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 [XX] Confidential, for use of
[ ] Definitive Proxy Statement the Commission Only
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 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:.$8,000 . . . . . . . . . . .
2) Form, Schedule or Registration Statement No.:
Schedule 14A . . . . . . . . . . . . . . . . . . . .
3) Filing Party: Registrant . . . . . . . . . . . . . .
4) Date Filed: 10/16/98 . . . . . . . . . . . . . . . .
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH THE
SOLICITATION OF CONSENT AND AGREEMENT OF THE
PARTICIPANTS
Dated March __, 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 March __, 1999. The
Solicitation will terminate on June 31, 1999 unless subsequently extended, but
in no event later than December 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
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 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) 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 Sale Program will permit
Associates to liquidate its investment very profitably and avoid the
speculative risks of redevelopment 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.
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
March 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.
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 525,000
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
March 1, 1999, the Property's occupancy rate is about 66%. A major new space
lease for the Property is currently the subject of negotiation by the Lessee.
In a pending proceeding, W&M 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 a replacement at a market standard. W&M LLP has advanced on behalf of
the Agents certain fees and expenses in addition to rendering legal services in
such proceeding. Helmsley-Spear, Inc. has responded in part by challenging W&M
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 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 basic 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.
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, W&M 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, 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. In addition, the audited condensed balance sheet as of December
31, 1998*and the related condensed statement of income and cash flows for the
period ended December 31, 1998 are enclosed. See Section VI. - Management'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 five times the original cash investment. 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 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 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 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.E. - 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 1.477% 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' 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 March 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. 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 five 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 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,
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 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 by C&W among Associates,
the Lessee, and W&M 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. The Report is enclosed. Additional data regarding the Leasehold and
the Property will be on file in the office of W&M LLP and available for review
by the Participants. Appointments to inspect and copy such data, and requests
for copies of data, may be made by contacting Stanley Katzman, Esq., at 212-
687-8700.
The formula in the Report allocates sale proceeds, among
Associates, the Lessee, and W&M LLP as supervisor as follows:
Percentage Percentage Percentage
Sale Price to Associates to Lessee to W&M LLP
$ 50,000,000 __% __% __%
55,000,000 __% __% __%
60,000,000 __% __% __%
65,000,000 __% __% __%
70,000,000 __% __% __%
75,000,000 __% __% __%
80,000,000 __% __% __%
85,000,000 __% __% __%
90,000,000 __% __% __%
95,000,000 __% __% __%
100,000,000 __% __% __%
The following chart shows three examples of the distribution of
sale proceeds among Associates, W&M LLP and the Lessee using the allocation
formula in accord with the Report of C&W. The assumed sale price is shown at
the top of each column.
Sale Prices: $50,000,000 $75,000,000 $100,000,000
Allocation:
Associates:
Lessee:
W&M LLP:
The estimated distribution amount for each Participant after
payment of the incentive compensation is as shown below:
Hypothetical
Sale Price
Allocable to the
Leasehold $50,000,000 $75,000,000 $100,000,000
Estimated Net
Sale Proceeds
Distributable to
$10,000
Participant $__________ $__________ $___________
Incentive
Compensation to
W&M LLP $__________ $__________ $__________
Net Amount to
$10,000
Participant
after Incentive
Compensation $____________ $__________ $_________
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. 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. 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 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.
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
certain legal, supervisory, and financial services. The legal and supervisory
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 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 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) at standard hourly rates in connection
with this Statement and the transactions proposed herein. As a result, W&M LLP
may also receive legal fees, repayment of certain advances on behalf of the
Agents and Associates, and supervisory incentive compensation from the Lessee
in connection with the proposed sale.
B. Certain Ownership of Participations
As of March 1, 1999, the Agents beneficially owned, directly or
indirectly, the
following participations (expressed as original cash investment):
Title of Class Name of Agents Amount of
Beneficial Percent
Ownership of Class
Participations
in Partnership
Interests Peter L. Malkin $38,125 1.191406%
Thomas N. Keltner, Jr. $ -0- -0-
Members of Mr. Malkin's family owned an additional $51,250 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 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 the Lessee. The required affirmative vote is being sought 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.
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. 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 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 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, any reimbursement for advances by
that firm on behalf of the Agents and Associates, and any incentive
compensation approved by the Participants or otherwise provided pursuant to the
Participating Agreements. 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. Agents' 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, 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 the two preceding years, and for 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 year ended December 31, 1998
as compared with the year ended December 31, 1997. No Additional
Rent was received by Associates in 1998.
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.
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 March 1, 1999, no person held
participations aggregating more than 5% of the total outstanding
participations.
On March 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 March 1, 1999 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, and (ii) $100. As of March 1, 1999, 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 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 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.
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
1. 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, 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. 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, 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, 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 PARTICIPANTS
CONSENTS ARE RECEIVED FOR BOTH ITEMS 1 AND 2. AS TO ANY ITEM, AN ABSTENTION IS
TREATED AS A DISAPPROVAL.
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 March __, 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 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. If the Consent and Agreement is
returned undated, it will be deemed dated as of the date received by the
Agents.
Dated: , 1999
____________________________
(Signature)
