PROSPECTUS
12,242,719 Shares
WELLSFORD REAL PROPERTIES, INC.
Common Stock
This Prospectus relates to the registration of 12,242,719 shares (the
"Shares") of Common Stock, $.01 par value per share (the "Common Stock"),
of Wellsford Real Properties, Inc. (the "Company"). The Shares were issued
by the Company in private placements. All of the Shares offered hereby are
being registered for resale by the holders thereof and their beneficiaries,
pledgees, transferees, successors-in-interest and assignees (collectively,
the "Selling Shareholders"). See "Selling Shareholders." The Company will
not receive any of the proceeds from the sale of the Shares.
The Shares are listed on the American Stock Exchange (the "ASE") under
the symbol "WRP." On June 25, 1998, the last reported sale price of the
Company's Common Stock on the ASE was $13.19 per share.
Any sale by a Selling Shareholder will be made through customary
brokerage channels or private sales and may be made on the ASE, in the
over-the-counter market or otherwise at prices to be determined at the time
of such sales. See "Plan of Distribution."
No underwriter is being used in connection with the registration of
the Shares and, accordingly, the Shares are being offered without any
underwriting discounts. Normal brokerage commissions, discounts and fees
are payable by the Selling Shareholders.
For a discussion of certain matters which should be considered by
prospective investors, see "Risk Factors" beginning on page 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION")
OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 29, 1998
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "The Company," "Risk Factors"
and elsewhere in this Prospectus constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following, which are discussed in greater detail
under "Risk Factors" herein: general economic and business conditions,
which will, among other things, affect demand for commercial and
residential properties, availability and credit worthiness of prospective
tenants, lease rents and the availability of financing; difficulty of
locating suitable investments; competition; risks of real estate
acquisition, development, construction and renovation; vacancies at
existing commercial properties; dependence on rental income from real
property; adverse consequences of debt financing; risks of investments in
debt instruments, including possible payment defaults and reductions in the
value of collateral; risks associated with equity investments in and with
third parties, such as the investment in Wellsford/Whitehall Properties,
L.L.C., a joint venture with an affiliate of Goldman, Sachs & Co.;
illiquidity of real estate investments; lack of prior operating history;
and other changes and factors referenced in this Prospectus.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at its
offices at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained by mail from
the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Additionally, the Commission maintains a Web site containing reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. The address of the Commission's
Web site is: http://www.sec.gov. In addition, the Company's Common Stock
is listed on the ASE and reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the ASE, 86
Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated
thereunder, with respect to the Shares offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, as permitted by the rules and regulations
of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document which is filed as an exhibit to
the Registration Statement are not necessarily complete, and each statement
is qualified in its entirety by reference to the full text of such contract
or document. For further information with respect to the Company and the
Shares offered hereby, reference is made to the Registration Statement,
including the exhibits thereto and the financial statements, notes and
schedules filed as a part thereof, which may be inspected and copied at the
public reference facilities of the Commission referred to above.
The Company furnishes stockholders with annual reports containing
audited financial statements. The Company also furnishes its common
stockholders with proxy material for its annual meetings complying with the
proxy requirements of the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents which have been filed by the Company with the
Commission are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. The Company's 1998 Proxy Statement for Annual Meeting of
Stockholders dated April 29, 1998.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
4. The Company's Current Report on Form 8-K dated January 7, 1998 and
filed with the Commission on January 8, 1998.
5. The Company's Current Report on Form 8-K dated January 15, 1998 and
filed with the Commission on January 15, 1998.
6. The Company's Current Report on Form 8-K dated March 3, 1998 and
filed with the Commission on March 4, 1998.
7. The Company's Current Reports on Form 8-K and Form 8-K/A Amendment
No.1 each dated April 28, 1998 and filed with the Commission on April 28,
1998 and May 13, 1998, respectively.
8. The Company's Current Report on Form 8-K/A Amendment No.2 dated
May 15, 1998 and filed with the Commission on May 28, 1998.
9. The combined statement of revenues and certain expenses of the
Whitehall Properties, the statement of revenues and certain expenses of
Mountain Heights Office Center, the statement of revenues and certain
expenses of Sonterra at Williams Centre, the consolidated financial
statements of Value Property Trust ("VLP"), the combined statement of
revenues and certain expenses of The Abbey Companies, Inc. and its
affiliates ("The Abbey Companies") and the combined statement of revenue
and certain expenses of the DFW Trade Center I, L.P., Buildings 1, 2 and 3,
each contained in the Company's registration statement on Form S-4
(Registration No. 333-42277), and all amendments thereto.
10. The Quarterly Report on Form 10-Q for the quarter ended December
31, 1997 of VLP.
11. The description of the Common Stock contained in the Company's
registration statement on Form 10 (Registration No. 001-12917) pursuant to
Section 12 of the Exchange Act and all amendments and reports filed for the
purpose of updating that description.
12. All other reports filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since December 31, 1997.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior
to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold or which deregisters all
securities then remaining unsold, shall be deemed to be incorporated by
reference in and to be a part of this Prospectus from the date of filing of
such reports and documents.
Any statement contained herein or in a document which is incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement in any
subsequently filed document that is also deemed to be incorporated by
reference herein modifies or supersedes such prior statement. Any
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all documents incorporated by reference in this Prospectus
(not including exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information). Such requests
should be directed to Wellsford Real Properties, Inc., Attention: Kim Ezzy,
610 Fifth Avenue, New York, New York 10020 (telephone (212) 333-2300).
THE COMPANY
Unless the context indicates otherwise, all references to the Company
shall include the Company's subsidiaries and affiliated entities.
General
Wellsford Real Properties, Inc. was formed on January 8, 1997, as a
corporate subsidiary of Wellsford Residential Property Trust ("Wellsford
Residential"), a Maryland real estate investment trust. The Company began
to operate independently on May 30, 1997, following consummation of a
series of transactions, including the contribution by Wellsford Residential
of certain of its assets to the Company, the distribution to the holders of
common shares of beneficial interest of Wellsford Residential of all of the
shares of Common Stock of the Company owned by Wellsford Residential and
the subsequent merger of Equity Residential Properties Trust, a Maryland
real estate investment trust, into Wellsford Residential.
The Company is a real estate merchant banking firm which acquires,
develops and operates real properties and invests in the debt and equity
securities of private and public real estate companies. Management is
concentrating its efforts on defining and building focused operating
businesses with recurring sources of income. The Company intends to
maximize shareholder value over time through growth in cash flow and net
asset value per share.
The Company has established three strategic business units ("SBUs")
within which it intends to execute its business plan: an SBU for commercial
property operations which is held in its 99.9% subsidiary, Wellsford
Commercial Properties Trust ("WCPT"), an SBU for debt and equity activities
and an SBU for property development and land operations.
The Company currently does not intend to qualify as a REIT under the
Code. Consequently, the Company has the flexibility to respond quickly to
opportunities without the structural limitations inherent in REITs and to
operate, when deemed advantageous by management, on a more highly leveraged
basis than most REITs. The Company does intend to elect REIT status for
certain of its subsidiaries or affiliates when management deems it
beneficial to the Company's shareholders. By not qualifying as a REIT
under the Code (which would require the Company to distribute each year at
least 95% of its net taxable income, excluding capital gains), the Company
has the ability and currently intends to retain for reinvestment its cash
flow generated from operations and to sell properties without the
substantial income tax penalties which may be imposed on REITs in such
transactions. In addition, the Company differs from opportunity funds that
are typically structured as private partnerships. In that regard, the
business of the Company is conducted without the payment of acquisition,
disposition or advisory fees to general partners which should result in
additional cash flow being available for reinvestment as well as mitigate
the potential for conflicts of interest. In addition, unlike investors in
opportunity funds, the Company's shareholders are expected to have enhanced
liquidity through their ability to sell or margin their stock. The Company
also hopes to attract a broader range of investors because there is no
stipulated investment minimum. However, unlike REITs and opportunity
funds, the Company is subject to corporate level taxation.
To date, management of the Company has implemented its business
strategy through the following transactions: (i) the formation, together
with WHWEL Real Estate Limited Partnership ("Whitehall"), an affiliate of
Goldman Sachs & Co., of Wellsford/Whitehall Properties, L.L.C. ("Wellsford
Commercial"), which currently owns and operates 27 office buildings
containing an aggregate of approximately 3.4 million square feet, including
the acquisition of 13 office buildings containing an aggregate of
approximately 1,000,000 square feet acquired in May 1998 from Saracen
Properties, Inc. for approximately $146 million; (ii) the merger in
February 1998 of a wholly-owned subsidiary of the Company into VLP in which
the Company paid cash and issued stock having a combined value of
approximately $169 million, with the surviving entity ("Wellsford Capital")
becoming a wholly-owned subsidiary of the Company (the "Value Merger"), and
the subsequent sale by Wellsford Capital of 13 of the 20 properties
acquired pursuant to the Value Merger for approximately $65 million,
resulting in Wellsford Capital owning seven properties consisting of three
office properties, two industrial properties, one office/industrial
property and one retail property; (iii) a $25 million subordinated secured
mezzanine loan with respect to a class A office building located at 277
Park Avenue, New York City; (iv) a 50% junior participation in a $120
million secured credit facility (the "Abbey Credit Facility") with an owner
and operator of office, industrial and retail properties in Southern
California; (v) the IPH Mezzanine Facility, an approximately $32.5 million
secured subordinated credit facility entered into by Fleet Real Estate,
Inc. with the owner of industrial properties in Texas, in which Wellsford
Ventures, Inc. ("Ventures"), a wholly-owned subsidiary of the Company,
agreed to advance up to 50%; as of December 31, 1997, Ventures had advanced
approximately $9.8 million and the IPH Mezzanine Facility was repaid in
February 1998 at which time the Company received a total of $0.8 million in
interest and fees; (vi) a 25% participation in a $60 million secured
subordinated loan made by BankBoston, N.A., Morgan Stanley Senior Funding,
Inc. and certain other lenders with respect to a master-planned residential
community known as the Woodlands located north of Houston pursuant to
which the Company has advanced $15 million; (vii) the acquisition in
January 1998 of a 344-unit class A residential apartment complex in Tucson,
Arizona known as "Sonterra at Williams Centre" for approximately $20.5
million; (viii) an approximate 80% interest in Phases I, II, III and IV and
an option to acquire (at a fixed price) and develop Phase V of, a 1,880-
unit class A multifamily development known as "Palomino Park," located in a
suburb of Denver, Colorado, of which 560 units have been completed; (ix)
the acquisition of a 49% interest in Creamer Realty Consultants, a real
estate advisory and consulting firm, and formation of Creamer Vitale
Wellsford, L.L.C., which together with Creamer Realty Consultants and
Prudential Real Estate Investors, established the Claiborne Investors
Mortgage Investment Program to make investments in large syndicated
mortgage loan transactions;(x) a $50 million two-year line of credit
(extendible for one year) which the Company obtained from BankBoston, N.A.
and Morgan Guaranty Trust Company of New York (the "Line of Credit"); and
(xi) a $375 million loan facility which Wellsford Commercial received from
BankBoston, N.A. and Goldman Sachs Mortgage Company (the "Loan Facility"),
consisting of a secured term loan facility of up to $225 million and a
secured revolving credit facility of up to $150 million.
The Company is a Maryland corporation which was incorporated on
January 8, 1997. The Company's principal executive offices are located at
610 Fifth Avenue, New York, New York 10020 and its telephone number is
(212) 333-2300.
RISK FACTORS
In addition to other matters, prospective investors should carefully
consider the following risk factors before making an investment in the
Shares:
General Risks
If the properties of the Company, the properties of those entities in
which it invests or the properties of those entities to which it lends
(collectively, the "Properties") do not generate revenue sufficient to meet
operating expenses, including debt service and capital expenditures, the
financial condition and results of operations of the Company may be
adversely affected. The Company's financial condition and results of
operations may also be adversely affected by a number of other factors,
including international and domestic general economic climate and local
real estate conditions (such as oversupply of or reduced demand for space
and changes in market rental rates); the perceptions of prospective tenants
of the safety, convenience and attractiveness of the Properties; the
ability of the owner to provide adequate management, maintenance and
insurance; energy and supply shortages; the ability to collect on a timely
basis all rent from tenants and interest from borrowers; the expense of
periodically renovating, repairing and reletting spaces; and increasing
operating costs (including real estate taxes and utilities) which may not
be passed through to tenants. Certain significant expenditures associated
with investments in real estate (such as mortgage payments, real estate
taxes, insurance and maintenance costs) are generally not reduced when
circumstances cause a reduction in rental revenues from the investment. If
a Property is mortgaged to secure the payment of indebtedness and if the
Company or the entity in which the Company invests or to which it lends is
unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on the property or the exercise of other remedies by the
mortgagee. In addition, real estate values and income from properties are
also affected by such factors as compliance with laws, including tax laws,
interest rate levels and the availability of financing.
Difficulty of Locating Suitable Investments; Competition; Capital
Requirements
Identifying, completing and realizing on real estate investments has
from time to time been highly competitive, and involves a high degree of
uncertainty. The Company competes for investments with many public and
private real estate investment vehicles, including financial institutions
(such as mortgage banks, pension funds and REITs) and other institutional
investors, as well as individuals. There can be no assurance that the
Company will be able to locate and complete investments which satisfy the
Company's rate of return objective or realize upon their value or that it
will be able to fully invest its available capital.
Many of those with whom the Company competes for investments and its
services are far larger than the Company, may have greater financial
resources than the Company and may have management personnel with more
experience than the officers of the Company.
The success of the Company's business strategy is dependent upon being
able to obtain significant amounts of equity capital and proceeds from
borrowings on terms financially advantageous to the Company. The inability
of the Company to obtain such equity capital and debt proceeds on such
terms may have a material adverse effect on the Company.
Risks of Acquisition, Development, Construction and Renovation Activities
Acquisition. The Company intends to acquire existing properties to
the extent that they can be acquired on advantageous terms and meet the
Company's investment criteria. Acquisitions of properties entail general
investment risks associated with any real estate investment, including the
risk that investments will fail to perform as expected, that estimates of
the cost of improvements to bring an acquired property up to standards
established for the intended market position may prove inaccurate and the
occupancy rates and rents achieved may be less than anticipated.
Development, Construction and Renovation. The Company also intends to
pursue the selective development of land, including the subdivision and
sale of unimproved real estate, and the development, construction and
renovation of commercial and residential properties for its own account or
the account of, or through, entities in which it owns an equity interest as
opportunities arise. Risks associated with the Company's development,
construction and renovation activities include the risks that: the Company
may abandon development opportunities after expending resources to
determine feasibility; construction and renovation costs of a project may
exceed original estimates; occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable; and
development, construction, renovation and lease-up may not be completed on
schedule (including risks beyond the control of the Company, such as
weather or labor conditions or material shortages) resulting in increased
debt service expense and construction costs. Development, construction and
renovation activities are also subject to risks relating to the inability
to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and
authorizations. These risks could result in substantial unanticipated
delays or expenses and, under certain circumstances, could prevent
completion of development, construction and renovation activities once
undertaken, any of which could adversely affect the financial condition and
results of operations of the Company. Properties under development or
acquired for development may generate little or no cash flow from the date
of acquisition through the date of completion of development and may
experience operating deficits after the date of completion. In addition,
new development and renovation activities, regardless of whether or not
they are ultimately successful, typically require a substantial portion of
management's time and attention. Any properties developed and renovated by
the Company are subject to the risks associated with the ownership and
operation of real estate described elsewhere in this section entitled "Risk
Factors."
Risks of Vacancies at Existing Properties; Dependence on Rental Income from
Real Property
Wellsford Commercial currently owns 27 office buildings, 4 of which
are vacant. The occupied buildings are approximately 95% leased, as of
June 5, 1998. In the future, the Company and Wellsford Commercial may
acquire other properties that are vacant or not fully leased. The Company
and Wellsford Commercial expect to incur significant costs, including those
relating to leasing commissions, renovations and tenant improvements, in
connection with the leasing of these properties and may be required to
offer tenant concessions, including free rental periods. The failure of
the Company or Wellsford Commercial to lease these properties in a timely
manner and on economically favorable terms may have a material adverse
effect on the Company.
The Company's cash flow, results of operations and value of its assets
would be adversely affected if a significant number of tenants of the
Properties failed to meet their lease obligations or if the Company was
unable to lease a significant amount of space on economically favorable
terms. In the event of a default by a lessee, the Company may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. The bankruptcy or insolvency of a major tenant
may have an adverse effect on a property. At any time, a tenant may also
seek protection under the bankruptcy laws, which could result in rejection
and termination of such tenant's lease and thereby cause a reduction in the
cash flow of the property. If a tenant rejects its lease, the owner's
claim for breach of the lease would (absent collateral securing the claim)
be treated as a general unsecured claim. Generally, the amount of the
claim would be capped at the amount owed for unpaid pre-petition lease
payments unrelated to the rejection, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease
(but not to exceed the amount of three years' lease payments). No
assurance can be given that the Properties will not experience significant
tenant defaults in the future.
Operating Risks
The Properties are subject to operating risks common to the particular
property type, any and all of which may adversely affect occupancy or
rental rates. Such Properties are subject to increases in operating
expenses such as cleaning; electricity; heating, ventilation and air-
conditioning; elevator repair and maintenance; insurance and administrative
costs; and other general costs associated with security, landscaping,
repairs and maintenance. While commercial tenants are often obligated to
pay a portion of these escalating costs, there can be no assurance that
they will agree to pay such costs or that the portion that they agree to
pay will fully cover such costs. If operating expenses increase, the local
rental market may limit the extent to which rents may be increased to meet
increased expenses without decreasing occupancy rates. To the extent rents
cannot be increased or costs controlled, the cash flow of the Company and
its financial condition may be adversely affected.
Adverse Consequences of Debt Financing
Leverage. Some of the Company's real estate equity investments may
utilize a leveraged capital structure, in which case a third party lender
would be entitled to cash flow generated by such investments prior to the
Company receiving a return. As a result of such leverage, the Company
would be subject to the risks normally associated with debt financing,
including the risk that cash flow from operations and investments will be
insufficient to meet required payments of principal and interest, the risk
that existing debt (which in most cases will not have been fully amortized
at maturity) will not be able to be refinanced or that the terms of such
refinancings will not be as favorable to the Company and the risk that
necessary capital expenditures for such purposes as renovations and other
improvements will not be able to be financed on favorable terms or at all.
While such leverage may increase returns or the funds available for
investment by the Company, it also will increase the risk of loss on a
leveraged investment. If the Company defaults on secured indebtedness, the
lender may foreclose and the Company could lose its entire investment in
the security for such loan. Because the Company may engage in portfolio
financings where several investments are cross-collateralized, multiple
investments may be subject to the risk of loss. As a result, the Company
could lose its interests in performing investments in the event such
investments are cross-collateralized with poorly performing or
nonperforming investments. In addition, recourse debt, which the Company
reserves the right to obtain, may subject other assets of the Company to
risk of loss.
Existing Debt Maturities; Foreclosures. The Company anticipates that
only a portion of the principal of the Company's indebtedness outstanding
from time to time will be repaid prior to maturity. However, the Company
may not have sufficient funds to repay such indebtedness at maturity; it
may therefore be necessary for the Company to refinance debt through
additional debt financing or equity offerings. If the Company is unable to
refinance this indebtedness on acceptable terms, the Company may be forced
to dispose of properties or other assets upon disadvantageous terms, which
could result in losses to the Company and adversely affect the amount of
cash available for further investment.
Risk of Rising Interest Rates. The Company may incur indebtedness in
the future that also bears interest at a variable rate or may be required
to refinance its debt at higher rates. Outstanding advances under the Line
of Credit and Loan Facility bear interest at a variable rate. Accordingly,
increases in interest rates could increase the Company's interest expense
and adversely affect the financial condition and results of operations of
the Company.
Covenants. Various credit facilities or other debt obligations may
require the Company to comply with a number of financial and other
covenants on an ongoing basis. Failure to comply with such covenants may
limit the Company's ability to borrow funds or may cause a default under
its then-existing indebtedness.
No Limitation on Debt. The Articles of Amendment and Restatement (the
"Charter") and Bylaws of the Company do not contain any limitation on the
amount of indebtedness the Company may incur. The Company also has the
ability to use a more highly leveraged business strategy than typically
used by REITs. Accordingly, the Company could become highly leveraged,
resulting in an increase in debt service that could increase the risk of
default on the Company's indebtedness.
Risks of Investments in Debt Instruments
The Company intends to originate and participate in debt investments
and may acquire performing or nonperforming debt investments. In general,
debt instruments carry the risk that borrowers may not be able to make debt
service payments or pay principal when due, the risk that the value of any
collateral may be less than the amounts owed, the risk that interest rates
payable on the debt instruments may be lower than the Company's cost of
funds, and the risk that the collateral may be mismanaged or otherwise
decline in value during periods in which the Company is seeking to obtain
control of the underlying real estate. The Company is also dependent on
the ability of the borrowers to operate their properties successfully.
Such borrowers and their properties will be subject to the other risks
affecting the ownership and operation of real estate set forth in this
section entitled "Risk Factors." Some of the loans may be structured so
that all or a substantial portion of the principal will not be paid until
maturity, which increases the risk of default at that time.
It is anticipated that a substantial portion of the debt in which the
Company invests will not be rated by any nationally-recognized rating
agency. Generally, the value of unrated classes is subject to more
fluctuation due to economic conditions than rated classes. The Company's
acquisition of credit supported classes of securitizations which are
unrated at the time of acquisition and which have lower ratings may
increase the risk of nonpayment or of a significant delay in payments on
these classes. Should rated assets be downgraded, it may adversely affect
their value and may adversely affect the financial condition and results of
operations of the Company.
Risks of Investments in Mortgage and Other Loans
To the extent the Company invests in mortgage and other loans, such
loans may or may not be recourse obligations of the borrower and generally
will not be insured or guaranteed by governmental agencies or otherwise.
In the event of a default under such obligations, the Company may have to
foreclose on its mortgage or other collateral or protect its investment by
acquiring title to the collateral and, in the case of mortgage loans,
thereafter making substantial improvements or repairs in order to maximize
the collateral's investment potential. Borrowers may contest enforcement
of foreclosure or other remedies, seek bankruptcy protection against such
enforcement and/or bring claims for lender liability in response to actions
to enforce mortgage and other obligations. Relatively high "loan-to-value"
ratios and declines in the value of the collateral may prevent the Company
from realizing an amount equal to its loan upon foreclosure.
The Company may participate in loans originated by other financing
institutions. As a participant, the Company may not have the sole
authority to declare a default under the loan or to control the collateral
or any foreclosure.
Any investments in junior secured obligations which are subordinate to
liens of senior secured obligations would involve additional risks,
including the lack of control over the collateral and any related
foreclosure proceeding. In the event of a default on a senior secured
obligation, the Company may make payments to prevent foreclosure on the
lien of the senior lender without necessarily improving the Company's
position with respect to the subject collateral. In such event, the
Company would be entitled to share in the proceeds only after satisfaction
of the amounts due to the holder of the senior secured obligation.
Lack of Control and Other Risks of Equity Investments in and with Third
Parties
The Company may invest in real estate investment trusts ("REITs") or
other entities that invest in real estate assets, including debt
instruments and equity interests. In such cases, the Company will be
relying on the assets, investments and management of the REIT or other
entity in which it is investing. Such entities and their properties will be
subject to the other risks affecting the ownership and operation of real
estate and investment in debt set forth in this section entitled "Risk
Factors."
The Company may also co-invest with third parties through
partnerships, joint ventures or other entities, acquiring non-controlling
interests in or sharing responsibility for managing the affairs of a
property, partnership, joint venture or other entity and, therefore, will
not be in a position to exercise sole decision-making authority regarding
the property, partnership, joint venture or other entity. In this regard,
it should be noted that the Company has formed Wellsford Commercial
together with Whitehall. Although the Company is responsible for managing
the day-to-day business of Wellsford Commercial, certain decisions require
the approval of Whitehall.
Investments in partnerships, joint ventures, or other entities may,
under certain circumstances, involve risks not present were a third party
not involved, including the possibility that the Company's partners or co-
venturers might become bankrupt or otherwise fail to fund their share of
required capital contributions, that such partners or co-venturers might at
any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of the Company, and that
such partners or co-venturers may be in a position to take action contrary
to the instructions or the requests of the Company and contrary to the
Company's policies or objectives. Such investments may also have the
potential risk of impasse on decisions, such as a sale, because neither the
Company nor the partner or co-venturer would have full control over the
partnership or joint venture. Consequently, actions by such partner or co-
venturer might result in subjecting properties owned by the partnership or
joint venture to additional risk. In addition, the Company may in certain
circumstances be liable for the actions of its third-party partners or co-
venturers.
Risk of Loss on Investments in Commercial Mortgage-Backed Securities
As noted above, the Company may seek to invest in real estate-related
debt instruments, which may include commercial mortgage-backed securities
("CMBS"). Many of the risks of investing in CMBS reflect the risks of
investing directly in the real estate securing the underlying mortgage
loans. This may be especially true in the case of commercial mortgage
securities secured by, or evidencing an interest in, a single commercial
mortgage loan or a relatively small or less diverse pool of commercial
mortgage loans. See "-Risks of Investments in Mortgage and Other Loans."
The risks of investing in commercial mortgage securities include risks
that the existing credit support will prove to be inadequate, either
because of unanticipated levels of losses or, if such credit support is
provided by a third party, because of difficulties experienced by such
provider. Delays or difficulties encountered in servicing commercial
mortgage securities may cause greater losses and, therefore, greater resort
to credit support than was originally anticipated, and may cause a rating
agency to downgrade a security.
The Company may acquire subordinated tranches of CMBS issuances. In
general, subordinated tranches of CMBS are entitled to receive repayment of
principal only after all principal payments have been made on more senior
tranches and also have subordinated rights as to receipt of interest
distributions. In addition, an active secondary market for such
subordinated securities is not as well developed as the market for certain
other mortgage-backed securities. Accordingly, such subordinated CMBS may
have limited marketability and there can be no assurance that a more
efficient secondary market will develop.
Nature of Investments Made by the Company May Involve High Risk;
Illiquidity of Real Estate Investments
The Company may make investments in real estate-related assets and
businesses which have experienced severe financial difficulties, which
difficulties may never be overcome. Since the Company may only make a
limited number of investments and since many of the investments may involve
a high degree of risk, poor performance by one of the investments could
severely affect the financial condition and results of operations of the
Company.
Equity and debt investments in real estate may be relatively illiquid.
Such illiquidity limits the ability of the Company to modify its portfolio
in response to changes in economic or other conditions. Illiquidity may
result from the absence of an established market for the investments as
well as legal or contractual restrictions on their resale by the Company.
Pursuant to the terms of the operating agreement of Wellsford Commercial,
the Company may not transfer its interest in Wellsford Commercial, the
properties owned by Wellsford Commercial may not be sold or financed, nor
may Wellsford Commercial issue equity or debt securities, in each case
without the approval of Whitehall.
Limitations on Remedies
Although the Company will have certain contractual remedies upon the
default by borrowers under certain debt instruments, such as foreclosing on
the underlying real estate or other collateral or collecting rents
generated therefrom, certain legal requirements (including the risks of
lender liability) may limit the ability of the Company to effectively
exercise such remedies.
The right of a mortgage lender to convert its loan position into an
equity interest may be limited or prevented by certain common law or
statutory prohibitions or delayed by legal proceedings.
Third-Party Bankruptcy Risks
Investments made in assets operating in workout modes or under Chapter
11 of the Bankruptcy Code could be subordinated or disallowed, and the
Company could be liable to third parties in such circumstances.
Furthermore, distributions made to the Company in respect of such
investments could be recovered if any such distribution is found to be a
fraudulent conveyance or preferential payment. Bankruptcy laws, including
the automatic stay imposed upon the filing of a bankruptcy petition, may
delay the ability of the Company to realize on collateral for loan
positions held by it or may adversely affect the priority of such loans
through doctrines such as equitable subordination or may result in a
restructure of the debt through principles such as the "cramdown"
provisions of the bankruptcy laws.
Recently Formed Entities
It should be noted that the Company consists of recently formed
entities with little prior operating history and that their respective
properties and assets have only been recently acquired.
Risk of Registration Under Investment Company Act
The Company is not registered as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"),
since management believes that the Company and its subsidiaries either are
not within the definitions of "investment company" thereunder or,
alternatively, are excluded from regulation under the Investment Company
Act by one or more exemptions. In the future, the Company and its
subsidiaries will seek to continue to conduct their operations in a manner
intended not to require registration under the Investment Company Act.
Therefore, the assets that the Company and its subsidiaries may acquire or
sell may be limited by the provisions of the Investment Company Act. If
the Company and/or any of its subsidiaries were to become an "investment
company" under the Investment Company Act and if it failed to qualify for
an exemption thereunder, it would be unable to conduct its business as
presently conducted which could have a material adverse effect on the
Company and its subsidiaries and the market price for the Common Stock.
Risks of Uninsured Loss
The Company carries comprehensive liability, fire, extended coverage
and rental loss insurance with respect to all of the properties that it
owns, with policy specifications, insured limits and deductibles
customarily carried for similar properties. There are, however, certain
types of losses (such as losses arising from acts of war or relating to
pollution) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its capital
invested in a property, as well as the anticipated future revenue from such
property and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss would adversely
affect the financial condition and results of operations of the Company.
With respect to those properties in which the Company holds an
interest through a mortgage, as well as those properties owned by entities
to whom the Company makes unsecured loans, the borrowers will most likely
be obligated to maintain insurance on such properties and to arrange for
the Company to be covered as a named insured on such policies. The face
amount and scope of such insurance coverage may be less comprehensive than
the Company would carry if it held the fee interest in such property.
Accordingly in such circumstances, or in the event that the borrowers fail
to maintain required coverage, uninsured or underinsured losses may occur,
which could have an adverse impact on the Company's cash flow or financial
condition.
Potential Environmental Liability Related to the Properties
Under various Federal, state and local laws, ordinances and
regulations, an owner or operator of real estate may be held liable for the
costs of removal or remediation of certain hazardous or toxic substances on
or in such property. These laws often impose such liability without regard
to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. The cost of any required
remediation and the owner's liability therefor as to any property is
generally not limited under such enactments and could exceed the value of
the property and/or the aggregate assets of the owner. The presence of
such substances, or the failure to properly remediate such substances, may
adversely affect the owner's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not that facility is owned or operated by
such person. Certain environmental laws govern the removal, encapsulation
or disturbance of asbestos-containing materials ("ACM"), for example, when
such materials are in poor condition, or in the event of renovation or
demolition, and impose liability for release of ACM into the air. Third
parties may seek recovery from owners or operators of real properties, or
from employers, for personal injury associated with exposure to ACM. The
operation and subsequent removal of certain aboveground and underground
storage tanks are also regulated by federal and state laws. Leaking tanks
are a common source of water or soil contamination for which an owner or
operator could be held liable. In connection with the ownership (direct or
indirect), operation, management and development of real properties, the
Company may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic
substances, and, therefore, may be potentially liable for removal or
remediation costs, and other related costs, including governmental fines
and payments for injury to persons or property.
Certain of the Company's properties contain ACM. At 15 Broad Street,
located in Boston Massachusetts, the Company intends to abate the ACM
located in tenant spaces as leases expire and tenant improvements are made
in connection with lease renewals and new tenancies. It is estimated that
this abatement work will cost approximately $625,000. Similarly, the
buildings located at 117 and 140 Kendrick Street in Needham, Massachusetts,
require asbestos removal and remediation of oil contamination. Pursuant to
a post-closing agreement between the Polaroid Corporation, the former owner
of the two properties, and Wellsford Commercial, dated May 14, 1998,
Polaroid has agreed to remove the ACM at both properties and take the
measures necessary to remediate the oil contamination at 117 Kendrick
Street as may be required by the Massachusetts Contingency Plan. The costs
associated with these obligations are currently estimated to be $750,000
and an amount equal thereto has been placed in escrow by Polaroid to cover
its obligations. However, if Polaroid breaches its obligations, Wellsford
Commercial will be required to pay any amount in excess of $750,000. The
Company will undertake the remediation of the oil contamination at 140
Kendrick Street, the cost of which is not expected to exceed $100,000.
One Property acquired by the Company in the Value Merger, located at
19-23 Keewaydin Drive in Salem, New Hampshire, is contaminated with
volatile organic compounds ("VOCs"). Monitoring of groundwater for VOCs is
being performed pursuant to a groundwater management permit issued by the
New Hampshire Department of Environmental Services to VLP, as predecessor
to Wellsford Capital. In connection with the sale of the Newark Shopping
Mall in Newark, California, by VLP on July 15, 1997, perchloroethylene soil
and groundwater contamination from tenant dry cleaning operations was
identified. The new owner of the Newark Shopping Mall has agreed to
release and indemnify VLP, as predecessor to Wellsford Capital, from any
liability arising in connection with environmental matters at this site.
This property has also been insured to protect against environmental
liability, which insurance specifically covers the perchloroethylene
contamination. It should also be noted that in connection with such sale,
VLP retained a security interest in such property. In the event Wellsford
Capital, as successor to VLP, forecloses on such property and takes actions
falling outside of the Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("CERCLA") lender liability safe-harbor
provisions, the Company and Wellsford Capital could be liable for
environmental liabilities arising at such property.
The Company has also become a lender in connection with other
properties. In the event that in its capacity as lender the Company
forecloses on such properties and takes actions falling outside of CERCLA's
lender liability safe-harbor provisions, the Company could be liable for
environmental liabilities arising at such properties.
The Properties have had Phase I or similar environmental audits and
subsequent soil sampling, drinking or ground water analysis, radon testing
or asbestos surveys, as warranted. These analyses were performed by
independent environmental consultant companies and, except as previously
set forth, have not revealed the presence of any environmental condition or
liability that would have a material adverse effect on the Company's
business.
Dependence on Key Personnel
The Company is dependent primarily on the efforts of Jeffrey H.
Lynford, Chairman of the Board, and Edward Lowenthal, President and Chief
Executive Officer, and the loss of either of their services could have an
adverse effect on the operations of the Company. Mr. Lynford and Mr.
Lowenthal have each entered into employment agreements with the Company
having a term ending December 31, 2002. The Company also depends upon the
services of other individuals with expertise and experience in certain
activities conducted by the Company, and the loss of the services of any of
these individuals could also have an adverse effect on the operations of
the Company.
Changes in Policies Without Shareholder Approval
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, growth,
debt, capitalization and operations, will be determined by the Company's
Board of Directors. Although it has no present intention to do so, the
Board of Directors may amend or revise these policies at any time and from
time to time at its discretion without a vote of the shareholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations and the market price of the
Common Stock.
Absence of Public Market; Risk of Changes in Stock Price
As of June 25, 1998, there were 20,009,882 shares of Common Stock
issued and outstanding. Although a trading market for the Common Stock
exists, there can be no assurance that an active trading market for the
Common Stock will be sustained in the future. In the absence of an active
public trading market, an investor may be unable to liquidate his
investment in the Company. The prices at which the Common Stock trades
will be determined by the marketplace and may be influenced by many
factors, including, among others, the depth and liquidity of the market for
the Common Stock, investor perception of the Company and its businesses,
the Company's dividend policy, interest rates and general economic and
market conditions. Prices at which the Common Stock may trade in the
future cannot be predicted.
Costs of Compliance with the Americans with Disabilities Act and Similar
Laws
Under the Americans with Disabilities Act of 1980 (the "ADA"), places
of public accommodations and commercial facilities are required to meet
certain federal requirements related to access and use by disabled persons.
Compliance with ADA requirements could require both structural and non-
structural changes to the properties in which the Company invests and
noncompliance could result in imposition of fines by the United States
government or an award of damages to private litigants. Although
management of the Company believes that its properties are substantially in
compliance with present requirements of the ADA, the Company may incur
additional costs of compliance in the future. A number of additional
Federal, state and local laws exist which impose further burdens or
restrictions on owners with respect to access by disabled persons and may
require modifications to properties in which the Company invests, or
restrict certain further renovations thereof, with respect to access by
disabled persons. Final regulations under the ADA have not yet been
promulgated and the ultimate amount of the cost of compliance with the ADA
or other such laws is not currently ascertainable. While such costs are
not expected to have a material effect on the Company, they could be
substantial. If required changes involve greater expense than the Company
currently anticipates, the Company's financial condition and results of
operations could be adversely affected.
Noncompliance with Other Laws
Real estate properties are also subject to various Federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that its properties are currently
in material compliance with all such regulatory requirements. However,
there can be no assurance that these requirements will not be changed or
that new requirements will not be imposed which would require significant
unanticipated expenditures by the Company and could have an adverse effect
on the Company's results of operations.
Effect on Common Stock Price of Shares Available for Future Sale
Sales of a substantial number of shares of the Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock. In this regard, the 12,242,719 Shares
offered hereby may be sold in the public markets from time to time. In
addition, 1,744,469 shares of Common Stock were issued in connection with
the Value Merger to certain of the shareholders of VLP which are being
registered for resale from time to time by the holders thereof. Also, (i)
3,076,235 shares of Common Stock have been reserved for issuance pursuant
to the Company's 1997 Management Incentive Plan and Rollover Stock Option
Plan (options to purchase 3,012,610 of such shares have been granted), (ii)
2,000,000 shares of Common Stock have been reserved for issuance pursuant
to the Company's 1998 Management Incentive Plan (options to purchase
400,000 of such shares have been granted); (iii) approximately 5,000,000
shares of Common Stock have been reserved for issuance upon conversion of
the Company's Series A 8% Convertible Redeemable Preferred Stock ("Series A
Preferred") and Class A Common Stock, $.01 par value per share ("Class A
Common") and (iv) 4,349,715 shares of Common Stock have been reserved for
issuance upon exercise by Whitehall of warrants granted in connection with
the formation of Wellsford Commercial. In addition, approximately
1,818,180 shares of Common Stock will be available for issuance to
Whitehall upon its exchange of certain membership units in Wellsford
Commercial for shares of Common Stock, assuming a price per share of Common
Stock of $13.75 (the last reported sale price of a share of Common Stock on
the ASE on June 4, 1998). When issued, these reserved or otherwise
available shares and shares subject to options will be available for sale
in the public markets from time to time pursuant to exemptions from
registration requirements or upon registration. No prediction can be made
about the effect that future sales of the Common Stock will have on the
market prices of the Common Stock.
Adverse Consequences of Failure of WCPT to Qualify as a REIT
The Company, through its subsidiary, WCPT, has formed Wellsford
Commercial. The Company intends to operate WCPT so that WCPT qualifies as a
REIT under the Code, commencing with the calendar year ended December 31,
1997. Although management of the Company believes that WCPT was organized
and is operating in such a manner, no assurance can be given that WCPT will
be treated as so organized or will be able to operate in a manner so as to
qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations and the
determination of various factual matters and circumstances not entirely
within the Company's control. For example, in order to qualify as a REIT,
at least 95% of WCPT's gross income in any year must be derived from
certain specified sources and WCPT must make distributions to its
shareholders aggregating annually at least 95% of its REIT taxable income
(excluding net capital gains). In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court
decisions will not change the tax laws with respect to qualification as a
REIT or the Federal income tax consequences of such qualification. The
Company, however, is not aware of any pending tax legislation that would
adversely affect WCPT's ability to operate as a REIT.
If WCPT fails to qualify as a REIT, WCPT will be subject to Federal
income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief
under certain statutory provisions, WCPT will also be prohibited from
becoming a REIT for the four taxable years following the year during which
qualification is lost. Failure to be treated as a REIT would reduce the
net earnings of WCPT available for investment or distribution to the
Company because of the additional tax liability to WCPT for the year or
years involved. To the extent that distributions to the Company would have
been made in anticipation of WCPT's qualifying as a REIT, WCPT might be
required to borrow funds or to liquidate certain of its investments to pay
the applicable taxes.
Hedging Policies/Risks
In connection with the financing of certain real estate investments,
the Company may employ hedging techniques designed to protect the Company
against adverse movements in currency and/or interest rates. While such
transactions may reduce certain risks, such transactions themselves may
entail certain other risks. Thus, while the Company may benefit from the
use of these hedging mechanisms, unanticipated changes in interest rates,
securities prices, or currency exchange rates may result in a poorer
overall performance for the Company than if it had not entered into such
hedging transactions.
Anti-Takeover Effect Resulting From a Staggered Board, Ability of the
Company to Issue Preferred Stock and Certain Provisions of Maryland Law
The Company's Board of Directors is divided into three classes. The
terms of the second, third and first classes will expire in 1999, 2000 and
2001, respectively. Directors for each class will be chosen for a three-
year term upon the expiration of their then current term, and each year one
class of directors will be elected by the shareholders. The staggered
terms for directors may limit the shareholders' ability to change control
of the Company even if a change of control were in the interests of
shareholders.
The Company's Charter authorizes the Board of Directors to establish
one or more series of preferred shares and to determine, with respect to
any series of preferred shares, the preferences and other terms of such
series. Although the Board of Directors has no intention at the present
time, it could issue a series of preferred shares that could, depending on
the terms of such series, impede or prevent a merger, tender offer or other
transaction that some, or a majority, of the Company's shareholders might
believe to be in their best interest or in which shareholders might receive
a premium for their shares over the then current market price of such
shares.
Under the Maryland General Corporation Law ("MGCL"), certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns ten percent or
more of the voting power of the corporation's shares (an "Interested
Stockholder") or an affiliate thereof are prohibited for five years after
the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, unless exempted in accordance with the
MGCL, any such business combination must be approved by two supermajority
stockholder votes. The directors of the Company have exempted from the
Maryland statute any business combinations with Jeffrey H. Lynford or
Edward Lowenthal or any of their affiliates or any other person acting in
concert or as a group with any of such persons and, consequently, the five-
year prohibition and the supermajority vote requirements will not apply to
business combinations between such persons and the Company. The directors
of the Company have also exempted from the Maryland statute any business
combinations with Mutual Qualified Fund ("Mutual"), or any affiliate of
Mutual, provided that any such business combination is approved prior to
its consummation by the directors of the Company, including a majority of
the directors of the Company who are not employees or otherwise affiliated
with Mutual or any of its affiliates.
The provisions of the MGCL described above and the exemptions granted
may discourage a third party from making an acquisition proposal for the
Company and may have the effect of delaying, deferring or preventing a
transaction with or a change in control of the Company that might involve a
premium price for the Common Stock or otherwise be in the best interest of
the stockholders.
Until May 30, 2007, pursuant to the Common Stock and Preferred Stock
Purchase Agreement between ERP Operating Partnership and the Company, the
Company has the right to direct the voting of all shares of the Series A
Preferred, the Class A Common and the Common Stock owned by ERP Operating
Partnership or any of its affiliates, except as to the election of the
director to be designated by ERP Operating Partnership or any matter
relating to the rights, preferences and privileges of the Series A
Preferred or the Class A Common. Such voting right may hinder a change in
control.
USE OF PROCEEDS
The Shares offered hereby are being registered for the account of
Selling Shareholders and, accordingly, the Company will not receive any of
the proceeds from the sale of the Shares by the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Shares by the Selling Shareholders as of June 5,
1998, and the number of Shares being offered by this Prospectus. Each
Selling Shareholder will receive all of the net proceeds from the sale of
its respective Shares offered hereby.
Any or all of the Shares being registered hereby may be offered for
sale pursuant to this Prospectus by the Selling Shareholders from time to
time. Accordingly, no estimate can be given as to the amount of the Shares
that will be held by the Selling Shareholders upon consummation of any such
sales. The table has been prepared based on information furnished to the
Company by or on behalf of the Selling Shareholders.
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership of Common Stock Number of
Prior to the Offering Shares of
----------------------------------- Common Stock
Percentage Being
Name of Selling Shareholder Number of Shares of Class(2) Registered
- --------------------------- ----------------- ----------- ----------
<S> <C> <C> <C>
Longleaf Partners Realty Fund . . . . . . . . . . . . . . . . . . . . . . 3,398,000 17.0% 3,398,000
Mutual Qualified Fund(3). . . . . . . . . . . . . . . . . . . . . . . . . 2,277,184 11.4% 2,277,184
Yale University(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191,382 6.0% 964,932
BancBoston Investments Inc. . . . . . . . . . . . . . . . . . . . . . . . 811,000 4.1% 811,000
SVP-RPC Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . 811,000 4.1% 811,000
Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio. . . 654,898 3.3% 654,898
Van Kampen American Capital LIT Real Estate Securities Portfolio. . . . . 447,242 2.2% 447,242
Morgan Stanley SICAV - U.S. Real Estate Securities Fund . . . . . . . . . 314,115 1.6% 314,115
Morgan Stanley Real Estate Special Situations Fund II, LP . . . . . . . . 249,167 1.2% 210,146
Van Kampen American Capital Real Estate Securities Fund . . . . . . . . . 199,020 (1) 199,020
MOAB Investments, L.P.. . . . . . . . . . . . . . . . . . . . . . . . . . 173,600 (1) 173,600
Morgan Stanley Real Estate Special Situations Fund I, LP. . . . . . . . . 186,877 (1) 157,609
Stichting Pensioenfonds ABP . . . . . . . . . . . . . . . . . . . . . . . 184,997 (1) 156,032
Gary C. Comer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,300 (1) 151,300
Stichting Bedrijfspensioenfonds voor de Metaalnijverheid. . . . . . . . . 123,336 (1) 104,023
J. Roderick MacArthur Foundation. . . . . . . . . . . . . . . . . . . . . 97,000 (1) 97,000
Intermatic, Inc. Pension Trust. . . . . . . . . . . . . . . . . . . . . . 97,000 (1) 97,000
AG Long-Term Super Fund, L.P.(4). . . . . . . . . . . . . . . . . . . . . 75,000 (1) 75,000
The Eugenia II Investment Holdings LTD. - REIT. . . . . . . . . . . . . . 63,630 (1) 63,630
Jesselson Foundation. . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 (1) 60,000
Comer Foundation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,500 (1) 48,500
Morgan Stanley Fund, Inc. - U.S. Real Estate Portfolio. . . . . . . . . . 45,351 (1) 45,351
Steven A. Karpf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,840 (1) 38,840
Richard R. Previdi(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 109,015 (1) 38,840
Frederick P. Zarrilli . . . . . . . . . . . . . . . . . . . . . . . . . . 38,840 (1) 38,840
Lloyd G. Schermer as Trustee of the Lloyd G. Schermer Declaration of
Trust Dated 11/17/89 . . . . . . . . . . . . . . . . . . . . . . . . . . 38,800 (1) 38,800
Trust F/B/O A. Daniel Jesselson U/W Ludwig Jesselson. . . . . . . . . . . 37,000 (1) 37,000
Jeffrey H. Lynford(6) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,258,546 6.0% 35,913
Edward Lowenthal(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256,507 5.9% 35,913
Morgan Stanley Real Estate Special Situations, Inc. . . . . . . . . . . . 43,477 (1) 34,926
AG Super Fund International Partners, L.P. (4). . . . . . . . . . . . . . 36,857 (1) 32,000
Margery Germain(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,101 (1) 30,101
Alice Albright Arlen, Trustee U/T/D 7/2/63
F/B/O Alice Albright Arlen . . . . . . . . . . . . . . . . . . . . . . . 29,100 (1) 29,100
R.H. Newman Trustee or Successor Trustee under the
R.H. Newman Living Trust U/A/D 4/18/89 . . . . . . . . . . . . . . . . . 29,100 (1) 29,100
William M. Cockrum, Trustee of the William M. Cockrum Trust
dated 8/1/79(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,272 (1) 24,272
Susan Burkhardt Living Trust Dated 8/18/69. . . . . . . . . . . . . . . . 19,400 (1) 19,400
Carol B. Cohen Trustee DTD 10/12/78 . . . . . . . . . . . . . . . . . . . 19,400 (1) 19,400
Earl E. Segerdahl . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,400 (1) 19,400
MRMB Charitable Remainder Trust II U/T/D 8/8/95 . . . . . . . . . . . . . 19,400 (1) 19,400
Alice Albright Arlen. . . . . . . . . . . . . . . . . . . . . . . . . . . 19,400 (1) 19,400
Octagon Capital Association . . . . . . . . . . . . . . . . . . . . . . . 19,400 (1) 19,400
David B. Heller P/T Rollover IRA. . . . . . . . . . . . . . . . . . . . . 19,400 (1) 19,400
James Amend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,400 (1) 19,400
Betty A. Schermer as Trustee of the Betty A. Schermer Declaration of
Trust Dated 11/17/89 . . . . . . . . . . . . . . . . . . . . . . . . . . 19,400 (1) 19,400
Principal Asset Allocation Fund - Real Estate Account . . . . . . . . . . 15,777 (1) 15,777
Bergman Charitable Trust/Betsy Lynn Rosenfield. . . . . . . . . . . . . . 14,500 (1) 14,500
Bergman Charitable Trust/Robert Bergman . . . . . . . . . . . . . . . . . 14,500 (1) 14,500
Richard C. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 (1) 14,500
Bergman Charitable Trust/Carol Cohen. . . . . . . . . . . . . . . . . . . 14,500 (1) 14,500
NTBG Gov Sec Endow I. . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 (1) 14,500
Morgan Stanley Real Estate Special Situations Investors, LP . . . . . . . 16,690 (1) 13,408
Steven J. Stogel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 (1) 12,000
Morgan Stanley Universal Funds, Inc. - U.S. Real Estate Portfolio . . . . 27,607 (1) 11,007
AG MM, L.P.(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 (1) 10,000
Northern Trust Company, as Master Trustee of the Teachers' Retirement
System of the State of Illinois(4) . . . . . . . . . . . . . . . . . . . 11,431 (1) 10,000
Lloyd Schermer, IRA . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
Stephen C. Neal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
Alicia M. Hoge Trust, D/T/D 12/30/83. . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
NTBG Gov Sec Endow II . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
The R.H.N. Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
NTBG Gov Sec Endow III GVSEC 5-10 Yr. . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
Barbara S. Bluhm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
Douglas E. Cohen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
Tanya Wexler. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
The Kampong Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
Joseph P. Weil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
William C. Mitchell, IRA. . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
J. Wexler Revocable Trust F/B/O Susan Wexler. . . . . . . . . . . . . . . 9,700 (1) 9,700
Scott D. Cohen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 (1) 9,700
PHS Bay Colony Fund, L.P.(4). . . . . . . . . . . . . . . . . . . . . . . 8,500 (1) 8,500
Nutmeg Partners, L.P.(4). . . . . . . . . . . . . . . . . . . . . . . . . 23,675 (1) 8,000
PHS Patriot Fund, L.P.(4) . . . . . . . . . . . . . . . . . . . . . . . . 6,500 (1) 6,500
Carl C. Lang and Gail R. Lang . . . . . . . . . . . . . . . . . . . . . . 4,400 (1) 4,400
All Selling Shareholders as a group . . . . . . . . . . . . . . . 15,149,534 67.8% 12,242,719
========== ===== ==========
</TABLE>
<PAGE>
(1) Less than one percent (1%).
(2) Percentages are based on 20,009,882 shares of Common Stock outstanding
as of June 25, 1998.
(3) An advisory client of Franklin Mutual Advisers, Inc.("Franklin").
Franklin, which had the right to vote as of the date of the Value
Merger approximately 50.05% of the issued and outstanding shares of
VLP, entered into a voting agreement with the Company pursuant to
which Franklin has agreed that other than shares of Common Stock of
the Company received upon consummation of the Value Merger, it will
not, without the Company's consent, (i) acquire for itself or any of
its affiliates or advisory clients, any additional shares of Common
Stock which would result in Franklin having the power to vote more
than 25% of the voting securities of the Company, (ii) solicit proxies
from shareholders of the Company, become a "participant" in any
"election contest" (as such terms are used in Rule 14a-11 of the
Exchange Act) with respect to the Company or (iii) form, join or
participate in a "group" (within the meaning of Section 13(d)(3) of
the Exchange Act) with respect to any matters related to the
foregoing. Franklin transferred voting power to Angelo, Gordon & Co.,
L.P. with respect to 836,500 shares of the Company's Common Stock by
an irrevocable proxy dated August 29, 1997. Another 614,747 of
Franklin's shares of the Company's Common Stock are subject to a
voting trust dated August 29, 1997, the trustee of which is a third
party.
(4) Angelo, Gordon & Co., L.P. has the power to vote and/or dispose of
these shares by virtue of investment management or other agreements
and may be deemed to be the beneficial owner of such shares.
(5) Mr. Previdi is the Chief Operating Officer of WCPT. Includes 60,000
shares of Common stock issuable upon the exercise of options (none of
which are exercisable on or before August 28, 1998). Also includes
3,175 shares of Common Stock contributed to the Company's deferred
compensation plan with respect to which Mr. Previdi does not have
voting power or distribution rights.
(6) Mr. Lynford is the Chairman of the Board, the Secretary and a director
of the Company and was the Chairman of the Board, the Secretary and a
trustee of Wellsford Residential. Includes 1,138,205 shares of Common
Stock issuable upon the exercise of options (41,806 of which are
exercisable on or before August 28, 1998). Also includes 33,334
shares of Common Stock contributed to the Company's deferred
compensation plan with respect to which Mr. Lynford does not have
voting power or distribution rights. Also includes 7,790 shares of
Common Stock held by the Lynford Family Charitable Trust, u/a dated
December 16, 1984; Mr. Lynford disclaims beneficial ownership of such
shares.
(7) Mr. Lowenthal is the President, the Chief Executive Officer and a
director of the Company and was the President, the Chief Executive
Officer and a trustee of Wellsford Residential. Includes 1,138,205
shares of Common Stock issuable upon the exercise of options (41,806
of which are exercisable on or before August 28, 1998). Also includes
33,334 shares of Common Stock contributed to the Company's deferred
compensation plan with respect to which Mr. Lowenthal does not have
voting power or distribution rights. Also includes 291 shares of
Common Stock held by Ilene Lowenthal, Mr. Lowenthal's wife, and 150
shares of Common Stock held by Jared Lowenthal, Mr. Lowenthal's son;
Mr. Lowenthal disclaims beneficial ownership of such shares.
(8) Ms. Germain is the wife of Mark Germain, a director of the Company and
a former trustee of Wellsford Residential.
(9) Mr. Cockrum is an advisor to the Company and was an advisor to
Wellsford Residential.
The Shares are being registered for resale solely for the account of
the Selling Shareholders. None of the Selling Shareholders and none of
their respective officers, directors, or stockholders has had any material
relationship with the Company within the past three years except as set
forth above.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale by the Selling
Shareholders of the Shares offered hereby. The Shares may be sold from
time to time to purchasers directly by any of the Selling Shareholders.
Alternatively, any of the Selling Shareholders may from time to time offer
the Shares through underwriters, dealers or agents who may receive
compensation in the form of underwriting discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the
Shares for whom they may act as agent. The Selling Shareholders and any
such underwriters, dealers or agents who participate in the distribution of
the Shares may be deemed to be underwriters, and any profits on the sale of
the Shares by them and any discounts, commissions or concessions received
by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
The Shares may be sold from time to time in one or more transactions
at a fixed offering price, which may be changed, or at varying prices
determined at the time of sale or at negotiated prices. Such prices will be
determined by the Selling Shareholders or by agreement between the Selling
Shareholders and underwriters or dealers.
The Company will pay all of the expenses incident to the registration,
offering and sale of the Shares to the public other than (i) discounts,
commissions, fees and expenses of underwriters, dealers or agents and (ii)
fees and expenses of the Selling Shareholders other than in certain limited
circumstances. The Company also has agreed to indemnify the Selling
Shareholders and any underwriter they may utilize against certain
liabilities, including liabilities under the Securities Act.
In order to comply with certain states' securities laws, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states the Shares
may not be sold unless the Shares have been registered or qualified for
sale in such state, or unless an exemption from registration or
qualification is available and is obtained.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by
Robinson Silverman Pearce Aronsohn & Berman LLP, New York, New York. The
legal authorization and issuance of the Common Stock, as well as certain
other legal matters concerning Maryland law, have been passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-K) for the year ended December 31, 1997,
and the combined statement of revenues and certain expenses of the Saracen
Properties for the year ended December 31, 1997 appearing in the Company's
Current Report on Form 8-K/A dated April 28, 1998, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports
thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein in reliance upon the reports
of Ernst & Young LLP pertaining to such financial statements given upon the
authority of such firm as experts in accounting and auditing.
The combined statement of revenues and certain expenses of the
Whitehall Properties for the year ended December 31, 1996, the statement of
revenues and certain expenses of Mountain Heights Office Center for the
year ended December 31, 1996, and the statement of revenues and certain
expenses of Sonterra at Williams Centre for the year ended December 31,
1996, all of which have been included in Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-42277), have all
been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein in reliance
upon the reports of Ernst & Young LLP pertaining to such financial
statements given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of VLP at September 30, 1997 and
1996 and for the years then ended appearing in Amendment No. 1 to the
Company's registration statement on Form S-4 (Registration No. 333-42277),
have been incorporated by reference herein and in the Registration
Statement in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, and upon the authority of said firm as experts in
accounting and auditing. The consolidated statements of operations and cash
flows of VLP for the year ended September 30, 1995 appearing in the VLP
Annual Report (Form 10-K) for the year ended September 30, 1997, which is
included in Amendment No. 1 to the Company's registration statement on Form
S-4 (Registration No. 333-42277), have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are
incorporated herein in reliance upon the report of Ernst & Young LLP
pertaining to such financial statements given upon the authority of such
firm as experts in accounting and auditing.
The combined statement of revenues and certain expenses of The Abbey
Companies, for the year ended December 31, 1996, appearing in Amendment No.
1 to the Company's registration statement on Form S-4 (Registration No.
333-42277), has been incorporated by reference herein and in the
Registration Statement in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, and upon the authority of said firm as
experts in accounting and auditing.
The combined statement of revenue and certain expenses of the DFW
Trade Center I, L.P., Buildings 1, 2 and 3 from the date of inception (July
1, 1996) to December 31, 1996, appearing in Amendment No.1 to the Company's
registration statement on Form S-4 (Registration No. 333-42277), has been
audited by Arthur Andersen LLP, independent public accountants, to the
extent and for the period as indicated in their report with respect thereto
which has been incorporated by reference herein and in the Registration
Statement in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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<PAGE>
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No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares in any jurisdiction
where, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus, nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the facts set forth in this Prospectus or in the
affairs of the Company since the date hereof.
__________________________
SUMMARY TABLE OF CONTENTS
Page
Special Note Regarding Forward-Looking Statements . . . . . . . . . . . . 2
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Documents Incorporated by Reference . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Selling Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . .15
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
12,242,719 Shares
WELLSFORD REAL PROPERTIES, INC.
Common Stock
------------------
PROSPECTUS
-------------------
June 29, 1998
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