SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act
of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ X ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c)
or 240.14a-12
..........Navarre-500 Building Associates..........
(Name of Registrant as Specified In Its Charter)
...............................................
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies: Participations
2) Aggregate number of securities to which transaction
applies: [____]
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is
calculated and state how it was determined): The fee
is equal to 1/50th of 1% of the assumed fair market
value of the Property, which is presumed to be the
aggregate of the cash to be received by the Registrant.
4) Proposed maximum aggregate value of transaction:
[$_____]
5) Total fee paid: $8,000
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
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which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH THE
SOLICITATION OF CONSENT AND AGREEMENT OF THE
PARTICIPANTS
Dated November __, 1998
This Statement relates to the Solicitation of Consent and Agreement of the
Participants in Navarre-500 Building Associates ("Associates") by Peter L.
Malkin and Thomas N. Keltner, Jr., as Agents ("Agents") for the Participants, in
connection with the Sale Program described below.
It is anticipated that this Statement and the accompanying form of Consent
and Agreement will be mailed to the Participants on November __, 1998. The
Solicitation will terminate on December 31, 1998 unless subsequently extended,
but in no event later than March 31, 1999, and any consents given before such
termination date will thereafter remain in effect on the terms hereof. The
Agents will advise all Participants of the Solicitation results as soon as
practicable, but in no event later than 90 days after the termination date noted
above, including any extension.
Sale of the Leasehold
Associates was formed in 1958 to acquire and own the master lease (the
"Leasehold") of the property known as 500 Seventh Avenue, 512 Seventh Avenue and
228 West 38th Street in New York City (collectively, the "Property"), subject to
a long-term operating net sublease (the "Operating Lease") to 500-512 Seventh
Avenue Associates (the "Lessee"). Fee ownership of the Property is held by an
unrelated third party. The Leasehold and the Operating Lease can be extended
through 2045.
The Agents recommend that the Participants consent to the following
program (collectively the "Sale Program"):
(a) Authorizing the Agents to sell the Leasehold and all Associates' interest
in the Property by transfer of real property or by transfer of direct or
indirect interests in Associates to a third party at such price and on such
terms as determined by the Agents as fiduciaries; and
(b) In a case in which the Lessee joins with Associates in a sale, allocating
the net sale proceeds between Associates and the Lessee pursuant to the
distribution schedule computed by an independent expert and recommended by the
Agents as described in this Statement.
The Agents believe that the Property requires major capital improvements
to be competitive. The Sale Program will permit Associates to liquidate its
investment very profitably and avoid the necessity of raising additional capital
from the Participants or others to support and renovate the Property. The sale
market is currently strong, and joining with the Lessee in sale may create a
premium price for both Associates and the Lessee.
THE AGENTS RECOMMEND THAT EACH PARTICIPANT CONSENT TO THE SALE PROGRAM.
Incentive Compensation
Wien & Malkin LLP has supervised this investment from its creation in 1958
and has developed the program for marketing the Leasehold for joint sale with
the Lessee. As previously approved by the Participants, Wien & Malkin LLP
receives from Associates (a) an annual supervisory fee of $40,000, from which it
pays Associates' accounting fees and other disbursements, and (b) incentive
compensation of 10% of the distributions to Participants in any year in excess
of 23% of the original investment. Incentive compensation was last paid for the
lease year ending June 1997.
In performing its calculations to determine the allocation between
Associates and the Lessee, Cushman & Wakefield independently determined the
value attributable to Wien & Malkin LLP's supervisory interest. In lieu of the
existing formula for incentive compensation, the Agents recommend that each
Participant voluntarily, and only as to his or her own distributions, agree that
Wien & Malkin LLP should receive the share of sale distributions determined by
Cushman & Wakefield, as specified in the Statement.
THE AGENTS RECOMMEND THAT EACH PARTICIPANT AGREE TO THE VOLUNTARY INCENTIVE
COMPENSATION.
I. Background
A. Organization of Associates
Associates was organized as a New York partnership in 1958 by the
late Lawrence A. Wien for the purpose of acquiring the Leasehold subject to the
Operating Lease. The original partners in Associates joined in a public offering
to the Participants of the economic interests in Associates. Peter L. Malkin
and Thomas N. Keltner, Jr. of Wien & Malkin LLP ("W&M LLP") are the current
partners in Associates and serve as Agents on behalf of the Participants. (See
Section IV.A. - Supervisory Services). Under the Participating Agreements
pursuant to the original offering, the Participants have the right to approve or
disapprove certain decisions, including sale of the Leasehold and modification
of the Operating Lease. The required percentage of Participants is described in
Section VII. - Terms of Solicitations of Consents.
B. Operating Lease
The Operating Lease provides that the Lessee will pay all operating
expenses and real estate taxes, will make necessary repairs and replacements,
and will keep the Property adequately insured for liability and casualty. The
Operating Lease does not require the Lessee to make new capital improvements to
the Property.
Under the Operating Lease, the Lessee must pay to Associates (i) annual basic
rent of $1,167,500 (the "Basic Rent") and (ii) additional rent for each lease
year ending June 30, equal to 50% of the Lessee's net profit in excess of
$620,000 for such lease year (the "Additional Rent"). No Additional Rent was
payable for the lease year ended June 30, 1998. From the Basic Rent received by
it, Associates must pay $487,500 as Leasehold rent due to the unrelated fee
owner. See Section I.F. - Financial Information.
The Leasehold and the Operating Lease each have a term which expires in 2024 and
may be renewed through 2045. The Lessee is current in all its obligations to
Associates.
C. The Property
Located in the heart of New York City's "Garment Center," the
Property contains showroom, office and loft space, which historically has been
used by manufacturers of women's apparel.
500 Seventh Avenue was completed in 1921 and contains 17 stories, including
ground floor retail space. It has net rentable area of about 605,000 square
feet.
512 Seventh Avenue is a 44-story building, with ground floor retail space, which
was completed in 1931. It has net rentable area of about 505,000 square feet.
228 West 38th Street is a five-story 1925 building with about 10,000 square
feet, which serves primarily as a light protector for 500 Seventh Avenue.
Currently, space leases at the Property are at annual base rentals
generally in the range of $15.00 to $25.00 per square foot (exclusive of
electricity charges and escalation). Tenants provide their own cleaning. As of
November 1, 1998, the Property's occupancy rate is about 68%.
In a pending proceeding, W&M LLP and Peter L. Malkin are now seeking
to remove Helmsley-Spear, Inc. as managing agent of the Property and to appoint
a replacement at a competitive market standard of performance.
D. Competition
Unrenovated buildings tend to have lower occupancies than the renovated or more
modern structures. Garment industry demand for space has been declining over
the past decade. Continuing business failures and consolidations have reduced
the number of garment industry companies which maintain space in the Garment
Center. For the remaining companies, changed methods of operation and
manufacturing have reduced space requirements. As a result, buildings in the
Garment Center have been or are being improved for general offices, rather than
for garment industry showrooms.
E. Real Estate Sale Market
Sale prices for commercial office property in Manhattan have risen strongly over
the last several years. In spite of declining space requirements for the
garment industry in the Garment Center, sale prices there have been strengthened
by the general price rise in Manhattan, the major new property investments by
entertainment, communications and financial companies in the Times Square and
Penn Station office districts adjacent to the Garment Center, the shortage of
space in these adjacent areas, and the redevelopment and new leasing of vacant
Garment Center space for office users.
Certain other properties in the Garment Center are being offered for sale by
investment entities originated and supervised by W&M LLP under a sale program
similar to that described in this Statement. One property in the Garment Center
was offered and sold at a favorable price in 1997 under a sale program similar
to that described in this Statement.
F. Financial Information
Associates acquired the Leasehold subject to the Operating Lease on
July 1, 1958 for $3,200,000, all cash. There is no mortgage on the Leasehold,
and Associates has no debt for borrowed money.
Basic Rent received by Associates at the annual rate of $1,167,500 is applied to
pay $487,500 for annual Leasehold rent to the fee owner, $40,000 for the annual
supervisory fee to W&M LLP, and $640,000 for distributions to the Participants.
Any Additional Rent received by Associates is applied to make additional
distributions to the Participants, together with any related payment of
incentive compensation to W&M LLP.
During 1998, no Additional Rent is payable, and Participants are therefore
expected to receive total distributions representing an annual return on their
original cash investment at the rate of 20%. For the years 1997 and 1996, the
Participants received total distributions representing an annual return on such
investment of 46% and 50%, respectively. These percentages were calculated by
dividing the cash distributions to Participants for the applicable year by the
Participants' original cash investment in the Leasehold ($3,200,000). Certain
Participants may have purchased their interests after the 1958 offering for
amounts other than the original offering price, and their rates of return on
investment would thus be different.
As previously approved, W&M LLP receives incentive compensation from Associates
equal to 10% of the distributions to Participants in any year in excess of 23%
of the original investment. Accordingly, W&M LLP received incentive
compensation of $81,828 for the lease year ended June 1997 and $97,525 for the
lease year ended June 1996.
Attached are audited balance sheets of Associates as of December 31, 1997,
December 31, 1996, and December 31, 1995, and the related statements of income,
partners' capital deficit and cash flows for each of the three years in the
period ended December 31, 1997. Also attached is a table showing selected
financial data for the five most recent, completed fiscal years of Associates
("Financial Statements"). In addition, unaudited condensed balance sheets as of
March 31, 1998 and June 30, 1998 and the related condensed statements of income
and cash flows for each of the periods ended March 31, 1998 and June 30, 1998
are also enclosed ("Quarterly Financial Statements"). See Section VI. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Jacobs Evall & Blumenfeld, LLP, CPA's, has served as Associates' independent
certified public accountants exclusively in connection with Securities and
Exchange Commission ("SEC") filings, which include the examination of financial
statements and consultations relating to professional and regulatory accounting
matters. Such accountants provide no other services to Associates.
II. Sale Program
A. Grant of Discretionary Authorization
to the Agents; Rationale for the Sale Program
The Agents seek discretionary authority from the Participants to
implement the Sale Program and, in the case of a joint sale by Associates and
the Lessee, the allocation of the net sale proceeds between Associates and the
Lessee as described in this Statement. See Section II.B. - Recommendations.
The Agents will seek the best price and terms but there is no minimum sale
price, and the Leasehold will be sold for such price and on such terms as the
Agents may determine. The Agents will act by unanimous agreement among
themselves in determining the price and other terms of sale. The Lessee is
concurrently soliciting authorization for the sale, conditioned only upon the
approval of the Participants to the Sale Program outlined in this Statement.
The allocation of sale proceeds between Associates and the Lessee will be in
accord with the schedule computed by an independent expert as specified in this
Statement.
As the Agents are aware based on information distributed from the Fashion Center
Business Improvement District (of which Mr. Malkin is a director) and the Real
Estate Board of New York (of which Mr. Malkin is a member of the Board of
Governors), and from other information available generally, the space needs of
the garment industry in Manhattan have changed dramatically since Associates
acquired the Leasehold in 1958. The design of the buildings at the Property
generally features very large, deep floors. Large showrooms and manufacturing
space, once the hallmark of garment firms operating in New York City and for
which the buildings are well-suited, are generally no longer required. Many U.S.
garment manufacturers failed in the face of foreign competition, and others
moved operations to lower- cost locations. Fashion firms which remain in
Manhattan typically maintain only small showrooms and limited offices in the
City. The Agents estimate that more than 10 times Associates' original cash
investment will be required to modify the Property to general offices.
The Property's occupancy has declined as the garment industry has contracted.
Without materially reconfiguring the internal space in the buildings to reflect
these changes in the garment industry or for an alternative use, the Agents
believe it is likely that the Property's profitability will decline. Additional
capital investment by the Lessee or the Participants cannot be compelled and
would be inconvenient or impossible for many Participants. The risks of
investing substantial new capital and of determining which use would be
profitable are not alternatives that the Agents recommend to the Participants.
See Section II.C. - Consideration of Alternatives.
The market for sale in the Garment Center has been strengthened by a rising
commercial office market in Manhattan, the significant new investment in the
nearby Times Square and Penn Station office districts, the shortage of space in
these adjacent areas, and the redevelopment and new leasing of vacant Garment
Center space for office users. Based upon current market conditions, the Agents
believe that implementation of the Sale Program is the best way for the
Participants to maximize the value of their investment. See Section VI. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
B. Recommendations
Based on the foregoing review of the current situation at the
Property -- (See Section I.D. - Competition; Section I.E. - Financial
Information; and Section II.A. - Grant of Discretionary Authorization to the
Agents; Rationale for the Sale Program -- and the assessment of various
alternatives by the Agents -- See Section II.C. - Consideration of Alternatives)
- -- the Agents recommend that the Participants approve the Sale Program. The
Participants are reminded that, if the Sale Program is approved, a portion of
the net sale proceeds to be distributed to the Lessee will be shared by one of
the Agents for the Participants, Peter L. Malkin, as an owner of 1.477% of the
interests in the Lessee. See Section IV. - Supervisory Services; Potential
Conflicts of Interest. The Agents will effect the liquidation of Associates
after the sale is concluded, Associates' net sale proceeds are distributed to
the Participants, and Associates' affairs are wound up. Approval by the
Participants of the Sale Program will empower the Agents with discretionary
authority to implement the Sale Program and to liquidate Associates thereafter.
1. Sale
An original Participant who initially invested $10,000 in 1958 has received
aggregate cash distributions of $186,488 through November 1, 1998. The
Participants in Associates have enjoyed a very successful venture for the last
40 years. The Agents now recommend that a sale of the Leasehold be concluded for
the reasons and on the terms outlined in this Statement.
The Agents do not believe it is beneficial to set a minimum price
for the sale of the Leasehold. The setting of a minimum price may inhibit buyers
from bidding aggressively. The Agents believe that a thorough marketing effort
without disclosure of a minimum or target price should likely yield the best
possible result in a reasonable time. To assure a timely and effective marketing
campaign pending approval of the Sale Program pursuant to this Statement, the
Agents and the Lessee have engaged Eastdil to prepare marketing materials for
the possible sale of the Leasehold. Eastdil will also distribute the marketing
materials and will assist in the preparation of advertisements for placement in
appropriate newspapers and other periodicals and journals. All of the marketing
materials, distribution lists, advertisements and other marketing activities to
be proposed by Eastdil are subject to prior review and approval by the Agents on
behalf of Associates and by the Lessee.
In consideration of its services as marketing representative, Eastdil will
receive a fee of 1.5% of the sale price upon conclusion of sale and will bear
all of its own expenses in connection with marketing and sale. The fee to
Eastdil will be an expense of sale.
2. Allocation of Sale Proceeds
The determination of the proper allocation of net sale proceeds among Associates
as owner of the Leasehold and W&M LLP as supervisor and, in the case of a joint
sale with the Lessee, the Lessee as owner of the Operating Lease depends upon
the respective values of their interests in the Property. To assure an
appropriate allocation, an opinion has been obtained from a prominent,
independent real estate appraisal expert, Cushman & Wakefield ("C&W"). Each
Participant's agreement to the W&M LLP incentive compensation recommended in
this Statement is a mutual voluntary agreement binding only upon the Participant
and W&M LLP in place of any other W&M LLP supervisory entitlement to such
Participant's share of sale proceeds.
C&W was selected by the Agents in consultation with representatives of the
Lessee other than Mr. Malkin, because C&W has recognized expertise and is
independent of the Agents, the Lessee, W&M LLP, and Eastdil. C&W reached the
conclusions embodied in its report (the "Report") addressed to Associates, the
Lessee and W&M LLP, as summarized below.
The proposed allocation of sale proceeds among Associates, the
Lessee, and W&M LLP as supervisor was based primarily upon (a) stated
assumptions of potential sale prices, (b) determination of the projected net
income required to justify the assumed sale prices, reflecting appropriate
capitalization rates and capital costs, and (c) apportioning of such projected
net income between Associates and the Lessee in accord with the Operating Lease.
The only special instruction provided to C&W in seeking its conclusion was that
it assume that Associates' and the Lessee's entire interest in the Property
would be sold as a unified whole. In reaching its conclusions, C&W determined
that, of the three conventional approaches to value - Cost, Sales Comparison and
Income Capitalization - only the Income Capitalization approach was appropriate,
because it is the methodology most often used by investors for this type of
property. The Report is available for inspection and copying at the offices of
W&M LLP (on behalf of Associates), 60 East 42nd Street, New York, New York,
during regular business hours by any Participant or his representative who has
been so designated in writing. Appointments to inspect and copy the Report may
be made by contacting Stanley Katzman, Esq., at 212-687-8700.
The formula in the Report allocates sale proceeds, after closing expenses, among
Associates, the Lessee, and W&M LLP as supervisor as follows:
Amount of Net Sale Proceeds Percentage Percentage Percentage
after Expenses of Sale to Associates to Lessee To W&M LLP
Up to first $25,000,000 __% __% __%
of net sale proceeds
Next $10,000,000 of net sales __% __% __%
proceeds ($25,000,001
to $35,000,000)
Next $10,000,000 of net sales __% __% __%
proceeds ($35,000,001
to $45,000,000)
Next $10,000,000 of net sales __% __% __%
proceeds ($45,000,001
to $55,000,000)
Net sale proceeds in __% __% __%
excess of $55,000,000
The following chart shows four examples of the distribution of sale proceeds
between Associates, W&M LLP and the Lessee using the Agents' recommended
allocation formula in accord with the Report of C&W. The assumed net sale
proceeds, after expenses, are shown at the top of each column.
Net sale proceeds $40,000,000 $50,000,000 $60,000,000 $70,000,000
Allocation:
Associates:
Lessee:
W&M LLP:
The Lessee has agreed that Associates shall receive as a
priority, applied against Associates' share pursuant to the allocation formula,
a return of the full cash investment of the Participants from the net proceeds
of the sale.
The estimated distribution amount for each Participant after payment of the
incentive compensation is as shown below:
<TABLE>
<S> <C> <C> <C> <C>
Hypothetical
Sale Price
Allocable to
the Leasehold $40,000,000 $50,000,000 $60,000,000 $70,000,000
Estimated Net
Sale Proceeds
Distributable
to $10,000
Participant $__________ $__________ $__________ $__________
Incentive
Compensation
to W&M LLP $__________ $__________ $__________ $__________
Net Amount to
$10,000
Participant
after
Incentive
Compensation $__________ $__________ $___________ $___________
</TABLE>
To the extent that any Participant does not agree to the
W&M LLP incentive compensation as recommended in this Statement and described
above, the allocation of sale proceeds to the Lessee pursuant to any joint sale
by Associates and the Lessee will be unchanged, and the allocation between
Associates and W&M LLP will be subject to Associates' pre-existing obligations,
then applicable, to W&M LLP. See "Incentive Compensation".
There can be no assurance that the sale results described in these
examples will be achieved. The Agents have received informal indications of
interest which indicate a likelihood that sale of the Leasehold might be
concluded 60-120 days after approval of the Sale Program by the Participants.
3. Liquidation
After the Leasehold is sold, Associates' net sale proceeds are distributed to
the Participants, and Associates' business affairs are wound up (which would
occur promptly thereafter), Associates will be liquidated by the Agents.
Associates' only business authorized by its partnership agreement, the ownership
of the Leasehold subject to the Operating Lease, will then have ended, and there
would be no reason to continue Associates' existence. If Associates were not
liquidated at that point, it would continue to incur expenses for such items as
accounting reports and SEC filings but would have no income to pay those costs.
C. Consideration of Alternatives
The Agents considered various alternatives to the Sale Program described in this
statement: (a) continuation of the existing capitalization and operating format
for the Property and (b) Property redevelopment through additional capital
provided by Associates and/or the Lessee and/or third party sources such as a
mortgage lender. At present, each alternative has been rejected by the Agents
in favor of the Sale Program.
If Associates were to continue to own the Leasehold subject to the Operating
Lease on the existing format without improving the Property, the Agents believe
it is likely that the profitability of the Leasehold would continue to decline,
because garment industry space demand has declined and the Property in its
current condition is not competitive for general office tenants.
Alternatively, if Associates were to join in financing substantial improvements
to the Property by (a) borrowing directly or (b) inducing Lessee contributions
by reducing rent payable to Associates or (c) permitting new mortgage debt on
the Property to be serviced from revenues otherwise payable as rent to
Associates, then there would be an effective reduction in the net distributions
to the Participants until such time, if any, as the additional revenue generated
by the Property improvements caused Additional Rent payable to Associates to
offset Associates' accumulated rent reductions and debt service. Given the
speculative and long term prospect for such a program compared with the current
high level of sale prices for property in this location, the Agents recommend
sale of the Leasehold rather than direct or indirect reinvestment in the
Property.
III. Certain Tax Consequences of the Sale Program and Liquidation
When the Leasehold is sold, an original Participant will report long-term
capital gain in an amount equal to the excess of (a) the sale proceeds received
by such Participant over (b) the book value of such Participant's participation
as of the date of sale. As of December 31, 1997, the book value of each original
$10,000 participation was $704. The maximum federal income tax rate on long-term
capital gains for individual investors is currently 20%. Prior depreciation
deductions are taxed at a maximum federal income tax rate of 25%.
Whether or not a Participant is a New York State resident, any gain resulting
from sale of the Leasehold will be subject to New York State income taxes. The
gain also may be subject to taxation by the state in which a Participant
resides. Most states will allow a credit for all or a portion of the tax paid
to New York State. If the Participant is a New York City resident, the gain also
will be subject to the New York City income tax.
There is no additional tax consequence for an original Participant resulting
from the liquidation of Associates following the distribution to Participants of
net sale proceeds paid to Associates. A non-original Participant will recognize
additional gain or loss upon such liquidation depending upon the tax basis of
his or her interest in Associates.
IV. Supervisory Services; Potential Conflicts of Interest
A. Supervisory Services
No remuneration is paid by Associates to any of the Agents as such. The Agents
are members of W&M LLP, which receives an annual supervisory fee for legal,
administrative and financial services. The legal and administrative services
include acting as general counsel to Associates, maintaining its partnership
records, performing physical inspections of the Property, reviewing insurance
coverage, conducting annual partnership meetings, issuing reports to the
Participants, and administrative oversight of special transactions such as the
proposed Sale Program. Financial services include monthly receipt of rent from
the Lessee, payment of monthly and additional distributions to the Participants,
payment of all other disbursements, confirmation of the payment of real estate
taxes, review of financial statements submitted to Associates by the Lessee and
of audited financial statements and tax information prepared by Associates'
independent certified public accountants, and distribution of such materials to
the Participants. W&M LLP also prepares quarterly, annual and other periodic
filings with the Securities and Exchange Commission and applicable state
authorities.
As approved by the Participants, W&M LLP receives (a) $40,000 per
annum as a supervisory fee, from which W&M LLP pays Associates' accounting fees
and other disbursements, and (b) incentive compensation equal to 10% of the
distributions to the Participants in any year in excess of 23% of the original
investment. No incentive compensation was payable to W&M LLP in 1998.
W&M LLP serves as supervisor and counsel to Associates and the Lessee, including
representing Associates and the Lessee (with any other co-counsel designated for
either of them) in connection with the sale proposed in this Statement. As a
result, W&M LLP may also receive legal fees and supervisory incentive
compensation from the Lessee in connection with the proposed sale.
B. Certain Ownership of Participations
As of November 1, 1998, the Agents beneficially owned, directly or
indirectly, the
following participations (expressed as original cash investment):
Amount of
Beneficial Percent
Title of Class Name of Agents Ownership of Class
Participations
in Partnership
Interests Peter L. Malkin $33,125 0.010352%
Thomas N. Keltner, Jr. $ -0- -0-
Members of Mr. Malkin's family owned an additional $42,500 of participations.
Mr. Malkin owns of record certain additional participations as trustee, as to
which he disclaims any beneficial ownership.
A member of Mr. Keltner's family owns $2,500 of participations.
Other members of W&M LLP, their spouses and children, and trusts in which they
have beneficial interests own an aggregate of $9,318 of participations.
C. Certain Ownership and Voting of Interests in the Lessee
Peter L. Malkin owns 1.477% of the beneficial interests in the
Lessee, and he has discretionary authority to vote on behalf of 50% of the
beneficial interests in the Lessee. All major actions by the Lessee, such as
its agreement to join in a sale of the Property and to approve the allocation of
sale proceeds, require an affirmative vote of 75% in interest of the partners in
join in the Sale Program described in this Statement.
D. Potential Conflicts of Interest
The sale proceeds from the Property will be allocated between
Associates and the Lessee as computed in the Report of C&W and described above
(See Section II.B.2.- Allocation of Sale Proceeds).
C&W is independent and not affiliated with any party to the proposed
Sale Program or this investment. It has received from Associates and the Lessee
an indemnity regarding any challenge to the sale proceeds allocation recommended
by it. No other independent party has reviewed the transactions described
herein.
W&M LLP acts as supervisor for both Associates and the Lessee.
It has received from Associates and the Lessee an indemnity regarding any
challenge to the Sale Program, including the sale proceeds allocation
recommended herein between Associates and the Lessee. Its members and their
families own beneficial interests in both Associates and the Lessee. Both of
the Agents are members of W&M LLP.
The Agents receive no extra or special benefit for their service as such. They
will share in the proceeds of sale of the Leasehold received by Associates only
to the extent that they beneficially hold participations in Associates or
interests in the Lessee. Each Agent is entitled to be indemnified by Associates
to the extent provided by applicable law. Each Agent, as a member of W&M LLP,
will share in any fee received by that firm for its services to Associates and
any incentive compensation approved by the Participants. Neither the Agents, as
such, nor W&M LLP will share in any other proceeds of a sale.
V. Fees and Expenses
All fees and expenses relating to development and implementation of the Sale
Program, the Solicitation hereunder, and the Report of C&W will be treated as
expenses of sale and will be paid from funds derived from the sale of the
Leasehold after payment of certain of such expenses by Eastdil. If the Sale
Program is not approved, fees and expenses of C&W will be paid by the Lessee as
an operating expense under the Operating Lease, and other costs of Associates
related to this Solicitation will be paid from rents paid to Associates by the
Lessee under the Operating Lease.
VI. Management's Discussion and Analysis of Financial Condition and Results of
Operations
A. Operating Revenues; Distributions
Associates was organized solely for the purposes of acquiring the Leasehold
subject to the Operating Lease. Associates is required to pay from Basic Rent
the Leasehold rent due to the unrelated fee owner and the basic supervisory fee.
Associates distributes to the Participants the balance of Basic Rent, plus any
Additional Rent, after payment of any applicable incentive compensation to W&M
LLP.
Pursuant to the Operating Lease, the Lessee assumes sole responsibility for the
condition, operation, repair, maintenance and management of the Property.
Associates does not maintain reserves to defray operating expenses of the
Property. See Section II.C. - Consideration of Alternatives. If Associates
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 by Associates would
nevertheless be taxable to the Participants.
Distributions by Associates depend solely on the payment by the Lessee of Basic
Rent and Additional Rent in accordance with the terms of the Operating Lease.
Associates expects to make the monthly distributions so long as it receives the
payments of Basic Rent under the Operating Lease. During the twelve months ended
December 31, 1997, and in the first nine months of 1998, Associates made regular
monthly distributions at the annual rate of $2,000 for each original $10,000
participation. Because no Additional Rent was paid to Associates for the lease
year ended June 30, 1998, it is projected that there will be no additional
distribution in 1998 above the basic 20% annual return on original investment.
See Section I.F. - Financial Information. The annual operating statements from
the Lessee of its income and expense are reviewed by the outside accountants for
the Lessee and are prepared substantially in accordance with the requirements of
the Operating Lease.
Associates' results of operations are affected primarily by the
amount of rent payable to it under the Operating Lease. The following summarizes
the material factors affecting Associates' results of operations for the three
preceding years, and for the first six months of 1998:
(a) Total income decreased for the year ended December 31, 1997 as
compared with the year ended December 31, 1996. Such decrease is attributable
to the fact that less Additional Rent was received by Associates in 1997 because
of the Lessee's less profitable operation of the Property.
(b) Total income decreased for the six-month period ended June 30, 1998,
as compared with the six-month period ended June 30, 1997. Such decrease
resulted from the fact that no Additional Rent was received by Associates in
1998.
The following events and considerations, of which Associates is aware, have
affected and will continue to affect Associates' operations and financial
condition:
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. Associates has been advised that the insolvencies affecting
tenants in the garment business and reduced demand for existing unimproved space
will continue to have an adverse impact on Associates' operating income.
B. Liquidity and Capital Resources
There has been no significant change in Associates' liquidity for the twelve-
month period ended December 31, 1997, as compared with the twelve-month period
ended December 31, 1996, or for the six-month period ended June 30, 1998 as
compared to the same period in 1997.
C. Inflation
Inflationary or deflationary trends in the general economy could have a material
impact upon the Sale Program. In implementing the Sale Program, the Agents will
continue to evaluate Associates' options and economic variables.
VII. Terms of Solicitations of Consents
Each Agent acts as agent for a group of Participants owning a one-half economic
interest in Associates, representing $1,600,000 of the original $3,200,000
investment in Associates. At November 1, 1998, no person held participations
aggregating more than 5% of the total outstanding participations.
On November 1, 1998, there were approximately 640 Participants
holding participations among the two groups. Each Participant's voting
percentage in his group is determined by a fraction of which the numerator is
the face amount of the participation and the denominator is the group's original
$1,600,000 investment in Associates. There is no record date establishing the
identity of the Participants entitled to vote for the Sale Program. Holders of
participations as of November 1, 1998 will be recognized as entitled to vote.
However, if any participation is transferred before the consent with respect to
that participation is given, the transferee will be entitled to vote. If the
Consent and Agreement has been given prior to the transfer of a participation,
the transferee will be bound by the vote of the transferor. In addition, the
Agents and their designees will be entitled to vote the participation of any
non-consenting Participant whose interest is purchased by them under the
Participation Purchase Arrangement (as defined in the following paragraph).
The consent of all Participants is required to authorize the Sale
Program. However, under the terms of the Participating Agreement between each
Agent and his Participants, if Participants owning 80% of the outstanding
participations in such Agent's group consent to the Sale Program, the Agent for
that group or his designee has the right to purchase the interest of any
Participant in that group who failed to consent (or, if the Participant is not
an individual, has not furnished evidence of authority for giving such consent)
within 10 days after the mailing by the Agent of a written request therefor, by
certified or registered mail ("Participation Purchase Arrangement"). The
purchase price is the greater of (i) the book value of such Participation at the
time of purchase, i.e., the original capital contribution of such Participant or
such Participant's predecessor, less any repayment thereon to the date of
purchase, and (ii) $100. As of November 1, 1998, the book value of each
original $10,000 participation was $704 (computed by dividing Associates' equity
by the cash investment of $3,200,000, and then multiplying the resulting amount
by the participation amount of $10,000). Accordingly, the purchase price would
be $704 for each original $10,000 participation.
If 80% or more of the Participants in an Agent's group consent to the Sale
Program, each Agent (or his designee) presently intends to purchase the interest
of any non-consenting Participant for $704 for each original $10,000 investment.
Funds for the purchase of the interests of non-consenting Participants will not
be provided by Associates. Any Participant whose participation is purchased by
an Agent (or his designee) will not receive any Additional Rent paid in respect
of the year of purchase. The Agents do not project the payment of Additional
Rent in 1998, and no projection has been made as to 1999.
Notwithstanding the provisions in Associates' Participating Agreements relating
to the Participation Purchase Arrangement, no purchase of a participation will
be effected without (i) prior written notice to a nonconsenting Participant that
Participants owning at least 80% of the outstanding participations in the
relevant group have consented to the Sale Program and (ii) affording such non-
consenting Participant an opportunity for 10 days after the mailing of the
notice to consent to the Sale Program.
Forms of Consent and Agreement which are signed and returned without a choice
indicated as to any matter will be deemed to constitute a consent and agreement
to such matter and will be binding on the Participant as if such Participant had
actually indicated such choice. If the Consent and Agreement is returned
undated, it will be deemed dated as of the date received by the Agents.
Participations are not traded on an established securities market, nor are they
readily tradeable on a secondary market or the substantial equivalent thereof.
Based on Associates' transfer records, participations are sold by holders from
time to time in privately negotiated transactions, and in many instances
Associates is unaware of the prices at which such transactions occur (other than
certain intra-family transfers involving participations owned by members of W&M
LLP or their families). Associates has been advised that the sale price for the
few isolated transactions known to W&M LLP in the past two calendar years was at
the rate of $12,500 for each original $10,000 participation.
There is no document which is incorporated herein by reference except the
documents included with this Statement.
If you have any question or desire any additional information concerning the
proposed Sale Program or this Statement, please communicate in writing with any
partner in Wien & Malkin LLP, by mail at 60 East 42nd Street, New York, NY
10165-0015, by telephone at 212-687-8700, or by telecopier at 212-986-7679.
PLEASE SIGN, DATE AND IMMEDIATELY RETURN THE COLORED COPY OF THE
CONSENT AND AGREEMENT IN THE ENCLOSED ENVELOPE. ONCE GIVEN, THE CONSENT
AND AGREEMENT MAY NOT BE REVOKED.
APPENDIX
CONSENT AND AGREEMENT
Solicited by Peter L. Malkin and Thomas N. Keltner, Jr. ("Agents"), on behalf of
Navarre-500 Building Associates ("Associates")
A. CONSENT TO SALE PROGRAM
As a participant in Associates, the undersigned hereby
CONSENTS TO __
DISAPPROVES OF __
ABSTAINS FROM __
authorizing the Agents and their respective successors, on behalf of Associates,
as follows:
1. To sell the Leasehold and all Associates' interest in the land and
buildings located at 500 Seventh Avenue, 512 Seventh Avenue, and 228 West 38th
Street in New York City (the "Property") to a third party by transfer of such
real property or by transfer of direct or indirect interests in Associates at
such price and on such terms as determined by the Agents; and
2. To distribute the sale proceeds in accord with the distribution schedule
computed by an independent expert and recommended by the Agents in the Statement
described below.
B. AGREEMENT TO WIEN & MALKIN LLP INCENTIVE COMPENSATION
As a Participant in Associates, the undersigned hereby
AGREES __
DOES NOT AGREE __
ABSTAINS FROM AGREEMENT __
with Wien & Malkin LLP that the undersigned shall pay to Wien & Malkin LLP, and
Wien & Malkin LLP shall accept, the incentive compensation specified in the
Statement described below. The Agents shall be authorized on behalf of the
undersigned to pay any such agreed compensation from sale distributions.
Each matter for which consent or agreement is being solicited is
more fully described in the Statement Issued by the Agents in connection with
the Solicitation of Consent and Agreement of the Participants in Navarre-500
Building Associates dated November __, 1998 (the "Statement") incorporated
herein by reference, receipt of which is hereby acknowledged.
Once given, this Consent and Agreement may not be revoked and is
binding on the Participant and all successors and assigns. Any form of Consent
and Agreement which is signed and returned without a choice indicated as to any
matter will be deemed to constitute a consent and agreement as to such matter as
if such Participant had actually indicated such choice. If the Consent and
Agreement is returned undated, it will be deemed dated as of the date received
by the Agents.
Dated: , 1998
____________________________
(Signature)
[LETTERHEAD OF
JACOBS EVALL& BLUMENFELD LLP
CERTIFIED PUBLIC ACCOUNTANTS]
October 6, 1998
Navarre-500 Building Associates
New York, N.Y.
We have issued our reports dated January 31, 1998
accompanying the financial statements and schedule of
Navarre-500 Building Associates appearing in the Annual
Report of the Company on Form 10-K to the Securities and
Exchange Commission for the year ended December 31, 1997.
We consent to the use of the aforementioned reports in the
proxy statement of Navarre-500 Building Associates which is
being filed pursuant to the rules under Regulation 14A of
the Security Exchange Act of 1934 and included in Commission
File Number: 0-2673. Our consent relates only to the
financial statements and financial statement schedule, and
we do not opine on the adequacy or completeness of the
textual disclosures contained in the proxy material.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Navarre-500 Building Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of Navarre-500 Building
Associates as of December 31, 1997 and 1996, and the related statements of
income, partners' capital and cash flows for each of the three years in the
period ended December 31, 1997, and the supporting financial statement
schedule as contained in Item 14(a)(2) of this Form 10-K. These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Navarre-500 Building
Associates as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles, and the related financial statement schedule, when considered
in relation to the basic financial statements, presents fairly, in all
material respects, the information set forth therein.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
New York, N. Y.
January 31, 1998
-16
EXHIBIT A
NAVARRE-500 BUILDING ASSOCIATES
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Current Assets:
Cash in distribution account held by
Wien & Malkin LLP (Note 9)................... $ 53,333 $ 53,333
TOTAL CURRENT ASSETS................... 53,333 53,333
Real Estate (Note 2):
Leasehold on property situated at
500 and 512 Seventh Avenue, New York, NY...... 3,200,000 3,200,000
Less: Accumulated amortization............... 3,028,190 3,021,665
171,810 178,335
TOTAL ASSETS.......................... $ 225,143 $ 231,668
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities............................... - -
Partners' Capital (Exhibit C).................... $ 225,143 $ 231,668
TOTAL LIABILITIES AND PARTNERS' CAPITAL. $ 225,143 $ 231,668
</TABLE>
See accompanying notes to financial statements.
-17
EXHIBIT B
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Rent income, from a related party (Note 3).$2,081,782 $2,238,752 $2,008,204
Expenses:
Leasehold rent (Note 4).................... 487,500 487,500 487,500
Supervisory services, to a related party
(Note 5) ................................ 121,828 137,525 114,470
Amortization of leasehold (Note 2)....... 6,525 6,525 6,525
615,853 631,550 608,495
NET INCOME, CARRIED TO
PARTNERS' CAPITAL (NOTE 8)........$1,465,929 $1,607,202 $1,399,709
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during each year........$ 2,291 $ 2,511 $ 2,187
</TABLE>
See accompanying notes to financial statements.
-18
EXHIBIT C-1
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Peter L. Stanley
Malkin Katzman
Total Group Group
<S> <C> <C> <C>
Partners' capital, January 1, 1997........ $ 231,668 $ 115,834 $ 115,834
Share of net income....................... 1,465,929 732,965 732,964
1,697,597 848,799 848,798
Distributions............................. 1,472,454 736,227 736,227
PARTNERS' CAPITAL, DECEMBER 31, 1997.. $ 225,143 $ 112,572 $ 112,571
</TABLE>
See accompanying notes to financial statements.
-19
EXHIBIT C-2
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Stanley
Katzman
Group
(formerly
Peter L. C. Michael
Malkin Spero
Total Group Group)
<S> <C> <C> <C>
Partners' capital, January 1, 1996........ $ 238,193 $ 119,097 $ 119,096
Share of net income....................... 1,607,202 803,601 803,601
1,845,395 922,698 922,697
Distributions............................. 1,613,727 806,864 806,863
PARTNERS' CAPITAL, DECEMBER 31, 1996.. $ 231,668 $ 115,834 $ 115,834
</TABLE>
See accompanying notes to financial statements.
-20
EXHIBIT C-3
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
C. Michael
Spero
Group
(formerly
Peter L. Alvin
Malkin Silverman
Total Group Group)
<S> <C> <C> <C>
Partners' capital, January 1, 1995........ $ 244,718 $ 122,359 $ 122,359
Share of net income....................... 1,399,709 699,855 699,854
1,644,427 822,214 822,213
Distributions............................. 1,406,234 703,117 703,117
PARTNERS' CAPITAL, DECEMBER 31, 1995.. $ 238,193 $ 119,097 $ 119,096
</TABLE>
See accompanying notes to financial statements.
-21
EXHIBIT D
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 1,465,929 $ 1,607,202 $ 1,399,709
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of leasehold.......... 6,525 6,525 6,525
Net cash provided by operating
activities................... 1,472,454 1,613,727 1,406,234
Cash flows from financing activities:
Cash distributions.................... (1,472,454) (1,613,727) (1,406,234)
Net cash used in financing
activities................... (1,472,454) (1,613,727) (1,406,234)
Net change in cash............ - - -
Cash, beginning of year................. 53,333 53,333 53,333
CASH, END OF YEAR............. $ 53,333 $ 53,333 $ 53,333
</TABLE>
See accompanying notes to financial statements.
-22
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Navarre-500 Building Associates ("Associates") is a general partnership
which holds the tenant's position in the master leasehold of property
situated at 500 and 512 Seventh Avenue, New York, New York. Associates'
building is located in the heart of New York City's "Garment District"
and its tenants are almost exclusively in the garment business.
Associates subleases the property to 500-512 Seventh Avenue Associates.
2. Summary of Significant Accounting Policies
Real Estate and Amortization of Leasehold:
Real estate, consisting of leasehold, is stated at cost. In 1978,
Associates exercised its first renewal option on the lease. Amortization
of the leasehold was being computed by the straight-line method over the
estimated useful life of 25 years, 4 months, from January 1, 1978 to May 1,
2003. The second renewal option for a period of 21 years through May 1,
2024, was exercised in October 1995 (see Note 4) and the estimated life
of the leasehold was revised as of January 1, 1995 to 29 years and 4 months
until May 1, 2024. The effect of this change was to increase net income
in 1995 by $16,441, or $26 per $5,000 participation unit based on 640
participation units outstanding during the year.
Use of Estimates:
In preparing financial statements in conformity with generally accepted
accounting principles, management often makes estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1997, 1996 and 1995
represents the annual basic rent of $1,167,500, under an operating
sublease, as modified, with 500-512 Seventh Avenue Associates (the
"Sublessee"), plus payments of additional rent. Additional rent is
payable in an amount equal to 50% of the Sublessee's defined net
income from operations for lease years ending June 30th.
For the years ended December 31, 1997, 1996 and 1995, additional
rent of $914,282, $1,071,252 and $840,704 was earned for the lease years
ended June 30, 1997, 1996 and 1995, respectively.
No additional rent is accrued by Associates for the period between the
end of the Sublessee's lease year ending June 30th and the end of
Associates' fiscal year ending December 31st.
-23
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. Related Party Transactions - Rent Income (continued)
In 1995, the Sublessee exercised its renewal option for the second
renewal term commencing May 1, 2003 and ending April 30, 2024. Renewal
privileges for one additional term of 21 years may extend the sublease
to April 30, 2045 at an annual basic rent of $1,167,500 during the
renewal period.
A partner in Associates is also a partner in the Sublessee.
4. Leasehold Rent
Leasehold rent paid during the years ended December 31, 1997, 1996
and 1995 consists of the annual net rent of $487,500 under an operating
leasehold, as modified, with GSL Enterprises, Inc. In 1995, Associates
exercised its option to renew the lease for the second renewal period
from May 2, 2003 to May 1, 2024. A renewal option is available for one
additional term of 21 years extending the leasehold to May 1, 2045;
during the renewal periods the rent payable remains at $487,500 per
year.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular
accounting services) during the years ended December 31, 1997, 1996
and 1995, totaling $121,828, $137,525 and $114,470, respectively, were
paid to the firm of Wien & Malkin LLP. Some members in that firm are
partners in Associates.
Fees for supervisory services are paid pursuant to an agreement, which
amount is based on a rate of return of investment achieved by the
participants of Associates each year.
6. Number of Participants
There were approximately 600 participants in the two participating groups
at December 31, 1997, 1996 and 1995.
7. Determination of Distributions to Participants
Distributions to participants during each year represent the excess of
rent income received over the cash expenses.
-24
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years 1997,
1996 and 1995, based on 640 participation units outstanding during
each year, consisted of the following:
Year ended December 31,
1997 1996 1995
Income.......................... $2,291 $2,511 $2,187
Return of capital............... 10 10 10
TOTAL DISTRIBUTIONS......... $2,301 $2,521 $2,197
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes
are paid by the participants in their individual capacities.
9. Concentration of Credit Risk
Associates maintains cash balances in a bank, and in a distribution
account held by Wien & Malkin LLP which is not insured. The funds
held in the distribution account were paid to the participants on
January 1, 1998.
-25
NAVARRE-500 BUILDING ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in
the present instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
-26
SCHEDULE III
NAVARRE-500 BUILDING ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1997
Column
A Description Leasehold on property situated at
500 and 512 Seventh Avenue,
New York, New York.
B Encumbrances........................................... None
C Initial cost to company
Leasehold............................................ $3,200,000
D Costs capitalized subsequent to acquisition............ None
E Gross amount at which carried at
close of period
Leasehold........................................... $3,200,000(a)
F Accumulated amortization............................... $3,028,190(b)
G Date of construction 1921
H Date acquired July 1, 1958
I Life on which leasehold amortization in
latest income statements is computed 29 years, 4 months
(a) There have been no changes in the carrying values of real estate
for the years ended December 31, 1997, December 31, 1996 and
December 31, 1995. The costs for federal income tax purposes are
the same as for financial statement purposes.
(b) Accumulated amortization
Balance at January 1, 1995 $3,008,615
Amortization:
F/Y/E 12/31/95 $6,525
12/31/96 6,525
12/31/97 6,525 19,575
Balance at December 31, 1997 $3,028,190
-27-
Item 6.
NAVARRE-500 BUILDING ASSOCIATES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Basic rent income.. $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
Additional rent
income............ 914,282 1,071,252 840,704 503,579 1,758,397
Total revenue.. $2,081,782 $2,238,752 $2,008,204 $1,671,079 $2,925,897
Net income........ $1,465,929 $1,607,202 $1,399,709 $1,079,855 $2,209,190
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during the
year............. $ 2,291 $ 2,511 $ 2,187 $ 1,687 $ 3,452
Total assets...... $ 225,143 $ 231,668 $ 238,193 $ 244,718 $ 267,684
Long-term obligations.. None None None None None
Distributions per $5,000
participation unit, based on
640 participation units
outstanding during the year:
Income........ $ 2,291 $ 2,511 $ 2,187 $ 1,687 $ 3,452
Return of capital 10 10 10 36 36
Total
distributions..$ 2,301 $ 2,521 $ 2,197 $ 1,723 $ 3,488
</TABLE>
EXHIBIT A
NAVARRE-500 BUILDING ASSOCIATES
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Current Assets:
Cash in distribution account held by
Wien, Malkin & Bettex LLP (Note 9)............ $ 53,333 $ 53,333
TOTAL CURRENT ASSETS................... 53,333 53,333
Real Estate (Note 2):
Leasehold on property situated at
500 and 512 Seventh Avenue, New York, NY...... 3,200,000 3,200,000
Less: Accumulated amortization............... 3,021,665 3,015,140
178,335 184,860
TOTAL ASSETS........................... $ 231,668 $ 238,193
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities.............................. - -
Partners' Capital (Exhibit C).................... $ 231,668 $ 238,193
TOTAL LIABILITIES AND PARTNERS' CAPITAL.. $ 231,668 $ 238,193
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
EXHIBIT B
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Rent income, from a
related party (Note 3)........ $2,238,752 $2,008,204 $1,671,079
Expenses:
Leasehold rent (Note 4)....... 487,500 487,500 487,500
Supervisory services,
to a related party (Note 5). 137,525 114,470 80,758
Amortization of leasehold
(Note 2)...................... 6,525 6,525 22,966
631,550 608,495 591,224
NET INCOME, CARRIED TO
PARTNERS' CAPITAL (NOTE 8).... $1,607,202 $1,399,709 $1,079,855
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during
each year. $ 2,511 $ 2,187 $ 1,687
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
EXHIBIT C-1
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Stanley
Katzman
Group
(formerly
Peter L. C. Michael
Malkin Spero
Total Group Group)
<S> <C> <C> <C>
Partners' capital, January 1, 1996....... $ 238,193 $ 119,097 $ 119,096
Share of net income...................... 1,607,202 803,601 803,601
1,845,395 922,698 922,697
Distributions............................ 1,613,727 806,864 806,863
PARTNERS' CAPITAL, DECEMBER 31, 1996.. $ 231,668 $ 115,834 $ 115,834
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE>
EXHIBIT C-3
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Peter L. Alvin
Malkin Silverman
Total Group Group
<S> <C> <C> <C>
Partners' capital, January 1, 1994...... $ 267,684 $ 133,842 $ 133,842
Share of net income..................... 1,079,855 539,928 539,927
1,347,539 673,770 673,769
Distributions........................... 1,102,821 551,411 551,410
PARTNERS' CAPITAL, DECEMBER 31, 1994... $ 244,718 $ 122,359 $ 122,359
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE>
EXHIBIT C-2
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
C. Michael
Spero Group
(formerly
Peter L. Alvin
Malkin Silverman
Total Group Group)
<S> <C> <C> <C>
Partners' capital, January 1, 1995...... $ 244,718 $ 122,359 $ 122,359
Share of net income..................... 1,399,709 699,855 699,854
1,644,427 822,214 822,213
Distributions........................... 1,406,234 703,117 703,117
PARTNERS' CAPITAL, DECEMBER 31, 1995.... $ 238,193 $ 119,097 $ 119,096
</TABLE>
See accompanying notes to financial statements.
-19-
<PAGE>
EXHIBIT D
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 1,607,202 $ 1,399,709 $ 1,079,855
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of leasehold......... 6,525 6,525 22,966
Net cash provided by operating
activities.................. 1,613,727 1,406,234 1,102,821
Cash flows from financing activities:
Cash distributions................... (1,613,727) (1,406,234) (1,102,821)
Net cash used in financing
activities.................. (1,613,727) (1,406,234) (1,102,821)
Net change in cash........... - - -
Cash, beginning of year................ 53,333 53,333 53,333
CASH, END OF YEAR............ $ 53,333 $ 53,333 $ 53,333
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Navarre-500 Building Associates ("Associates") is a general partnership
which holds the tenant's position in the master leasehold of property
situated at 500 and 512 Seventh Avenue, New York, New York. Associates'
building is located in the heart of New York City's "Garment District"
and its tenants are almost exclusively in the garment business.
Associates subleases the property to 500-512 Seventh Avenue Associates.
2. Summary of Significant Accounting Policies
Real Estate and Amortization of Leasehold:
Real estate, consisting of leasehold, is stated at cost. In 1978,
Associates exercised its first renewal option on the lease.
Amortization of the leasehold was being computed by the straight-line
method over the estimated useful life of 25 years, 4 months, from
January 1, 1978 to May 1, 2003. The second renewal option for a period
of 21 years through May 1, 2024, was exercised in October 1995 (see
Note 4) and the estimated life of the leasehold was revised as of
January 1, 1995 to 29 years and 4 months until May 1, 2024. The effect
of this change was to increase net income in 1995 by $16,441, or $26
per $5,000 participation unit based on 640 participation units
outstanding during the year.
Use of Estimates:
In preparing financial statements in conformity with generally accepted
accounting principles, management often makes estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1996, 1995 and 1994
represents the annual basic rent of $1,167,500, under an operating
sublease, as modified, with 500-512 Seventh Avenue Associates (the
"Sublessee"), plus payments of additional rent. Additional rent is
payable in an amount equal to 50% of the Sublessee's defined net income
from operations for lease years ending June 30th.
For the years ended December 31, 1996, 1995 and 1994, additional rent of
$1,071,252, $840,704 and $503,579 was earned for the lease years ended
June 30, 1996, 1995 and 1994, respectively.
No additional rent is accrued by Associates for the period between the
end of the Sublessee's lease year ending June 30th and the end of
Associates' fiscal year ending December 31st.
-21-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. Related Party Transactions - Rent Income (continued)
In 1995, the Sublessee exercised its renewal option for the second
renewal term commencing May 1, 2003 and ending April 30, 2024. Renewal
privileges for one additional term of 21 years may extend the sublease
to April 30, 2045 at an annual basic rent of $1,167,500 during the
renewal period.
A partner in Associates is also a partner in the Sublessee.
4. Leasehold Rent
Leasehold rent paid during the years ended December 31, 1996, 1995 and
1994 consists of the annual net rent of $487,500 under an operating
leasehold, as modified, with GSL Enterprises, Inc. In 1995, Associates
exercised its option to renew the lease for the second renewal period
from May 2, 2003 to May 1, 2024. A renewal option is available for one
additional term of 21 years extending the leasehold to May 1, 2045;
during the renewal periods the rent payable remains at $487,500 per year.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular
accounting services) during the years ended December 31, 1996, 1995 and
1994, totaling $137,525, $114,470 and $80,758, respectively, were paid
to the firm of Wien, Malkin & Bettex LLP. Some members in that firm are
partners in Associates. Fees for supervisory services are paid pursuant
to an agreement, which amount is based on a rate of return of investment
achieved by the participants of Associates each year.
6. Number of Participants
There were approximately 600 participants in the two participating groups
at December 31, 1996, 1995 and 1994.
7. Determination of Distributions to Participants
Distributions to participants during each year represent the excess of
rent income received over the cash expenses.
-22-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years 1996, 1995
and 1994, based on 640 participation units outstanding during each year,
consisted of the following:
Year ended December 31,
1996 1995 1994
Income.......................... $2,511 $2,187 $1,687
Return of capital............... 10 10 36
TOTAL DISTRIBUTIONS......... $2,521 $2,197 $1,723
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes are
paid by the participants in their individual capacities.
9. Concentration of Credit Risk
Associates maintains cash balances in a bank, and in a distribution
account held by Wien, Malkin & Bettex LLP which is not insured. The
funds held in the distribution account were paid to the participants on
January 1, 1997.
-23-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the
present instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
-24-
<PAGE>
SCHEDULE III
NAVARRE-500 BUILDING ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1996
<TABLE>
Column
<S> <C> <C>
A Description Leasehold on property situated at
500 and 512 Seventh Avenue,
New York, New York.
B Encumbrances........................................ None
C Initial cost to company
Leasehold......................................... $3,200,000
D Costs capitalized subsequent to acquisition......... None
E Gross amount at which carried at
close of period
Leasehold........................................ $3,200,000(a)
F Accumulated amortization............................ $3,021,665(b)
G Date of construction 1921
H Date acquired July 1, 1958
I Life on which leasehold amortization in
latest income statements is computed 29 years, 4 months
(a) There have been no changes in the carrying values of real estate for the years
ended December 31, 1996, December 31, 1995 and December 31, 1994. The costs for
federal income tax purposes are the same as for financial statement purposes.
(b) Accumulated amortization
Balance at January 1, 1994 $2,985,649
Amortization:
F/Y/E 12/31/94 $22,966
12/31/95 6,525
12/31/96 6,525 36,016
Balance at December 31, 1996 $3,021,665
</TABLE>
-25-
Item 6.
NAVARRE-500 BUILDING ASSOCIATES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Basic rent income................. $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
Additional rent income............ 1,071,252 840,704 503,579 1,758,397 3,136,313
Total revenue.................. $2,238,752 $2,008,204 $1,671,079 $2,925,897 $4,303,813
Net income........................ $1,607,202 $1,399,709 $1,079,855 $2,209,190 $3,449,316
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during the
year............................. $ 2,511 $ 2,187 $ 1,687 $ 3,452 $ 5,389
Total assets...................... $ 231,668 $ 238,193 $ 244,718 $ 267,684 $ 290,651
Long-term obligations............. None None None None None
Distributions per $5,000
participation unit, based on
640 participation units
outstanding during the year:
Income.......................... $ 2,511 $ 2,187 $ 1,687 $ 3,452 $ 5,389
Return of capital............... 10 10 36 36 36
Total distributions............ $ 2,521 $ 2,197 $ 1,723 $ 3,488 $ 5,425
</TABLE>
-5-
EXHIBIT A
NAVARRE-500 BUILDING ASSOCIATES
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
1995 1994
<C> <C> <C>
Current Assets:
Cash in distribution account held by
Wien, Malkin & Bettex (Note 9)............................ $ 53,333 $ 53,333
TOTAL CURRENT ASSETS............................... 53,333 53,333
Real Estate (Note 2):
Leasehold on property situated at
500 and 512 Seventh Avenue, New York, NY.................. 3,200,000 3,200,000
Less: Accumulated amortization........................... 3,015,140 3,008,615
184,860 191,385
TOTAL ASSETS....................................... $ 238,193 $ 244,718
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities.......................................... - -
Partners' Capital (Exhibit C)................................ $ 238,193 $ 244,718
TOTAL LIABILITIES AND PARTNERS' CAPITAL............ $ 238,193 $ 244,718
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
EXHIBIT B
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Rent income, from a related party (Note 3)........ $2,008,204 $1,671,079 $2,925,897
Expenses:
Leasehold rent (Note 4)........................... 487,500 487,500 487,500
Supervisory services, to a related party (Note 5). 114,470 80,758 206,240
Amortization of leasehold (Note 2)................ 6,525 22,966 22,967
608,495 591,224 716,707
NET INCOME, CARRIED TO
PARTNERS' CAPITAL (NOTE 8)............... $1,399,709 $1,079,855 $2,209,190
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during each year................. $ 2,187 $ 1,687 $ 3,452
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE>
EXHIBIT C-1
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
C. Michael
Spero
Group
(formerly
Peter L. Alvin
Malkin Silverman
Total Group Group)
<S> <C> <C> <C>
Partners' capital, January 1, 1995.................. $ 244,718 $ 122,359 $ 122,359
Share of net income................................. 1,399,709 699,855 699,854
1,644,427 822,214 822,213
Distributions....................................... 1,406,234 703,117 703,117
PARTNERS' CAPITAL, DECEMBER 31, 1995...... $ 238,193 $ 119,097 $ 119,096
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE>
EXHIBIT C-2
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Peter L. Alvin
Malkin Silverman
Total Group Group
<S> <C> <C> <C>
Partners' capital, January 1, 1994................... $ 267,684 $ 133,842 $ 133,842
Share of net income.................................. 1,079,855 539,928 539,927
1,347,539 673,770 673,769
Distributions........................................ 1,102,821 551,411 551,410
PARTNERS' CAPITAL, DECEMBER 31, 1994........ $ 244,718 $ 122,359 $ 122,359
</TABLE>
See accompanying notes to financial statements.
-19-
<PAGE>
EXHIBIT C-3
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Peter L. Alvin
Malkin Silverman
Total Group Group
<S> <C> <C> <C>
Partners' capital, January 1, 1993.................. $ 290,651 $ 145,325 $ 145,326
Share of net income................................. 2,209,190 1,104,595 1,104,595
2,499,841 1,249,920 1,249,921
Distributions....................................... 2,232,157 1,116,078 1,116,079
PARTNERS' CAPITAL, DECEMBER 31, 1993...... $ 267,684 $ 133,842 $ 133,842
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE>
EXHIBIT D
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 1,399,709 $ 1,079,855 $ 2,209,190
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of leasehold...................... 6,525 22,966 22,967
Net cash provided by operating
activities............................... 1,406,234 1,102,821 2,232,157
Cash flows from financing activities:
Cash distributions................................ (1,406,234) (1,102,821) (2,232,157)
Net cash used in financing
activities............................... (1,406,234) (1,102,821) (2,232,157)
Net change in cash........................ - - -
Cash, beginning of year............................. 53,333 53,333 53,333
CASH, END OF YEAR......................... $ 53,333 $ 53,333 $ 53,333
</TABLE>
See accompanying notes to financial statements.
-21-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Navarre-500 Building Associates ("Associates") is a general partnership
which holds the tenant's position in the master leasehold of property
situated at 500 and 512 Seventh Avenue, New York, New York. Associates'
building is located in the heart of New York City's "Garment District"
and its tenants are almost exclusively in the garment business.
Associates subleases the property to 500-512 Seventh Avenue Associates.
2. Summary of Significant Accounting Policies
Real Estate and Amortization of Leasehold:
Real estate, consisting of leasehold, is stated at cost. In 1978,
Associates exercised its first renewal option on the lease.
Amortization of the leasehold was being computed by the
straight-line method over the estimated useful life of 25 years, 4
months, from January 1, 1978 to May 1, 2003. The second renewal
option for a period of 21 years through May 1, 2024, was exercised
in October 1995 (see Note 4) and the estimated life of the
leasehold was revised as of January 1, 1995 to 29 years and 4
months until May 1, 2024. The effect of this change was to
increase net income in 1995 by $16,441, or $26 per $5,000
participation unit based on 640 participation units outstanding
during the year.
Use of Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management often makes estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1995, 1994 and 1993
represents the annual basic rent of $1,167,500, under an operating
sublease, as modified, with 500-512 Seventh Avenue Associates (the
"Sublessee"), plus payments of additional rent. Additional rent is
payable in an amount equal to 50% of the sublessee's defined net income
from operations for lease years ending June 30th.
For the years ended December 31, 1995, 1994 and 1993, additional rent of
$840,704, $503,579 and $1,758,397 was earned for the lease years ended
June 30, 1995, 1994 and 1993, respectively.
No additional rent is accrued by Associates for the period between the
end of the sublessee's lease year ending June 30th and the end of
Associates' fiscal year ending December 31st.
-22-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. Related Party Transactions - Rent Income (continued)
In 1995, the Sublessee exercised its renewal option for the second
renewal term commencing May 1, 2003 and ending April 30, 2024. Renewal
privileges for one
additional term of 21 years may extend the sublease to April 30, 2045 at
an annual basic rent of $1,167,500 during the renewal period.
A partner in Associates is also a partner in the Sublessee.
4. Leasehold Rent
Leasehold rent paid during the years ended December 31, 1995, 1994 and
1993 consists of the annual net rent of $487,500 under an operating
leasehold, as modified, with GSL Enterprises, Inc. In 1995, Associates
exercised its option to renew the lease for the second renewal period
from May 2, 2003 to May 1, 2024. A renewal option is available for one
additional term of 21 years extending the leasehold to May 1, 2045;
during renewal period the rent payable remains at $487,500 per year.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular
accounting services) during the years ended December 31, 1995, 1994 and
1993, totaling $114,470, $80,758 and $206,240, respectively, were paid
to the firm of Wien, Malkin & Bettex. Some partners in that firm are
also partners in Associates. Fees for supervisory services are paid
pursuant to an agreement, which amount is based on a rate of return of
investment achieved by the participants of Associates each year.
6. Number of Participants
There were approximately 590 participants in the various joint ventures
at
December 31, 1995, 1994 and 1993.
7. Determination of Distributions to Participants
Distributions to participants during each year represent the excess of
rent income
received over the cash expenses.
-23-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years 1995, 1994
and 1993, based on 640 participation units outstanding during each year,
consisted of the following:
Year ended December 31,
1995 1994 1993
Income.......................... $2,187 $1,687 $3,452
Return of capital............... 10 36 36
TOTAL DISTRIBUTIONS......... $2,197 $1,723 $3,488
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes are
paid by the participants in their individual capacities.
9. Concentration of Credit Risk
Associates maintains cash balances in a bank, and in a distribution
account held by Wien, Malkin & Bettex which is not insured. The funds
held in the distribution account were paid to the participants on January
1, 1996.
-24-
<PAGE>
NAVARRE-500 BUILDING ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the
present instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
-25-
<PAGE>
SCHEDULE III
NAVARRE-500 BUILDING ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1995
<TABLE>
Column
<S> <C> <C>
A Description Leasehold on property situated at
500 and 512 Seventh Avenue,
New York, New York.
B Encumbrances.................................................. None
C Initial cost to company
Leasehold................................................... $3,200,000
D Costs capitalized subsequent to acquisition................... None
E Gross amount at which carried at
close of period
Leasehold.................................................. $3,200,000(a)
F Accumulated amortization...................................... $3,015,140(b)
G Date of construction 1921
H Date acquired July 1, 1958
I Life on which leasehold amortization in
latest income statements is computed 29 years, 4 months
</TABLE>
(a) There have been no changes in the carrying values of real estate for
the years ended December 31, 1995, December 31, 1994 and December
31, 1993. The costs for federal income tax purposes are the same
as for financial statement purposes.
(b) Accumulated amortization
Balance at January 1, 1993 $2,962,682
Amortization:
F/Y/E 12/31/93 $22,967
12/31/94 22,966
12/31/95 6,525 52,458
Balance at December 31, 1995 $3,015,140
-26-
Item 6.
NAVARRE-500 BUILDING ASSOCIATES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Basic rent income................. $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
Additional rent income............ 840,704 503,579 1,758,397 3,136,313 4,406,431
Total revenue.................. $2,008,204 $1,671,079 $2,925,897 $4,303,813 $5,573,931
Net income........................ $1,399,709 $1,079,855 $2,209,190 $3,449,316 $4,592,421
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during the
year............................. $ 2,187 $ 1,687 $ 3,452 $ 5,389 $ 7,176
Total assets...................... $ 238,193 $ 244,718 $ 267,684 $ 290,651 $ 313,617
Long-term obligations............. None None None None None
Distributions per $5,000
participation unit, based on
640 participation units
outstanding during the year:
Income.......................... $ 2,187 $ 1,687 $ 3,452 $ 5,389 $ 7,176
Return of capital............... 10 36 36 36 36
Total distributions............ $ 2,197 $ 1,723 $ 3,488 $ 5,425 $ 7,212
</TABLE>
-6-
2.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Navarre-500 Building Associates
Condensed Statement of Income
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Income:
Rent income, from a related
party (Note B) $ 291,875 $ 291,875 $ 583,750 $ 583,750
Additional rent, from
a related party (Note B) -0- 914,281 -0- 914,281
---------- --------- ---------- ----------
Total income 291,875 1,206,156 583,750 1,498,031
---------- --------- ---------- ----------
Expenses:
Leasehold rent (Note B) 121,875 121,875 243,750 243,750
Supervisory services, to a
related party (Note C) 10,000 91,828 20,000 101,828
Amortization of leasehold 1,631 1,631 3,262 3,262
---------- --------- ---------- ----------
Total expenses 133,506 215,334 267,012 348,840
---------- --------- ---------- ----------
Net income 158,369 $990,822 316,738 $1,149,191
========== ========= ========== ==========
Earnings per $5,000 partici-
pation unit, based on 640
participation units out-
standing during the year $ 247.45 $1,548.16 $494.90 $ 1,795.61
========== ========= ========== ==========
Distributions per $5,000
participation consisted
of the following:
Income $247.45 $250.00 $ 494.90 500.00
Return of capital 2.55 -0- 5.10 -0-
-------- -------- ---------- --------
Total Distributions 250.00 250.00 500.00 500.00
========== ========= ========== ==========
At June 30, 1998 and 1997, there were $3,200,000 of participations
outstanding.
3.
Navarre-500 Building Associates
Condensed Statement of Income
(Unaudited)
Assets June 30, 1998 December 31, 1997
Current assets
Cash $ 135,625 $ 53,333
Additional rent due from
Sublessee, a related party (Note B) -0- -0-
---------- ----------
Total current assets 135,625 53,333
Real Estate
Leasehold on property situated
at 500 and 512 Seventh Avenue
New York, New York 3,200,000 3,200,000
Less, allowance for
amortization 3,031,452 3,028,190
---------- ----------
168,548 171,810
---------- ----------
Total assets 304,173 $ 225,143
========== ==========
Liabilities and Capital
Current liabilities
Accrued expense (Note B) $ -0-
Deferred credit:
Portion of rent income
collected in advance for the
month of December, 1997 82,292 -0-
---------- ----------
Total current liabilities 82,292 -0-
---------- ----------
Capital
Capital January 1, 225,143 231,668
Add, Net income:
January 1, 1998 through June 30, 1998 316,738 -0-
January 1, 1997 through December 31, 1997 -0- 1,465,929
---------- ----------
541,881 1,697,597
Less, Distributions:
Monthly distributions,
January 1, 1998 through June 30, 1998 320,000 -0-
January 1, 1997 through December 31, 1997 -0- 640,000
Distribution on August 29, 1997
of Additional Rent for the
lease year ended June 30, 1997 -0- 832,454
---------- ----------
Total distributions 320,000 1,472,454
---------- ----------
Capital:
June 30, 1998 221,881 -0-
December 31, 1997 -0- 225,143
---------- ----------
Total liabilities and capital:
June 30, 1998 304,173
December 31, 1997 ========== $ 225,143
==========
4.
Navarre-500 Building Associates
Condensed Statement of Cash Flows
(Unaudited)
January 1, 1998 January 1, 1997
through through
June 30, 1998 June 30, 1997
Cash flows from operating activities:
Net income 316,738 $1,149,191
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of leasehold 3,262 3,262
Change in Additional
Rent due from Sublessee (-0-) (864,281)
Change in deferred credit 82,292 82,292
Change in accrued
supervisory services -0- 31,828
----------- -----------
Net cash provided by operating
activities 402,292 402,292
----------- -----------
Cash flows from financing activities:
Cash distributions (320,000) (320,000)
----------- -----------
Net cash used in financing
activities (320,000) (320,000)
----------- -----------
Change in cash during quarter 82,292 82,292
Cash, beginning of period 53,333 53,333
----------- -----------
Cash, end of period $ 135,625 $ 135,625
=========== ===========
Navarre-500 Building Associates 5.
June 30, 1998
Notes to Condensed Financial Statements (unaudited)
Note A Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include all
information and footnotes necessary for a fair presentation
of financial position, results of operations and statement of
cash flows in conformity with generally accepted accounting
principles. The accompanying unaudited condensed financial
statements include all adjustments (consisting only of normal
recurring accruals) which are, in the opinion of the partners
in Registrant, necessary for a fair statement of the results
for such interim periods. The partners in Registrant believe
that the accompanying unaudited condensed financial state-
ments and the notes thereto fairly disclose the financial
condition and results of Registrant's operations for the
periods indicated and are adequate to make the information
presented therein not misleading.
Note B Interim Period Reporting
The results for the interim period are not
necessarily indicative of the results to be expected for a
full year.
Registrant was organized on March 21, 1958.
Registrant owns the tenant's interest in the master operating
leasehold (the "Master Lease") of the buildings located at
500 and 512 Seventh Avenue and 228 West 38th Street, New
York, New York (the "Property"). Registrant's partners are
Peter L. Malkin and Thomas N. Keltner, Jr. (the "Partners").
The land underlying the buildings is owned by an unaffiliated
third party and is leased to Registrant under a long-term
ground lease (the "Lease"). The current term of the Lease
expires on May 1, 2024. The Lease provides for one 21-year
renewal option. If this option is exercised, the Lease will
expire on May 1, 2045. The annual rent payable by Registrant
under the Lease is $487,500 during the current and the
renewal term.
Registrant does not operate the Property, but
subleases the Property to 500-512 Seventh Avenue Associates
(the "Sublessee") pursuant to a net operating sublease (the
"Sublease"), the current renewal term of which will expire on
April 30, 2024. The Sublease provides for one renewal option
co-extensive with the Lease. Peter L. Malkin, a partner in
Registrant, is also a partner in Sublessee. The Partners in
Registrant are also members of the law firm of Wien & Malkin
LLP, counsel to Registrant and to Sublessee (the "Counsel").
See Note C of this Item 1 ("Note C").
Navarre-500 Building Associates 6.
June 30, 1998
Under the Sublease, Sublessee must pay (i) annual
basic rent of $1,167,500 during the current renewal term and
the additional renewal term (the "Basic Rent") and (ii) ad-
ditional rent to Registrant during the current term and the
renewal term equal to 50% of Sublessee's net operating profit
in excess of $620,000 for each lease year ending June 30,
1998 by Sublessee. (the "Additional Rent").
There was no additional rent paid for the lease
year ended June 30, 1998 by Sublessee. Additional Rent
income is recognized when earned from the Sublessee, at the
close of the lease year ending June 30. No Additional Rent
is accrued by Registrant for the period between Sublessee's
lease year and Registrant's fiscal year.
Note C Supervisory Services
Registrant pays Counsel, for supervisory services
and disbursements, $40,000 per annum (the "Basic Payment")
plus 10% of all distributions to Participants in any year in
excess of the amount representing a return at the rate of 23%
per annum on their remaining cash investment in Registrant
(the "Additional Payment"). At June 30, 1998, such remaining
original cash investment was $3,200,000, representing the
original cash investment of the Participants in Registrant.
No remuneration was paid during the six month
period ended June 30, 1998 by Registrant to either of the
Partners as such. Pursuant to the fee arrangements described
herein, Registrant paid Counsel $20,000 of the Basic Payment
for supervisory services for the six month period ended June
30, 1998.
The supervisory services provided to Registrant by
Counsel include legal, administrative and financial services.
The legal and administrative services include acting as
general counsel to Registrant, maintaining all of its
partnership and Participant records, performing physical
inspections of the Building, reviewing insurance coverage and
conducting annual partnership meetings. Financial services
include monthly receipt of rent from Sublessee, payment of
monthly rent to the fee owner, payment of monthly and ad-
ditional distributions to the Participants, payment of all
other disbursements, confirmation of the payment of real
estate taxes, review of financial statements submitted to
Registrant by Sublessee, review of financial statements
audited by and tax information prepared by Registrant's
independent certified public accountant, and distribution of
such materials to the Participants. Counsel also prepares
quarterly, annual and other periodic filings with the
Securities and Exchange Commission and applicable state
authorities.
Navarre-500 Building Associates 7.
June 30, 1998
Reference is made to Note B of Item 1 (Note "B")
for a description of the terms of the Sublease between
Registrant and Sublessee. The respective interests, if any,
of the Partners in Registrant and Sublessee arise solely from
their respective ownership of participations, if any, in
Registrant and, in the case of Mr. Malkin, his ownership of a
partnership interest in Sublessee. The Partners receive no
extra or special benefit not shared on a pro rata basis with
all other Participants in Registrant or partners in
Sublessee. However, each of the Partners, by reason of his
respective partnership interest in Counsel, is entitled to
receive his pro rata share of any legal fees or other
remuneration paid to such law firm for legal and supervisory
services rendered to Registrant and Sublessee.
As of June 30, 1998, the Partners owned of record
and beneficially $38,125 participations in Registrant,
representing 1.191% of the currently outstanding participa-
tions therein.
In addition, as of June 30, 1998, certain of the
Partners in Registrant (or their respective spouses) held
additional Participations as follows:
Isabel W. Malkin, the wife of Peter L. Malkin,
owned of record and beneficially $5,000 of
Participations. Mr. Malkin disclaims any
beneficial ownership of such Participations.
Peter L. Malkin, Trustee of Mattee Saunders 1983
Trust, owned $7,500 of Participations. Mr. Malkin
disclaims any beneficial ownership of such
Participations.
2.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Navarre-500 Building Associates
Condensed Statement of Income
(Unaudited)
For the Three Months
Ended March 31,
1998 1997
Income:
Rent income, from a related
party (Note B) $ 291,875 $ 291,875
---------- ---------
Expenses:
Leasehold rent (Note B) 121,875 121,875
Supervisory services, to a
related party (Note C) 10,000 10,000
Amortization of leasehold 1,632 1,632
---------- ---------
Total expenses 133,507 133,507
---------- ---------
Net income $ 158,368 $ 158,368
========== =========
Earnings per $5,000 partici-
pation unit, based on 640
participation units out-
standing during the year $ 247.45 $ 247.45
========== =========
Distributions per $5,000
participation:
Distributions per $5,000
participation consisted
of the following:
Income $ 247.45 $ 247.45
Return of capital 2.55 2.55
---------- ---------
Total distributions $ 250.00 $ 250.00
========== =========
At March 31, 1998 and 1997, there were $3,200,000 of participations
outstanding.
Navarre-500 Building Associates 3.
Condensed Balance Sheet
(Unaudited)
Assets March 31, 1998 December 31, 1997
Current assets
Cash $ 135,625 $ 53,334
---------- ----------
Total current assets 135,625 53,334
Real Estate
Leasehold on property situated
at 500 and 512 Seventh Avenue
New York, New York 3,200,000 3,200,000
Less, allowance for amortization 3,029,817 3,028,186
--------- ----------
170,183 171,814
--------- ----------
Total assets $ 305,808 $ 225,148
========== ==========
Liabilities and Capital
Current liabilities
Deferred credit:
Portion of rent income
collected in advance for the
month of December, 1998 $ 82,292 $ -0-
---------- ----------
Total current liabilities 82,292 -0-
Capital
Capital January 1, 225,148 231,672
Add, Net income:
January 1, 1998 through March 31, 1998 158,368 -0-
January 1, 1997 through December 31, 1997 -0- 1,465,930
---------- ----------
383,516 1,697,602
Less, Distributions:
Monthly distributions,
January 1, 1998 through
March 31, 1998 160,000 -0-
January 1, 1997 through
December 31, 1997 -0- 640,000
Distribution on August 29,
1997 of Additional Rent
for the lease year ended
June 30, 1997 -0- 832,454
--------- ----------
Total distributions 160,000 1,472,454
--------- ----------
Capital:
March 31, 1998 223,516 -0-
December 31, 1997 -0- 225,148
--------- ----------
Total liabilities and capital:
March 31, 1998 $ 305,808
December 31, 1997 ========= $ 225,148
==========
4.
Navarre-500 Building Associates
Condensed Statement of Cash Flows
(Unaudited)
January 1, 1998 January 1, 1997
through through
March 31, 1998 March 31, 1997
Cash flows from operating activities:
Net income $ 158,368 $ 158,368
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of leasehold 1,632 1,632
Change in deferred credit 82,292 82,292
----------- -----------
Net cash provided by operating
activities 242,292 242,292
----------- -----------
Cash flows from financing activities:
Cash distributions (160,000) (160,000)
----------- -----------
Net cash used in financing
activities (160,000) (160,000)
----------- -----------
Change in cash during period 82,292 82,292
Cash, beginning of quarter 53,333 53,333
----------- -----------
Cash, end of quarter $ 135,625 $ 135,625
=========== ===========
Navarre-500 Building Associates 5.
March 31, 1998
Notes to Condensed Financial Statements (unaudited)
Note A Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include all
information and footnotes necessary for a fair presentation
of financial position, results of operations and statement of
cash flows in conformity with generally accepted accounting
principles. The accompanying unaudited condensed financial
statements include all adjustments (consisting only of normal
recurring accruals) which are, in the opinion of the partners
in Registrant, necessary for a fair statement of the results
for such interim periods. The partners in Registrant believe
that the accompanying unaudited condensed financial state-
ments and the notes thereto fairly disclose the financial
condition and results of Registrant's operations for the
periods indicated and are adequate to make the information
presented therein not misleading.
Note B Interim Period Reporting
The results for the interim period are not
necessarily indicative of the results to be expected for a
full year.
Registrant was organized on March 21, 1958.
Registrant owns the tenant's interest in the master operating
leasehold (the "Master Lease") of the buildings located at
500 and 512 Seventh Avenue and 228 West 38th Street, New
York, New York (the "Property"). Registrant's partners are
Peter L. Malkin and Thomas N. Keltner, Jr. (the "Partners").
The land underlying the buildings is owned by an unaffiliated
third party and is leased to Registrant under a long-term
ground lease (the "Lease"). The current term of the Lease
expires on May 1, 2024. The Lease provides for one 21-year
renewal option. If this option is exercised, the Lease will
expire on May 1, 2045. The annual rent payable by Registrant
under the Lease is $487,500 during the current and the
renewal term.
Registrant does not operate the Property, but
subleases the Property to 500-512 Seventh Avenue Associates
(the "Sublessee") pursuant to a net operating sublease (the
"Sublease"), the current renewal term of which will expire on
April 30, 2024. The Sublease provides for one renewal option
co-extensive with the Lease. Peter L. Malkin, a partner in
Registrant, is also a partner in Sublessee. The Partners in
Registrant are also members of the law firm of Wien & Malkin
LLP, counsel to Registrant and to Sublessee (the "Counsel").
See Note C of this Item 1 ("Note C").
Navarre-500 Building Associates 6.
March 31, 1998
Under the Sublease, Sublessee must pay (i) annual
basic rent of $1,167,500 during the current renewal term and
the additional renewal term (the "Basic Rent") and (ii) ad-
ditional rent to Registrant during the current term and the
renewal term equal to 50% of Sublessee's net operating profit
in excess of $620,000 for each lease year ending June 30 (the
"Additional Rent").
For the lease year ended June 30, 1997, Sublessee
paid Additional Rent of $914,282. After additional payment
for supervisory services of $81,828 to Counsel, the $832,454
balance was distributed to the Participants on August 29,
1997. Additional Rent income is recognized when earned from
the Sublessee, at the close of the lease year ending June 30.
No Additional Rent is accrued by Registrant for the period
between Sublessee's lease year and Registrant's fiscal year.
Note C Supervisory Services
Registrant pays Counsel, for supervisory services
and disbursements, $40,000 per annum (the "Basic Payment")
plus 10% of all distributions to Participants in any year in
excess of the amount representing a return at the rate of 23%
per annum on their remaining cash investment in Registrant
(the "Additional Payment"). At March 31, 1998, such remain-
ing original cash investment was $3,200,000, representing the
original cash investment of the Participants in Registrant.
No remuneration was paid during the three month
period ended March 31, 1998 by Registrant to either of the
Partners as such. Pursuant to the fee arrangements described
herein, Registrant paid Counsel $10,000 of the Basic Payment
for supervisory services for the three month period ended
March 31, 1998.
The supervisory services provided to Registrant by
Counsel include legal, administrative and financial services.
The legal and administrative services include acting as
general counsel to Registrant, maintaining all of its
partnership and Participant records, performing physical
inspections of the Building, reviewing insurance coverage and
conducting annual partnership meetings. Financial services
include monthly receipt of rent from Sublessee, payment of
monthly rent to the fee owner, payment of monthly and ad-
ditional distributions to the Participants, payment of all
other disbursements, confirmation of the payment of real
estate taxes, review of financial statements submitted to
Registrant by Sublessee, review of financial statements
audited by and tax information prepared by Registrant's
independent certified public accountant, and distribution of
such materials to the Participants. Counsel also prepares
quarterly, annual and other periodic filings with the
Securities and Exchange Commission and applicable state
authorities.
Navarre-500 Building Associates 7.
March 31, 1998
Reference is made to Note B of Item 1 (Note "B")
for a description of the terms of the Sublease between
Registrant and Sublessee. The respective interests, if any,
of the Partners in Registrant and Sublessee arise solely from
their respective ownership of participations, if any, in
Registrant and, in the case of Mr. Malkin, his ownership of a
partnership interest in Sublessee. The Partners receive no
extra or special benefit not shared on a pro rata basis with
all other Participants in Registrant or partners in
Sublessee. However, each of the Partners, by reason of his
respective partnership interest in Counsel, is entitled to
receive his pro rata share of any legal fees or other
remuneration paid to such law firm for legal and supervisory
services rendered to Registrant and Sublessee.
As of April 15, 1998, the Partners owned of record
and beneficially $33,125 participations in Registrant,
representing 1.035% of the currently outstanding participa-
tions therein.
In addition, as of April 15, 1998, certain of the
Partners in Registrant (or their respective spouses) held
additional Participations as follows:
Isabel W. Malkin, the wife of Peter L. Malkin,
owned of record and beneficially $5,000 of
Participations. Mr. Malkin disclaims any
beneficial ownership of such Participations.
Peter L. Malkin, Trustee of Mattee Saunders 1983
Trust, owned $7,500 of Participations. Mr. Malkin
disclaims any beneficial ownership of such
Participations.
