UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [XX]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[XX] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Commission File No. 0-2673
Navarre-500 Building Associates
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[XX] 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: $3,200,000 original investment
amount.
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 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:
$40,000,000.
5) Total fee paid:. $8,000.
[XX] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for 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:
2) Form, Schedule or Registration Statement No.:
Schedule 14A.
3) Filing Party: Registrant
4) Date Filed: October 16, 1998
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NAVARRE-500 BUILDING ASSOCIATES
STATEMENT BY THE AGENTS IN THE
SOLICITATION OF CONSENT AND AGREEMENT OF THE PARTICIPANTS
Dated July __, 1999
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 July __, 1999. The Solicitation will
terminate on October 31, 1999 unless subsequently extended,
but in no event later than January 31, 2000, and any consent
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 combined sale and allocation
program (collectively the "Sale Program"):
(a) Authorizing the Agents to sell the Leasehold
and all Associates' interest in the Property by transfer of
the Leasehold 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) If 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 have concluded that the Property
requires major capital improvement and redevelopment to be
competitive. The Agents believe the Sale Program will permit
Associates to liquidate its investment very profitably and
avoid the speculative risks involved in a redevelopment of
the Property. The Agents believe that joining with the
Lessee in sale will create a premium price for both
Associates and the Lessee, and the Agents intend to
implement the Sale Program only if the Participants approve
both the sale and the independent allocation so as to permit
joint sale.
THE AGENTS RECOMMEND THAT EACH PARTICIPANT
CONSENT TO BOTH THE SALE AND THE ALLOCATION UNDER THE SALE
PROGRAM.
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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. An
original Participant who initially invested $10,000 in 1958
has received aggregate cash distributions of more than
$187,000 through June 1, 1999.
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 all distributions to Participants in
any year after the Participants have received distributions
in that year equal to 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.
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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 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 604,000 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 511,000 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.
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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 June
1, 1999, the Property's occupancy rate is about 75%,
including a major new space lease representing about 9% of
the net rentable area of the Property which was recently
concluded.
In a pending proceeding, Wien & Malkin LLP, as
supervisor of Associates and the Lessee, and Peter L.
Malkin, as a partner in Associates and in the Lessee, are
seeking to remove Helmsley-Spear, Inc. as managing agent of
the Property and to appoint an independent replacement at a
market standard. Wien & Malkin LLP has advanced certain
fees and expenses in addition to rendering legal services in
such proceeding. Helmsley-Spear, Inc. has responded in part
by challenging Wien & Malkin LLP's supervisory performance.
D. Competition
The Property is comprised of unrenovated
buildings. 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. Many
former competitive buildings in the Garment Center have
been or are being improved for and are attracting the
remaining garment industry showrooms and/or general offices.
E. Real Estate Sale Market
Sale prices for commercial office property in
Manhattan rose 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 of Garment Center space for remaining
showrooms and office uses.
Certain other properties in the Garment Center
may be offered for sale by investment entities originated
and supervised by Wien & Malkin 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.
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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 basic
annual supervisory fee to Wien & Malkin 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 Wien & Malkin LLP.
For 1998, no Additional Rent was payable, and
Participants therefore received 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, Wien & Malkin LLP
receives incentive compensation from Associates equal to 10%
of all distributions to Participants in any year after the
Participants have received distributions in that year equal
to 23% of the original investment. Accordingly, Wien &
Malkin 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, 1998, December 31, 1997, and December 31,
1996, and the related statements of income, partners'
capital and cash flows for each of the three years in the
period ended December 31, 1998. See Section VI. - Agent's
Discussion and Analysis of Financial Condition and Results
of Operations. Distributions from sale proceeds to the
Participants would be made only after satisfaction of any
liability of Associates noted in such financial statements
or otherwise arising prior to the sale.
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 as a joint sale
by Associates and the Lessee, including both the
authorization to sell and the allocation of the net sale
proceeds by the independent expert 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. The
Leasehold will be sold for such price and on such terms as
the Agents may determine, except that the Agents will not
proceed with the sale of the Leasehold unless the amount
available for distribution to the Participants will be at
least six times the original cash investment. The Agents
will act by unanimous agreement between themselves in
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determining the price and other terms of sale. The Lessee
has obtained authorization from its partners 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 has been
computed by an independent expert as specified in this
Statement based upon its enclosed Report.
As the Agents are aware, based on information
distributed from the Fashion Center Business Improvement
District (of which Mr. Malkin is an officer and 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 and seek
upgraded buildings.
The Property's occupancy has declined as the
garment industry has contracted. Without materially
reconfiguring the internal space to reflect these changes in
the garment industry or for an alternative use, and an
overall upgrade and redevelopment of the buildings, the
Agents believe it is likely that the Property's viability
will be further diminished. Additional capital investment
by the Lessee or the Participants would be subject to
significant risks that the Agents cannot 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 of
Garment Center space for remaining showrooms and office
users. Based upon current market conditions, the Agents
believe that implementation of a Sale Program is the best
way for the Participants to maximize the value of their
investment. See Section VI. - Agent'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 and the assessment of various
alternatives by the Agents, the Agents recommend that the
Participants approve the Sale Program. See Section I.D. -
Competition; Section I.F. - Financial Information; Section
II.A. - Grant of Discretionary Authorization to the Agents;
Rationale for the Sale Program; and Section II.C. -
Consideration of Alternatives. 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 1.25% of the interests in the Lessee. See
Section IV. - Supervisory Services; Potential Conflicts of
Interest. The Agents will effect the liquidation of
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Associates after a sale is concluded, Associates'
liabilities are paid, 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
more than $187,000 through June 1, 1999. 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. Nevertheless, the Agents will effect a sale hereunder
only if the amount available for distribution to the
Participants from net sale proceeds will be at least six
times the original investment amount. For the joint sale by
Associates and the Lessee, the Agents and the Lessee have
engaged Eastdil to prepare marketing materials for the
possible sale of the Leasehold and the Operating Lease.
Pending receipt of consents for the Sale Program, Eastdil
may distribute the marketing materials and 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 utilized 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 a 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
Wien & Malkin LLP as supervisor and, pursuant to the 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 the prominent, independent
real estate appraisal expert, Cushman & Wakefield ("C&W").
Each Participant's agreement to the Wien & Malkin LLP
incentive compensation recommended in this Statement is a
mutual voluntary agreement binding only upon the Participant
and Wien & Malkin LLP in place of any other Wien & Malkin
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, Wien & Malkin LLP, and Eastdil. C&W
reached the conclusions embodied in its report (the
"Report") to Associates, the Lessee and Wien & Malkin LLP,
as summarized below.
The proposed allocation of sale proceeds by C&W
among Associates, the Lessee, and Wien & Malkin LLP as
supervisor was based primarily upon C&W's (a) stated
assumptions regarding future property operation based on
property history and market conditions, (b) projection of
cash flow and net operating income for Associates and the
Lessee respectively in accord with the Operating Lease, and
(c) computation of their respective shares of a range of
possible Property sale prices by applying a corresponding
range of discount and capitalization rates to such cash flow
and net operating income. 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. It also took into account that purchasers do give
value to control over the operation, management and
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marketing of a property. The Report summary is enclosed.
Additional data regarding the Leasehold and the Property, as
well as data computed by C&W in reaching the conclusions in
the Report, will be on file in the office of Wien & Malkin
LLP and available for review by the Participants.
Appointments to inspect and copy such data, and requests for
copies of data by mail, may be made by contacting Stanley
Katzman, Esq., at 212-687-8700.
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The formula in the Report allocates aggregate joint sale proceeds,
among Associates, the Lessee, and Wien & Malkin LLP as supervisor as follows:
Aggregate Joint Percentage Percentage Percentage
Sale Net Proceeds to Associates to Lessee to Wien & Malkin LLP
$ 50,000,000 44.02% 49.61% 6.37%
55,000,000 43.78% [49.45% 6.76%]
60,000,000 43.58% [49.67% 6.75%]
65,000,000 43.28% [50.00% 6.72%]
70,000,000 43.14% [50.00% 6.86%]
75,000,000 42.91% 50.43% 6.67%
80,000,000 42.81% [50.38% 6.81%]
85,000,000 42.62% [50.47% 6.91%]
90,000,000 42.56% [50.56% 6.89%]
95,000,000 42.49% [50.63% 6.87%]
100,000,000 42.35% 50.84% 6.81%
The following chart shows three examples of the
distribution of aggregate joint sale net proceeds among
Associates, W&M LLP and the Lessee using the allocation
formula in accord with the Report of C&W. The assumed net
sale proceeds (after payment of all selling expenses from
the gross sale price) is shown at the top of each column.
Aggregate Joint
Sale Net Proceeds: $50,000,000 $75,000,000 $100,000,000
Allocation:
Associates: $22,010,000 $32,180,000 $ 42,350,000
Lessee: $24,805,000 $37,820,000 $ 50,835,000
Wien &
Malkin LLP: $ 3,185,000 $ 5,000,000 $ 6,815,000
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The estimated distribution amount for each Participant after
payment of the incentive compensation is as shown below:
Hypothetical
Aggregate
Joint Sale
Net Proceeds $ 50,000,000 $ 75,000,000 $100,000,000
Net Proceeds
Allocable to
the Leasehold $ 24,100,000 $ 35,400,000 $ 46,700,000
Net Proceeds
Allocable to
$10,000
Participant
before
Allocation to
Wien & Malkin LLP $ 75,313 $ 110,625 $ 145,938
Allocation of
Incentive
Compensation
to Wien &
Malkin LLP $ 6,531 $ 10,063 $ 13,594
Net Amount
Distributable
to $10,000
Participant
after
Incentive
Compensation $ 68,782 $ 100,562 $ 132,344
To the extent that any Participant does not agree
to the Wien & Malkin 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 Wien & Malkin LLP
will be subject to Associates' pre-existing obligations,
then applicable, to Wien & Malkin LLP. See "Incentive
Compensation."
THERE CAN BE NO ASSURANCE THAT THE SALE RESULTS
DESCRIBED IN THESE EXAMPLES WILL BE ACHIEVED. Eastdil has
received informal indications of interest which indicate a
likelihood that joint sale of the Leasehold and the
Operating Lease 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. The ownership of the Leasehold subject to the
Operating Lease is the only business authorized by
Associates' partnership agreement.
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C. Consideration of Alternatives
The Agents considered as 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. Each
alternative was 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 viability of the Leasehold will continue
to diminish, because garment industry users are choosing
improved buildings and the Property in its current condition
is not competitive for such users or 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, 1998, the book value of each original $10,000
participation was $683. 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.
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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 Wien & Malkin
LLP, which receives an annual supervisory fee for certain
legal, supervisory, and financial services. The legal
services include acting as general counsel to Associates. A
non-exclusive list of the supervisory services includes
maintaining 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. Wien & Malkin LLP also prepares quarterly,
annual and other periodic filings with the Securities and
Exchange Commission and applicable state authorities.
As approved by the Participants, Wien & Malkin
LLP receives (a) $40,000 per annum as a supervisory fee,
from which Wien & Malkin LLP pays Associates' accounting
fees and other disbursements, and (b) incentive compensation
equal to 10% of all distributions to Participants in any
year after the Participants have received distributions in
that year equal to 23% of the original investment. No
incentive compensation was payable to Wien & Malkin LLP in
1998.
Wien & Malkin LLP serves as supervisor and
counsel to Associates and the Lessee, including representing
as counsel Associates and the Lessee (with any other co-
counsel designated for either of them) at standard hourly
rates in connection with this Statement and the transactions
proposed herein. As a result, Wien & Malkin LLP may also
receive legal fees, repayment of certain advances on behalf
of the Agents, Associates, and the Lessee, and supervisory
incentive compensation from one of the partners in the
Lessee in connection with the proposed sale.
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B. Certain Ownership of Participations in Associates
As of June 1, 1999, the Agents beneficially owned,
directly or indirectly, the following participations (expressed as
original cash investment):
Amount of
Beneficial Percent
Title of Class Name of Agent Ownership of Class
Participations
in Partnership
Interests Peter L. Malkin $13,125 0.41%
Thomas N. Keltner, Jr. $ -0- -0-
Members of Mr. Malkin's family owned an additional $76,250 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 Wien & Malkin 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 1.25% 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 the Lessee. The
required affirmative vote has been obtained by the Lessee to
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.
Wien & Malkin LLP acts as supervisor for both
Associates and the Lessee. Its members and their families
own beneficial interests in both Associates and the Lessee.
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In the event of any challenge to any matter related to the
Sale Program, including without limitation the sale proceeds
allocation recommended herein, Wien & Malkin LLP and its
affiliates are entitled to be indemnified by Associates to
the fullest extent permitted by applicable law.
A partner in the Lessee, Leona M. Helmsley, has
conducted a broad program for sale of real estate assets.
Mrs. Helmsley has interests in other properties supervised
by Wien & Malkin LLP, and she may seek sales of those
properties or of her interests in the related entities. Any
party related to Associates and/or the Lessee (including,
without limitation, each Participant, Wien & Malkin LLP, and
each of their respective affiliates) retains the independent
right to join in any such sale or to purchase any such
property or interest.
Both of the Agents are members of Wien & Malkin
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 and the Lessee
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 fullest extent permitted by applicable law. The Lessee
may also have certain indemnity obligations to the Agents
and Wien & Malkin LLP and its affiliates. Payment of such
obligations by the Lessee shall be treated as an operating
expense under the Operating Lease, deductible in computing
Additional Rent. To the extent of any indemnity payment by
the Lessee for a particular matter, the indemnity payment by
Associates for such matter shall be reduced.
Each Agent, as a member of Wien & Malkin LLP, will
share in any fee received by that firm for its services to
Associates, any reimbursement for advances by that firm on
behalf of the Agents, Associates, and the Lessee, and any
incentive compensation approved by the Participants or
otherwise provided pursuant to the Participating Agreements.
Neither the Agents, as such, nor Wien & Malkin 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. Agents' Discussion and Analysis of Financial Condition
and Results of Operations
A. Operating Revenues; Distributions
Associates was organized solely for the purpose
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 Wien &
Malkin LLP.
-14-
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, 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, there was 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
1998 and the two preceding years:
(a) Total income decreased for the year ended
December 31, 1998 as compared with the year ended
December 31, 1997. No Additional Rent was
received by Associates in 1998.
(b) 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 than in 1996
because of the Lessee's less profitable operation
of the Property.
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, 1998, as compared with the twelve-month period
ended December 31, 1997.
-15-
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 June 1, 1999, no
person held participations aggregating more than 5% of the
total outstanding participations.
On June 1, 1999, 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 June 1, 1999 will be
recognized as entitled to vote. If any participation is
transferred before the Consent with respect to that
participation is given, the transferee will be entitled to
vote. However, 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 and (ii) $100. As of
December 31, 1998, the book value of each original $10,000
participation was $683 (computed by dividing an original
$10,000 Participation by the cash investment of $3,200,000,
and then multiplying the resulting amount by Associates'
equity). Accordingly, the purchase price would be $683 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 $683 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.
There was no payment of Additional Rent in 1998, and no
projection has been finalized as to 1999.
-16-
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 non-
consenting 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.
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. Associates has
been advised that the sale price for the few isolated
transactions known to Wien & Malkin LLP in the past two
calendar years was either $10,000 or $12,500 for each
original $10,000 participation.
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. THE
AGENTS RECOMMEND YOUR CONSENT AND AGREEMENT TO ALL ITEMS.
-17-
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
1. As a participant in Associates, the undersigned hereby
CONSENTS: DOES NOT CONSENT:
*Consents to _ Disapproves of _
Abstains from _
authorizing the Agents and their respective successors, on
behalf of Associates, 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 as will
permit distributions to participants of not less than six
times the original cash investment and on such terms as
determined by the Agents, all as recommended by the Agents
in the Statement described below; and
2. As a participant in Associates, the undersigned hereby
CONSENTS: DOES NOT CONSENT:
*Consents to _ Disapproves of _
Abstains from _
authorizing the Agents and their respective successors, on
behalf of Associates, to effect such sale jointly with the
Lessee and to distribute the sale proceeds in accord with
the distribution schedule computed by an independent expert
and summarized in Section II.B.2. of the Statement, all as
recommended by the Agents in the Statement described below.
*BECAUSE THE AGENTS INTEND ONLY A JOINT SALE PROGRAM FOR THE
BENEFIT OF ASSOCIATES, NO SALE WILL OCCUR HEREUNDER UNLESS
THE REQUIRED PARTICIPANT CONSENTS ARE RECEIVED FOR BOTH
ITEMS 1 AND 2. AS TO ANY ITEM, AN ABSTENTION IS TREATED AS
A DISAPPROVAL.
-18-
B. AGREEMENT TO WIEN & MALKIN LLP INCENTIVE COMPENSATION
As a Participant in Associates, the undersigned hereby
AGREES: DOES NOT AGREE:
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 June __, 1999 (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, dated 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. As to any item, an
abstention is treated as a disapproval.
THE AGENTS RECOMMEND THAT EACH PARTICIPANT CONSENT AND AGREE
TO ALL THE FOREGOING ITEMS. PLEASE SIGN DATE, AND RETURN
THIS CONSENT AND AGREEMENT PROMPTLY. ONCE GIVEN, CONSENT
MAY NOT BE REVOKED.
Dated: , 1999
__________________________
(Signature)
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS CONSENT.
ONCE GIVEN, CONSENT MAY NOT BE REVOKED.
IF THIS FORM IS SIGNED, DATED AND RETURNED WITHOUT A CHOICE
INDICATED,
THE PARTICIPANT EXECUTING SAME SHALL BE DEEMED
TO HAVE CONSENTED.
-19-
