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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only
[XX] 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.
[ ] 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
NAVARRE-500 BUILDING ASSOCIATES
c/o Wien & Malkin LLP
60 East 42nd Street - 48th Floor
New York, New York 10165-0015
Telephone (212) 687-8700
Telecopier (212) 986-7679
STATEMENT BY THE AGENTS IN THE
SOLICITATION OF CONSENT AND AGREEMENT OF THE PARTICIPANTS
Dated July 15, 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 15, 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.
-1-
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.
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.
-3-
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.
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.
-4-
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.
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.
-5-
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 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.
-6-
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. - Agents' 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 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.
-7-
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
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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 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.
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% 49.76% 6.45%
60,000,000 43.58% 49.89% 6.53%
65,000,000 43.28% 50.15% 6.58%
70,000,000 43.14% 50.23% 6.63%
75,000,000 42.91% 50.43% 6.67%
80,000,000 42.81% 50.48% 6.71%
85,000,000 42.62% 50.64% 6.74%
90,000,000 42.56% 50.68% 6.77%
95,000,000 42.49% 50.71% 6.79%
100,000,000 42.35% 50.84% 6.82%
-9-
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
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
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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.
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
-11-
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 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
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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.
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.
-13-
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. 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
-14-
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
and the Operating Lease 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.
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.
-15-
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.
-16-
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.
-17-
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.
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.
-18-
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 between Associates
and the Lessee 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.
-19-
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 Section II.B.2. of 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 the Solicitation of Consent and Agreement of the
Participants in Navarre-500 Building Associates dated July 15,
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.
-20-
[LETTERHEARD OF
ORLIN & FEUERSTEIN, CPAs, P.C.]
ACCOUNTANTS' REPORT
To the participants in Navarre-500 Building Associates
( a Partnership):
We have audited the accompanying balance sheet of Navarre-500 Building
Associates ( "Associates" ) as of December 31, 1998 and the related
statements of income, partners' capital, and cash flows for the year
then ended. These financial statements are the responsibility of
Associates' management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Associates
as of December 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally
accepted accounting principles.
______________________________________
Orlin & Feuerstein, CPAs, P.C.
60 East 42nd Street
New York, NY 10165
February 4, 1999
Navarre-500 Building Associates
Balance Sheet
December 31, 1998
Assets
Cash:
Distribution account held by Wien & Malkin LLP $ 53,333
Chase Manhattan Bank 1
53,334
Leasehold at 500 and 512 Seventh Avenue, New York City $3,200,000
Less: Accumulated amortization of cost of leasehold 3,034,710 165,290
Total assets $ 218,624
Partners' Capital
Partners' capital, December 31, 1998 $ 218,624
Statement of Income
For the Year Ended December 31, 1998
Rent income:
Basic rent $1,167,500
Expenses:
Leasehold rent $487,500
Supervisory services 40,000
Total expenses 527,500
Income before amortization of cost of leasehold 640,000
Amortization of cost of leasehold 6,524
Net income $ 633,476
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Statement of Partners' Capital
December 31, 1998
Partners' capital, January 1, 1998 $ 225,148
Add, Net income for the year ended December 31, 1998 633,476
858,624
Less: Distributions: January 1, 1998
through December 31, 1998 640,000
Partners' capital, December 31, 1998 $ 218,624
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Statement of Cash Flows
For the Year Ended December 31, 1998
Cash flows from operating activities:
Net income $ 633,476
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of cost of leasehold 6,524
Net cash provided by operating activities 640,000
Cash flows from financing activities:
Monthly distributions to participants (640,000)
Net change in cash 0
Cash at beginning of year 53,334
Cash at end of year $ 53,334
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Note to Financial Statement
December 31, 1998
1. Business Activity:
Navarre-500 Building Associates ("Associates") is a general
partnership which owns and leases the leasehold at 500 and
512 Seventh Avenue, New York City.
2. Significant Accounting Policy:
a) Land, buildings and amortization
The leasehold is stated at cost. The unamortized leasehold cost of
$191,388 at December 31, 1994 is being amortized over the period of
29 years and 4 months from January 1, 1995 to May 1, 2024, the end
of the second renewal period, with amortization at $6,524 per annum.
Amortization of leasehold from July 1, 1958 through December 31, 1977
was $134,266 per annum, and from January 1,1978 through December 31,
1994 was $22,966 per annum.
b) Use of estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles often requires the use of
estimates and assumptions regarding certain types of assets,
liabilities, revenues, and expenses. Such estimtes may relate to
unsettled transactions and events as of the date of the financial
statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
3. Leasehold at 500 and 512 Seventh Avenue, New York City:
The lease includes an initial term which expired April 30,1982,
and options to renew for three additional terms of 21 years each.
Associates has exercised the first renewal option for the period
from May 1, 1982 to May 1, 2003, and the second renewal option for
the period from May 1, 2003 to May 1, 2024. The lease rent was
$937,500 per annum during the initial term, and was $437,500 per
annum through April 30, 1985. Pursuant to a lease modification
effective May 1, 1985, the lease rent was increased by $50,000
from $437,500 to $487,500 per annum during the present term and
all future renewal terms.
4. Rent Income and Related Party Transactions:
The sublease includes an initial term which expired April 30, 1982
and three additional terms of 21 years each, provided that the
lease remains in effect. The sublessee has exercised its first
and second renewal options for the terms from May 1, 1982 through
April 30, 2003, and from May 1, 2003 through April 30, 2024. Basic
rent under the sublease was $1,337,500 during the initial term, and
$1,117,500 through April 30, 1985. Pursuant to the modification of
the sublease effective May 1, 1985, basic rent was increased by
$50,000 from $1,117,500 to $1,167,500 during the present term and
all future renewal terms.
Navarre-500 Building Associates
Notes to Financial Statement
December 31, 1998
4. Rent Income and Related Party Transactions:(continued)
Additional rent is payable to Navarre-500 Building Associates
equivalent to one-half the net operating profit, as defined,
in excess of $400,000, in any year during the initial term, and
$620,000 during renewal terms. For the lease year ended June 30,
1998, the sublessee's net profit, as defined in the lease, was
$399,964, so that no additional rent was received.
Some partners in Associates are also partners in the sublessee.
5. Supervisory Services and Related Party Transactions:
Payments for supervisory services, including disbursements and cost
of accounting services, are made to the firm of Wien & Malkin LLP.
Some partners in that firm are also partners in Associates.
6. Income Taxes:
Net income is computed without regard to income tax expense since the
partnership does not pay a tax on its income; instead, any such taxes
are paid by the participants in their individual capacities.
7. Concentration of Credit Risk:
Associates maintains cash balances in a bank and in a distribution
account held by Wien & Malkin LLP. The bank balance is insured by
the Federal Deposit Insurance Corporation up to $100,000, and at
December 31, 1998, was completely insured. The distribution account
held by Wien & Malkin LLP is not insured. The funds held in the
distribution account were paid to the participants on January 1,
1999.
[LETTERHEARD OF
ORLIN & FEUERSTEIN, CPAs, P.C.]
ACCOUNTANTS' REPORT
To the participants in Navarre-500 Building Associates ( a Partnership):
We have audited the accompanying balance sheet of Navarre-500 Building
Associates ( "Associates" ) as of December 31, 1997 and the related
statements of income, partners' capital, and cash flows for the year then
ended. These financial statements are the responsibility of Associates'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, In
all material respects, the financial position of Associates as of December 31,
1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
______________________________
Orlin & Feuerstein, CPAs, P.C.
60 East 42nd Street
New York, NY 10165
January 26, 1998
Navarre-500 Building Associates
Balance Sheet
December 31, 1997
Assets
Cash:
Distribution account held by Wien & Malkin LLP $ 53,333
Chase Manhattan Bank 1
53,334
Leasehold at 500 and 512 Seventh Avenue, New York City $3,200,000
Less: Accumulated amortization of cost of leasehold 3,028,186 171,814
Total assets $225,148
Partners' Capital
Partners' capital, December 31, 1997 $225,148
Statement of Income
For the Year Ended December 31, 1997
Rent income:
Basic rent $1,167,500
Additional rent for the lease year ended June 30, 1997 914,282
Total rent income 2,081,782
Expenses:
Leasehold rent $487,500
Supervisory services 121,828
Total expenses 609,328
Income before amortization of cost of leasehold 1,472,454
Amortization of cost of leasehold 6,524
Net income $1,465,930
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Statement of Cash Flows
December 31, 1997
Cash flows from operating activities:
Net income $1,465,930
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of cost of leasehold 6,524
Net cash provided by operating activities 1,472,454
Cash flows from financing activities:
Monthly distributions to participants ($640,000)
Distribution on August 29, 1997 of additional rent for
the lease year ended June 30, 1997 ( 832,454)
Net cash used in financing activities (1,472,454)
Net change in cash -0-
Cash at beginning of year 53,334
Cash at end of year $ 53,334
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Statement of Partner's Capital
December 31, 1997
Partners' capital, January 1, 1997 $ 231,672
Add, Net income for the year ended December 31, 1997 1,465,930
1,697,602
Less, Distributions:
Monthly distributions January 1, 1997 through
December 31, 1997 $640,000
Distribution on August 29, 1997 of additional
rent for the lease year ended June 30, 1997 832,454
1,472,454
Partners' capital, December 31, 1997 $ 225,148
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Notes to Financial Statements
December 31, 1997
1. Business Activity:
Navarre-500 Building Associates ("Associates") is a general partnership
which owns and leases the leasehold at 500 and 512 Seventh Avenue, New York
City.
2. Significant Accounting Policy:
The leasehold is stated at cost. The unamortized leasehold cost of
$191,388 at December 31, 1994 is being amortized over the period of 29 years
and 4 months from January 1, 1995 to May 1, 2024, the end of the second
renewal period, with amortization at $6,524 per annum. Amortization of
leasehold from July 1, 1958 through December 31, 1977 was $134,266 per annum,
and from January 1,1978 through December 31,1994 was $22,966 per annum.
3. Leasehold at 500 and 512 Seventh Avenue, New York City:
The lease includes an initial term which expired April 30,1982, and
options to renew for three additional terms of 21 years each. Associates has
exercised the first renewal option for the period from May 1, 1982 to May 1,
2003, and the second renewal option for the period from May 1, 2003 to May 1,
2024. The lease rent was $937,500 per annum during the initial term, and was
$437,500 per annum through April 30, 1985. Pursuant to a lease modification
effective May 1, 1985, the lease rent was increased by $50,000 from $437,500
to $487,500 per annum during the present term and all future renewal terms.
4. Rent Income and Related Party Transactions:
The sublease includes an initial term which expired April 30, 1982 and
three additional terms of 21 years each, provided that the lease remains in
effect. The sublessee has exercised its first and second renewal options for
the terms from May 1, 1982 through April 30, 2003, and from May 1, 2003 through
April 30, 2024. Basic rent under the sublease was $1,337,500 during the initial
term, and $1,117,500 through April 30, 1985. Pursuant to the modification of
the sublease effective May 1, 1985, basic rent was increased by $50,000 from
$1,117,500 to $1,167,500 during the present term and all future renewal terms.
Additional rent is payable to Navarre-500 Building Associates equivalent
to one-half the net operating profit, as defined, in excess of $400,000, in
any year during the initial term, and $620,000 during renewal terms. For the
lease year ended June 30, 1997, the sublessee's net profit was $2,448,563 so
that additional rent of $914,282 was received.
Some partners in Associates are also partners in the sublessee.
Navarre-500 Building Associates
Notes to Financial Statements
December 31, 1997
5. Supervisory Services and Related Party Transactions:
Payments for supervisory services, including disbursements and cost of
accounting services, are made to the firm of Wien & Malkin LLP. Some partners
in that firm are also partners in Associates.
6. Income Taxes:
Net income is computed without regard to income tax expense since the
partnership does not pay a tax on its income; instead, any such taxes are paid
by the participants in their individual capacities.
7. Concentration of Credit Risk:
Associates maintains cash balances in a bank and in a distribution account
held by Wien & Malkin LLP. The bank balance is insured by the Federal Deposit
Insurance Corporation up to $100,000, and at December 31, 1997, was completely
insured. The distribution account held by Wien & Malkin LLP is not insured.
The funds held in the distribution account were paid to the participants on
January 1, 1998.
[LETTERHEAD OF
ORLIN & FEUERSTEIN, CPAS, P.C.]
ACCOUNTANTS' REPORT
To the participants in Navarre-500 Building Associates ( a Partnership):
We have audited the accompanying balance sheet of Navarre-500 Building
Associates ("Associates") as of December 31, 1996 and the related
statements of income, partners' capital, and cash flows for the year then
ended. These financial statements are the responsibility of Associates'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Associates as of December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
_____________________________
Orlin & Feuerstein, CPAs, P.C.
60 East 42nd Street
New York, NY 10165
January 23, 1997
Navarre-500 Building Associates
Balance Sheet
December 31, 1996
Assets
Cash:
Distribution account held by Wien, Malkin & Bettex LLP $ 53,333
Chase Manhattan Bank 1
53,334
Leasehold at 500 and 512 Seventh Avenue, New York City $3,200,000
Less: Accumulated amortization of cost of leasehold 3,021,662 178,338
Total assets $231,672
Partners' Capital
Partners' capital, December 31, 1996 $231,672
Statement of Income
For the Year Ended December 31, 1996
Rent income:
Basic rent $1,167,500
Additional rent for the lease year ended June 30, 1996 1,071,252
Total rent income 2,238,752
Expenses:
Leasehold rent $487,500
Supervisory services 137,525
Total expenses 625,025
Income before amortization of cost of leasehold 1,613,727
Amortization of cost of leasehold 6,525
Net income $1,607,202
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Statement of Partners' Capital
December 31, 1996
Partners' capital, January 1, 1996 $ 238,197
Add, Net income for the year ended December 31, 1996 1,607,202
1,845,399
Less, Distributions:
Monthly distributions January 1, 1996 through
December 31, 1996 $640,000
Distribution on August 31, 1996 of
additional rent for the lease year
ended June 30, 1996 973,727
1,613,727
Partners' capital, December 31, 1996 $ 231,672
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Statement of Cash Flows
December 31, 1996
Cash flows from operating activities:
Net income $1,607,202
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of cost of leasehold 6,525
Net cash provided by operating activities 1,613,727
Cash flows from financing activities:
Monthly distributions to participants ($640,000)
Distribution on August 31, 1996 of additional rent
for the lease year ended June 30, 1996 ( 973,727)
Net cash used in financing activities (1,613,727)
Net change in cash -0-
Cash at beginning of year 53,334
Cash at end of year $ 53,334
The accompanying notes are an integral part of these financial statements.
Navarre-500 Building Associates
Notes to Financial Statements
December 31, 1996
1. Business Activity:
Navarre-500 Building Associates ("Associates") is a general partnership
which owns and leases the leasehold at 500 and 512 Seventh Avenue, New York
City.
2. Significant Accounting Policy:
The leasehold is stated at cost. The unamortized leasehold cost of
$191,388 at December 31, 1994 is being amortized over the period of 29 years
and 4 months from January 1, 1995 to May 1, 2024, the end of the second
renewal period, with amortization at $6,525 per annum. Amortization of
leasehold from July 1, 1958 through December 31, 1977 was $134,266 per annum,
and from January 1,1978 through December 31,1994 was $22,966 per annum.
3. Leasehold at 500 and 512 Seventh Avenue, New York City:
The lease includes an initial term which expired April 30,1982, and
options to renew for three additional terms of 21 years each. Associates has
exercised the first renewal option for the period
from May 1, 1982 to May 1, 2003, and the second renewal option for the period
from May 1, 2003 to
May 1, 2024. The lease rent was $937,500 per annum during the initial term,
and was $437,500 per annum through April 30, 1985. Pursuant to a lease
modification effective May 1, 1985, the lease rent was increased by $50,000
from $437,500 to $487,500 per annum during the present term and all future
renewal terms.
4. Rent Income and Related Party Transactions:
The sublease includes an initial term which expired April 30, 1982 and
three additional terms of 21 years each, provided that the lease remains in
effect. The sublessee has exercised its first and second renewal options for
the terms from May 1, 1982 through April 30, 2003, and from May 1, 2003
through April 30, 2024. Basic rent under the sublease was $1,337,500 during
the initial term, and $ 1,117,500 through April 30, 1985. Pursuant to the
modification of the sublease effective May 1, 1985, basic rent was increased
by $50,000 from $1,117,500 to $1,167,500 during the present term and all
future renewal terms.
Additional rent is payable to Navarre-500 Building Associates
equivalent to one-half the net operating profit, as defined, in excess of
$400,000, in any year during the initial term, and $620,000 during renewal
terms. For the lease year ended June 30, 1996, the sublessee's net profit was
$2,762,504 so that additional rent of $1,071,252 was received.
Some partners in Associates are also partners in the sublessee.
Navarre-500 Building Associates
Notes to Financial Statements
December 31, 1996
5. Supervisory Services and Related Party Transactions:
Payments for supervisory services, including disbursements and cost of
accounting services, are made to the firm of Wien, Malkin & Bettex LLP. Some
partners in that firm are also partners in Associates.
6. Income Taxes:
Net income is computed without regard to income tax expense since the
partnership does not pay a tax on its income; instead, any such taxes are paid
by the participants in their individual capacities.
7. Concentration of Credit Risk:
Associates maintains cash balances in a bank and in a distribution
account held by Wien, Malkin & Bettex LLP. The bank balance is insured by the
Federal Deposit Insurance Corporation up to $100,000, and at December 31,
1996, was completely insured. The distribution account held by Wien, Malkin &
Bettex LLP is not insured. The funds held in the distribution account were
paid to the participants on January 1, 1997.
[LETERHEAD OF CUSHMAN & WAKEFIELD, INC]
May 26, 1999
Navarre-500 Building Associates and
500-512 Seventh Avenue Associates
c/o Wien & Malkin LLP
60 East 42nd Street
New York, NY 10165-0015
Re: 500 and 512 Seventh Avenue
New York, NY
Ladies and Gentlemen:
In fulfillment of our agreement as outlined in the letter of engagement dated
December 23, 1998, Cushman & Wakefield, Inc. ("C&W") is pleased to transmit
our conclusions which set forth our opinion of the appropriate percentage
distribution of sale proceeds among the sandwich estate held by Navarre-500
Building Associates, subleasehold estate held by 500-512 Seventh Avenue
Associates, and the override held by Wien & Malkin LLP, assuming a joint
sale of all their respective interests.
In the process of preparing the allocation of proceeds in the event of joint
sale, we:
- - Inspected the exterior of the buildings, site improvements, and portions of
the interior of the buildings, along with a representative sample of tenant
spaces with a building representative.
- - Participated in several meetings with Michael Sherrow, Claire Coulter,
Thomas Yamin and Douglas Harmon of Eastdil Realty Company, LLC, and
Thomas N. Keltner, Jr. of Wien & Malkin LLP, all of whom were acting as
representatives of Navarre-500 Building Associates and 500-512 Seventh
Avenue Associates.
- - Reviewed leasing policy, concessions, tenant buildout allowances and history
of recent rental rates and occupancy with the building manager.
- - Reviewed a detailed rent roll and financial statements for 1996, 1997 and
1998.
- - Conducted market research of occupancies, asking rents, concessions and
operating expenses at competing buildings which involved interviews with on-
site managers and a review of our own database from previous assignment
files.
- - Conducted market inquiries into recent sales of leasehold and fee interests in
similar buildings to ascertain financial assumptions, sale prices per square
foot and capitalization rates.
- - Reviewed the following documents:
1. Partnership Agreement dated March 21, 1958 and related participating
agreements dated July 2, 1958 for Navarre-500 Building Associates (the
sandwich estate holder).
2. Consent Letter dated October 9, 1967 regarding supervisory override
payment from Navarre-500 Building Associates to Wien & Malkin LLP.
3. Documents for 7172 Realty Co. including agreements dated March 2,
1973 and January 1, 1985, and January 1, 1993 with provisions for
supervisory override payment from participants in 7172 Realty Co. to
Wien & Malkin LLP.
4. Sublease dated June 27, 1958 between 500-512 Seventh Avenue
Associates, as Sublessor, and John J. Harrigan, as Sublessee, and
assignment of said lease dated July 1, 1958 to 500-512 Seventh
Avenue Associates; Assumption of Lease Agreement dated July 1, 1958
between Navarre-500 Building Associates and 500-512 Seventh
Avenue Associates; and Modification Agreement dated August 29, 1985
between Navarre-500 Building Associates and 500-512 Seventh
Avenue Associates.
5. Ground Lease between the Prudential Insurance Company of America
and 500-512 Inc. dated May 1, 1957; Modification Agreement dated
June 27, 1958, between said parties and Modification Agreement dated
August 29, 1985 between GSL Enterprises, Inc. and Navarre-500
Building Associates.
Property Rights Allocated
The property rights to be allocated in the event of joint sale involve
the sandwich estate and the subleasehold estate (as well as the override holder
in each estate) which may be defined as follows:
Sandwich Lease
A lease in which an intermediate, or sandwich, leaseholder is the lessee of
one party and the lessor of another. The owner of the sandwich lease is neither
the fee owner nor the user of the property; he or she may be a leaseholder in a
chain of leases, excluding the ultimate sublease.
Subleasehold Estate
The interest held by the sublessee (the tenant or renter) through a sublease
as described below conveying the rights of use and occupancy for a stated term
under certain conditions.
-2-
Sublease
An agreement in which the lessee in a prior lease such as Navarre-500
Building Associates conveys the right of use and occupancy of a property to
another, the sublessee, such as 500-512 Seventh Avenue Associates.
The sandwich estate was created by a ground lease by GSL Enterprises Inc.
to Navarre-500 Building Associates (Navarre) as lessee. Under the ground lease
the lessee must pay to GSL annual basic rent of $487,500 per year. The lessee
must also pay all operating expenses and real estate taxes, including repairs
and replacements, and insurance for liability and casualty.
The subleasehold estate was created by an operating sublease by Navarre to
500-512 Seventh Avenue Associates (500-512 Associates) as sublessee. The
sublease provides that the sublessee, 500-512 Associates, will control all
aspects of property operations and pay all operating expenses and real estate
taxes including repairs and replacements and insurance for liability and
casualty. The operating sublease does not require the sublessee to make new
capital improvements to the property.
Under the operating sublease, the sublessee must pay to Navarre 1) annual
basic rent of $1,167,500; and 2) additional rent for each lease year ending
June 30th equal to 50 percent of the sublessee's net profit in excess of
$620,000 for such lease year.
The ground lease and operating sublease each have a term which expires in
2024 and may be renewed through 2045.
The Property
The property, identified as 500 Seventh Avenue, 512 Seventh Avenue, and 228
West 38th Street, is located within the Garment Center of Midtown Manhattan.
The three buildings include showroom space, office space, and loft/storage
space.
500 Seventh Avenue was completed in 1921 and contains 17 stories, including
ground floor retail space. It has a net rentable area of 604,000 square feet.
512 Seventh Avenue is a 44-story building, with ground floor retail space,
which was completed in 1931. It has a net rentable area of 511,000 square feet.
228 West 38th Street is a 5-story building completed in 1925 with 10,000
square feet with ground floor retail space and loft space on its upper floors.
Helmsley Spear, Inc. has acted as managing and leasing agent for the
property for many years.
-3-
Methodology
The methodology selected for allocating sale proceeds among all interests
in the event of joint sale by Navarre and 500-512 Associates involved the
following:
1. C&W reviewed lease by lease cash flow projections prepared by Eastdil
Realty LLC which were based upon financial assumptions prepared by Eastdil
with the assistance of Wien & Malkin LLP (Eastdil Marketing Financial
Assumptions).
2. C&W has reviewed these assumptions and considers the assumptions
reasonable in light of the current leasing and investment sales market for
Manhattan office buildings.
3. In reviewing these financial assumptions, C&W prepared numerous cash flow
projections which "tested" their effect on the allocation of sale price.
Material changes in the assumptions (whether increasing or decreasing net
revenues for the property as a whole) did not change C&W's opinion of the
final allocation of sale price.
4. C&W developed cash flow projections for each respective interest including a
"base case" net operating income and cash flow, sublease net operating
income and cash flow, and sandwich leasehold cash flow. Based upon our
review and understanding of the respective interests, these cash flows and
net operating income were used as the basis for allocation among the various
interests.
Eastdil and Wien & Malkin LLP, as representatives of both Navarre and 500-512
Associates, provided C&W with the following:
1. Hypothetical sale prices (assuming joint sale) ranging from a low of
$50,000,000 to a high of $125,000,000.
2. Projections of income and expense, prepared on Pro-Ject software utilizing
Eastdil Marketing Financial Assumptions.
Based upon these various sale prices, in combination with the projections
based upon Eastdil Marketing Financial Assumptions, C&W applied the following
methodology:
Base Cash Flow
a. C&W assumed a terminal capitalization rate of 11 percent; and
b. C&W, through an interative process, derived an "implied" IRR at each
hypothetical sale price level provided by Eastdil/Wien & Malkin LLP. This
implied IRR for the base cash flow is hereinafter referred to as Overall
Implied IRR.
-4-
Allocation of Sale Price to Sandwich Leasehold
a. The Overall Implied IRR was used to discount cash flows attributable
to the sandwich leasehold position. The sandwich leasehold position was
considered to have two risk levels: the priority distribution up to
$680,000 of base rent was assumed to have a lower risk profile than the
balance of the cash flow. Second, the resale or reversionary sale price
was also considered to have a lower risk profile than the subleasehold
reversion.
b. To reflect the lower risk associated with the priority distribution paid to
the sandwich leasehold, the Overall Implied IRR was reduced by 100 basis
points when discounting the priority distribution while the terminal
capitalization rate of 11 percent was reduced by 25 basis points for
calculation of the reversionary sale price.
c. The sandwich estate allocations in whole dollar amounts ranged from
$24,100,000 to $57,900,000 (prior to allocation between Navarre and Wien
& Malkin LLP) and resulted in two IRRs: the Overall Implied IRR and the
Priority Rent IRR, each based upon a terminal capitalization rate of 10.75
percent.
d. Consistent with current market practice, computation of the reversion value
is based upon (i) net operating income for any operating position like 500-
512 Associates' subleasehold and (ii) cash flow for any non-operating
position like Navarre's sandwich leasehold.
Allocation of Cash Flow and Net Sales Proceeds between Navarre and Wien &
Malkin LLP
Cash flow to Navarre is allocated as follows:
Navarre 500 Building Associates consists of two classes of interest
holders: Participants and the override holder, Wien & Malkin LLP.
Priority Distribution - The Participants receive a 23 percent
annual non-cumulative return on their
original investment of $3,200,000, as
adjusted by any subsequent capital
contribution or return of capital, of which
there has been none.
Non-Priority Distributions - The interest holders receive distributions of
cash flow, following payment of the
Participants' 23 percent annual non-
cumulative return, based upon the following
allocation:
Participants 90%
Wien & Malkin LLP 10%
-5-
In accord with the allocation of cash flow, we have determined that the
allocation of sale price proceeds, after the payment of all selling
expenses (net sale proceeds), should be as follows:
Priority Distribution - The Participants receive a return of their
original investment of $3,200,000, as
adjusted by any subsequent capital
contribution or return of capital, of which
there has been none.
Non-Priority Distributions - The interest holders receive distributions of
net sales proceeds, following payment of
the priority distribution, as follows:
Participants 90%
Wien & Malkin LLP 10%
Allocation to Subleasehold Estate
The allocation to the subleasehold estate is the difference between the
total joint sale price and the amount allocated to the sandwich estate. The
subleasehold allocation results in an Implied IRR slightly higher than the
Overall Implied IRR. This is the result of the interative process wherein
the two "givens", cash flow and sale price, result in a rate determined through
the interative mathematical process. The subleasehold estate allocation
resulted in slightly higher Implied IRRs principally as a result of the lower
risk profile accorded the sandwich leasehold estate. The subleasehold estate
allocations in whole dollar amounts ranged from $25,900,000 to $67,100,000
(prior to allocation between any member of the subleasehold estate and Wien
& Malkin LLP).
The subleasehold estate is owned by 500-512 Associates which consists of
7172 Realty Co. (50% interest) and Leona M. Helmsley (50% interest).
Allocation within 7172 Realty Co. among its Interest Holders
The allocation to 7172 Realty Co., the holder of a 50 percent interest in
500-512 Associates, is subject to distributions of cash flow as follows:
a. 7172 Realty Co. consists of three classes of interest holders: Participants,
Malkin/Morse and the override holder, Wien & Malkin LLP.
Priority Distribution - The Participants receive a 9 percent
cumulative annual return on their original
investment of $2,000,000, as adjusted by
any subsequent capital contribution or
return of capital, of which there has been
none.
-6-
Non-Priority Distributions - The interest holders receive distributions of
cash flow, following payment of the
Participants' 9 percent cumulative annual
return, based upon the following allocation:
Participants 45%
Malkin/Morse 45%
Wien & Malkin LLP 10%
The allocation of sale price proceeds, after payment of all selling expenses
(net sale proceeds), is as follows:
Priority Distribution - The Participants receive a return of their
original investment of $2,000,000, as
adjusted by any subsequent capital
contribution or return of capital, of which
there has been none.
Non-Priority Distributions - The interest holders receive distributions of
net sales proceeds, following payment of
the priority distribution, as follows:
Participants 45%
Malkin/Morse 45%
Wien & Malkin LLP 10%
Final Conclusions
Following are our conclusions regarding the allocation of sale price assuming a
joint sale:
1. In our judgment, the appropriate allocation of sale price assuming a
joint sale should be based upon the present value of each respective
position's cash flow assuming continued operations for a holding period
of at least 10 years.
2. The sandwich leasehold cash flow is divided into priority cash flow and
overage cash flow. To reflect the lower risk associated with the priority
cash flow of the sandwich leasehold, its priority cash flow was discounted
at a rate 100 basis points below the Overall Implied IRR.
3. The terminal capitalization rate used to allocate the sale price to
the sandwich leasehold estate was 25 basis points below the overall
terminal capitalization rate of 11 percent.
4. As our conclusions indicate in the allocation between the sandwich
and the subleasehold, we believe that as the total joint sale price
increases, a greater allocation should be made to the subleasehold estate.
5. The subleasehold estate is the control position while the sandwich
estate is a passive position. We believe that an appropriate allocation
between the two positions favors the control position as the sale price
increases.
-7-
On the following pages may be found our summary of conclusions and
cash flow projections. Based upon our review and methodology, we believe
our allocation conclusions among Navarre, 500-512 Associates, and Wien &
Malkin LLP are accurate and fair.
Respectfully submitted,
Cushman & Wakefield, Inc.
Matthew C. Mondanile, MAI
Senior Director
Valuation Advisory Services
Brian R. Corcoran, MAI, CRE
Executive Managing Director
Valuation Advisory Services
MCM:BRC:ew
cc: Eastdil Realty Company, LLC
40 West 57th Street
New York, NY 10019
Attn.: Michael Sherrow
Wien & Malkin LLP
60 East 42nd Street
New York, NY 10165
Attn.: Thomas N. Keltner, Jr.
-8-
<TABLE>
<CAPTION>
Summary of Allocation Conclusions and Overall Implied Internal Rates of Return -
Prior to Wien & Malkin LLP Override
OVERALL SUB SUB
Eastdil/Wien & Malkin LLP IMPLIED SANDWICH LEASEHOLD SANDWICH LEASEHOLD
SALE PRICE IRR $ ALLOCATION $ ALLOCATION % %
<C> <C> <C> <C> <C> <C>
$50,000,000 25.65% $24,100,000 $25,900,000 48.20% 51.80%
$55,000,000 24.10% $26,400,000 $28,600,000 48.00% 52.00%
$60,000,000 22.71% $28,700,000 $31,300,000 47.83% 52.17%
$65,000,000 21.47% $30,900,000 $34,100,000 47.54% 52.46%
$70,000,000 20.35% $33,200,000 $36,800,000 47.43% 52.57%
$75,000,000 19.30% $35,400,000 $39,600,000 47.20% 52.80%
$80,000,000 18.35% $37,700,000 $42,300,000 47.13% 52.88%
$85,000,000 17.47% $39,900,000 $45,100,000 46.94% 53.06%
$90,000,000 16.64% $42,200,000 $47,800,000 46.89% 53.11%
$95,000,000 15.87% $44,500,000 $50,500,000 46.84% 53.16%
$100,000,000 15.15% $46,700,000 $53,300,000 46.70% 53.30%
$105,000,000 14.47% $48,900,000 $56,100,000 46.57% 53.43%
$110,000,000 13.83% $51,200,000 $58,800,000 46.55% 53.45%
$115,000,000 13.22% $53,400,000 $61,600,000 46.43% 53.57%
$120,000,000 12.64% $55,700,000 $64,300,000 46.42% 53.58%
$125,000,000 12.09% $57,900,000 $67,100,000 46.32% 53.68%
</TABLE>
MERGED SUB-LEASEHOLD AND SANDWICH LEASEHOLD
CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6
CY 1999 CY 2000 CY 2001 CY 2002 CY 2003 CY 2004
RENTAL INCOME
All Tenants $13,200,680 $19,324,237 $23,356,618 $24,521,776 $26,078,779 $27,734,361
Free Rent $0 $0 $0 $0 $0 $0
TOTAL MINIMUM
RENTAL INCOME $13,200,680 $19,324,237 $23,356,618 $24,521,776 $26,078,779 $27,734,361
Real Estate Taxes $52,185 $90,771 $150,629 $218,210 $270,854 $315,717
CPI Escalation $1,002,058 $1,193,163 $1,501,341 $1,739,070 $1,977,326 $2,300,802
Tenant Electric $44,682 $34,736 $27,773 $24,288 $16,637 $8,764
Sprinkler $109,837 $156,608 $190,965 $199,617 $211,945 $223,333
Water $117,563 $166,154 $204,417 $215,432 $231,955 $246,728
Air Conditioning $25,894 $20,390 $14,007 $10,257 $5,999 $2,650
TOTAL GROSS RENTAL
INCOME $14,552,899 $20,986,059 $25,445,750 $26,928,650 $28,793,495 $30,832,355
Less: Vacancy &
Collection Loss $0 $0 ($2,451,065)($2,467,614)($2,567,623)($2,691,939)
Effective Rental
Income $14,552,899 $20,986,059 $22,994,685 $24,461,036 $26,225,872 $28,140,416
Add: Electric Income $2,444,563 $3,172,927 $3,396,032 $3,497,913 $3,602,850 $3,710,936
Add: Interest Income $123,500 $127,205 $131,021 $134,952 $139,000 $143,170
EFFECTIVE GROSS
INCOME $17,120,962 $24,286,191 $26,521,738 $28,093,901 $29,967,722 31,994,522
OPERATING EXPENSES:
Real Estate Taxes $3,042,817 $3,134,101 $3,228,124 $3,324,968 $3,424,717 $3,527,459
Operating Expenses $7,892,922 $8,592,690 $8,944,003 $9,223,972 $9,516,155 $9,818,556
GROUND RENT $487,500 $487,500 $487,500 $487,500 $487,500 $487,500
TOTAL OPERATING
EXPENSES $11,423,239 $12,214,291 $12,659,627 $13,036,440 $13,428,372 $13,833,515
LEASEHOLD NET
OPERATING INCOME $5,697,723 $12,071,900 $13,862,111 $15,057,461 $16,539,350 $18,161,007
ALTERATIONS $3,438,126 $7,279,106 $2,056,072 $1,746,583 $2,003,330 $2,811,174
COMMISSIONS $963,915 $2,001,930 $821,985 $689,901 $947,045 $972,248
CAPITAL IMPROVEMENTS
-BASE BUILDING $1,833,333 $1,833,333 $1,833,333 $0 $0 $0
CAPITAL RESERVES $0 $0 $0 $284,997 $293,547 $302,354
LEASEHOLD CASH FLOW ($537,651) $957,531 $9,150,721 $12,335,980 $13,295,428 $14,075,231
$0 $0 $0 $0 $0 $0
MASTER LEASE BASE RENT $1,167,500 $1,167,500 $1,167,500 $1,167,500 $ 1,167,500 $ 1,167,500
CASH FLOW-CALCULATION ($1,341,151) $150,326 $8,339,700 $11,521,028 $12,476,428 $13,252,061
CASH FLOW-OVERAGE RENT $0 $150,326 $8,339,700 $11,521,028 $12,476,428 $13,252,061
Annual Overall
Capitalization Rate 11.40% 24.14% 27.72% 30.11% 33.08% 36.32%
Annual Cash on Cash
Return -1.08% 1.92% 18.30% 24.67% 26.59% 28.15%
</TABLE>
MERGED SUB-LEASEHOLD AND SANDWICH LEASEHOLD
CASH FLOW ANALYSIS
(CONTINUE)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11
CY 2005 CY 2006 CY 2007 CY 2008 CY 2009
RENTAL INCOME
All Tenants $29,027,279 $30,432,972 $30,922,181 $33,029,449 $34,735,171
Free Rent $0 $0 $0 $0 $0
TOTAL MINIMUM
RENTAL INCOME $29,027,279 $30,432,972 $30,922,181 $33,029,449 $34,735,171
Real Estate Taxes $350,410 $382,057 $473,272 $466,865 $493,654
CPI Escalation $2,655,281 $3,020,944 $3,831,016 $4,102,455 $4,272,336
Tenant Electric $8,132 $8,132 $8,132 $2,344 $152
Sprinkler $229,831 $238,062 $241,121 $253,620 $262,966
Water $258,067 $271,415 $279,745 $255,243 $261,385
Air Conditioning $2,401 $1,856 $1,806 $1,806 $151
TOTAL GROSS RENTAL
INCOME $32,531,401 $34,355,438 $35,757,273 $38,111,782 $40,025,815
Less: Vacancy &
Collection Loss $2,929,928)($3,172,332)($3,500,197)($3,314,277) ($3,485,989)
Effective Rental
Income $29,601,473 $31,183,106 $32,257,076 $34,797,505 $36,539,826
Add: Electric Income $3,822,264 $3,936,931 $4,055,039 $4,176,690 $4,301,991
Add: Interest Income $147,465 $151,889 $156,446 $161,139 $165,974
EFFECTIVE GROSS
INCOME $33,571,202 $35,271,926 $36,468,561 $39,135,334 $41,007,791
OPERATING EXPENSES:
Real Estate Taxes $3,633,282 $3,742,281 $3,854,549 $3,970,185 $4,089,291
Operating Expenses $10,122,365 $10,436,441 $10,751,609 $11,097,748 $11,441,160
GROUND RENT $487,500 $487,500 $487,500 $487,500 $487,500
TOTAL OPERATING
EXPENSES $14,243,147 $14,666,222 $15,093,658 $15,555,433 $16,017,951
LEASEHOLD NET
OPERATING INCOME $19,328,055 $20,605,704 $21,374,903 $23,579,901 $24,989,840
ALTERATIONS $2,020,228 $1,579,996 $457,145 $2,998,917 $3,098,130
COMMISSIONS $700,220 $548,499 $138,194 $1,326,067 $1,469,144
CAPITAL IMPROVEMENTS
-BASE BUILDING $0 $0 $0 $0 $0
CAPITAL RESERVES $311,423 $320,767 $330,390 $340,301 $350,510
LEASEHOLD CASH FLOW $16,296,184 $18,156,442 $20,449,174 $18,914,616 $20,072,056
$0 $0 $0 $212,389,973
(Revision)
MASTER LEASE BASE RENT $1,167,500 $1,167,500 $1,167,500 $1,167,500 $ 1,167,500
CASH FLOW-CALCULATION $15,468,719 $17,324,553 $19,612,728 $18,073,477 $19,226,082
CASH FLOW-OVERAGE RENT $15,468,719 $17,324,553 $19,612,728 $18,073,477 $19,226,082
Annual Overall
Capitalization Rate 38.66% 41.21% 42.75% 47.16% 49.98%
Annual Cash on Cash
Return 32.59% 36.31% 40.90% 37.83% 40.14%
</TABLE>
MERGED SUB-LEASEHOLD AND SANDWICH LEASEHOLD
CASH FLOW ANALYSIS
(CONTINUE)
SALES PRICE
Discount Rate 25.6
Sale/Yield Matrix (000's) Terminal Capitalization Rate 11.00%
Terminal Cap Rate
IRR 9.00% 10.00% 11.00% 12.00% Cost of Sale at Reversion 4.50%
24.15% 60,367 57,319 54,825 52,746 Square Footage NRA(sf) 1,144,119
24.65% 58,472 55,544 53,148 51,151 Holding Period 10
25.15% 56,649 53,836 51,534 49,616 Price of Cash Flow $28,328,115
26.15% 53,209 50,611 48,485 46,714 Price of the Reversion 21,652,552
26.65% 51,586 49,089 47,046 45,343 Total Sale Price $49,980,667
ESTIMATED SALES PRICE $50,000,000
Per Square Foot $43.70
Overall Capitalization Rate
(on NOI) 11.40%
500 & 512 SEVENTH AVENUE
SUB-LEASEHOLD - 500-512 SEVENTH AVENUE ASSOCIATES
CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6
CY 1999 CY 2000 CY 2001 CY 2002 CY 2003 CY 2004
RENTAL INCOME
All Tenants $13,200,680 $19,324,237 $23,356,618 $24,521,776 $26,078,779 $27,734,361
Free Rent $0 $0 $0 $0 $0 $0
TOTAL MINIMUM RENTAL INCOME $13,200,680 $19,324,237 $23,356,618 $24,521,776 $26,078,779 $27,734,361
Real Estate Taxes $52,185 $90,771 $150,629 $218,210 $270,854 $315,717
CPI Escalation $1,002,058 $1,193,163 $1,501,341 $1,739,070 $1,977,326 $2,300,802
Tenant Electric $44,682 $34,736 $27,773 $24,288 $16,637 $8,764
Sprinkler $109,837 $156,608 $190,965 $199,617 $211,945 $223,333
Water $117,563 $166,154 $204,417 $215,432 $231,955 $246,728
Air Conditioning $25,894 $20,390 $14,007 $10,257 $5,999 $2,650
TOTAL GROSS RENTAL INCOME $14,552,899 $20,986,059 $25,445,750 $26,928,650 $28,793,495 $30,832,355
Less: Vacancy & Collection Loss $0 $0 ($2,451,065) ($2,467,614) ($2,567,623) ($2,691,939)
Effective Rental Income $14,552,899 $20,986,059 $22,994,685 $24,461,036 $26,225,872 $28,140,416
Add: Electric Income $2,444,563 $3,172,927 $3,396,032 $3,497,913 $3,602,850 $3,710,936
Add: Interest Income $123,500 $127,205 $131,021 $134,952 $139,000 $143,170
EFFECTIVE GROSS INCOME $17,120,962 $24,286,191 $26,521,738 $28,093,901 $29,967,722 $31,994,522
OPERATING EXPENSES:
Real Estate Taxes $3,042,817 $3,134,101 $3,228,124 $3,324,968 $3,424,717 $3,527,459
Operating Expenses $7,892,922 $8,592,690 $8,944,003 $9,223,972 $9,516,155 $9,818,556
Ground Rent $0 $0 $0 $0 $0 $0
Base Rent $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
Overage Rent-Sandwich LH $0 $0 $3,859,850 $5,450,514 $5,928,214 $6,316,031
TOTAL OPERATING EXPENSES 12,103,239 $12,894,291 $17,199,477 $19,166,954 $20,036,586 $20,829,546
LEASEHOLD NET OPERATING INCOME $5,017,723 $11,391,900 $9,322,261 $8,926,947 $9,931,136 $11,164,977
ALTERATIONS $3,438,126 $7,279,106 $2,056,072 $1,746,583 $2,003,330 $2,811,174
COMMISSIONS $963,915 $2,001,930 $821,985 $689,901 $947,045 $972,248
CAPITAL IMPROVEMENTS-BASE
BUILDING $1,833,333 $1,833,333 $1,833,333 $0 $0 $0
CAPITAL RESERVES $0 $0 $0 $284,997 $293,547 $302,354
LEASEHOLD CASH FLOW ($1,217,651) $277,531 $4,610,871 $6,205,466 $6,687,214 $7,079,201
$0 $0 $0 $0 $0 $0
Annual Overall Capitalization Rate 19.37% 43.98% 35.99% 34.47% 38.34% 43.11%
Annual Cash on Cash Return -4.70% 1.07% 17.80% 23.96% 25.82% 27.33%
</TABLE>
500 & 512 SEVENTH AVENUE
SUB-LEASEHOLD - 500-512 SEVENTH AVENUE ASSOCIATES
CASH FLOW ANALYSIS
(CONTINUE)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11
CY 2005 CY 2006 CY 2007 CY 2008 CY 2009
RENTAL INCOME
All Tenants $29,027,279 $30,432,972 $30,922,181 $33,029,449 $34,735,171
Free Rent $0 $0 $0 $0 $0
TOTAL MINIMUM RENTAL INCOME $29,027,279 $30,432,972 $30,922,181 $33,029,449 $34,735,171
Real Estate Taxes $350,410 $382,057 $473,272 $466,865 $493,654
CPI Escalation $2,655,281 $3,020,944 $3,831,016 $4,102,455 $4,272,336
Tenant Electric $8,132 $8,132 $8,132 $2,344 $152
Sprinkler $229,831 $238,062 $241,121 $253,620 $262,966
Water $258,067 $271,415 $279,745 $255,243 $261,385
Air Conditioning $2,401 $1,856 $1,806 $1,806 $151
TOTAL GROSS RENTAL INCOME $32,531,401 $34,355,438 $35,757,273 $38,111,782 $40,025,815
Less: Vacancy & Collection Loss ($2,929,928) ($3,172,332) ($3,500,197) ($3,314,277) ($3,485,989)
Effective Rental Income $29,601,473 $31,183,106 $32,257,076 $34,797,505 $36,539,826
Add: Electric Income $3,822,264 $3,936,931 $4,055,039 $4,176,690 $4,301,991
Add: Interest Income $147,465 $151,889 $156,446 $161,139 $165,974
EFFECTIVE GROSS INCOME $33,571,202 $35,271,926 $36,468,561 $39,135,334 $41,007,791
OPERATING EXPENSES:
Real Estate Taxes $3,633,282 $3,742,281 $3,854,549 $3,970,185 $4,089,291
Operating Expenses $10,122,365 $10,436,441 $10,751,609 $11,097,748 $11,441,160
Ground Rent $0 $0 $0 $0 $0
Base Rent $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
Overage Rent-Sandwich LH $7,424,360 $8,352,277 $9,496,364 $8,726,739 $9,303,041
TOTAL OPERATING EXPENSES $22,347,507 $23,698,499 $25,270,022 $24,962,172 $26,000,992
LEASEHOLD NET OPERATING INCOME $11,223,696 $11,573,428 $11,198,539 $14,173,163 $15,006,799
ALTERATIONS $2,020,228 $1,579,996 $457,145 $2,998,917 $3,098,130
COMMISSIONS $700,220 $548,499 $138,194 $1,326,067 $1,469,144
CAPITAL IMPROVEMENTS-BASE
BUILDING $0 $0 $0 $0 $0
CAPITAL RESERVES $311,423 $320,767 $330,390 $340,301 $0
LEASEHOLD CASH FLOW $8,191,825 $9,124,166 $10,272,810 $9,507,878 $10,439,525
$0 $0 $0 $0 $125,719,026
(Reversion)
Annual Overall Capitalization Rate 43.33% 44.69% 43.24% 54.72% 57.94%
Annual Cash on Cash Return 31.63% 35.23% 39.66% 36.71% 40.31%
</TABLE>
500 & 512 SEVENTH AVENUE
SUB-LEASEHOLD - 500-512 SEVENTH AVENUE ASSOCIATES
CASH FLOW ANALYSIS
(CONTINUE)
SALES PRICE
Discount Rate 25.84%
Sale/Yield Matrix (000's) Terminal Capitalization Rate 11.00%
Terminal Cap Rate
IRR 9.00% 10.00% 11.00% 12.00% Cost of Sale at Reversion 4.50%
24.34% 31,774 29,971 28,496 27,267 Square Footage NRA(sf) 1,144,119
24.84% 30,733 29,002 27,585 26,404 Holding Period 10
25.34% 29,734 28,070 26,708 25,574
25.84% 28,773 27,174 25,865 24,775 Price of Cash Flow $13,240,878
26.34% 27,849 26,312 25,054 24,006 Price of the Reversion 12,624,492
26.84% 26,960 25,483 24,274 23,267 Total Sale Price $25,865,370
ESTIMATED SALES PRICE $25,900,000
Per Square Foot $22.64
Overall Capitalization Rate
(on NOI) 19.37%
Navarre 500 Building Associates (Sandwich)
Distributions on Sale
<TABLE>
<CAPTION>
Sale Proceeds to Return of Distribution of Remainder Final Totals
Price Sandwich Capital Remainder Participants W&M LLP Participants W&M LLP Total
90.00% 10.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$50,000,000 $24,100,000 $3,200,000 $20,900,000 $18,810,000 $2,090,000 $22,010,000 $2,090,000 $24,100,000
$55,000,000 $26,400,000 $3,200,000 $23,200,000 $20,880,000 $2,320,000 $24,080,000 $2,320,000 $26,400,000
$60,000,000 $28,700,000 $3,200,000 $25,500,000 $22,950,000 $2,550,000 $26,150,000 $2,550,000 $28,700,000
$65,000,000 $30,900,000 $3,200,000 $27,700,000 $24,930,000 $2,770,000 $28,130,000 $2,770,000 $30,900,000
$70,000,000 $33,200,000 $3,200,000 $30,000,000 $27,000,000 $3,000,000 $30,200,000 $3,000,000 $33,200,000
$75,000,000 $35,400,000 $3,200,000 $32,200,000 $28,980,000 $3,220,000 $32,180,000 $3,220,000 $35,400,000
$80,000,000 $37,700,000 $3,200,000 $34,500,000 $31,050,000 $3,450,000 $34,250,000 $3,450,000 $37,700,000
$85,000,000 $39,900,000 $3,200,000 $36,700,000 $33,030,000 $3,670,000 $36,230,000 $3,670,000 $39,900,000
$90,000,000 $42,200,000 $3,200,000 $39,000,000 $35,100,000 $3,900,000 $38,300,000 $3,900,000 $42,200,000
$95,000,000 $44,500,000 $3,200,000 $41,300,000 $37,170,000 $4,130,000 $40,370,000 $4,130,000 $44,500,000
$100,000,000 $46,700,000 $3,200,000 $43,500,000 $39,150,000 $4,350,000 $42,350,000 $4,350,000 $46,700,000
$105,000,000 $48,900,000 $3,200,000 $45,700,000 $41,130,000 $4,570,000 $44,330,000 $4,570,000 $48,900,000
$110,000,000 $51,200,000 $3,200,000 $48,000,000 $43,200,000 $4,800,000 $46,400,000 $4,800,000 $51,200,000
$115,000,000 $53,400,000 $3,200,000 $50,200,000 $45,180,000 $5,020,000 $48,380,000 $5,020,000 $53,400,000
$120,000,000 $55,700,000 $3,200,000 $52,500,000 $47,250,000 $5,250,000 $50,450,000 $5,250,000 $55,700,000
$125,000,000 $57,900,000 $3,200,000 $54,700,000 $49,230,000 $5,470,000 $52,430,000 $5,470,000 $57,900,000
Each joint sale price shown in this report represents the net price remaining after reduction of the corresponding
gross price for sale expenses.
</TABLE>
Internal Allocation for 7172 Realty Company
500-12 Seventh Avenue Associates (Subleasehold)
Distributions on Sale
<TABLE>
<CAPTION>
Sale Proceeds to 50 % to Distribution
Price Subleasehold 7172 Realty Remainder Leona M. Helmsley
100.00%
<S> <C> <C> <C> <C>
$50,000,000 $25,900,000 $12,950,000 $12,950,000 $12,950,000
$55,000,000 $28,600,000 $14,300,000 $14,300,000 $14,300,000
$60,000,000 $31,300,000 $15,650,000 $15,650,000 $15,650,000
$65,000,000 $34,100,000 $17,050,000 $17,050,000 $17,050,000
$70,000,000 $36,800,000 $18,400,000 $18,400,000 $18,400,000
$75,000,000 $39,600,000 $19,800,000 $19,800,000 $19,800,000
$80,000,000 $42,300,000 $21,150,000 $21,150,000 $21,150,000
$85,000,000 $45,100,000 $22,550,000 $22,550,000 $22,550,000
$90,000,000 $47,800,000 $23,900,000 $23,900,000 $23,900,000
$95,000,000 $50,500,000 $25,250,000 $25,250,000 $25,250,000
$100,000,000 $53,300,000 $26,650,000 $26,650,000 $26,650,000
$105,000,000 $56,100,000 $28,050,000 $28,050,000 $28,050,000
$110,000,000 $58,800,000 $29,400,000 $29,400,000 $29,400,000
$115,000,000 $61,600,000 $30,800,000 $30,800,000 $30,800,000
$120,000,000 $64,300,000 $32,150,000 $32,150,000 $32,150,000
$125,000,000 $67,100,000 $33,550,000 $33,550,000 $33,550,000
</TABLE>
Each joint sale price shown in this report represents
the net price remaining after reduction of the corresponding gross
price for sale expenses.
Internal Allocation for 7172 Realty Company
500-12 Seventh Avenue Associates (Subleasehold)
Distributions on Sale
(CONTINUE)
<TABLE>
<CAPTION>
Sale Proceeds to 50 % to Return of Distribution of Remainder
Price Subleasehold 7172 Realty Capital Remainder Participants Malkin/Morse
45.00% 45.00%
<S> <C> <C> <C> <C> <C> <C>
$50,000,000 $25,900,000 $12,950,000 $2,000,000 $10,950,000 $4,927,500 $4,927,500
$55,000,000 $28,600,000 $14,300,000 $2,000,000 $12,300,000 $5,535,000 $5,535,000
$60,000,000 $31,300,000 $15,650,000 $2,000,000 $13,650,000 $6,142,500 $6,142,500
$65,000,000 $34,100,000 $17,050,000 $2,000,000 $15,050,000 $6,772,500 $6,772,500
$70,000,000 $36,800,000 $18,400,000 $2,000,000 $16,400,000 $7,380,000 $7,380,000
$75,000,000 $39,600,000 $19,800,000 $2,000,000 $17,800,000 $8,010,000 $8,010,000
$80,000,000 $42,300,000 $21,150,000 $2,000,000 $19,150,000 $8,617,500 $8,617,500
$85,000,000 $45,100,000 $22,550,000 $2,000,000 $20,550,000 $9,247,500 $9,247,500
$90,000,000 $47,800,000 $23,900,000 $2,000,000 $21,900,000 $9,855,000 $9,855,000
$95,000,000 $50,500,000 $25,250,000 $2,000,000 $23,250,000 $10,462,500 $10,462,500
$100,000,000 $53,300,000 $26,650,000 $2,000,000 $24,650,000 $11,092,500 $11,092,500
$105,000,000 $56,100,000 $28,050,000 $2,000,000 $26,050,000 $11,722,500 $11,722,500
$110,000,000 $58,800,000 $29,400,000 $2,000,000 $27,400,000 $12,330,000 $12,330,000
$115,000,000 $61,600,000 $30,800,000 $2,000,000 $28,800,000 $12,960,000 $12,960,000
$120,000,000 $64,300,000 $32,150,000 $2,000,000 $30,150,000 $13,567,500 $13,567,500
$125,000,000 $67,100,000 $33,550,000 $2,000,000 $31,550,000 $14,197,500 $14,197,500
Each joint sale price shown in this report represents the net price remaining
after reduction of the corresponding gross price for sale expenses.
</TABLE>
Internal Allocation for 7172 Realty Company
500-12 Seventh Avenue Associates (Subleasehold)
Distributions on Sale
<TABLE>
<CAPTION> (CONTINUE)
Final Totals
W&M LLP Participants Malkin/Morse W&M LLP Total
10.00%
<S> <C> <C> <C> <C>
$1,095,000 $6,927,500 $4,927,500 $1,095,000 $12,950,000
$1,230,000 $7,535,000 $5,535,000 $1,230,000 $14,300,000
$1,365,000 $8,142,500 $6,142,500 $1,365,000 $15,650,000
$1,505,000 $8,772,500 $6,772,500 $1,505,000 $17,050,000
$1,640,000 $9,380,000 $7,380,000 $1,640,000 $18,400,000
$1,780,000 $10,010,000 $8,010,000 $1,780,000 $19,800,000
$1,915,000 $10,617,500 $8,617,500 $1,915,000 $21,150,000
$2,055,000 $11,247,500 $9,247,500 $2,055,000 $22,550,000
$2,190,000 $11,855,000 $9,855,000 $2,190,000 $23,900,000
$2,325,000 $12,462,500 $10,462,500 $2,325,000 $25,250,000
$2,465,000 $13,092,500 $11,092,500 $2,465,000 $26,650,000
$2,605,000 $13,722,500 $11,722,500 $2,605,000 $28,050,000
$2,740,000 $14,330,000 $12,330,000 $2,740,000 $29,400,000
$2,880,000 $14,960,000 $12,960,000 $2,880,000 $30,800,000
$3,015,000 $15,567,500 $13,567,500 $3,015,000 $32,150,000
$3,155,000 $16,197,500 $14,197,500 $3,155,000 $33,550,000
</TABLE>
500 & 512 SEVENTH AVENUE
TOTAL SANDWICH LEASEHOLD - NAVARRE 500 BUILDING ASSOCIATES
CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6
CY 1999 CY 2000 CY 2001 CY 2002 CY 2003 CY 2004
<S> <C> <C> <C> <C> <C> <C>
BASE RENT (1) $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
OVERAGE RENT COMPUTATION
Cash Flow - Overage Rent (Page 1) $0 $150,326 $8,339,700 $11,521,028 $12,476,428 $13,252,061
Less: $620,000 Hurdle Amount $620,000 $620,000 $620,000 $620,000 $620,000 $620,000
Net Operating Profit Exceeding Hurdle $0 $0 $7,719,700 $10,901,028 $11,856,428 $12,632,061
Overage Rent @ 50% Net Operating Profit $0 $0 $3,859,850 $5,450,514 $5,928,214 $6,316,031
OVERAGE RENT (2) $0 $0 $3,859,850 $5,450,514 $5,928,214 $6,316,031
BASE RENT & OVERAGE RENT (1+2) $1,167,500 $1,167,500 $5,027,350 $6,618,014 $7,095,714 $7,483,531
SANDWICH LEASEHOLD CASH FLOW $1,167,500 $1,167,500 $5,027,350 $6,618,014 $7,095,714 $7,483,531
Less: Ground Rent $487,500 $487,500 $487,500 $487,500 $487,500 $487,500
Less: $736,000 Hurdle Amount for
Wien & Malkin LLP $736,000 $736,000 $736,000 $736,000 $736,000 $736,000
Equals: Overage Subj To Wien &
Malkin LLP Override $0 $0 $3,803,850 $5,394,514 $5,872,214 $6,260,031
WIEN & MALKIN LLP OVERRIDE - 10% $0 $0 $0 $0 $0 $0
SANDWICH LH CF- PRIORITY CF $680,000 $680,000 $680,000 $680,000 $680,000 $680,000
SANDWICH LH CF- NON-PRIORITY CF $0 $0 $56,000 $56,000 $56,000 $56,000
SANDWICH LH CF- OVERAGE CF $0 $0 $3,803,850 $5,394,514 $5,872,214 $6,260,031
NON-PRIORITY DISTRIBUTION (@100%) $0 $0 $0 $0 $0 $0
Annual Cash on Cash Return 2.82% 2.82% 18.61% 25.21% 27.19% 28.80%
</TABLE>
500 & 512 SEVENTH AVENUE
TOTAL SANDWICH LEASEHOLD - NAVARRE 500 BUILDING ASSOCIATES
CASH FLOW ANALYSIS
<TABLE> (CONTINUE)
<CAPTION>
YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11
CY 2005 CY 2006 CY 2007 CY 2008 CY 2009
<S> <C> <C> <C> <C> <C>
BASE RENT (1) $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
OVERAGE RENT COMPUTATION
Cash Flow - Overage Rent (Page 1) $15,468,719 $17,324,553 $19,612,728 $18,073,477 $19,226,082
Less: $620,000 Hurdle Amount $620,000 $620,000 $620,000 $620,000 $620,000
Net Operating Profit Exceeding Hurdle $14,848,719 $16,704,553 $18,992,728 $17,453,477 $18,606,082
Overage Rent @ 50% Net Operating Profit $7,424,360 $8,352,277 $9,496,364 $8,726,739 $9,303,041
OVERAGE RENT (2) $7,424,360 $8,352,277 $9,496,364 $8,726,739 $9,303,041
BASE RENT & OVERAGE RENT (1+2) $8,591,860 $9,519,777 $10,663,864 $9,894,239 $10,470,541
SANDWICH LEASEHOLD CASH FLOW $8,591,860 $9,519,777 $10,663,864 $9,894,239 $10,470,541
Less: Ground Rent $487,500 $487,500 $487,500 $487,500 $487,500
Less: $736,000 Hurdle Amount for
Wien & Malkin LLP $736,000 $736,000 $736,000 $736,000 $736,000
Equals: Overage Subj To Wien &
Malkin LLP Override $7,368,360 $8,296,277 $9,440,364 $8,670,739 $9,247,041
WIEN & MALKIN LLP OVERRIDE - 10% $0 $0 $0 $0 $0
SANDWICH LH CF- PRIORITY CF $680,000 $680,000 $680,000 $680,000
SANDWICH LH CF- NON-PRIORITY CF $56,000 $56,000 $56,000 $56,000
SANDWICH LH CF- OVERAGE CF $7,368,360 $8,296,277 $9,440,364 $8,670,739 $9,983,041
NON-PRIORITY DISTRIBUTION (@100%) $0 $0 $0 $88,686,550
(Reversion)
Annual Cash on Cash Return 33.40% 37.25% 41.99% 38.80% 41.42%
</TABLE>
500 & 512 SEVENTH AVENUE
TOTAL SANDWICH LEASEHOLD - NAVARRE 500 BUILDING ASSOCIATES
CASH FLOW ANALYSIS
(CONTINUE)
Sale/Yield Matrix (000's)
Terminal Cap Rate
IRR 8.75% 9.75% 10.75% 11.75%
24.01% 28,649 27,350 26,293 25,416
24.51% 27,790 26,542 25,526 24,684
25.01% 26,963 25,764 24,788 23,979
25.51% 26,167 25,015 24,077 23,300
26.01% 25,400 24,294 23,393 22,645
26.51% 24,663 23,599 22,733 22,014
Discount Rate (Overage Rent) 25.65%
Discount Rate (Priority Rent) 24.65%
Terminal Capitalization Rate 10.75%
Cash Investment $3,200,000
Cost of Sale at Reversion 4.50%
Square Footage NRA(sf) 1,144,119
Holding Period 10
Price of Cash Flow - Overage Rent $12,466,135
Price of Cash Flow - Priority Rent $2,453,993
Price of Cash Flow - Non-Priority Rent $116,028
Price of the Reversion $9,041,341
Total Sales Price $24,077,496
ESTIMATED SALES PRICE $24,100,000
Per Square Foot $21.06
Cash on Cash Return (Year 1) 2.82%
