Empire State Realty OP Series ES (ESBA) Risk Analysis
Risk Overview Q2, 2026
Source: the company's latest filing for the period ended Jun 30, 2026, filed Aug 06, 2026
Risk Change Over Time
- Regulation - Risk 1The adoption of or changes in rent control or rent stabilization regulations regulation, tenant protection and eviction regulations laws in our markets New York could have an adverse effect on adversely affect our residential operations and property values.
New York, where our properties are located, has enacted and may further enact, interpret or expand laws and regulations affecting residential landlords, including rent stabilization laws and the "Good Cause Eviction" law. These laws restrict, and may further restrict, the ability to increase rents, decline lease renewals, enforce contractual obligations, recover possession of units, pursue collections or charge certain fees. Although residential properties represent a small portion of our portfolio, our residential assets include rent-stabilized units and market-rate units that may be subject to Good Cause Eviction, which may limit rent increases and tenant enforcement remedies. Changes in the regulatory environment, including actions by the New York City Rent Guidelines Board, amendments to statutory thresholds or expanded enforcement efforts, could increase operating costs, constrain rent growth and adversely affect our results of operations and property values.
- Regulation - Risk 2Our properties are geographically concentrated in New York and Connecticut, York, and adverse state or local economic or regulatory developments could have a material adverse effect on our business and financial condition.
Our commercial portfolio is comprised of properties in New York City. 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.
- Taxation & Government Incentives - Risk 3To enable ESRT to comply with REIT requirements, we may have to forego and/or liquidate otherwise attractive investments or borrow funds and we may be subject to tax.
To qualify as a REIT (and avoid certain taxes to which it would be subject notwithstanding its status as a REIT), ESRT must meet, on an ongoing basis, certain tests regarding the nature and diversification of its assets and its income. Because substantially all of ESRT's assets consists of our OP units, and substantially all of ESRT's income consists of income allocations with respect to such units, ESRT's ability to satisfy these tests will depend on the composition of our assets and income. Similarly, in order to be treated as a partnership for U.S. federal income tax purposes, we must meet certain annual tests relating to the sources of our gross income. In order to meet these tests and to allow ESRT to meet these tests, we may be required to forego investments that we otherwise would make or liquidate otherwise attractive investments. ESRT intends to distribute its taxable net income to its securityholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax. Refer to Part I, ITEM 1, "Business - ESRT's Tax Status as a REIT" for more information. 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 section. As a result, we may be required to make distributions to ESRT at disadvantageous times or when we do not have funds readily available for distribution. These actions could have the effect of reducing our income and amounts available for distribution to our securityholders. In addition, our taxable income may exceed our net income as determined by GAAP because, for example, realized capital losses will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income. In addition, we may incur nondeductible capital expenditures or be required to make debt or amortization payments, or the effect of limitations on interest (subject to an exception for an electing real property trade or business) and net operating loss deductibility under the current law, could cause our taxable income to exceed our net income as determined by GAAP. As a result, we may generate less cash flow than taxable income in a particular year and be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable in order to allow ESRT to satisfy such REIT requirements and avoid such taxes.
- Environmental / Social - Risk 4Increasing Stakeholder attention to sustainability matters may impact our business.
Investors, regulators, and other stakeholders are increasingly focused on environmental, climate, and other sustainability matters. We are subject to evolving laws, regulations, and building standards, including New York City's Local Law 97, that may require additional capital expenditures, operational changes, or reporting obligations. Compliance costs, including costs associated with emissions reduction initiatives or energy efficiency improvements, may increase over time. We have publicly disclosed certain sustainability goals and performance metrics. These goals are based on current assumptions regarding building performance, tenant energy usage, and utility grid emissions factors, and there can be no assurance that we will achieve them. Changes in regulatory requirements, enforcement interpretations, tenant behavior, energy consumption patterns, grid decarbonization timelines, or the availability of capital may affect our ability to meet our targets or operate within applicable emissions limits. Sustainability-related disclosure standards and expectations continue to evolve and may differ across jurisdictions and stakeholders. Our selection and application of disclosure frameworks involve judgment, and future changes in standards or interpretation could require revisions to previously disclosed information. Failure, or perceived failure, to comply with applicable laws or to achieve our stated sustainability objectives could result in reputational harm, increased regulatory scrutiny, or litigation, and could adversely affect our stock price or cost of capital.
Risk Highlights Q2, 2026
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 61
- Regulation - Risk 1Failure of ESRT to qualify as a REIT would have a material adverse effect on us.
We must rely on ESRT, as our general partner, to manage our affairs and business. ESRT is subject to risks that may affect its financial and other conditions, including particularly adverse consequences if it fails to qualify as a REIT for U.S. federal income tax purposes. ESRT's qualification as a REIT is governed by highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations and depends on various facts and circumstances that are not entirely within its control. In addition, legislation, new regulations, administrative interpretations or court decisions may significantly change the relevant tax laws and/or the U.S. federal income tax consequences of qualifying as a REIT. Thus, while we and ESRT intend to operate so that ESRT will qualify as a REIT, there can be no assurance that ESRT will so qualify for any particular year. These considerations also might restrict the types of assets that we can acquire in the future. If, with respect to any taxable year, ESRT fails to maintain its qualification as a REIT and does not qualify under statutory relief provisions, it could not deduct distributions to shareholders in computing its taxable income and would have to pay U.S. federal income tax on its taxable income at regular corporate rates and thus reduce funds available for distribution and debt service, and ESRT would not be required to make distributions until it re-qualified as a REIT which would not be permitted for the four taxable years following the taxable year of its disqualification, unless it gained relief under relevant statutory provisions.
- Regulation - Risk 2The adoption of or changes in rent regulation, tenant protection and eviction laws in New York could adversely affect our residential operations and property values.
New York, where our properties are located, has enacted and may further enact, interpret or expand laws and regulations affecting residential landlords, including rent stabilization laws and the "Good Cause Eviction" law. These laws restrict, and may further restrict, the ability to increase rents, decline lease renewals, enforce contractual obligations, recover possession of units, pursue collections or charge certain fees. Although residential properties represent a small portion of our portfolio, our residential assets include rent-stabilized units and market-rate units that may be subject to Good Cause Eviction, which may limit rent increases and tenant enforcement remedies. Changes in the regulatory environment, including actions by the New York City Rent Guidelines Board, amendments to statutory thresholds or expanded enforcement efforts, could increase operating costs, constrain rent growth and adversely affect our results of operations and property values.
- Regulation - Risk 3Government housing regulations may limit opportunities at the multifamily properties in which we invest, and failure to comply with resident qualification requirements or to extend such programs upon expiration 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 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. 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. Upon expiration of such programs, we may choose not to seek an extension, which will result in loss of benefits and could result in negative financial impact, in particular if we cannot raise rents for such units due to other regulations related to rent control and eviction, among others.
- Regulation - Risk 4Our properties are geographically concentrated in New York, and adverse state or local economic or regulatory developments could have a material adverse effect on our business and financial condition.
Our commercial portfolio is comprised of properties in New York City. 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.
- Regulation - Risk 5We face risks associated with our tenants being designated "Prohibited Persons" by OFAC and similar requirements.
The Office of Foreign Assets Control of the U.S. 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.S. and thereby restricts our doing business with such persons. In addition, our leases, loans and other agreements may require us to comply with OFAC and related requirements, and any failure to do so may result in a breach of such agreements. If a tenant or other party with whom we conduct business is designated a Prohibited Person, we may be required to terminate the arrangement or face penalties. Any such termination could result in a loss of revenue or otherwise negatively affect our business.
- Regulation - Risk 6We 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.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
