Empire State Realty Trust (NYSE:ESRT) is far from a household name, but there's a lot to like about this office real estate company. In this Fool Live video clip, recorded on Oct. 18, Fool.com contributor Matt Frankel discusses why Empire State is the largest stock position in his entire portfolio, and why he's so optimistic about the company's future. 

Matt Frankel: This is a company called Empire State Realty Trust. It's my largest stock by a significant margin. This is the number one in my portfolio right now. I consider this half-and-half. I wanted it to be a big position, not necessarily my biggest, but then when COVID hit and the stock dropped 70% last March, I loaded up on it and it's rebounded since then and now here we are.

Empire State Realty Trust, obviously from the name, it is a real estate investment trust. This is the company that owns the Empire State building, as well as a bunch of other office real estate in New York. The reason I really doubled down on this during the COVID pandemic, you can't tell me that any office property has more staying power than the Empire State Building. Companies want their offices there. If 50% of the companies in America decided their employees were going to work remotely, the other 50% would still be leasing office space at the Empire State Building. It's just a powerful brand, it's an iconic property.

They own eight other office properties in Manhattan, they own three in the Connecticut area near Manhattan, and two more in suburban New York. About 10 million square feet of space altogether, they're mostly office. About 90% of the space is office, the rest is retail; any inner city high-rise, the ground level is always retail usually. They've actually had surprising results during COVID when it comes to leasing. Starbucks (NASDAQ:SBUX) just leased half of the first two floors of the Empire State Building to open one of their Roastery locations. I don't know if you've even gone to one of those high-end Roasteries, but there's one coming to the Empire State Building soon, which is cool. A lot of liquidity.

They have done the best job of any office space real estate investment trust I've ever heard of in terms of managing the balance sheet. They have a debt to enterprise value ratio of about 30%. This would be like if you had a mortgage and the mortgage balance was 30% of your house value. It's a very low leverage ratio for a real estate company. They have $1.4 billion in liquidity for a small-cap company, meaning that they have the power to attack the office market in New York while it's depressed right now. They haven't made any acquisitions recently. Recently hired a chief investment officer for the first time, so it looks like that's coming.

Probably the main reason I like this as opposed to other real estate companies, because they're not the only one that owns inner city office space, is the observatory on top of the Empire State Building is theirs. That is their tourist attraction, they make the money from that. In normal times, it represents about 25% of their total revenue from about 3% of their square footage and its high-margin revenue. What could be a higher-margin business than charging admission to a building you already own? That's a pretty high gross margin business.

I just want to briefly share this one slide to show you what happened to the observatory over the past year-and-a-half right there. You can see how impressive the climb in revenue has been from 2001-2019, and then as soon as COVID hit, it went from $129 million in revenue in 2019 to $29 in 2020. That's a huge drop off in revenue. They're not expecting that to fully normalize till the end of 2022. International travels just now starting to happen again. That's a big part of the observatory traffic.

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