownership limitations could have the effect of discouraging a takeover or other transaction in which holders of ESRT’s common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.

ESRT has entered into a waiver of the 9.8% ownership limit with an institutional investor to permit this investor to own up to 15% of the outstanding shares of ESRT's Class A common stock, as well as an additional waiver to permit affiliates of QIA to own (or, where applicable for QIA or its affiliates to refrain from acquiring, purchasing or intentionally becoming the beneficial or constructive owner of any common stock in excess of) an aggregate amount of Class A common stock equal to up to a 9.9% fully diluted economic interest in ESRT (inclusive of all outstanding common OP units and LTIP units), which currently equals approximately 16.5% of ESRT's outstanding Class A common stock.

ESRT’s charter’s constructive ownership rules are complex and may cause the outstanding shares owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity.

As a result, the acquisition of less than these percentages of the outstanding shares by an individual or entity could cause that individual or entity to own constructively in excess of these percentages of the outstanding shares and thus violate the share ownership limits.

ESRT’s charter also provides that any attempt to own or transfer shares of its common stock or preferred stock (if and when issued) in excess of the stock ownership limits without the consent of ESRT’s board of directors or in a manner that would cause ESRT to be “closely held” under Section 856(h) of the Code (without regard to whether the shares are held during the last half of a taxable year) will result in the shares being deemed to be transferred to a trustee for a charitable trust or, if the transfer to the charitable trust is not automatically effective to prevent a violation of the share ownership limits or the restrictions on ownership and transfer of ESRT shares, any such transfer of ESRT’s shares will be null and void.

The concentration of ESRT's voting power may adversely affect the ability of new investors to influence our policies.

As of December 31, 2019 , Anthony E.

Malkin, ESRT’s Chairman and Chief Executive Officer, together with the Malkin Group, has the right to vote 40,859,706 shares of ESRT’s common stock, which represents approximately 17.6% of the voting power of ESRT’s outstanding common stock.

Consequently, Mr.

Malkin has the ability to influence the outcome of matters presented to ESRT securityholders, including the election of ESRT’s board of directors and approval of significant corporate transactions, including business combinations, consolidations and mergers and the determination of ESRT’s day-to-day corporate and management policies.

As of December 31, 2019, QIA had a 10.0% fully diluted interest in us, which represented 16.5% of the outstanding ESRT Class A common stock.

Pursuant to the terms of ESRT's stockholders agreement with QIA, QIA generally has the right (but not the obligation) to maintain its fully diluted economic interest in ESRT by purchasing additional shares of ESRT's Class A common stock when ESRT or we issue additional common equity securities from time to time.

While QIA has agreed to limit its voting power on all matters presented to ESRT's securityholders to no more than 9.9% of total number of votes entitled to be

cast, QIA has also agreed to vote its shares in favor of the election of all director nominees recommended by ESRT's board of directors.

The interests of Mr.

Malkin and QIA could conflict with or differ from your interests as a securityholder, and these large securityholders may exercise their right as securityholders to restrict our ability to take certain actions that may otherwise be in the best interests of our and ESRT's securityholders.

This concentration of voting power might also have the effect of delaying or preventing a change of control that our or ESRT's securityholders may view as beneficial.

Our sole general partner, ESRT, acting through its board of directors may change our strategies, policies or procedures without stockholder consent, which may subject us to different and more significant risks in the future.

Our investment, financing, leverage and distribution policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, will be determined by our sole general partner, ESRT, acting through its board of directors.

These policies may be amended or revised at any time and from time to time at the discretion of ESRT without notice to or a vote of our securityholders.

This could result in us conducting operational matters, making investments or pursuing different business or growth strategies.

Under these circumstances, ESRT may expose us to different and more significant risks in the future, which could have a material adverse effect on our business and growth.

In addition, ESRT may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements.

A change in these policies could have an adverse effect on our results of operations, cash flow, financial condition, and our ability to service debt and to make distributions to our securityholders.

Risks Related to ESRT Common Stock and our Traded OP Units

Our cash available for distribution may not be sufficient to make distributions at expected levels.

We intend to make distributions to our securityholders.

All dividends and distributions will be made at the discretion of our sole general partner, ESRT, acting through its board of directors, and will depend on our earnings, financial condition, maintenance of ESRT’s REIT qualification and other factors as ESRT’s board of directors may deem relevant from time to time.

If sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital or to borrow to provide funds for such distribution, or to reduce the amount of such distribution.

We cannot assure you that our distributions will be made or sustained.

Any distributions we pay in the future will depend upon our actual results of operations, economic conditions and other factors that could differ materially from our current expectations.

The market price of shares of ESRT's Class A common stock and our traded OP units could be adversely affected by our level of cash distributions.

The market value of the equity securities of a REIT is based primarily upon the market’s perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales or refinancings, and is secondarily based upon the real estate market value of the underlying assets.

For that reason, ESRT's Class A common stock and traded OP units may trade at prices that are higher or lower than our net asset value per share.

To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of ESRT's Class A common stock and traded OP units.

Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would adversely affect the market price of ESRT's Class A common stock and our traded OP units.

The future exercise of registration rights may adversely affect the market price of our common stock.

We or ESRT cannot predict whether future issuances of shares of ESRT's common stock or our operating partnership units or the availability of shares for resale in the open market will decrease the market price per share/unit of ESRT's common stock and traded OP units.

In August 2016, ESRT entered into a registration rights agreement with QIA in connection with its purchase of 29,610,854 shares of ESRT Class A common stock, which required ESRT to use commercially reasonable efforts to file with the Securities and Exchange Commission within 180 days following the closing of the sale, a resale shelf registration statement providing for the resale of QIA’s shares.

ESRT filed the resale shelf registration statement with the SEC on February 2, 2017 and renewed it on August 3, 2017.

Subsequently, QIA is entitled to cause ESRT to include in the registration statement such additional shares of ESRT's Class A common stock as QIA may acquire from time to time, up to a 9.9% fully diluted interest in ESRT.

We and ESRT will bear the costs of registering the securities subject to the registration rights agreement, and once these shares are registered, they will be freely tradable, subject to any applicable lock-up agreements.

The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market

price of ESRT's common stock and our traded OP units and could impair ESRT's and our ability to raise additional capital through the sale of equity securities in the future.

In particular, as of December 31, 2019, QIA owns approximately 16.5% of the outstanding shares of ESRT's Class A common stock.

If QIA decides to sell all or a substantial portion of its shares, it could have a material adverse impact on the market price of ESRT's common stock and our traded OP units.

Future issuances of debt securities or preferred units and future issuances of equity securities (including operating partnership units), may materially and adversely affect the market price of shares of ESRT's Class A common stock and traded OP units.

In the future, we or ESRT may issue debt or equity securities or make other borrowings.

Upon liquidation, holders of our or ESRT’s debt securities, preferred units and other loans and preferred shares will receive a distribution of our available assets before holders of shares of ESRT’s common stock.

We or ESRT are not required to offer any such additional debt or equity securities to existing ESRT securityholders or our securityholders, as applicable, on a preemptive basis.

Therefore, additional shares of ESRT’s common stock issuances, directly or through convertible or exchangeable securities (including operating partnership units), warrants or options, will dilute the holdings of ESRT’s existing common securityholders and such issuances or the perception of such issuances may reduce the market price of shares of ESRT’s Class A common stock or our traded OP units.

ESRT’s preferred units or shares, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could limit ESRT’s ability to make distributions to holders of shares of ESRT’s common stock.

Because our or ESRT’s decision to issue debt or equity securities or otherwise incur debt in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our or ESRT's future capital raising efforts.

Thus, holders of shares of ESRT’s common stock or our securityholders bear the risk that our or ESRT’s future issuances of debt or equity securities or ESRT's other borrowings will reduce the market price of shares of ESRT’s Class A common stock and our traded OP units and dilute their ownership in us or ESRT, as applicable.

Our balance sheet includes significant amounts of goodwill.

The impairment of a significant portion of this goodwill could negatively affect our business, results of operations, cash flow and financial condition.

Our balance sheet includes goodwill of approximately $491.5 million at December 31, 2019 .

These assets consist primarily of goodwill associated with our acquisition of the controlling interest in Empire State Building Company L.L.C.

and 501 Seventh Avenue Associates L.L.C.

We also expect to engage in additional acquisitions, which may result in our recognition of additional goodwill.

Under accounting standards goodwill is not amortized.

On an annual basis and whenever events or changes in circumstances indicate the carrying value or goodwill may be impaired, we are required to assess whether there have been impairments in the carrying value of goodwill.

If the carrying value of the asset is determined to be impaired, then it is written down to fair value by a charge to operating earnings.

An impairment of goodwill could have a material adverse effect on our business, results of operations, cash flow and financial condition.

There remains uncertainty as to how the recently-revised partnership tax audits will be applied.

The Bipartisan Budget Act of 2015, effective for taxable years beginning after December 31, 2017, requires us and any subsidiary partnership to pay the hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax items on audit or in other tax proceedings, unless the partnership elects an alternative method under which the taxes resulting from the adjustment (and interest and penalties) are assessed at the partner level.

In addition, Treasury Regulations provide that a partner that is a REIT may be able to use deficiency dividend procedures with respect to such adjustments.

Many uncertainties remain as to the application of these rules, and the impact they will have on us.

However, it is possible, that we and partnerships in which we invest may be subject to U.S.

federal income tax, interest and penalties in the event of a U.S.

federal income tax audit as a result of these law changes.

Tax Risks Related to Ownership of Our Units

Certain litigation or its resolution may affect the availability or cost of our insurance coverage, which could adversely impact our financial condition, expose us to increased uninsured risks, and/or adversely impact our ability to attract officers and directors.

See “Financial Statements – Note 8 – Commitments and Contingencies.”

Cyberattacks and any failure to comply with related laws could negatively impact us.

We rely extensively on technology, both internal and outsourced, to process transactions and manage our business, so our business is increasingly at risk from cyberattacks that continue to increase in number, intensity and sophistication.

These could include internal and external attempts to gain unauthorized access to our data and computer systems to disrupt operations or steal confidential information.

We employ a number of controls to prevent and mitigate these threats, but there is no guarantee such measures will be successful.

A cyberattack could compromise the confidential information of our employees, tenants, customers and vendors, and disrupt our business operations and relationships.

Any compromise of our security could also result in a violation of applicable privacy and other laws, with significant damage to our legal and financial condition, our reputation, our business, our records, and the confidence of our business relationships.

New laws and regulations on these subjects pose increasingly complex compliance challenges and costs across multiple jurisdictions.

Risks Related to ESRT's REIT Status, Our Organization and Structure

If we are treated as a corporation for U.S.

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federal income tax, and ESRT will cease to qualify as a REIT.

We believe that we qualify as a partnership for U.S.

federal income tax purposes.

Assuming that we qualify as a partnership for U.S.

federal income tax purposes, we are generally not subject to U.S.

We believe we qualify as a partnership for U.S.

federal income tax purposes and as such are generally not subject to U.S.

federal income tax on our income.

Instead, each of our securityholders, including ESRT, is required to include in income its allocable share of our income.

We are treated as publicly traded partnership under the Code, and accordingly we will be treated as a corporation for U.S.

federal income tax purposes unless we meet certain requirements.

In particular, in order to qualify as a partnership for U.S federal income tax purposes, at least 90% of our gross income must be derived from certain specified sources of qualifying income,

which generally includes income treated as qualifying rental income for purposes of the REIT gross income tests and other income from passive sources.

We believe that we satisfy this test.

No assurance can be provided, however, that the IRS will not challenge our status as a partnership for U.S.

federal income tax purposes, or that a court would not sustain such a challenge.

If the IRS were successful in treating us as a corporation for U.S.

federal income tax purposes, we would be subject to U.S.

federal, state and local corporate income tax, which would significantly reduce the amount of cash available to satisfy obligations to make principal and interest payments on our debt and to make distribution to our securityholders, and the tax consequences of holding our operating partnership units could be adversely affected.

In addition, ESRT would cease to qualify as a REIT.

We are treated as publicly traded partnership under the Code and accordingly will be treated as such a corporation unless we meet certain requirements, in particular, that at least 90% of our gross income must be derived from qualifying sources income, which generally includes rental income and other income from passive sources.

We believe we satisfy this test, but the IRS could challenge us.

If the IRS were successful in treating us as a corporation, we would be subject to U.S.

federal, state and local corporate income tax, which would significantly reduce our cash available to pay debt service and distributions, could have adverse tax consequences on holders of OP units, and would disqualify ESRT from REIT status.

You may be allocated more taxable income than the distributions you receive from us.

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federal income tax.

Rather, each holder of our operating partnership units is required to take into account its allocable share of items of our income, gain, loss, deduction and credit for our taxable year ending within or with the taxable year of such holder in computing such holder's U.S.

Rather, each holder of our OP units is required to take into account its allocable share of items of our income, gain, loss, deduction and credit for our taxable year ending within or with the taxable year of such holder

in computing such holder's U.S.

federal income tax liability, regardless of whether the holder has received any distributions from us.

It is possible that the U.S.

federal income tax liability of a holder of our operating partnership units with respect to its allocable share of our earnings in a particular taxable year could exceed the cash distributions we make to the holder for the year, thus requiring an out-of-pocket tax payment by the holder.

It is possible that such tax liability of such holder could exceed our cash distributions to such holder for the year, thus requiring an out-of-pocket tax payment by the holder.

Your ability to deduct certain losses allocated from us may be subject to limitations.

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The application of these limitations depends on the exact nature of our current and future operations and the individual tax positions of such holders.

Holders of operating partnership units should consult with their tax advisor regarding the potential application of these provisions.

Holders of OP units should consult with their tax advisor regarding these provisions.

Participants may recognize taxable gain resulting from a reduction in their allocable share of our liabilities.

We may elect to pay down our indebtedness or refinance such indebtedness with unsecured debt, which may reduce the amount of our liabilities allocable to a holder of operating partnership units.

In addition, certain commitments pursuant to our tax protection agreements could result in less liabilities available to be allocated to holders of operating partnership units as a result of our obligation to offer to certain parties opportunities to guarantee certain indebtedness.

Over time, property depreciation, capital improvements made to the properties and debt amortization and repayment, among other things, may reduce the share of our liabilities allocated to a holder of operating partnership units.

A reduction in the share of our liabilities allocated to a holder of operating partnership units (such as from a pay down of mortgage debt over time) that exceeds the holder's U.S.

federal income tax basis in its operating partnership units is treated as taxable gain from the sale or exchange of such units.

Holders of our operating partnership units should consult their tax advisors with regard to their share of our liabilities.

We may elect to pay down our secured debt or refinance such debt with unsecured debt, which may reduce the amount of our liabilities allocable to a holder of OP units.

In addition, certain commitments in ESRT’s tax protection agreements could reduce the share of liabilities available to be allocated to holders of OP units due to our obligation to offer to the tax-protected parties opportunities to guarantee certain debt.

Over time, depreciation, capital improvements and debt amortization and repayment, among other things, may also reduce such share to a holder of OP units.

Any such reductions in share of our liabilities that exceeds the holder's U.S.

federal income tax basis in its OP units is treated as taxable gain from sale or exchange of such units.

Holders of our OP units should consult their tax advisors with regard to the foregoing.

Failure of ESRT to qualify as a REIT would have a material adverse effect on us.

We, in general, and the holders of our operating partnership units, in particular, must rely on ESRT, as our general partner, to manage our affairs and business.

We must rely on ESRT, as our general partner, to manage our affairs and business.

ESRT is subject to certain risks that may affect its financial and other conditions, including particularly adverse consequences if it fails to qualify as a REIT for U.S.

federal income tax purposes.

ESRT's qualification as a REIT involves the application of highly technical and complex Code provisions and Treasury Regulations promulgated thereunder for which there are limited judicial and administrative interpretations.

Furthermore, ESRT's qualification as a REIT depends in part on the nature of our assets and income and the results of our operations.

Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for ESRT to qualify as a REIT.

Thus, while we and ESRT intend to operate so that ESRT will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in circumstances, no assurance can be given that ESRT will so qualify for any particular year.

ESRT's qualification as a REIT is governed by highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations and depends on various facts and circumstances that are not entirely within its control.

In addition, legislation, new regulations, administrative interpretations or court decisions may significantly change the relevant tax laws and/or the U.S.

federal income tax consequences of qualifying as a REIT.

Thus, while we and ESRT intend to operate so that ESRT will qualify as a REIT, there can be no assurance that ESRT will so qualify for any particular year.

These considerations also might restrict the types of assets that we can acquire in the future.

If ESRT fails to qualify as a REIT it will face serious tax consequences which will directly and adversely impact us and may substantially reduce the funds available for payment of distributions to our securityholders, and it will be not be able to qualify as a REIT for four years following such failure.

If ESRT fails to qualify as a REIT but is eligible for certain relief provisions, then it may retain its status as a REIT but may be required to pay a penalty tax, which could be substantial.

In order to enable ESRT to comply with the REIT requirements, we may be required to forego and/or liquidate otherwise attractive investments.

If, with respect to any taxable year, ESRT fails to maintain its qualification as a REIT and does not qualify under statutory relief provisions, it could not deduct distributions to shareholders in computing its taxable income and would have to pay U.S.

federal income tax on its taxable income at regular corporate rates and thus reduce funds available for distribution and debt service, and ESRT would not be required to make distributions until it re-qualified as a REIT which would not be permitted for the four taxable years following our disqualification, unless it gained relief under relevant statutory provisions.

To enable ESRT to comply with REIT requirements, we may have to forego and/or liquidate attractive investments.

To qualify as a REIT (and avoid certain taxes to which it would be subject notwithstanding its status as a REIT), ESRT must meet, on an ongoing basis, certain tests regarding the nature and diversification of its assets and its income.

Because substantially all of ESRT's assets consists of our partnership units and substantially all of ESRT's income consists of income allocations with respect to such units, ESRT's ability to satisfy these tests will depend on the composition of our assets and income.

Because substantially all of ESRT's assets consists of our OP units, and substantially all of ESRT's income consists of income allocations with respect to such units, ESRT's ability to satisfy these tests will depend on the composition of our assets and income.

Similarly, in order to be treated as a partnership for U.S.

federal income tax purposes, we must meet certain annual tests relating to the sources of our gross income.

In order to meet these tests and to allow ESRT to meet these tests, we may be required to take or forego taking actions that we would otherwise consider advantageous.

For instance, we may be required to forego investments that we otherwise would make.

Furthermore, we may be required to liquidate from our portfolio otherwise attractive investments.

In order to meet these tests and to allow ESRT to meet these tests, we may be required to forego investments that we otherwise would make or to liquidate from our portfolio otherwise attractive investments.

In addition, we may be required to make distributions to ESRT at disadvantageous times or when we do not have funds readily available for distribution.

These actions could have the effect of reducing our income and amounts available for distribution to our securityholders.

Thus, operating in a manner that allows ESRT to comply with the REIT requirements and causes us to continue to be treated as a partnership for U.S.

federal income tax purposes may hinder our investment performance.

In order to allow ESRT to comply with the REIT distribution requirements, we may be required to borrow funds during unfavorable market conditions or may be subject to tax, which would reduce the cash available for distribution to our securityholders.

In addition, ESRT will be subject to U.S.

federal income tax laws.

Our partnership agreement provides that we will make sufficient distributions to ESRT to enable it to satisfy these distribution requirements and to avoid U.S.

federal corporate income tax and the 4% excise tax.

Our taxable income may exceed our net income as determined by GAAP because, for example, realized capital losses will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income.

In addition, we may incur nondeductible capital expenditures or be required to make debt or amortization payments or the effect of limitations on interest (subject to an exception for an electing real property trade or business) and net operating loss deductibility under the TCJA (as defined below) could cause our taxable income to exceed our net income as determined by GAAP.

As a result of the foregoing, we may generate less cash flow than taxable income in a particular year.

As a result, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable in order to allow ESRT to satisfy the REIT 90% distribution requirement and to avoid U.S.

federal income tax and the 4% nondeductible excise tax in that year.

To allow ESRT to comply with REIT distribution requirements, we may be required to borrow funds during unfavorable market conditions or may be subject to tax.

ESRT intends to distribute its net income to securityholders in a manner intended to satisfy the REIT 90% distribution requirement (See Part I, Item 1, “Business – Our Tax Status”) and to avoid U.S.

federal income tax and the 4% nondeductible excise tax.

Our partnership agreement provides that we will make sufficient distributions to ESRT to enable it to satisfy these

distribution requirements.

Any failure to do so will incur substantial entity level tax and/or disqualification as a REIT with the adverse tax consequences and limits on re-qualification described above in this Risk Factors section.

In addition, our taxable income may exceed our net income as determined by GAAP because, for example, realized capital losses will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income.

In addition, we may incur nondeductible capital expenditures or be required to make debt or amortization payments, or the effect of limitations on interest (subject to an exception for an electing real property trade or business) and net operating loss deductibility under the current law, could cause our taxable income to exceed our net income as determined by GAAP.

As a result, we may generate less cash flow than taxable income in a particular year and be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable in order to allow ESRT to satisfy such REIT requirements and avoid such taxes.

Specific transactions or tax elections may cause you to recognize gain or otherwise affect your investment.

As a general matter, per the terms of our partnership agreement, ESRT is not required to take into account tax consequences to the other holders of operating partnership units in deciding whether to cause us to undertake specific transactions or make tax elections that could cause you to recognize gain.

As a general matter, per the terms of our partnership agreement, ESRT is not required to take into account tax consequences to the other holders of OP units in deciding whether to cause us to undertake specific transactions or make tax elections that could cause you to recognize gain.

Consequently, we could enter into transactions that result in additional taxable income allocations to you at any time, and your share of our liabilities could be reduced at any time.

We cannot match the transferor of particular Series 60, Series 250, or Series ES operating partnership units with the respective transferee of such operating partnership units, and we have therefore adopted certain income tax accounting positions that may not conform with all aspects of applicable tax requirements.

The IRS may challenge this treatment, which could adversely affect the tax consequences, liquidity and market price of such operating partnership units.

Because we cannot match the transferor of particular Series 60, Series 250, or Series ES operating partnership units with the respective transferee of such operating partnership units, we have adopted certain depreciation, amortization and other

tax accounting positions that may not conform with all aspects of existing Treasury Regulations.

We cannot match the transferor of particular Series 60, Series 250, or Series ES OP units with each transferee of such OP units, so we have adopted certain income tax accounting positions that could subject us to challenge by the IRS.

Because we cannot match the transferor of particular Series 60, Series 250, or Series ES OP units with each transferee of such OP units, we have adopted certain depreciation, amortization and other tax accounting positions that may not conform with all aspects of existing Treasury Regulations.

A successful challenge to those positions could adversely affect the amount of tax benefit available or taxable income allocated to holders of such operating partnership units.

It also could affect the timing of certain tax benefits or the amount of gain on the sale of such operating partnership units and could have a negative impact on the value of such operating partnership units or result in audits of and adjustments to the tax returns of holders of Series 60, Series 250, or Series ES operating partnership units.

It also could affect the timing of certain tax benefits or the amount of gain on the sale of such OP units and could have a negative impact on their value or result in audits of and adjustments to the tax returns of holders of such units.

In addition, our taxable income and losses are determined and apportioned among investors using conventions we regard as consistent with applicable law.

As a result, if you transfer your operating partnership units, you may be allocated income, gain, loss and deduction realized by us after the date of transfer.

Similarly, a transferee may be allocated income, gain, loss and deduction realized by us prior to the date of the transferee’s acquisition of operating partnership units and, in certain circumstances, even if such a transferee receives no distributions.

As a result, if you transfer your OP units, you may be allocated income, gain, loss and deduction realized by us after the date of transfer.

Similarly, a transferee may be allocated income, gain, loss and deduction realized by us prior to the date of the transfer and, in certain circumstances, even if such a transferee receives no distributions.

A transferee may also bear the cost of withholding tax imposed with respect to income allocated to a transferor through a reduction in the cash distributed to the transferee.

If we are not able to lease the Empire State Building observatory to a TRS in a manner consistent with the ruling that ESRT has received from the IRS, or if we are not able to maintain our broadcast licenses in a manner consistent with the ruling ESRT has received from the IRS, we would be required to restructure our operations in a manner that could adversely affect the value of our operating partnership units.

Rents from real property are generally not qualifying income for purposes of the REIT gross income tests and the gross income test that we must satisfy in order to be treated as a partnership for U.S.

federal income tax purposes if the rent is treated as “related party rent.” Related party rent generally includes (i) any rent paid by a corporation if the REIT (or any person who owns 10% or more of the stock of the REIT by value) directly or indirectly owns 10% or more of the stock of the corporation by vote or value and (ii) rent paid by a partnership if the REIT (or any person who owns 10% or more of the stock of the REIT by value) directly or indirectly owns an interest of 10% or more in the assets or net profits of the partnership.

Under an exception to this rule, related party rent is treated as qualifying income for purposes of the REIT gross income tests if it is paid by a taxable REIT subsidiary, or a TRS, of the REIT and (i) at least 90% of the leased space in the relevant property is rented to persons other than either TRSs or other related parties of the REIT, and (ii) the amounts paid to the REIT as rent from real property are substantially comparable to the rents paid by unrelated tenants of the REIT for comparable space.

Income from admissions to the Empire State Building observatory, and certain other income generated by the observatory, would not likely be qualifying income for purposes of the REIT gross income tests.

ESRT has jointly elected with ESRT Observatory TRS, L.L.C., or Observatory TRS, our wholly owned subsidiary and the current lessee and operator of the observatory, for Observatory TRS to be treated as a TRS of ESRT for U.S.

federal income tax purposes.

Observatory TRS leases the Empire State Building observatory from us pursuant to a lease that provides for fixed base rental payments and variable rental payments equal to certain percentages of Observatory TRS’s gross receipts from the operation of the observatory.

Given the unique nature of the real estate comprising the observatory, ESRT does not believe that there is any space in the Empire State Building or in the same geographic area as the Empire State Building that would likely be considered sufficiently comparable to the observatory for the purpose of applying the exception to related party rent described above.

ESRT has received from the IRS a private letter ruling that its allocable share of the rent that we receive from Observatory TRS pursuant to the lease described above is qualifying income for purposes of the REIT gross income tests so long as such rent reflects the fair market rental value of the Empire State Building observatory as determined by an appraisal rendered by a qualified third party appraiser.

In addition, we are party to various license agreements (i) granting certain third party broadcasters the right to use space on the tower on the top of the Empire State Building for certain broadcasting and other communication purposes and (ii) granting certain third party vendors the right to operate concession stands in the observatory.

ESRT has received from the IRS a private letter ruling that its allocable share of the license fees that we receive under the license agreements described above are qualifying income for purposes of the REIT gross income tests.

ESRT is entitled to rely upon these private letter rulings only to the extent that it did not misstate or omit a material fact in the ruling request and that we and ESRT continue to operate in accordance with the material facts described in such request, and no assurance can be given that we or ESRT will always be able to do so.

If ESRT were not able to treat its allocable share of the rent that the we receive from Observatory TRS as qualifying income for purposes of the REIT gross income tests, in order to qualify as a partnership for U.S.

federal income tax purposes and in order to allow ESRT to continue to qualify as a REIT, we would be required to restructure the manner in which we operate the observatory, which would likely require us to cede operating control of the observatory by leasing the observatory to an affiliate or third party operator.

If ESRT were not able to treat its allocable share of the license fees that we receive from the license agreements described above as qualifying income for purposes of the REIT gross income tests, in order to continue to be treated as a partnership for U.S.

federal income tax purposes and in order to allow ESRT to continue to qualify as a REIT, we would be required to enter into the license agreements described above through a corporate subsidiary that elects to be treated as a TRS of ESRT, which would cause the license fees to be subject to U.S.

If we are unable to continue to lease the Empire State Building observatory to a TRS or to maintain our broadcast licenses, in each case in a manner consistent with the IRS ruling that ESRT has received, we would be required to restructure our operations in a manner that could adversely affect the value of our OP units.

To treat income from our Observatory and broadcast facilities, we rely upon private letter rulings that such income is qualifying rent for our REIT qualification.

(See Part I, Item 1, “Business – Our Tax Status”).

We are entitled to rely upon these private letter rulings only to the extent that we did not misstate or omit a material fact in the ruling request and that we continue to operate in accordance with the material facts described in such request, and no assurance can be given that we will always be able to do so.

If we were not able to treat the rent that our company receives from Observatory TRS as qualifying income for purposes of the REIT gross income tests applicable to ESRT, we would be required to restructure the manner in which we operate the Observatory, which would likely require us to cede operating control of the Observatory by leasing the Observatory to an affiliate or third party operator.

If we were not able to treat the license fees that our company will receive from the license agreements described above as qualifying income for purposes of the REIT gross income tests, we would be required to enter into the license agreements described above through a TRS, which would cause the license fees to be subject to U.S.

federal income tax and accordingly reduce the amount of our cash flow available to be distributed to our securityholders.

In either case, if we are not able to appropriately restructure our operations in a timely manner, ESRT would likely realize significant income that does not qualify for the REIT gross income tests, which could cause ESRT to fail to qualify as a REIT, and we could fail to be treated as a partnership for U.S.

federal income tax purposes.

We may have inherited tax liabilities from the entities that have been merged into us or our subsidiaries in the formation transactions.

Pursuant to the formation transactions, Malkin Properties of Connecticut, Inc., a Connecticut corporation, or Malkin Properties CT, and Malkin Construction Corp., a Connecticut corporation, or Malkin Construction merged with and into a subsidiary of ESRT, with the subsidiary surviving, in a transaction that was intended to be treated as a reorganization under the Code, and which subsidiary was subsequently contributed to us.

In either case, if we are not able to appropriately restructure our operations in a timely manner, we would likely realize significant income that does not qualify for the REIT gross income tests, which could cause ESRT to fail to qualify as a REIT.

There remains uncertainty as to how partnership tax audits will be applied.

In the case of an audit for taxable years beginning after December 31, 2017, our company and any subsidiary partnership may be required to pay the hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax items on audit or in other tax proceedings, unless the partnership elects an alternative method under which the taxes resulting from the adjustment (and interest and penalties) are assessed at the partner level.

In addition, Treasury Regulations provide that a partner that is a REIT may be able to use deficiency dividend procedures with

respect to such adjustments.

Many uncertainties remain as to the application of these rules, and the impact they will have on us.

However, it is possible, that partnerships in which we invest may be subject to U.S.

federal income tax, interest and penalties in the event of a U.S.

federal income tax audit as a result of these law changes.

Our state and local taxes could increase due to property tax rate changes, reassessment and/or changes in state and local tax laws, which could materially and adversely affect us.

We are required to pay state and local taxes on our properties.

From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability.

A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and size of such changes.

In addition, the COVID-19 pandemic has left many state and local governments with reduced tax revenue, which may lead such governments to increase taxes or otherwise make significant changes to their state and local tax laws.

If such changes occur, we may be required to pay additional taxes on our assets or income.

The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities.

Therefore, the amount of property taxes we pay in the future may increase substantially from what we have paid in the past.

If the property taxes we pay increase, our financial condition could be materially and adversely affected.

federal tax reform legislation now and in the future could affect REITs generally and the geographic markets in which we operate both positively and negatively, in ways that are difficult to anticipate.

The rules dealing with U.S.

federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.

Treasury Department.

Changes to tax laws (which changes may have retroactive application) could adversely affect our securityholders or us.

In recent years, many such changes have been made and changes are likely to continue to occur in the future.

Each of Malkin Properties CT and Malkin Construction had previously elected to be treated as an S Corporation for U.S.

federal income tax purposes under Section 1361 of the Code with respect to periods preceding our formation transactions.

If either of Malkin Properties CT or Malkin Construction had failed to qualify as an S corporation with respect to periods preceding our formation transaction, we could have assumed material U.S.

If either of Malkin Properties CT or Malkin Construction had failed to qualify as an S corporation with respect to periods preceding our formation transactions, ESRT could have assumed material U.S.

federal income tax liabilities in connection with the formation transactions and/or may be subject to certain other adverse tax consequences.

In addition, for ESRT to qualify as a REIT under these circumstances, we would be required to distribute, prior to the close of our first taxable year in which we elect to be taxed as a REIT under the Code, any earnings and profits of these entities to which we were deemed to succeed.

No rulings from the IRS were requested and no opinions of counsel were rendered regarding the U.S.

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federal income tax purposes during such periods, or that these entities did not have any other tax liabilities.

In addition, Malkin Holdings LLC merged with a subsidiary of us in the formation transactions, and as a result, we may have inherited any liabilities, including any tax liabilities, of Malkin Holdings LLC.

Prospective investors are urged to consult with their tax advisors regarding the effects of recently enacted tax legislation and other legislative, regulatory and administrative developments.

On December 22, 2017, President Trump signed into law H.R.

1, informally titled the Tax Cuts and Jobs Act (the “TCJA”).

The TCJA makes major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their shareholders.

Among the changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and other noncorporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction for non-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends, allocations of income from certain publicly-traded partnerships (including us) and certain trade or business income of non-corporate taxpayers for purposes of determining their U.S.

federal income tax (but not for purposes of the 3.8% Medicare tax and self-employment tax).

The TCJA also imposes new limitations on the deduction of net operating losses, which may result in our having to make additional taxable distributions to our shareholders in order to comply with REIT distribution requirements or to avoid taxes on retained income and gains.

The effect of the significant changes made by the TCJA remains uncertain, and administrative guidance, which has and will continue to be issued on an ongoing basis, is required in order to fully evaluate the effect of many provisions.

The effect of any technical corrections with respect to the TCJA could have an adverse effect on us or our shareholders.

Investors should consult their tax advisors regarding the implications of the TCJA on their investment in our interests.

Legislative or regulatory tax changes related to REITs and other business entities could materially and adversely affect our business.

At any time, the U.S.

federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect.

We cannot predict if or when any new U.S.

federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S.

federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively.

We and our securityholders could be adversely affected by any such change in, or any new, U.S.

federal income tax law, regulation or administrative interpretation.

Your investment has various tax risks.

Although this section describes certain tax risks relevant to an investment in our securities, you should consult your tax advisor concerning the effects of U.S.

federal, state, local and foreign tax laws to you with regard to an investment in our securities.

If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis .

From time to time we may dispose of properties in transactions that are intended to qualify as Section 1031 Exchanges.

It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable.

In such case, our taxable income and earnings and profits would increase.

This could increase the dividend income to our stockholders by reducing any return of capital they received.

In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties.

In addition, if the underlying property is a dealer property, our gains from the sale of the property would be subject to a 100% tax.

As a result, we may be required to borrow funds in order to pay additional dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to our stockholders.

In addition, if a Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent our stockholders.

Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or impossible for us to dispose of properties on a tax deferred basis.

In addition, Malkin Holdings LLC merged with our subsidiary in the formation transactions, and as a result, we may have inherited any liabilities, including any tax liabilities, of Malkin Holdings LLC.

In connection with the formation transactions, we and ESRT entered into a tax protection agreement with certain Malkin family members, including Anthony E.

Malkin and Peter L.

Malkin, pursuant to which we have agreed to indemnify the Malkin Group and one additional third party investor in Metro Center, and in connection with our sale of a 9.9% fully diluted interest in ESRT to QIA in 2016, we agreed, subject to certain minimum thresholds and conditions, to indemnify QIA, in each case, against certain tax liabilities that may arise from certain property transactions.

See “Financial Statements – Note 10 – Related Party Transactions – Excluded Properties and Businesses.”.

If we were to trigger such tax indemnification obligations, we would be required to pay the resulting tax consequences to the Malkin Group, the additional third party investor in Metro Center and/ or QIA, as applicable.

These obligations may restrict our ability to engage in a strategic transaction, require us to maintain more or different debt, and/or inhibit our disposing of a property that we might judge to be otherwise be in the best interest of the securityholders.

Holders of ESRT’s Class B common stock have a significant vote in ESRT matters.

As part of our formation, we sought to give each contributing investor an option to hold equity interests which would allow such investor to vote on company matters in proportion to such investor’s economic ownership in the consolidated entity, whether such investor elected taxable Class A common stock in ESRT or tax-deferred operating partnership units in our company.

Thus, the original investors were offered the opportunity to contribute their interests to us in exchange for a mix of one share of Class B common stock in ESRT and 49 operating partnership units in us for each 50 operating partnership units in us to which an investor was otherwise entitled.

Each outstanding share of Class B common stock, when accompanied by 49 operating partnership units, entitles the holder thereof to 50 votes on all matters on which holders of Class A common stock in ESRT are entitled to vote, including the election of directors.

Holders of ESRT Class B common stock may have interests that differ from holders of ESRT Class A common stock and our securityholders, including by reason of their interest in us, and may accordingly vote as a stockholder in ways that may not be consistent with the interests of holders of ESRT Class A common stock and our securityholders.

The concentration of our voting power may adversely affect the ability of new investors to influence our policies.

As of December 31, 2020, ESRT’s Chairman, President and Chief Executive Officer, Anthony E.

Malkin, together with the Malkin Group, has the right to vote 40,859,706 shares of ESRT’s common stock, which represents approximately 18.5% of the voting power of ESRT’s outstanding common stock.

Consequently, Mr.

Malkin has the ability to influence the outcome of matters presented to our securityholders, including the election of ESRT’s board and approval of significant corporate transactions, including business combinations, consolidations and mergers and the determination of our day-to-day corporate and management policies.

As of December 31, 2020, QIA had a 10.48% fully diluted interest in ESRT, which represented 17.53% of the outstanding Class A common stock of ESRT.

Pursuant to the terms of ESRT’s stockholders agreement with QIA, QIA generally has the right (but not the obligation) to maintain its fully diluted economic interest in ESRT by purchasing additional shares of ESRT’s Class A common stock when we or ESRT additional common equity securities from time to time.

While QIA has agreed to limit its voting power on all matters presented to ESRT’s securityholders to no more than 9.9% of total number of votes entitled to be cast, QIA has also agreed to vote its shares in favor of the election of all director nominees recommended by ESRT’s board.

The interests of Mr.

Malkin and QIA could conflict with or differ from your interests as a holder of our operating partnership units, and these large securityholders may exercise their right as securityholders to restrict our ability to take certain actions that may otherwise be in the best interests of our securityholders.

This concentration of voting power might also have the effect of delaying or preventing a change of control that our securityholders may view as beneficial.

Tax consequences to holders of our operating partnership units upon a sale or refinancing of our properties may cause the interests of certain members of ESRT’s senior management team to differ from your own.

As a result of the unrealized built-in gain attributable to a property at the time of contribution, some holders of operating partnership units, including our Chairman, President and Chief Executive Officer, Anthony E.

Malkin, and our Chairman Emeritus, Peter L.

Malkin, may suffer different and more adverse tax consequences than other holders of operating partnership units upon the sale or refinancing of the properties owned byus, including disproportionately greater allocations of items of taxable income and gain upon a realization event.

As those holders will not receive a correspondingly greater distribution of cash proceeds, they may have different objectives regarding the appropriate pricing, timing and other material terms of any sale or refinancing of certain properties, or whether to sell or refinance such properties at all.

As a result, the effect of certain transactions on Messrs.

Malkin may influence their decisions affecting these properties and may cause members of ESRT’s senior management team to attempt to delay, defer or prevent a transaction that might otherwise be in the best interests of our other securityholders.

Additionally, in connection with the formation transactions, we and ESRT entered into a tax protection agreement with Messrs.

Malkin pursuant to which we and ESRt have agreed to indemnify the Malkin Group and one additional third party investor in Metro Center against certain tax liabilities if those tax liabilities arise from a transaction involving one of four properties.

Refer to “Financial Statements – Note 10 – Related Party Transactions – Excluded Properties and Businesses” for more information.

As a result of entering into the tax protection agreement, Messrs.

Malkin may have an incentive to cause us to enter into transactions from which they may personally benefit.

Conflicts of interest exist or could arise between ESRT’s securityholders and OP unit holders.

Conflicts of interest exist or could arise in the future as a result of the relationships between ESRT and its affiliates, on the one hand, and our company or any partner thereof, on the other.

ESRT’s directors and officers have duties to ESRT under applicable Maryland law in connection with their management of ESRT.

At the same time, ESRT, as our general partner has fiduciary duties and obligations to us and our limited partners under Delaware law and our partnership agreement.

ESRT’s fiduciary duties and obligations to us as general partner may come into conflict with the duties of ESRT’s directors and officers to ESRT, which may impede business decisions that could benefit our securityholders.

ESRT’s rights and the rights of ESRT’s securityholders to take action against ESRT’s directors and officers are limited, which could limit your recourse in the event of actions not in your best interest.

ESRT’s charter limits the liability of its present and former directors and officers to ESRT and its securityholders for money damages to the maximum extent permitted under Maryland law.

Under current Maryland law, ESRT’s present and former directors and officers will not have any liability to ESRT or its securityholders for money damages other than liability resulting from (1) actual receipt of an improper benefit or profit in money, property or services or (2) active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action.

Additionally, our partnership agreement provides for certain limitations on liability and indemnification obligations for us and our directors and officers and certain present and former members, managers, shareholders, directors, limited partners, general partners, officers or controlling persons of our predecessor.

As a result, we and our securityholders may have limited rights against all such persons, which could limit your recourse in the event of actions not in your best interest.

Limits on changes in control may discourage takeover attempts beneficial to securityholders.

Provisions in our partnership agreement and ESRT’s charter may delay or prevent a change of control over the company or ESRT, or a tender offer, even if such action might be beneficial to the our securityholders.

Certain provisions in our partnership agreement may delay or make more difficult unsolicited acquisitions of us or changes of control, including, among others:

redemption rights of qualifying parties;

transfer restrictions on operating partnership units;

ESRT’s ability, as general partner, in some cases, to amend the partnership agreement and to cause us to issue units with terms that could delay, defer or prevent a merger or other change of control without the consent of the limited partners;

the right of the limited partners to consent to transfers of the general partnership interest and mergers or other transactions involving us under specified circumstances;

and a redemption premium payable to the holders of our preferred units if we decide, at our option, to redeem preferred units for cash upon the occurrence of certain fundamental transactions, such as a change of control.

Certain provision’s in ESRT’s charter also may delay or prevent a change in control of ESRT, and by extension of us, including ownership restrictions, which generally limit (i) ownership to 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT capital stock or more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of ESRT common stock, except where waived by ESRT’s board in its sole discretion, as it did with QIA, and (ii) ownership to the extent such ownership would result in ESRT owning (directly or indirectly) an interest in one of our tenants if the income derived by us from such tenant would reasonably be expected to equal or exceed the lesser of 1% of our gross income or an amount that would cause us to fail to satisfy any of the REIT gross income tests.

Shares owned in violation of the ownership limit are subject to the loss of rights to distributions and voting and other penalties.

Additionally, ESRT’s board could establish a class or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control.

These limitations could have the effect of discouraging a takeover or other transaction in which our securityholders might receive a premium for their securities or which holders might believe to be otherwise in their best interests.

Risks Related to our Traded OP Units

Our cash available for distribution may not be sufficient to make distributions at expected levels, and the market price of our securities could be adversely affected by our level of cash distributions.

We intend to make distributions to our securityholders.

All dividends and distributions will be made at the discretion of our sole general partner, ESRT, acting through its board, and will depend on our earnings, financial condition, maintenance of ESRT’s REIT qualification and other factors as ESRT’s board may deem relevant from time to time.

If sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital or to borrow to provide

funds for such distribution, or to reduce the amount of such distribution.

We cannot assure you that our distributions will be made or sustained.

Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would adversely affect the market price of ESRT’s Class A common stock and our traded OP units.

The future exercise of registration rights may adversely affect the market price of our securities.

In August 2016, ESRT entered into a registration rights agreement with QIA in connection with its purchase of ESRT’s Class A common stock, which requires ESRT, subject to certain conditions, to maintain an effective shelf registration statement with the SEC providing for the resale of QIA’s shares.

The current registration statement filed on July 31, 2020 registers up to 29,894,869 shares.

If QIA decides to sell all or a substantial portion of its shares, or there is market perception that it may intend to do so, it could have a material adverse impact on the market price of our Class A common stock and our traded OP units.

Future issuances of debt or equity securities or preferred units may be dilutive to current securityholders and may materially adversely affect the market price of our securities.

In the future, we or ESRT may issue debt or equity securities or make other borrowings.

ESRT’s board, without stockholder approval, has the power under its charter to cause ESRT to issue additional shares of capital stock or debt securities, and we may also issue additional operating partnership units without the consent of our securityholders.

Upon liquidation, holders of our debt securities, preferred units and other loans and preferred shares will receive a distribution of our available assets before holders of shares of ESRT’s common stock.

We or ESRT are not required to offer any such additional debt or equity securities to existing ESRT securityholders or our securityholders, as applicable, on a preemptive basis.

Therefore, additional shares of ESRT common stock issuances, directly or through convertible or exchangeable securities (including operating partnership units), warrants or options, will dilute the holdings of ESRT’s existing common securityholders and such issuances or the perception of such issuances may reduce the market price of shares of ESRT’s common stock or our traded OP units.

Additionally, ESRT’s preferred units or shares, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could limit ESRT’s ability to make distributions to holders of shares of its common stock.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1A. Risk Factors