Why One Real Estate Fund Dumped Its $4 Million Stake in This Iconic NYC Office REIT

On November 14, New York City-based HGI Capital Management disclosed it fully exited its position in Empire State Realty Trust (NYSE:ESRT), selling 494,696 shares for an estimated $4 million during the third quarter.

What Happened

According to a filing with the Securities and Exchange Commission dated November 14, HGI Capital Management sold all 494,696 shares of Empire State Realty Trust (NYSE:ESRT) during the third quarter. The estimated value of the stake exited was $4 million based on average quarterly pricing. The fund’s reported assets under management totaled $36.4 million across 21 positions as of September 30.

What Else to Know

HGI Capital's Empire State Realty Trust position was previously 5.4% of AUM.

Top holdings after the filing:

• NASDAQ: EQIX: $2.4 million (6.6% of AUM)
• NYSE: CBRE: $2.3 million (6.3% of AUM)
• NYSE: FR: $2 million (5.6% of AUM)
• NYSE: DLR: $2 million (5.5% of AUM)
• NYSE: HD: $2 million (5.5% of AUM)

As of November 14, shares of Empire State Realty Trust were priced at $6.75, down approximately 38% over the past year and well underperforming the S&P 500, which is up 13% in the same period.

Company Overview

Company Snapshot

• Empire State Realty Trust owns, manages, and operates a diversified portfolio of office and retail properties, including the Empire State Building and other assets in Manhattan and the greater New York metropolitan area.
• The company generates revenue primarily through leasing office and retail space, with a business model focused on property acquisition, repositioning, and operational efficiency as a real estate investment trust (REIT).
• It caters to a broad range of commercial tenants, retailers, and businesses seeking premium office and retail locations in high-demand urban markets.

Empire State Realty Trust is a leading REIT specializing in office and retail properties within the New York metropolitan area, most notably the Empire State Building. The company leverages a large, diversified property portfolio and a focus on energy efficiency and indoor environmental quality to attract high-profile tenants. Its scale and strategic positioning in prime urban locations provide a competitive advantage in the commercial real estate sector.

Foolish Take

Even after years of weak performance, a full portfolio exit like this offers long-term investors a useful signal about how allocators might be thinking about urban office REITs today. Empire State Realty Trust has slowly rebuilt occupancy, boosted leasing spreads, and reaffirmed its 2025 outlook, but those improvements haven’t translated into sustained investor confidence — leaving funds to reassess exposure.

HGI Capital Management chose to eliminate its position in the third quarter, a move that fits a broader pattern of managers rotating capital away from slower-recovering property types into higher-growth areas. The sale removed what had been a 5.4% allocation in the prior quarter.

ESRT’s latest earnings show modest operational progress: Manhattan office occupancy improved to 90.3%, leasing spreads stayed positive for the 17th straight quarter, and the Empire State Building Observatory delivered $26.5 million in net operating income. However, core funds from operations slipped to $0.23 per share from $0.26 a year earlier, as rising operating expenses and taxes pressured results. Still, the company maintained about $800 million in liquidity and reaffirmed full-year guidance.

Ultimately, ESRT continues to grind forward operationally, but its recovery remains slower than what many funds are willing to wait for — especially with shares still down roughly 65% from 2016 highs.

Glossary

Assets under management (AUM): The total market value of investments managed on behalf of clients by a fund or firm.

13F: A quarterly report filed by institutional investment managers to disclose their equity holdings to the SEC.

Position: The amount of a particular security or asset held by an investor or fund.

Stake: The ownership interest or share held in a company by an investor or fund.

Liquidation activity: The process of selling off assets, often to reduce exposure or wind down a portfolio.

Dividend yield: A financial ratio showing how much a company pays in dividends each year relative to its share price.

REIT (real estate investment trust): A company that owns, operates, or finances income-producing real estate and distributes most profits as dividends.

Leasing: Renting property or assets to tenants for a specified period in exchange for regular payments.

Operational efficiency: The ability of a company to deliver products or services cost-effectively while maximizing profitability.

Repositioning (in real estate): Upgrading or modifying properties to attract new tenants or increase value.

TTM: The 12-month period ending with the most recent quarterly report.

Portfolio: A collection of financial investments, such as stocks, bonds, or real estate, held by an individual or institution.

Annie Dean, Chief Strategy Officer at CBRE, is a member of The Motley Fool’s board of directors. Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Digital Realty Trust, Equinix, and Home Depot. The Motley Fool recommends Empire State Realty Trust. The Motley Fool has a disclosure policy.