What changed in this filing

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Item 1A. Risk Factors

2022-02-25 compared with 2021-02-26 · 128 added, 118 removed, 348 unchanged (41% of the section changed)

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 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.

You should carefully consider the following risks, together with all other information in this Annual Report on Form 10-K, before you decide to retain or make an investment in our securities.

These are not the only risks we face.

Additional risks currently unknown or deemed immaterial could have a material adverse effect on us and our REIT qualification, which could reduce our share price and cause loss of all or part of your investment.

Some items below are forward-looking statements.

See “Forward-Looking Statements.”

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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.

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

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.

Additionally, measures taken by our tenants to limit COVID’s impact, including internal policies on work from home, social distancing, and delays in return to office dates have impacted office building utilization levels.

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.

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, and during such closure substantially all observatory revenue was discontinued.

Since then, due to continued travel restrictions, especially for international travel, visitor volume has lagged our historical results and we cannot predict when we may achieve visitor volume comparable to 2019 when approximately two-thirds of our visitors were international.

During 2020 and 2021, visitor volume was 0.5 million and 0.8 million, respectively, compared to 3.5 million in 2019.

Additionally, observatory revenue for 2020 and 2021 was $29.1 million and $41.5 million respectively, compared to $128.8 million in 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.

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 their remote work sometimes strains efficiencies and management oversight, cybersecurity, and morale;

• downturn in national and/or local economies decreases prospects, demand, occupancy and rental rates for our office, multifamily and retail space, all with an adverse impact on the value or price of our assets;

• delays, cost increases and/or cancellations of planned capital projects;

• potential impairment of our ability to comply with existing debt agreements, to pay down, refinance, or extend maturing debt, , and to incur new debt;

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

• reduction of our cash flows and our ability to pay dividends, with potential impairment of REIT qualification, and business continuity.

While the U.S.

economy has shown signs of improvement compared to 2020 and the use of vaccines has alleviated some COVID-19 restrictions, the persistence of the pandemic and spread of new virus strains reinforces the risks described herein.

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.

Our portfolio is comprised of properties primarily in Manhattan as well as 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, retail and multifamily space in 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.

Additionally, our concentration in dense urban communities where social distancing is more difficult may cause us to experience longer periods of economic disruption from COVID-19.

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.

The threat or occurrence of a terrorist event may cause people to relocate from Manhattan and the greater New York metropolitan area to less populated, lower-profile areas.

This could trigger a decrease in the demand, occupancy and rental rates for, and materially affect the value of, our properties and their 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.

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

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, 2021, six of our properties together accounted for approximately 75.5% of our portfolio’s rental revenues, with the Empire State Building individually accounting for approximately 31.7%.

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.

Our revenue and cash available for distribution would be materially and adversely affected if any of these six properties were materially damaged or a significant number of their tenants experienced financial strain leading to lease default or bankruptcy filing.

Additionally, for fiscal years ending December 31, 2019, 2020 and 2021, we derived approximately $128.8 million, $29.1 million and $41.5 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.

Loss of revenue from the observatory, as we have experienced in 2020 through 2021 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 13.2% of our total portfolio’s annualized rent as of December 31, 2021.

As of December 31, 2021, our five largest tenants together represented 13.2% 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 4.1% of our total portfolio rentable square feet and approximately 5.1% 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.

Our significant tenants may experience financial strain leading to lease default or bankruptcy filing, as we experienced in July 2021 with the bankruptcy of one of our then largest tenants.

See Leasing section of ITEM 7.

Management's Discussion and Analysis for more information.

In such cases, we may not recover our upfront investments in tenant improvement allowances, concessions, and transaction costs like professional fees and commissions.

Upon tenant default, we may experience delays and substantial costs in enforcing our rights and 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, become insolvent, default under their leases, and/or fail to renew on favorable terms or at all.

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.

Limitations on in-person work environments caused by the COVID-19 pandemic have temporarily shifted employers and employees away from fully in-person work environments, and a more permanent shift of this type could have an adverse effect on the overall demand for our office space.

Additionally, with increased employer flexibility to work from home, current and prospective residents may be less likely to live in dense urban centers or multifamily housing like the Company owns.

These trends and the related effects may continue after the COVID-19 pandemic, which could impair demand and value at our properties.

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, 2021, approximately 17.1% 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.

In recent years, the retail industry has faced reductions in sales revenues and increase in bankruptcies throughout the United States, due to a consumer shift to online shopping, all exacerbated by the COVID-19 pandemic.

This has reduced demand for physical retail space especially at street level, which typically commanded the highest rental rates per square foot in office properties.

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.

As we experienced in July 2021 with the bankruptcy of one of our largest tenants at the time, 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 timely eviction and/or authorize the tenant to terminate its lease(s), with statutory limitations on our recovery of rent due for the remaining lease term.

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.

Smaller businesses generally experience a higher rate of failure than large businesses, and their insolvency could have a material adverse effect on our operations, cash flow and financial condition.

Competition may impede our ability to attract or retain tenants or re-lease space.

The leasing of real estate in the greater New York City and its surrounding metropolitan area is highly competitive in rental rates, location, services and property condition.

We have seen increased competition from lessors in offering concessions, short term, amenities, indoor environmental quality and sustainability certifications.

Increased competition challenges our ability to lease space and maximize our effective rents.

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).

As of December 31, 2021, we had approximately 1.4 million rentable square feet of vacant space (excluding leases signed but not yet commenced) in our office and retail properties.

In addition, leases representing 5.7% and 6.3% of the square footage of the office and retail properties in our portfolio will expire in 2022 and 2023, respectively (including month-to-month leases).

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.

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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.

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 operations, cash flow and financial condition.

Additionally, our multifamily properties face competition for residents as a result of technology innovation.

If we are unable to match the competition for lack of capital or other reasons, we may fail to attract new tenants or to renew existing tenants.

The short-term nature of multifamily leases exposes us more quickly to the effects of declining market rents, potentially making our revenue more volatile.

Generally, our multifamily leases are for twelve months or less.

If the terms of the renewal or reletting are less favorable than current terms, our results of operations and financial condition will be negatively affected.

Given their short-term lease structure, our multifamily rental revenues are more sensitive to market declines.

Risks Relating to Our Properties

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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.

If we are found to be in breach of any of these ground leases, the fee owner may terminate such lease, 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 on the current terms, we will lose our right to operate these properties, or continue to operate them at 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.

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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 will fail to recover expenses and management time already incurred if we abandon any then pending 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.

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

Additionally, inflation has impacted and will continue to impact property operating expenses and construction costs.

We are exposed to risks from third party property management services .

While we perform property management services for the majority of our properties, we use a third party property management company to service certain of our multifamily properties.

If such third party property management company does not perform in accordance with our contractual agreements and desired standards, we could be exposed to additional risks, such as costs and reputational harm.

Risks Related to Our Non-Real Estate Operations

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For fiscal years ending December 31, 2019, 2020 and 2021, we derived approximately $128.8 million, $29.1 million and $41.5 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.

Our revenues declined significantly in 2020 and 2021, 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.

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.

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

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.

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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.

The closure of our observatory due to the pandemic and continued uncertainty around tourism amid COVID caused us to perform such an assessment each quarter since the second quarter of 2020 using a third-party valuation consulting firm.

Though we determined no impairment has been necessary, we will continue such assessments when appropriate.

See “Financial Statements – Note 4 – Deferred Costs, Acquired Lease Intangibles and Goodwill.” An impairment could have a material adverse effect on our reported earnings.

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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.

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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.

In the future we may acquire properties through tax deferred contribution transactions in exchange for partnership interests in our operating partnership, 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.

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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

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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.

While we do not expect the discontinuation of USD LIBOR and related transition to affect our ability to borrow or maintain already outstanding borrowings, it could result in higher interest rates and/or payments under our debt agreements.

Additionally, the phase-out of USD LIBOR and transition to SOFR may result in disruption to financial markets , which 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.

As of December 31, 2021, we had total debt outstanding of approximately $2.3 billion and total mortgages of approximately $968.8 million with no maturity before November 2024.

See “Financial Statements – Note 5 – Debt” for required payments of our indebtedness.

Our organizational documents do not 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.

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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.

The partnership agreement of our operating partnership may restrict our 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.”

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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.

This may result in reduced cash flows and hinder our ability to make distributions, and to raise more capital by issuing more stock 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.

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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.

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 our securityholders necessary to maintain our qualification as a REIT.

Risks Relating to Disaster Recovery and Business Continuity

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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.

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

These conditions could result in declining demand for our commercial and multifamily properties, 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.

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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.

Additionally, we have restrictions imposed on site work done at our 500 Mamaroneck property required by the New York State Department of Environmental Control.

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).

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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.”

We may incur significant costs to comply with environmental laws, in particular New York City’s Local Law 97.

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

In particular, as the owner of large commercial buildings in New York City, we are subject to Local Law 97 passed by the New York City Council in April 2019, which for each such building establishes annual limits for greenhouse gas emissions, requires yearly emissions reports beginning in May 2025, and imposes penalties for emissions above such limits.

While we are actively working to reduce our carbon emissions, there can be no assurance that we will be able to operate within the limits of Local Law 97, or that the costs of compliance and/or penalties will not be material.

Based upon our present understanding of the law and calculations related thereto, we expect to pay no fine on any building in our portfolio in the 2024-2030 first period of enforcement.

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.

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

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

Malkin, our 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.

Other members of our 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 our senior management team could materially and adversely affect us.

Our 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.

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

In the past we have been, and in the future we 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 generally intend to defend ourselves vigorously;

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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.

These have included and could in the future 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.

Any compromise of our security could also result in a violation of applicable privacy (e.g., observatory customer data, company employee data, or residential data at multifamily properties) and other laws, with significant damage to our legal and financial condition, our reputation, our business, our records, and confidence of our business relationships.

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

The adoption of, or changes, in rent control or rent stabilization regulations and eviction regulations in our markets could have an adverse effect on our operations and property values.

A growing number of state and local governments have enacted and may continue to consider enacting and/or expanding rent control or rent stabilization regulations, which have limited and could continue to limit in broadening ways our ability to raise rents or charge certain fees, either of which could have a retroactive effect.

We continue to see increases in governments considering or being urged by advocacy groups to consider rent forgiveness, rent control or rent stabilization regulations or expand coverage of existing regulations in our markets.

These regulations may also make changes to and/or expand eviction and other tenants’ rights regulations that may limit our ability to enforce residents’ or tenants’ contractual rental obligations (such as eviction moratoriums), pursue collections or charge certain fees, which could have an adverse impact on our operations and property values.

Government housing regulations may limit opportunities at the multifamily properties in which we invest, and failure to comply with resident qualification requirements may result in financial penalties or loss of benefits.

We own, and may acquire additional equity interests in properties that benefit from governmental programs intended to provide housing to individuals with low or moderate incomes.

These governmental programs typically provide mortgage insurance, favorable financing terms, tax credits or rental assistance payments to property owners.

As a condition of the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts and impose restrictions on resident incomes.

Failure to comply with these requirements and restrictions may result in financial penalties or loss of benefits.

In addition, we will typically need to obtain the approval of the applicable government agency in order to acquire or dispose of a significant interest in or manage such property.

We may not always receive such approval.

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

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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 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 are treated as a publicly traded partnership under the Code and accordingly will be treated and taxed as such a corporation for U.S.

federal income tax purposes unless we meet certain requirements, in particular, that at least 90% of our gross income 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.

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federal income tax.

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 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.

It is possible that the 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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These limitations may, among other things, prevent a holder from utilizing allocations of loss and deduction from us against income from other sources.

The passive activity loss rules are applied separately with respect to items of income and loss of each publicly traded partnership held by a holder.

The passive activity loss rules are applied separately with respect to items of income and loss of each partnership held by a holder.

Furthermore, your ability to utilize certain specific items of deduction may be limited under certain provisions of the Code.

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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.

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

Any such reductions in the 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.

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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.

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.

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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.

To treat income from our observatory and broadcast facilities as qualified REIT income, 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”).

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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.

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.

In addition, 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.

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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.

case, against certain tax liabilities that may arise from certain property transactions.

See “Financial Statements – Note 11 – Related Party Transactions – Excluded Properties and Businesses.”.

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As of December 31, 2021, QIA had a 10.63% fully diluted interest in ESRT, which represented 17.67% 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.

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 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.

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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.

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.

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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.

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 11 – Related Party Transactions – Excluded Properties and Businesses” for more information.

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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.

For example, a potential acquisition or disposition opportunity could be opportunistic to the REIT while tax disadvantageous to certain OP holders.

ESRT’s directors and officers have duties to ESRT and its shareholders 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.

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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:

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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.

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.

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What changed 10-K

Item 1A. Risk Factors