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Item 1A. Risk Factors

2024-02-28 compared with 2023-02-28 · 133 added, 135 removed, 372 unchanged (42% of the section changed)

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Risks Related to Our Business and Properties

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic had, and any future public health crisis could have, serious adverse effects on our and our tenants’ businesses, results of operations, cash flows and financial condition, and on local, national, and global economic activity.

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

Any future public health crisis could have, significant impacts on how people live, work, and travel in ways that have affected and may in the future affect our properties.

Recovery from pandemic travel impacts is not yet completed, our visitor volume at the Empire State Building Observatory has not yet fully returned, and we cannot predict when we may achieve visitor volume comparable to 2019 when approximately two-thirds of our visitors were international.

During 2020, 2021 and 2022, visitor volume was 0.5 million, 0.8 million and 2.2 million, respectively, compared to 3.5 million in 2019.

Additionally, observatory revenue for 2020, 2021 and 2022 was $29.1 million, $41.5 million and $106.0 million, respectively, compared to $128.8 million in 2019.

Our change in operations of the Empire State Building Observatory to focus on capacity controls to maximize the customer experience, require reservations to control overcrowding and staffing costs, and our increase of per visitor pricing may cause our 2022 and future observatory results to differ from previous observatory results.

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

• 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;

• changes in the number of domestic and international tourists to our markets;

• 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.

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 business, results of operations, cash flow and financial condition.

Our commercial 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.

Our commercial portfolio is comprised of properties primarily in New York City as well as in Stamford, Connecticut.

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 New York City 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.

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.

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.

The threat or occurrence of a terrorist event may cause people to relocate from New York City and Stamford, Connecticut 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 our cash flow.

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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, 2022, six of our properties together accounted for approximately 72.5% of our portfolio’s rental revenues, with the Empire State Building individually accounting for approximately 29.9%.

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.

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

For the year ended December 31, 2023, three of our properties together accounted for approximately 53.2% of our portfolio’s rental revenues, with the Empire State Building individually accounting for approximately 29.6%.

Our revenue and cash available for distribution would be materially and adversely affected if any of these three 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 ended December 31, 2021, 2022 and 2023, we derived revenue of approximately $41.5 million, $106.0 million and $129.4 million, respectively from the Empire State Building’s Observatory operations.

Loss of revenue from the observatory, as we have experienced in 2020 through 2022 as a result of the pandemic, has had and can in the future have a material adverse impact on our results of operations and financial condition.

Loss of revenue from the Observatory has in the past and may in the future have a material adverse impact on our results of operations and financial condition.

Our five largest tenants represented approximately 15.9% of our total commercial portfolio’s annualized rent as of December 31, 2023.

As of December 31, 2023, our five largest tenants together represented approximately 15.9% of our total commercial portfolio’s annualized rent, with our largest tenant leasing an aggregate of 0.5 million rentable square feet of office space at one of our office properties, representing approximately 5.4% of our total commercial portfolio rentable square feet and approximately 6.2% of our total commercial portfolio annualized rent.

Our significant tenants have in the past, and may in the future, experience financial strain leading to lease default or bankruptcy filing.

Our significant tenants have in the past, and may in the future, experience financial strain leading to lease default or bankruptcy.

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

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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 our office and multifamily apartment units.

A sustained shift away from in-person work environments to remote work could have an adverse effect on the overall demand for our office and multifamily apartment units.

Certain remote work practices implemented in reaction to the pandemic are still in place and have 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 properties we own.

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

If these trends continue, it 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, 2023, approximately 18.2% of our commercial portfolio’s annualized rent was comprised of retail tenants.

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 pandemic.

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.

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.

As we have experienced in the past 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 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.

The occurrence of a tenant bankruptcy or insolvency has in the past, and could in the future, diminish or terminate the income we receive from that tenant.

We may also be unable to re-lease a terminated or rejected space on favorable terms or at all.

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.

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

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.

The leasing of real estate in 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.

See Part I, ITEM 1, “Business – Competition” for more information.

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

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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.

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

As a result, and due to the increased competition from lessors in the greater New York City and its surrounding metropolitan area, we have made, and may have to make, significant capital or other expenditures in order to maintain the competitiveness of our properties and renew existing tenants and to attract new tenants.

As a result, and due to the increased competition from lessors in the greater New York City area, we have made, and may have to make, significant capital or other expenditures in order to maintain the competitiveness of our properties.

There can be no assurances that any such expenditure would result in higher occupancy, higher rental rates or deter existing tenants from relocating to properties owned by our competitors.

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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, 2022, we had approximately 1.1 million rentable square feet of vacant space (excluding leases signed but not yet commenced) in our office and retail properties.

In addition, leases representing 5.1% and 6.6% of the square footage of the office and retail properties in our commercial portfolio will expire in 2023 and 2024, respectively (including month-to-month leases).

As of December 31, 2023, we had approximately 0.9 million rentable square feet of vacant space in our office and retail properties.

In addition, leases representing 5.4% and 6.4% of the square footage of the office and retail properties in our commercial portfolio will expire in 2024 and 2025, respectively.

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

If the terms of the renewal or re-leasing are less favorable than current terms, or we fail to re-lease such spaces at all, our business, results of operations, cash flow and financial condition will be negatively affected.

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

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We have engaged, continue to engage, and may in the future engage in development activities with respect to our properties (including our Metro Tower potential development site).

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.

See Part I, ITEM 1, “Business – Overview” for more information.

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;

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Significant inflation could adversely affect our business and financial results.

Increased inflation could adversely affect us by increasing costs of properties, development and renovation.

Increased inflation has and may in the future adversely affect us by increasing costs of properties, development and renovation.

In a highly inflationary environment, we may be unable to raise rental rates at or above the rate of inflation, which could reduce our profit margins.

In addition, our cost of labor and materials could increase, which could have an adverse impact on our business, results of operations, cash flow or financial condition.

In addition, our cost of labor and materials has and may in the future further increase.

While increases in most operating expenses at our properties can be passed on to our office and retail tenants, the terms of some of our leases may limit our ability to charge our tenants for all or a portion of such increased expenses.

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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, among other factors.

For fiscal years ending December 31, 2020, 2021 and 2022, we derived revenues of approximately $29.1 million,

$41.5 million and $106.0 million from our observatory 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.

For fiscal years ended December 31, 2021, 2022 and 2023, we derived revenues of approximately $41.5 million, $106.0 million and $129.4 million from our Observatory operations.

Our revenues declined significantly in 2020, 2021 and 2022, compared to 2019, 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 our observatory revenues will return to pre-pandemic levels.

Any future health or other economic crises, geopolitical events (including global hostilities) or currency exchange rate fluctuations could negatively impact tourist trends and visitor demand for our observatory, which could have a material adverse effect on our business, results of operations, cash flow and financial condition.

Any future health or other economic crises, geopolitical events (including global hostilities) or currency exchange rate fluctuations could negatively impact tourist trends and visitor demand for our Observatory, which could have a material adverse effect on our business, results of operations, cash flow and

financial condition.

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

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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.

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, 2022, we derived

approximately $14.2 million of revenue (excluding tenant reimbursement income) from such broadcasting licenses and related leases, as compared with about $21 million at its peak.

We license the use of the Empire State Building broadcasting mast to third-party television and radio broadcasters.

During the year ended December 31, 2023, we derived approximately $14.7 million of revenue (excluding tenant reimbursement income) from such broadcasting licenses and related leases, as compared with about $21 million at its peak.

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.

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The impairment of a significant portion of goodwill could negatively affect our results of operations and financial condition.

Our balance sheet includes goodwill of approximately $491.5 million at December 31, 2022, consisting primarily of goodwill associated with our acquisition of the controlling interest in Empire State Building Company L.L.C.

Our balance sheet included goodwill of approximately $491.5 million at December 31, 2023, 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 COVID-19 and continued uncertainty around tourism caused us to perform such an assessment each quarter from the second quarter of 2020 through our annual goodwill testing in October 2022 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 results of operations and financial condition.

For example, during the pandemic, the closure of our Observatory caused us to perform such an assessment quarterly.

See “Financial Statements – Note 4 Deferred Costs, Acquired Lease Intangibles and Goodwill” in this Annual Report on Form 10-K for further information.

An impairment could have a material adverse effect on our results of operations and financial condition.

Risks Relating to Acquisitions and Dispositions

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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 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 maintenance and 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 our partnership interests, 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 maintenance and 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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From time to time we may dispose of properties in transactions that are intended to qualify as “like kind exchanges” under Section 1031 of the Code.

It is possible that the qualification of a transaction as a like-kind exchange could be successfully challenged and determined to be currently taxable.

It is possible that the qualification of a transaction as a like-kind exchange could be

successfully challenged and determined to be currently taxable.

In such case, our taxable income and earnings and profits would increase.

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Risks Relating to Our Indebtedness and Liquidity

We may be adversely affected by the discontinuation of London Interbank Offered Rate (LIBOR).

We are subject to interest rate risk under our revolving credit facility and term loans.

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 alternative reference rate.

We have amended our existing revolving credit facility and term loans such that they now bear interest at a rate based on SOFR.

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.

Any changes announced in how SOFR is determined may also result in a sudden or prolonged increase or decrease in reported interest rates.

If that were to occur, the levels of interest payments we incur and receive may change.

In addition, given the publication of SOFR began in April 2019, the future performance of SOFR cannot be predicted based on its limited historical performance.

Since the initial publication of SOFR, changes in SOFR have, on occasion, been more volatile than changes in other benchmark or market rates, which may make the amount of interest we pay on our revolving credit facility and related term loan difficult to predict.

In addition, it is possible that SOFR fails to gain widespread market acceptance, which could lead to illiquidity or volatility in interest rates based on SOFR.

Our debt, the cost of our debt and limitations in our loan documents could adversely affect us.

As of December 31, 2023, we had total debt outstanding of approximately $2.2 billion inclusive of total mortgages of approximately $877.4 million with no maturity before November 2024.

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

See “Financial Statements – Note 5 Debt” in this Annual Report on Form 10-K for further information.

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.

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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.

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.”

Our partnership agreement 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” for more information.

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

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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).

See “Financial Statements – Note 11 Related Party Transactions – Tax Protection Agreements.”

See “Financial Statements – Note 11 Related Party Transactions – Tax Protection Agreements” in this Annual Report on Form 10-K for more information.

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 comparable terms.

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

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.

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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.

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 our securityholders necessary to maintain our qualification as a REIT.

Risks Related to the COVID-19 Pandemic

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

Any future public health crisis could have significant impacts on how people live, work, and travel in ways that have affected and may in the future affect our properties.

During 2020, 2021, 2022 and 2023, visitor volume was 0.5 million, 0.8 million, 2.2 million and 2.6 million, respectively, compared to 3.5 million in 2019.

Our change in operations of the Empire State Building Observatory to focus on capacity controls to maximize the customer experience, require reservations to control overcrowding and staffing costs, and our increase of per visitor pricing may cause our future Observatory results to differ from previous Observatory results.

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

• downturn in national and/or local economies that 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;

• changes in the number of domestic and international tourists to our markets;

• 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.

Risks Relating to Disaster Recovery and Business Continuity

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Natural disasters and physical climate risk including earthquakes, storms, storm surges, tornados, floods, extreme temperatures, and hurricanes, could cause significant damage or limit access to our properties and the surrounding area.

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

Physical climate risk, including rising sea levels, storm surges, 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 and utilities at our properties.

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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.

Business interruption insurance generally does not include coverage for damages from a pandemic.

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.

See Part I, ITEM 1, “Business – Insurance” for further information.

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.

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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, 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).

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.

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.

For example, a portion of the Metro Tower site is currently used for automobile parking and was formerly leased to a fueling facility, and we have post-closing obligations related to our Westport properties sold in 2023 related to remediation of storage tank and soil contamination.

See Part I, ITEM 1, "Business - Environmental Matters" for further information.

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.

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

Noncompliance with these 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.

This may result in significant unanticipated expenditures.

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.

In addition, 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.

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

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

For example, environmental site assessments and investigations have identified asbestos or asbestos-containing material (“ACM”) in certain of our properties, and it is possible that other properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, ACM.

See “Financial Statements – Note 9 Commitments and Contingencies – Asset Retirement Obligations” in this Annual Report on Form 10-K for more information.

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.

Additionally, our properties may contain or develop harmful mold or suffer from other indoor air quality issue, such as inadequate ventilation and contamination, which could lead to liability for adverse health effects or property damage or costs for remediation.

Any liability or increased cost from the environmental risks mentioned in this section could materially and adversely affect our operations.

We acquire real estate from time to time, which carries the risk that a property we acquire may subject us to potential environmental liability as a result of the condition of the land or actions taken on the property before we acquired it.

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

In particular, as the owner of large commercial and multifamily 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 for full calendar year 2024, and imposes penalties for emissions above such limits.

yearly emissions reports beginning in May 2025 for full calendar year 2024, 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.

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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.

Malkin, our Chairman 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.

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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.

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.

Under his employment agreement, Mr.

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For example, in February 2023 we closed on the disposition of our retail assets located at 69-97 and 103-107 Main Street in Westport, Connecticut, to an entity affiliated with Mr.

See “Financial Statements –Note 11 Related Party Transactions” for further information.

See “Financial Statements – Note 11 Related Party Transactions” in this Annual Report on Form 10-K for further information.

We may choose to moderate or omit enforcement of our rights under his employment 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.

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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, ESG and Cybersecurity

Risks Relating to Legal Compliance, Sustainability 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.

The Office of Foreign Assets Control of the U.S.

and thereby restricts our doing business with such persons.

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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.

We may incur significant costs to comply 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.

We have incurred and could again in the future be required to incur costs to bring any non-compliant property into compliance and to make modifications to our properties upon any renovation, any of which could involve substantial costs and material adverse effect on our results of operations and financial condition.

See Part I, ITEM 1, “Business – Americans with Disabilities Act” for more information.

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

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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 9 Commitments and Contingencies.”

Increasing attention to ESG matters may impact our business.

Increasing attention to ESG matters, including those related to climate change and sustainability, and increasing societal, investor and legislative pressure on companies to address ESG matters may result in increased costs, greater litigation risks, negative impacts on our access to capital markets, and damage to our reputation.

See “Financial Statements – Note 9 Commitments and Contingencies” in this Annual Report on Form 10-K.

Increasing attention to sustainability matters may impact our business.

Increasing attention to sustainability matters, including those related to climate change, and increasing societal, investor and legislative pressure on companies to address sustainability matters may result in increased costs, greater litigation risks, negative impacts on our access to capital markets, and damage to our reputation.

For example, policy and other responses to climate change, such as climate and energy legislation and carbon mandates, enhanced environmental reporting requirements, increasingly stringent building and energy codes, as well as technology and market changes from the transition to a low-carbon economy has and may continue to impact our business and results of operations.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters, including climate change and transitional and physical climate-related risks.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to sustainability matters, including climate change and transitional and physical climate-related risks.

Such ratings are used by some investors to inform their investment and voting decisions.

Unfavorable ESG ratings may lead to negative investor sentiment toward us and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital.

We publicly announced our achievement of carbon neutrality in 2022 and our commitment to a 2030 net zero carbon emissions target for the Empire State Building and a 2035 net zero carbon emissions target for the balance of our office portfolio, defined as the goal of 80% operational emissions reduction in partnership with the grid.

Unfavorable sustainability ratings may lead to negative investor sentiment toward us and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital.

We publicly announced our achievement of carbon neutrality in 2022 and our commitment to a 2030 net zero carbon emissions target for the Empire State Building and a 2035 net zero carbon emissions target for the balance of our portfolio, defined as the goal of 80% operational emissions reduction in partnership with the grid.

We have implemented numerous comprehensive sustainability-focused initiatives focused on energy, emissions, water, and waste reduction along with indoor environmental quality, well-being, and healthy buildings.

These aspirations, targets and objectives reflect our current plans and aspirations and are not guarantees that we will be able to achieve them.

In addition, these efforts are impacted by our tenants’ willingness and ability to collaborate in reporting ESG metrics and meeting ESG goals.

In addition, these efforts are impacted by our tenants’ willingness and ability to collaborate in reporting sustainability metrics and meeting sustainability goals.

Our efforts to accomplish and accurately report on these goals and objectives present operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material negative impact on us, including on our reputation and stock price.

The standards for tracking, rating, and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve rapidly at a global scale.

The standards for tracking, rating, and reporting on sustainability matters are relatively new, have not been harmonized and continue to evolve rapidly at a global scale.

Our selection of disclosure frameworks that seek to align with various voluntary reporting standards may change from time to time and may result in a lack of comparative data from period to period.

In addition, our processes and controls may not always align with evolving voluntary standards for identifying, measuring, and reporting ESG metrics, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.

Our failure or perceived failure to pursue or fulfill our announced aspirations and targets or to satisfy various reporting standards within the timelines we announce, or at all, could have a negative impact on investor sentiment, ratings outcomes for evaluating our approach to ESG matters, stock price, and cost of capital and expose us to government enforcement actions and private litigation, among other possible material adverse impacts.

In addition, our processes and controls may not always align with evolving voluntary standards for identifying, measuring, and reporting sustainability metrics, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.

Our failure or perceived failure to pursue or fulfill our announced aspirations and targets or to satisfy various reporting standards within the timelines we announce, or at all, could have a negative impact on investor sentiment, ratings outcomes for evaluating our approach to sustainability matters, stock price, and cost of capital and expose us to government enforcement actions and private litigation, among other possible material adverse impacts.

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, making our business increasingly at risk from cyberattacks, which continue to increase in number, intensity and sophistication, including malware, ransomware, computer viruses, phishing, unauthorized access, and other vectors used by hackers, terrorists, foreign governments, and other actors.

Cyberattacks on our company have included and could in the future include internal and external attempts to gain unauthorized access to our data and computer systems to disrupt our operations or the operations of our tenants, destroy property, or steal confidential information.

We rely extensively on technology, both internal and outsourced, to process transactions and manage our business, making our business increasingly at risk from cyberattacks.

These threats, which continue to increase in number, intensity and sophistication, include malware, ransomware, computer viruses, phishing, unauthorized access, and other vectors used by hackers, terrorists, foreign governments, and other actors.

Cyber threats and attacks on our Company have included and could in the future include internal and external attempts to gain unauthorized access to our data and computer systems to disrupt our operations or the operations of our tenants and residents, destroy property, or steal confidential information.

There is no guarantee that our controls or measures to prevent or mitigate such attacks will be successful.

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

Such a security breach could require us to expend significant resources to remedy any damages that result.

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

Such a security breach could require us to expend significant resources to remediate any damage that result.

Additionally, such a breach may subject us to litigation, damages, penalties, fines, governmental investigations and enforcement actions or termination of leases.

These consequences could damage our reputation with tenants and investors, any of which could have a material adverse effect on our business.

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, which could result in negative legal consequences as well as significant damage to our financial condition, reputation, business, records, and confidence of our business partners in our business relationships.

These consequences could damage our reputation with tenants, residents, customers, and investors, any of which could have a material adverse effect on our business.

Any compromise of our security could also result in a violation of applicable privacy laws (e.g., Observatory customer data, Company employee data, or residential data at multifamily properties), which could result in negative legal consequences as well as significant damage to our financial condition, reputation, business, records, and confidence of our business partners in our business relationships.

New laws and regulations related to data privacy and security pose increasingly complex compliance challenges and costs across multiple jurisdictions, which could negatively impact our business, financial condition and results of operations.

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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.

As a condition of the initial receipt and potential extensions 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.

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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

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

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.

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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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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”).

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.

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.

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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.

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.

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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 11 Related Party Transactions – Excluded Properties and Businesses.”.

See “Financial Statements – Note 11 Related Party Transactions – Excluded Properties and Businesses” in this Annual Report on Form 10-K for further information.

If we were to trigger such tax indemnification obligations, we would be required to pay the resulting tax liability to the Malkin Group, the additional third-party investor in Metro Center and/or QIA, as applicable.

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

As of December 31, 2022, ESRT’s Chairman, President and Chief Executive Officer, Anthony E.

As of December 31 , 2023, ESRT’s Chairman 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 19.3% of the voting power of ESRT’s outstanding common stock.

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The interests of Mr.

our ability to take certain actions that may otherwise be in the best interests of our securityholders.

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.

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 and Chief Executive Officer, Anthony E.

Malkin, and our Chairman Emeritus, Peter L.

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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, or to structure such transactions in ways that would mitigate the above tax consequences to Messrs.

Malkin may influence their decisions affecting these

properties and may cause such 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, or to structure such transactions in ways that would mitigate the above tax consequences to Messrs.

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

Refer to “Financial Statements – Note 11 Related Party Transactions – Excluded Properties and Businesses” in this Annual Report on Form 10-K 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 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.

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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.

Changes in market conditions could adversely affect the market price of our Class A Common Stock and traded OP Units.

As with other publicly traded equity securities, the value of our Class A Common Stock and traded OP units depends on various market conditions, which may change from time to time.

In addition to the current economic environment and future volatility in the securities and credit markets, the following market conditions may affect the value of our Class A Common Stock and traded OP units:

Changes in market conditions could adversely affect the market price of ESRT's Class A Common Stock and our traded OP Units.

As with other publicly traded equity securities, the value of ESRT's Class A Common Stock and our traded OP units depends on various market conditions, which may change from time to time.

In addition to the current economic environment and future volatility in the securities and credit markets, the following market conditions may affect the value of ESRT's Class A Common Stock and our traded OP units:

• the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;

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The current registration statement filed on July 31, 2023, 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.

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 traded securities.

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

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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.

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.

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

As of December 31, 2022, we did not have any unresolved comments from the staff of the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors