FORM 10-K/A |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF l934
For the transition period from _____________ to _________________
Commission file number 0-768
GARMENT CAPITOL ASSOCIATES
(Exact name of registrant as specified in its charter)
New York 13-6083208
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-8700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered pursuant to section 12(g) of the Act:
$10,470,000 of Participations in Partnership Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
An Exhibit Index is located on page 13 of this Report. |
Number of Pages (including exhibits) in this filing: 13 |<PAGE>
PART I
Item 1. Business.
(a) General
Registrant, a partnership, was organized on January 10,
1957. On May 1, 1957, Registrant acquired fee title to the
Garment Capitol Building (the "Building") and the land thereunder,
located at 498 Seventh Avenue, New York, New York (the
"Property"). Registrant's partners are Stanley Katzman, John L.
Loehr and Peter L. Malkin (individually, a "Partner" and,
collectively, the "Partners"), each of whom also acts as agent for
holders of participations in their respective partnership
interests in Registrant (each holder of a participation,
individually, a "Participant" and, collectively, the
"Participants"). Stanley Katzman and John L. Loehr acquired their
Partnership interests from Donald A. Bettex and Martin D. Newman
effective January 2, 1996.
Registrant does not operate the Property. Registrant
leased the Property to 498 Seventh Avenue Associates (the
"Original Lessee") under a net operating lease (the "Lease") which
commenced as of May 1, 1957 and currently expires on April 30,
2007. The Lease provides for one 25-year renewal option which has
not been exercised and which, if exercised, will extend the Lease
to April 30, 2032.
In 1994 and 1995 the Original Lessee made capital calls
on its partners in the aggregate amount of $1,300,000 to defray
certain operating expenses and improvement costs at the Property.
Despite these new capital infusions, however, the Original Lessee
concluded that to return the Property to profitability would
require a very large additional capital investment, estimated by
the Original Lessee to be as high as $16,000,000. Therefore, on
December 29, 1995, in accordance with the terms of the [] Lease, |
the Original Lessee assigned the [] Lease to 4987 Corporation (the |
"New Lessee"), thereby effectively terminating the liability of
the Original Lessee and its partners under the Lease. The shares
in the New Lessee are owned by the then partners in the Original |
Lessee (except that a substantial portion of the shares owned by |
Peter L. Malkin are held by him for the benefit of the Members of |
his family but he retains voting control). |
The New Lessee has paid basic rent under the Lease due
on the first day of each month for the period January 1, [] 1996 |
through and [] including July 1, 1996. Registrant applied or |
reserved these rents to cover (1) its monthly mortgage payments to
the Apple Bank for Savings ("Apple Bank") on Registrants' fee
mortgage on the Property (the "Mortgage Loan"), (2) its monthly
[] payment for supervisory services and (3) its distributions to |<PAGE>
the Participants in Registrant. The New Lessee did not pay the
New York City real estate taxes and Business Improvement District
("BID") assessments in the amounts of $936,180.00 and $29,695.14,
respectively, and certain other minor assessments and charges |
aggregating less than $1,500, all of which were due on January 1, |
[] 1996 or shortly thereafter (collectively the "1/1/96 Real |
Estate Taxes"). The New Lessee also failed to pay the New York |
City real estate taxes and BID assessments in the amounts of |
$1,053.254.50 and $28,529.26, respectively which were due on July |
1, 1996 (the "7/1/96 Real Estate Taxes"). As a result, although |
payment of the [] 1/1/96 Real Estate Taxes and [] the 7/1/96 Real |
Estate Taxes has been made as described below, the New Lessee is |
in default of the Operating Lease as of [] January 1, 1996. |
The New Lessee has requested that Registrant forbear |
from exercising its rights and remedies under the Lease, including |
termination of the Lease, by reason of the failure to pay the |
[] 1/1/96 Real Estate Taxes and [] the [] 7/1/96 Real Estate |
Taxes, [] while Registrant solicits the consent of the |
Participants to a sale of the Property (see item 4 below). If
Registrant does forbear, the New Lessee has agreed to cooperate
fully with Registrant in connection with the sale of the Property
and to continue to perform its other obligations under the Lease,
including payment of basic rent, to enable Registrant to continue
its monthly distributions to the Participants, pay its supervisory
[] expense and pay its monthly mortgage obligation. The |
continuation of the Lease will also serve to insulate Registrant
from third party liabilities attendant on property operations.
Because the consent solicitation program [] made by the Partners |
for approval of a sale of the property includes the continuation
of the Lease with the New Lessee, Registrant has not yet sent a
notice of default under the Lease based on the failure of the New
Lessee to pay the [] 1/1/96 Real Estate Taxes or the 7/1/96 Real |
Estate Taxes, but the Agents have been advised that Registrant's |
right to send such a notice has not been affected by this delay or
by the acceptance of rent since the default.
Although the failure to pay the 1/1/96 Real Estate Taxes |
and the 7/1/96 Real Estate Taxes also constitutes a breach of |
Registrant's obligations under the Mortgage Loan, Apple Bank has |
agreed to forbear from exercising its rights and remedies during |
the period of the solicitation of consents through a sale of the |
Property based on arrangements made between the shareholders of |
the New Lessee (or designees on their behalf) and Apple Bank to |
fund the 1/1/96 Real Estate Taxes and the 7/1/96 Real Estate Taxes |
and certain future real estate taxes and BID assessments on the |
Property (together with the 1/1/96 Real Estate Taxes and the |
7/1/96 Real Estate Taxes, the "Real Estate Taxes") through |
protective advances under the Mortgage. The shareholders of the |
New Lessee (or designees on their behalf) have personally borrowed |
from Apple Bank: a) on April 2, 1996, the sum of $1,012,274.18, |
-2-<PAGE>
equal to the 1/1/96 Real Estate Taxes and interest thereon to the |
date of the borrowing (the "1/1/96 Tax Borrowing"), and b) on June |
28, 1996, the sum of $1,081.783.76, equal to the 7/1/96 Real |
Estate Taxes (the "7/1/96 Tax Borrowing"). The 1/1/96 Tax |
Borrowing was used to fund a protective advance by the Apple Bank |
to pay the 1/1/96 Real Estate Taxes and interest thereon through |
the purchase of a subordinate participating interest in the |
Mortgage Loan in such amount. The 7/1/96 Tax Borrowing was used |
to fund a protective advance by the Fee Mortgagee to pay the |
7/1/96 Real Estate Taxes through the purchase of an additional |
subordinate participating interest in the Fee Mortgage in such |
amount. Interest on the foregoing protective advances and on any |
future protective advances will be paid by the New Lessee so long |
as the Lease continues in effect. |
As to future Real Estate Taxes, Apple Bank has agreed to
make additional personal loans to such individual shareholders (or |
their designees) to fund a further protective [] advance to cover |
the Real Estate Taxes due [] January 1, 1997 (covering the period |
to June 30, 1997). Those individual borrowers intend to borrow
the funds from Apple Bank and fund the protective [] advance as |
required to pay the [] January 1, 1997 Real Estate Taxes if the |
Participants approve a program to sell the Property and so long as
the Lease continues in effect. Once the Property is sold, no |
additional Real Estate Taxes will need to be paid. |
The Original Lessee was a partnership in which Peter L.
Malkin was among the partners. The stockholders in the New Lessee
are the partners in the Original Lessee. The Partners in
Registrant are also members of the law firm of Wien, Malkin &
Bettex, 60 East 42nd Street, New York, New York, counsel to
Registrant and to Original Lessee (the "Counsel"). See Items 10,
11 12 and 13 hereof for a description of the ongoing services
rendered by, and compensation paid to, Counsel and for a
discussion of certain relationships which may pose actual or
potential conflicts of interest among Registrant, Original Lessee,
New Lessee and certain of their respective affiliates.
As of December 31, 1995, the occupancy rate at the
Building was approximately [] 44%. The Building has approximately |
104 tenants who principally engage in the sale of ladies' apparel.
Registrant does not maintain a full-time staff. See Item 2 hereof
for additional information concerning the Property.
(b) The Lease
Under the Lease, the New Lessee must pay (i) annual
basic rent of $1,090,000 (the "Basic Rent") to Registrant and (ii)
additional rent equal to 50% of New Lessee's net operating profit
in excess of $200,000 for each Lease year (the "Additional Rent").
See Note 4 of Notes to Financial Statements filed under Item 8
-3-<PAGE>
hereof (the "Notes"). The New Lessee is in default of the Lease
as of January 1, 1996 (see item 1(a)).
Additional Rent income is recognized when earned from
the New Lessee, at the close of the lease year ending April 30.
Such income, if any, is not determinable until the New Lessee,
pursuant to the Lease, renders to Registrant a certified report on
the operation of the Property. The Lease requires that this
report be delivered to Registrant annually within 60 days after
the end of each such Lease year. All Additional Rent income and
certain supervisory service expense can only be determined after
the receipt of such report. The Lease does not provide for the
New Lessee to render interim reports to Registrant, so no
Additional Rent income is reflected for the period between the end
of the Lease year and the end of Registrant's fiscal year. See
Note 4 of Notes regarding Additional Rent payments by Original
Lessee for the fiscal years ended December 31, 1995, 1994 and
1993.
The current term of the Lease expires on April 30, 2007,
and the Lease is subject to the renewal option described above.
Pursuant to the Lease, the lessee thereunder has the option of
surrendering its leasehold interest, at any time, upon 60 days'
prior written notice without further liability after the date of
surrender. In addition, the New Lessee has the right to assign
the Lease, without Registrant's consent, so long as the assignee
assumes, in writing, all of the obligations of the Lease.
(c) The First Mortgage Loan
On March 23, 1995, Registrant entered into a
Modification and Extension Agreement (the "Modification"), as of
December 1, 1992, with Apple Bank concerning the Mortgage Loan,
which was originally made on November 30, 1987 in the principal
amount of $3,485,000. The Mortgage Loan is secured by a first
mortgage on the Property.
The principal terms of the Modification are as follows:
Date: As of December 1, 1992.
Amount as of the
effective date of
the Modification: $3,376,340.61.
Term: Five years, maturing on December 1, 1997.
Interest Rates: 10.0% per annum from December 1, 1992
through October 31, 1993;
10.50% per annum from November 1, 1993
through November 30, 1994; and
-4-<PAGE>
10.60% per annum from December 1, 1994
through December 1, 1997.
Monthly
Payments: $36,282.33 from January 1, 1993 through
November 1, 1993;
$37,276.35 from December 1, 1993 through
December 1, 1994; and
$37,465.52 from January 1, 1995 through
December 1, 1997.
Prepayment
Privilege: The Mortgage Loan is prepayable at any time in
whole only, without penalty, on 60 days' prior
written notice.
The following provisions from the Mortgage Loan before
the Modification continue to be applicable:
Liability: No Partner has personal liability for the
obligation under the Mortgage Loan to pay
principal and interest;
Due on Sale: Upon a sale or further encumbrance of the
Property without Apple Bank's consent, the
Mortgage Loan will become immediately due and
payable; and
Lease: No modification or cancellation of the Lease
is permitted without Apple Bank's consent.
At the closing of the Modification, Registrant paid
Apple Bank $247,122.87 for principal and interest due from
December 1, 1992 to March 31, 1995 (including the April 1, 1995
monthly payment); $8,450.00 in payment of Apple Bank's legal fees,
and $5,913.00 in payment of miscellaneous closing charges
(including mortgage insurance, recording fees and searches).
Prior to the Modification, the Mortgage Loan provided
for constant annual payments of $348,500, in equal monthly
installments applicable first to interest and then to principal.
The Mortgage Loan matured on December 1, 1992 and had been the
subject of various extensions at various interest rates.
(d) Competition
Currently, tenant space leases at the Property are
offered at an average annual base rental of approximately $18.00
per square foot (exclusive of electricity charges and escalation).
Space tenants provide their own cleaning. The average asking
rental rate and other financial terms for space leases at the
Property appear to be competitive with the average rental rates
-5-<PAGE>
charged by similar buildings currently offering comparable space
in the immediate vicinity.
Based on market information believed to be accurate, the
Partners offer the following information regarding near-by
properties: A neighboring office building located at 485 Seventh
Avenue (at 36th Street), which offers small showrooms and has
upgraded interior features, is offering tenant space at rental
rates between $18.00 and $25.00 per square foot. Two similar
buildings approximately the same age as the Property, which are
located across 39th Street from each other at 530 Seventh Avenue
and 550 Seventh Avenue and have traditionally been the
headquarters for manufacturers of higher price women's apparel,
currently offer tenant space at rental rates between the mid $20's
to high $30's per square foot. At 1407 Broadway and 1411
Broadway, buildings which offer more modern, upgraded amenities
than the Property, current rental rates are in the high $30's per
square foot.
In the overall rental market for commercial space in
Manhattan, rents range from approximately $45 per square foot for
prime office space to approximately $7 per square foot in less
developed industrial and/or secondary commercial areas. Accord-
ingly, rents at the Building may be considered competitive in the
area, given the relative condition of surrounding buildings and
the nature of services, amenities and office space offered by them
as compared to the Building.
(e) Tenant Leases
The New Lessee operates the Building free from any
federal, state or local government restrictions involving rent
control or other similar rent regulations which may be imposed
upon residential real estate in Manhattan. Any increase or
decrease in the amount of rent payable by a tenant is governed by
the provisions of the tenant's lease.
Item 2. Property.
Registrant owns the Building located at 498 Seventh
Avenue, New York, New York, known as the "Garment Capitol
Building," and the land thereunder. See Item 1 hereof.
Registrant's fee title to the Property is encumbered by the
Mortgage Loan with an unpaid principal balance of [] $2,976,474.30 |
at [] July 26, 1996 (excluding the amount of protective advances |
made under the Mortgage Loan to pay certain Real Estate Taxes). |
For a description of the terms of the Modification of the Mortgage
Loan, see Item 1 hereof and Note 3 of the Notes. The Building,
erected in 1921 and containing 24 floors, stands on the southwest
corner of Seventh Avenue and 37th Street in New York City's
Garment District. The Building contains office, showroom and loft
-6-<PAGE>
space. The Building is equipped with individual air-conditioning
units and has 11 passenger elevators and 10 freight elevators.
The Building is leased to the New Lessee under the Lease, the
initial term of which expired on April 30, 1982 and which contains
two 25-year renewal options, the first of which was exercised on
January 7, 1981. See Item 1 hereof for additional information
concerning the Lease.
Item 3. Submission of Matters to a Vote of Participants. |
The Partners are in the process of [] soliciting the |
consents of Participants to authorize a sale of the Property which |
includes forebearance in favor of the New Lessee. The details of
the Partners' proposal [] are provided in the statement [] issued |
by the Partners on July 26, 1996 in connection with the |
solicitation (see item 1(a) above).
-7-<PAGE>
PART II
Item 4. Management's Discussion and Analysis of |
Financial Condition and Results of Operation.
Registrant was organized solely for the purposes of
acquiring the Property subject to the Lease. Registrant is
required to pay from Basic Rent the mortgage charges and
supervisory services and to distribute the balance of such Basic
Rent to the Participants. Pursuant to the Lease, the holder of
the leasehold interest thereunder, now the New Lessee, has sole
responsibility for the condition, operation, repair, maintenance
and management of the Property. Registrant need not maintain
substantial reserves or otherwise maintain liquid assets to defray
any operating expenses of the Property. In fact if Registrant |
accumulated cash reserves by withholding or reducing distributions |
to the Participants from Basic Rent or Additional Rent, the |
Participants would suffer adverse tax consequences because the |
amounts held back by Registrant would nevertheless be taxable to |
the Participants. |
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Lease.
The following summarizes the material factors affecting
Registrant's results of operations for the three preceding years:
(a) Total income decreased for the year ended December 31,
1995 as compared with the year ended December 31, 1994.
Such decrease is directly attributable to the reduction
in dividend income earned [] on funds invested with |
Fidelity U.S. Treasury Income Portfolio in the year |
1995. Total income decreased for the year ended
December 31, 1994 as compared with the year ended
December 31, 1993. Such decrease is mainly attributable
to the fact that no Additional Rent was received by
Registrant in 1994. See Note 4 of the Notes.
(b) Total expenses decreased for the year ended December 31,
1995 as compared with the year ended December 31, 1994.
Such decrease was the net result of (i) a decrease in
interest expense on the Mortgage Loan and (ii) an
increase in amortization of mortgage refinancing costs.
See Notes 2(c) and 3. Total expenses decreased for the
year ended December 31, 1994 as compared with the year
ended December 31, 1993. Such decrease was the net
result of (x) a decrease in the additional payment for
supervisory services payable in 1994, (y) an increase in
interest expense on the Mortgage Loan and (z) an
-8-<PAGE>
increase in the amortization of mortgage refinancing
costs. See Notes 2(c), 3, 4 and 5 of the Notes.
Registrant is aware of the following events. The
Original Lessee operated the Property at a substantial loss during
the years ended December 31, 1995 and December 31, 1994. In 1994
and 1995, the Original Lessee made capital calls on its partners
in the aggregate amount of $1,300,000 to defray certain operating
expenses and improvement costs at the Property. In addition, |
shareholders in the New Lessee (or their designees) borrowed |
approximately $1,000,000 to fund the protective advance under the |
Fee Mortgage to pay the 1/1/96 Real Estate Taxes and approximately |
$1,000,000 to fund the protective advance under the Fee Mortgage |
to pay the 7/1/96 Real Estate Taxes. |
The downturn and changes in methods of operations in the
garment industry have had and will continue to have a major impact
on the Property and its operations and profitability. Registrant
has been advised that the loss of tenants at the Property and the
related reduction in rent received are primarily due to
insolvencies affecting tenants in the garment business and reduced
demand for space.
The New Lessee has the right to abandon or assign its
interest in the Lease (see Item 1 above). No assurance can be
provided that the New Lessee will not exercise its right to
terminate the Lease in the future but, if the New Lessee does so,
it will lose its right to share in sales proceeds (assuming a sale
is approved on the terms of the proposed solicitation of consents
(see Item 4 above) and continued forbearance granted to New
Lessee). The Partners believe that, if the Lease is terminated
for any reason, Registrant will be able to sell the Property for
an amount in excess of the Mortgage Loan, including any protective
advances made thereunder, and future Real Estate Taxes.
Liquidity and Capital Resources
There has been no significant change in Associates' |
liquidity for the twelve-months period ended December 31, 1995, as |
compared with the twelve-months period ended December 31, 1994, or |
for the three month period ended March 31, 1996 as compared to the |
same period in 1995. If the Sale Program is not approved by the |
Participants, then, when the Fee Mortgage falls due on December 1, |
1997, Associates would be required either to refinance the Fee |
Mortgage or raise new capital from the Participants to repay the |
balance then due. Whether the Fee Mortgage can then be refinanced |
is speculative but the Agents note the difficulty Associates faced |
in refinancing the Fee Mortgage when it last matured in 1992. |
Inflation
-9-<PAGE>
Inflationary trends in the economy do not directly
affect Registrant's operations, since as noted above, Registrant
does not actively engage in the operation of the Property.
Inflation may affect the operations of the New Lessee. The New
Lessee is required to pay Basic Rent, regardless of the results of
its operations. Inflation and other operating factors affect only
the amount of Additional Rent payable by the New Lessee, which is
based on the New Lessee's net operating profit.
Inflationary trends in the economy should have no
material impact on the possible sale of the Property.
-10-<PAGE>
Item 6.
GARMENT CAPITOL ASSOCIATES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Basic rent income................ $1,090,000 $1,090,000 $1,090,000 $1,090,000 $1,090,000
Additional rent income........... - - 1,010,196 1,986,498 3,026,069
Dividend income.................. 3,027 7,994 1,683 - -
Total revenue................. $1,093,027 $1,097,994 $2,101,879 $3,076,498 $4,116,069
Net income....................... $ 693,538 $ 691,708 $1,634,085 $2,480,001 $3,414,459
Earnings per $5,000 participation
unit, based on 1,050 participa-
tion units outstanding during the
year............................ $ 661 $ 659 $ 1,556 $ 2,362 $ 3,252
Total assets..................... $2,642,224 $2,865,967 $2,786,398 $2,619,338 $2,608,657
Long-term obligations * ......... $2,912,936 $ - $ - $ - $ -
Distributions per $5,000 par-
ticipation unit, based on 1,050
participation units outstanding
during the year:
Income........................ $ 583 $ 583 $ 1,342 $ 2,360 $ 3,251
Return of capital............. - - - - -
Total distributions........... $ 583 $ 583 $ 1,342 $ 2,360 $ 3,251
</TABLE>
* As described in Note 3 to the Financial Statements, the mortgage
modification retroactive to Decemnber 1, 1992 was closed on
March 23, 1995. As of December 31, 1991 and at December 31 for
the succeeding three years, the mortgage debt ws deemed as current
while the negotiations continued.
-11-<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to a Power of Attorney, dated
April 10, 1996 (the "Power").
GARMENT CAPITOL ASSOCIATES (Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: August 21, 1996 |
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the undersigned as
Attorney-in-Fact for each of the Partners in Registrant, pursuant
to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: August 21, 1996 |
______________________
* Mr. Katzman supervises accounting functions for Registrant.
-12-<PAGE>
EXHIBIT INDEX |
Registrant is not filing any exhibits as part of this |
amended Form 10-K/A. |
-13-<PAGE>
