September 11, 1995
U.S. Securities and Exchange Commission
Operations Center, Stop 0-7
6432 General Green Way
Alexandria, Virginia 22312
Re: JMB/245 Park Avenue Associates, Ltd.
Commission File No. 0-13545
Form 10Q/A
Gentlemen:
Transmitted, for the above-captioned registrant, is the electronically
filed executed copy of registrant's current report on Form 10-Q/A which
amends Form 10-Q filed for the quarter ended June 30, 1995.
Thank you.
Very truly yours,
JMB/245 PARK AVENUE ASSOCIATES, LTD.
By: JMB Park Avenue, Inc.
Corporate General Partner
By: C. SCOTT NELSON
________________________________
C. Scott Nelson, Vice President
Accounting Officer
CSN:jo
Enclosures
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(Exact name of registrant as specified in its charter)
The undersigned registrant hereby amends the following sections of its
Report for June 30, 1995 on Form 10-Q as set forth in the pages attached
hereto:
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
PAGES 7 through 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGES 16 through 20
EXHIBIT 27. FINANCIAL DATA SCHEDULE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JMB/245 PARK AVENUE ASSOCIATES, LTD.
BY: JMB Park Avenue Inc.
Corporate General Partner
C. SCOTT NELSON
-------------------------------
C. Scott Nelson, Vice President
Accounting Officer
Dated: September 11, 1995
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1994,
which are included in the Partnership's 1994 Annual Report, as certain
footnote disclosures which would substantially duplicate those contained in
such audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The equity method of accounting has been applied in the accompanying
financial statements with respect to the Partnership's interest in 245 Park
Avenue Company (the "joint venture" or "245 Park"). Accordingly, the
financial statements do not include the accounts of 245 Park.
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying financial statements have been prepared from such records
after making appropriate adjustments to reflect the Partnership's accounts
in accordance with generally accepted accounting principles ("GAAP"). Such
adjustments are not recorded on the records of the Partnership. The net
effect of these items is summarized as follows for the six months ended
June 30:
1995 1994
------------------------- ------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
Net earnings
(loss) . . .$(3,186,512) (4,072,596) 3,284,129 (2,309,932)
Net earnings
(loss) per
limited
partnership
interest . .$ (2,995) (3,910) 3,087 (1,554)
=========== ========== ========= ==========
The net earnings (loss) per limited partnership interest is based upon
the number of limited partnership interests outstanding at the end of the
period (1,000). Deficit capital accounts will result, through the duration
of the Partnership, in net gain for financial reporting and income tax
purposes.
Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated
according to the classifications specified in the pronouncement.
Partnership distributions from the unconsolidated joint venture are
considered cash flow from operating activities only to the extent of the
Partnership's cumulative share of net earnings.
During March 1995, Statement of Financial Accounting Standards No. 121
("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" was issued. SFAS 121, when effective,
will require that the Partnership and 245 Park record an impairment loss on
its long-lived assets (primarily its investments in land, buildings and
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
improvements) whenever their carrying value cannot be fully recovered
through estimated undiscounted future cash flows from operations and sale.
The amount of the impairment loss to be recognized would be the difference
between the long-lived asset's carrying value and the asset's estimated
fair value less costs to sell.
The amount of any impairment loss recognized under the current
accounting policy has been limited to the excess, if any, of the property's
carrying value over the outstanding balance of the property's non-recourse
indebtedness. An impairment loss under SFAS 121 would be determined
without regard to the nature or the balance of such non-recourse
indebtedness. Upon the disposition of a property for which an impairment
loss has been recognized under SFAS 121, the Partnership and 245 Park would
recognize, at a minimum, a net gain for financial reporting purposes to the
extent of any excess of the then outstanding balance of the property's non-
recourse indebtedness over the then carrying value of the property,
including the effect of any reduction for impairment loss under SFAS 121.
The Partnership and 245 Park expect to adopt SFAS 121 no later than
the first quarter of 1996. Although the Partnership and 245 Park have not
currently assessed the full impact of adopting SFAS 121, the amount of any
such required impairment loss could be materially higher than the amounts
that have been recorded in the past or may be recorded in 1995 under the
current impairment policy. In addition, upon the disposition of an
impaired property, the Partnership and 245 Park would generally recognize
more net gain for financial reporting purposes under SFAS 121 than they
would have under the current impairment policy, without regard to the
amount, if any, of cash proceeds received in connection with the
disposition. Although implementation of this new accounting statement
could significantly impact reported earnings, there would be no impact on
cash flows. Further, any such impairment loss would not be recognized for
Federal income tax purposes.
Certain amounts in the 1994 Consolidated Financial Statements have
been reclassified to conform with the 1995 presentation.
(2) INVESTMENT IN UNCONSOLIDATED VENTURE - 245 PARK
The Partnership acquired an interest in 245 Park, which owns an
existing 46-story office building located at 245 Park Avenue, New York, New
York. The Partnership acquired its approximate 48.25% ownership interest
in 245 Park for approximately $63,927,000 from an affiliate of the joint
venture partners. In addition to the Partnership, the other partners (the
"O&Y partners") of 245 Park include Olympia and York 245 Park Ave. Holding
Company, L.P., Olympia and York Equity Company, L.P., and Olympia and York
245 Corp., all of which are affiliates of Olympia & York Developments, Ltd.
("O&Y").
There are certain risks and uncertainties associated with the
Partnership's investment made through the joint venture, including the
possibility that the O&Y partners might become unable or unwilling to
fulfill their financial or other obligations, or that the O&Y partners may
have economic or business interests or goals that are inconsistent with
those of the Partnership. O&Y and certain of its affiliates have been
involved in bankruptcy proceedings in the United States (New York City) and
Canada (Toronto) and similar proceedings in England. The O&Y partners have
not been directly involved in these proceedings. In addition, a
reorganization of the management of the company's United States operations
has been completed and certain O&Y affiliates are in the process of
renegotiating or restructuring various loans affecting properties in the
United States in which they have an interest. The Partnership has been
unable to assess and cannot presently determine to what extent these events
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
may adversely affect the willingness or ability of the O&Y partners to meet
their financial and other obligations, including those to the Partnership
and the joint venture. However, the financial difficulties of O&Y and its
affiliates, as well as the pledge by O&Y partners of their interests in 245
Park discussed below, appear to be adversely affecting 245 Park's efforts
both to refinance its mortgage loans and to re-lease vacant space in the
building.
The O&Y partners granted security interests in their interests in 245
Park to a syndicate of banks in order to secure certain loan obligations of
certain O&Y affiliates. In August, 1992, the Partnership received notice
from the lead bank of the syndicate alleging that such O&Y affiliates were
in default under these loan obligations and directing that all payments and
distributions due to the O&Y partners from 245 Park be delivered to the
lead bank. As of the date of this Report, the lenders have not, to the
knowledge of the Partnership, attempted to realize upon the O&Y partners'
interests in 245 Park. According to published reports, an investor group
purchased participations in these obligations from the original syndicate
of banks. At this point, the Partnership does not know to what extent it
would be affected by this change in ownership of the loan obligations or by
the lenders' pursuing their remedies with respect to the O&Y partners'
interests in 245 Park, which they hold as collateral.
Pursuant to the 245 Park venture agreement, the Partnership has made
capital contributions aggregating $18,100,000. To the extent such
contributions were not sufficient to fund operating deficits, debt service,
reserve requirements and certain capital expenditures, the O&Y partners
were obligated and did contribute the amount of such deficiencies through
May 1989. Commencing in June 1989 through the earlier of December 1993 or
the date on which the annual net cash flow (as defined) of the joint
venture is at least $16,500,000, the O&Y partners were obligated to loan
certain amounts (in the maximum amount of $72,500,000 at a prime rate of
interest, 9% at June 30, 1995) to 245 Park sufficient to cover operating
deficits, reserve requirements and certain capital expenditures of the
joint venture and to pay the Partnership and the O&Y partners their
"minimum return" (as defined). The O&Y partners have loaned 245 Park
amounts aggregating $78,635,000 (net of repayments) on a cumulative basis
as of June 30, 1995, which amount includes $1,057,000 (net of repayments)
loaned for the six months ended June 30, 1995 for interest accruing on
these advances. The loans from the O&Y partners currently exceed the
maximum amount required under the terms of the joint venture agreement.
Under the terms of the joint venture agreement, the Partnership is
obligated to contribute to 245 Park its share (approximately 48.25%) of any
operating expenses, reserve requirements and capital expenditures,
including interest on the O&Y partners' loans, to the extent not covered by
cash flow from the property or any additional loans from the O&Y partners.
The principal and any unpaid interest on the O&Y partner loans will be due
and payable on June 1, 2004, subject to earlier repayment out of available
net cash flow or the net proceeds of a refinancing, sale or other
disposition of the property as described below.
Pursuant to the joint venture agreement, the first $16,500,000 of
annual net cash flow (after payment of the current year's interest on the
O&Y partners' loans and the current return on their priority distributions)
is distributable approximately 48.25% to the Partnership and 51.75% to the
O&Y partners (defined as "ownership ratios"). Additional annual net cash
flow (as defined) will be utilized to pay outstanding loans and accrued and
deferred interest to the O&Y partners. Any remaining annual net cash flow
is distributable approximately 48.25% to the Partnership and 51.75% to the
O&Y partners. Operating profits and losses generally are allocated
approximately 48.25% to the Partnership and 51.75% to the O&Y partners.
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Net sale or refinancing proceeds (after repayment of any loans and
priority distribution and accrued interest to the O&Y partners as described
below) are generally allocable or distributable, as the case may be, to the
Partnership and the O&Y partners in their respective ownership ratios. In
general, profits from the sale or other disposition of the office property
will be allocated first to the venture partners with any negative balances
in their capital accounts up to the amount of such negative balances and
then in accordance with the respective ownership ratios of the venture
partners. Losses from the sale or other disposition of the office property
will generally be allocated first to the venture partners with any positive
balances in their capital accounts up to the amount of such positive
balances and then in accordance with the respective ownership ratios of the
venture partners. Losses attributable to the New York State Gains Tax
payable as a result of sale or other transfer of the office property are
allocable among the venture partners in the same proportion as their
contributions for payment of the tax. In general, the Partnership will
only contribute for the payment of such tax with respect to proceeds from
the sale or other transfer of the office property in excess of $500,000,000
plus the value of certain improvements.
The office building is being managed by an affiliate of the O&Y
partners under a long-term agreement for a management fee equal to 1% of
gross receipts. In addition, certain repairs and maintenance and tenant
improvement work is performed by an affiliate of the O&Y partners.
On September 7, 1989, 245 Park refinanced the $20,000,000 second
mortgage note. The remaining first mortgage note continues in place. The
third mortgage note was also refinanced by a financial institution in the
same principal amount as the original note. Also on September 7, 1989, 245
Park obtained an additional loan in the maximum principal amount of
$29,000,000. $17,000,000 of this loan was advanced at closing with an
additional $4,000,000 advanced in June 1990 and June 1991 for a total of
$25,000,000 principal outstanding as of June 30, 1995. The final potential
$4,000,000 funding under the fourth mortgage loan due from the financial
institution on June 30, 1992 was not received. The lender refused to
provide the final funding under the fourth mortgage loan due to a failure
by the O&Y partners to satisfy certain reporting requirements of 245 Park
under the second, third and fourth mortgage loan agreements, which
constitutes a non-monetary default under such agreements. The proceeds of
this loan have been used to pay down a loan from an affiliate of the O&Y
partners and to reimburse the affiliate for annual advances made to 245
Park for the Partnership's share of the economic benefits of the Bear
Stearns lease as further discussed below. In the fourth quarter of 1994,
245 Park began recording the accrual of interest on these junior mortgage
loans at default rates (ranging from 11.8% to 14% per annum) due to the
maturity of these junior mortgage loans.
The Partnership was previously notified that the junior mortgage loans
secured by the investment property as described below, were in default due
to non-compliance with certain lender financial reporting requirements, and
the loans subsequently matured in October 1994 without repayment. However,
245 Park has continued to make and the lender has continued to accept
monthly payments of interest in the same amounts that were payable prior to
October 1994. As of the date of this Report, the holder of the junior
mortgage loans has not, to the knowledge of the Partnership, attempted to
exercise its remedies against the joint venture's property.
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
In March 1987, 245 Park and 245 Lease Co. entered into a lease with a
new tenant, Bear Stearns Companies, Inc., for the 538,000 square feet of
space in the building which had been vacated in 1986. The new lease
commenced in May 1987 and has an initial term extending until December
2002, with five renewal options for up to a total of 25 additional years.
Annual base rent, which commenced in January 1988 concurrent with tenant
occupancy, is payable at the rates of $35 per square foot through 1992, $51
per square foot through 1997 and $56 per square foot through 2002. Annual
base rent payable for each of the option periods will be the greater of the
then existing annual base rent or 85% of the market rate then in effect.
During the entire lease term, the tenant is also obligated to pay certain
electricity charges and its proportionate share of increases in the
operating costs of the building (including real estate taxes) over those
generally incurred in 1987.
In connection with the execution of this lease, the Partnership and
the O&Y partners agreed upon the division of the economic benefits and
costs of this lease among the Partnership and the O&Y partners. The
Partnership was entitled to participate in the economic benefits of this
lease by receiving distributions from 245 Park of $4,000,000 per year
through June 30, 1992 as its share of the remaining incremental net rents
from the lease after payment of the interest expense referred to below.
Subsequent to June 1992, cash flow from net rents and related income under
the lease are allocable to the Partnership and the O&Y partners in
accordance with the terms of the existing joint venture agreement. The
final distribution of $1,000,000 due to the Partnership on June 30, 1992
relating to this agreement was received during the third quarter of 1992.
The Partnership participates in a portion of the costs of this lease
as the costs have been financed by 245 Park. Such costs were approximately
$60,000,000, consisting of estimated costs associated with re-leasing the
tenant space (including estimated tenant improvement costs), expenses
related to termination of the prior tenants' leases and the new tenant's
vacating its space in another building and accrued interest through
September 1993. A portion of these costs have been financed by capital
contributed by the O&Y partners, for which they are entitled to a priority
distribution estimated to be approximately $30,800,000 (including accrued
interest, at 9% per annum through June 1995, on the contributed capital)
from net annual cash flow or sale or refinancing proceeds, as described
above. In addition, as of June 30, 1995, approximately $9,487,000 of these
costs had been financed by a non-recourse loan from an affiliate of the O&Y
partners at an interest rate not to exceed 9% per annum and $25,000,000 of
the costs had been financed by a third party lender at an interest rate of
9% per annum pursuant to the fourth mortgage loan described above. Through
June 1995, interest on such capital contributed by the O&Y partners and on
the non-recourse loan from their affiliate has accrued and has been added
to principal. Payments on the fourth mortgage loan were interest only
until maturity in October 1994 when the entire principal balance was due
and payable. However, the lender has refrained from taking any actions or
exercising any of its remedies as a result of the loan maturing in October
1994. Payments on the loan from an affiliate of the O&Y partners are
interest only (unless accrued as described above) until the earlier of a
sale or refinancing of the property, if proceeds are available for
repayment of the loan, or December 31, 2002, at which time the outstanding
balance including any accrued interest added to principal, becomes payable.
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The holder of the first mortgage loan secured by 245 Park's property
agreed to extend the originally scheduled maturity date of the loan from
October 1, 1993 until January 1, 1994. 245 Park has entered into an
agreement with the lender to further modify and extend the loan for the
amount of the current outstanding principal balance plus accrued and unpaid
interest at a default rate of 18% per annum from October 1, 1993 through
the loan closing date, with a new interest rate from the loan closing date
for a five year term. The agreement provides that the new interest rate
will be based on the mortgage equivalent of U.S. Treasury securities
maturing on or about five years from the date of closing plus 3% per annum.
Monthly payments of principal and interest will be required during the loan
extension period based upon a 30-year amortization schedule. Under the
terms of the agreement, 245 Park will be required to make monthly deposits
of specified amounts in escrow for real estate taxes and leasing and other
capital costs. 245 Park has paid $8 million to the lender to be applied to
accrued interest on the loan and has paid approximately $13.2 million into
the real estate tax escrow. In addition, 245 Park will be required to pay
the lender an extension fee of $2 million upon closing of the transaction.
Subject to certain conditions, the lender agreed to waive payment of a
portion of the interest that accrues on the loan at the default rate prior
to closing the transaction. Closing of the transaction is scheduled to
occur during August 1995 (subject to extension under certain
circumstances). Closing of the transaction is subject to the execution and
delivery of final documentation as well as certain other conditions,
including certain third party approvals, and there is no assurance that the
transaction will be completed. 245 Park has continued to make, and the
lender has continued to accept, monthly payments of principal and interest
in the same amount that were payable prior to October 1, 1993, and the
lender has refrained from taking any actions or exercising any of its
remedies as a result of the loan maturing on January 1, 1994. If 245 Park
is successful in obtaining the modification and an extension of the first
mortgage loan, it also expects to seek a similar extension of the October,
1994 maturity dates of the junior mortgage loans. There can be no
assurance that 245 Park will be able to reach a final agreement for any
such modifications and extensions of any of its mortgage indebtedness. If
245 Park is able to obtain modifications and extensions of each mortgage
loan, it is expected that the interest rates applicable to the loans during
the extension period would be no greater than that in effect for the
modified first mortgage loan. Although the property has significant cash
reserves at June 30, 1995, due to property cash needs and venture partner
priority claims, it is not expected that any of this cash would be
distributable to the Partnership.
If 245 Park's efforts to extend any of its existing mortgage loans,
with an aggregate principal balance of approximately $385,266,000 at June
30, 1995, are unsuccessful, there is the possibility that 245 Park would no
longer be able to maintain an ownership interest in the property, as the
mortgage lenders may seek to acquire title to the property. This would
result in the recognition of a substantial net gain to the Limited Partners
for Federal income tax purposes, without any corresponding cash
distribution. In such event, the Partnership would then proceed to
terminate its affairs.
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(3) BANK OBLIGATIONS AND DEMAND NOTES PAYABLE
(a) Bank obligations and demand note payable consist of the following
at June 30, 1995 and December 31, 1994:
JUNE 30, DECEMBER 31,
1995 1994
--------------------------
Bank note payable (term loan) bearing
interest at a variable rate related
to LIBOR (8.28% per annum at
June 30, 1995); secured by
the Partnership's interest in
245 Park; guaranteed by JMB;
principal and interest payable
in quarterly installments until
December 1998 (principal in the
amount of $2,500,000 per annum
in 1994 and $4,375,000 per annum
thereafter) when the remaining
amount is due; obtained in 1993
(see note 3(b)) . . . . . . . . . . . . .$16,042,000 18,749,000
Bank note payable (term loan)
bearing interest at 2% per annum;
secured by the Partnership's interest
in 245 Park; no payments until
December 1998 when the entire
principal amount and accrued
compounded interest are due;
obtained in 1993 (see note 3(b)). . . . . 25,000,000 25,000,000
Bank note payable (term loan) bearing
interest at 2% per annum; secured by
the Partnership's interest in 245 Park;
no payments until December 1998 when
the entire principal amount and accrued
compounded interest are due; obtained
in 1993 (see note 3(b)) . . . . . . . . . 2,194,631 2,194,631
Demand note payable bearing
interest at prime plus 1%
(10.0% per annum at June 30,
1995); advanced by JMB;
maximum principal sum of a
specified amount related to
JMB's guaranty of a portion
of the bank term loans;
subordinate to full payment
of the Partnership's bank term
loan bearing interest at variable
rate related to LIBOR (8.28%
per annum at June 30, 1995)
(see note 3(b)). . . . . . . . . . . . . 10,994,592 8,182,092
----------- ----------
$54,231,223 54,125,723
=========== ==========
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(b) Debt Refinancing
The Partnership and its lender reached a modification and extension
agreement regarding the former $50,000,000 term loans that matured in
October 1993. The current term loans (note 3(a)) are secured by the
Partnership's interest in 245 Park, and $25,000,000 ($16,042,000 at June
30, 1995) of the term loans is guaranteed by JMB. The terms of the
modification and extension generally provide for (i) an extension period
through December 1998; (ii) one-half of the original principal amount of
the term loans requires interest to be paid currently at a rate related to
the London Interbank Offer Rate (LIBOR) while interest on the balance of
the term loans accrues at an annual rate of 2%; (iii) one-half of the
original principal amount of the term loans bearing interest at a rate
related to LIBOR (the "LIBOR Note") is subject to periodic amortization;
and (iv) the past due lump sum interest swap payment in the amount of
$2,194,631 has been converted to a note payable due December 1998 with
interest accruing at an annual rate of 2%. In December 1993, approximately
$5,647,000 was paid to the lenders under the term loans (all of which was
advanced on behalf of the Partnership by JMB) which included a $5,000,000
principal paydown of the LIBOR Note and the interest payable currently for
the period September through December 1993. Any payments of principal and
interest made by JMB under its guaranty of the portion of the Partnership's
term loans have been treated as advances to the Partnership. Interest will
accrue on these advances at the annual rate of prime plus 1% (10.0% at June
30, 1995). As of June 30, 1995, JMB has advanced approximately $10,995,000
evidenced by a demand note, which includes the principal and interest
payments made through June 30, 1995. The demand note payable to JMB allows
a maximum principal sum of a specified amount and is subordinate to payment
of the LIBOR Note.
In July 1995, JMB purchased from the lender the term loans discussed
above (note 6).
(4) TRANSACTIONS WITH AFFILIATES
The General Partners or their affiliates may be reimbursed for their
direct expenses and out-of-pocket expenses relating to the administration
of the Partnership and operation of the Partnership's real property
investment. Additionally, the General Partners and their affiliates are
also entitled to reimbursements for legal, accounting and certain other
services.
Fees and reimbursable expenses paid or payable by the Partnership to
the General Partners and their affiliates as of June 30, 1995 and for the
six months ended June 30, 1995 and 1994 are as follows:
Unpaid at
June 30,
1995 1994 1995
------ ----- ----------
Reimbursement (at cost)
for legal services. . . . . . $ 3,707 -- 12,527
Reimbursement (at cost)
for accounting
services. . . . . . . . . . . 7,836 -- 35,291
Reimbursement (at cost)
for out-of-pocket
expenses. . . . . . . . . . . 185 86 118
------- --- ------
$11,728 86 47,936
======= === ======
JMB/245 PARK AVENUE ASSOCIATES, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONCLUDED
All above reimbursable amounts currently payable to the General
Partners and their affiliates do not bear interest.
Subsequent to June 30, 1995, the Corporate General Partner of the
Partnership has determined to use an independent third party or parties to
perform certain of these administrative services beginning in late 1995.
Use of a third party, rather than reimbursement to the Corporate General
Partners and their affiliates, is not expected to have a material effect on
the operations of the Partnership.
Repayment of the LIBOR portion of the Partnership's long-term bank
obligations ($16,042,000 at June 30, 1995) has been guaranteed by JMB and
has been funded by the proceeds of a demand note from JMB bearing interest
at the prime rate plus 1% per annum. In July 1995, JMB purchased, from the
lender, the term loans discussed above (note 6).
(5) UNCONSOLIDATED VENTURE - SUMMARY INFORMATION
Summary income statement information for 245 Park for the six months
ended June 30, 1995 and 1994 is as follows:
1995 1994
----------- ----------
Total income . . . . . $49,596,826 54,041,668
=========== ==========
Operating earnings
(loss) . . . . . . . $(3,239,709) 10,536,458
=========== ==========
Partnership's share of
earnings (loss). . . $(1,563,160) 5,083,841
=========== ==========
(6) SUBSEQUENT EVENT
In July 1995, JMB purchased from the bank lenders the term loans and
their security interests in the related collateral, which includes the
Partnership's interest in 245 Park Co. and the JMB guarantee. JMB will
continue to hold the notes for these loans generally under the same terms
and conditions as were in effect prior to the purchase (note 3(b)).
However, no scheduled interest or principal payments will be required prior
to maturity on the portion of these loans which was formerly guaranteed by
JMB. Interest on this portion of the loans will accrue and compound
monthly at a floating rate which will be calculated in the same manner as
was in effect prior to the purchase which, at the option of the
Partnership, is related to either LIBOR or the prime rate of Bank of
America Illinois. The loans remain secured by the Partnership's interest
in the joint venture as noted above and continue to be subject to mandatory
prepayment of principal and interest out of any distributions received by
the Partnership from 245 Park.
(7) ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation (assuming the Partnership continues as a going concern, see
note 2) have been made to the accompanying figures as of June 30, 1995 and
for the three and six months ended June 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Financial Statements
contained in this report. Certain parties given abbreviated names or
references below are identified in the Notes.
The mortgage loans secured by the 245 Park Avenue building have
matured without repayment. Although 245 Park entered into an agreement
with the first mortgage lender to modify and extend the first mortgage
loan, the agreement is subject to certain conditions and there can be no
assurance that 245 Park will be able to reach a final agreement to modify
and extend this loan or the other mortgage loans. If 245 Park's efforts to
extend any of its mortgage loans are unsuccessful, 245 Park may not be able
to maintain an ownership interest in the property, as the mortgage lenders
may seek to acquire title to the property. In such event, the Partnership
would proceed to terminate its affairs. Accordingly, there exists
substantial doubt as to the Partnership's ability to continue as a going
concern.
At June 30, 1995, the Partnership had no cash or cash equivalents.
Additionally, the Partnership had a bank overdraft of approximately
$849,000. Subsequent to June 30, 1995, JMB advanced an additional $855,000
to the Partnership evidenced by its demand note. A portion of these
advances were used to fund the bank overdraft.
Commencing in June 1989 through the earlier of December 1993 or the
date on which the annual net cash flow (as defined) of 245 Park is at least
$16,500,000, the O&Y partners were obligated to loan certain amounts (in
the maximum amount of $72,500,000 at a prime rate of interest) to 245 Park
sufficient to cover operating deficits, reserve requirements and certain
capital expenditures of 245 Park and to pay the Partnership and the O&Y
partners their "minimum return" (as defined). The O&Y partners have loaned
245 Park amounts aggregating $78,635,000 (net of repayments) as of June 30,
1995, which amount includes $1,057,000 (net of repayments) loaned for the
six months ended June 30, 1995 for interest accruing on the advances.
Under the terms of the joint venture agreement, the Partnership is
obligated to contribute to 245 Park its share (approximately 48.25%) of
any operating expenses, reserve requirements and capital expenditures,
including interest on the O&Y partners' loans, to the extent not covered by
cash flow from the property or additional loans from the O&Y partners. The
principal and any unpaid interest on the O&Y partner loans will be due and
payable on June 1, 2004, subject to earlier repayment out of available net
cash flow or the net proceeds of a refinancing, sale or other disposition
of the property as described in Note 2.
Since the Partnership has not been receiving operating cash flow
distributions from the property, the Partnership initially utilized its
cash reserves to make the payments on the Partnership's bank obligations.
Effective with the first quarter of 1990, the Partnership elected to
suspend cash distributions to the Partners and retain funds for the cash
requirements and capital expenditures for the property (if not funded by
O&Y partners' loans). These reserves have been exhausted, and
consequently, the Partnership was not able to pay the interest payment due
on the bank obligations for September 1993 in the approximate amount of
$223,000. In addition, the Partnership did not have adequate reserves to
pay a lump sum interest swap payment due February 1, 1994 in the amount of
$2,194,631. In this regard, the Partnership and its bank lender reached a
modification and extension agreement for the $50,000,000 term loans that
matured in October 1993. These term loans are secured by the Partnership's
interest in 245 Park, and $25,000,000 ($16,042,000 at June 30, 1995) of the
term loans is guaranteed by JMB. The terms of the modification and extension
generally provide for (i) an extension period through December 1998;
(ii) on one-half of the original principal amount of the term loans requires
interest to be paid currently at a rate related to
the London Interbank Offer Rate (LIBOR) while interest on the balance of
the term loans accrues at an annual rate of 2%; (iii) one-half of the original
principal amount of the term loans bearing interest at a rate related to
LIBOR (the "LIBOR Note") is subject to periodic amortization through
payment of quarterly installments of principal and interest (principal in
the amount of $2,500,000 per annum in 1994 and $4,375,000 per annum
thereafter); and (iv) the past due lump sum interest swap payment in the
amount of $2,194,631 has been converted to a note payable due December 1998
with interest accruing at an annual rate of 2%. In December 1993,
approximately $5,647,000 was paid to the lenders under the term loans (all
of which was advanced on behalf of the Partnership by JMB), which included
a $5,000,000 principal paydown of the LIBOR Note and the interest payable
currently for the period September through December 1993. During the year
ended December 31, 1994, an additional amount of approximately $2,479,000
was paid to the lenders under the term loans which included a $1,251,000
principal paydown of the LIBOR Note and the interest payable currently for
the period January through December 1994. An additional payment of
$1,249,000 and two payments of $729,000 each were paid in January through
June, 1995, respectively. Any payments of principal and interest made by
JMB under its guaranty of the portion of the Partnership's term
loans have been treated as advances to the Partnership. As of June 30, 1995,
JMB has advanced approximately $10,995,000 evidenced by a demand note, which
includes the principal and interest payments made related to the loan
modification discussed above and advances to pay operating costs of the
Partnership. Interest accrues on these advances at the annual rate of
prime (9.0% at June 30, 1995) plus 1%. The demand note payable to JMB
allows a maximum principal sum of a specified amount related to JMB's
guaranty of a portion of the bank term loans and was subordinate to payment
of the LIBOR Note. In July 1995, JMB purchased, from the lender, the term
loans discussed above (Note 6). Reference is made to Note 3 for further
information concerning borrowings incurred by the Partnership.
245 Park is currently pursuing an extension and modification of the
mortgage loans secured by the property in the aggregate principal amount of
approximately $385,266,000 at June 30, 1995. The holder of the first
mortgage loan secured by 245 Park's property, which has a current
outstanding principal balance of approximately $192,766,000 at June 30,
1995, agreed to extend the originally scheduled maturity date of the loan
from October 1, 1993 until January 1, 1994. 245 Park has entered into an
agreement with the lender to further modify and extend the loan for the
amount of the current outstanding principal balance plus accrued and unpaid
interest at a default rate of 18% per annum from October 1, 1993 through
the loan closing date, with a new interest rate from the loan closing date
for a five year term. The agreement provides that the new interest rate
will be based on the mortgage equivalent of U.S. Treasury securities
maturing on or about five years from the date of closing plus 3% per annum.
Monthly payments of principal and interest will be required during the loan
extension period based upon a 30-year amortization schedule. Under the
terms of the agreement, 245 Park will be required to make monthly deposits
of specified amounts in escrow for real estate taxes and leasing and other
capital costs. 245 Park has paid $8 million to the lender to be applied to
accrued interest on the loan and has paid approximately $13.2 million into
the real estate tax escrow. In addition, 245 Park will be required to pay
the lender an extension fee of $2 million upon closing of the transaction.
Subject to certain conditions, the lender has agreed to waive payment of a
portion of the interest that accrues on the loan at the default rate prior
to closing the transaction. Closing of the transaction is scheduled to
occur during August 1995 (subject to extension under certain
circumstances). Closing of the transaction is subject to the execution and
delivery of final documentation as well as certain other conditions,
including certain third party approvals, and there is no assurance that the
transaction will be completed. 245 Park has continued to make, and the
lender has continued to accept, monthly payments of principal and interest
in the same amount that were payable prior to October 1, 1993 and the
lender has refrained from taking any actions or exercising any of its
remedies as a result of the loan maturing on January 1, 1994.
If 245 Park is successful in obtaining an extension of the first
mortgage loan modification, it also expects to seek a similar extension of
the maturity dates of the junior mortgage loans, which have a current
aggregate principal balance of $192,500,000 and matured on October 1, 1994.
As of the date of this Report, the holder of the junior mortgage loans has
not, to the knowledge of the Partnership, attempted to exercise its
remedies against 245 Park's property. Interest is currently accruing at
default rates ranging from 11.88% to 18% per annum. 245 Park has continued
to make and the holder of the junior loans has continued to accept monthly
payments of interest in the same amount that were payable prior to October
1994, the maturity date for the junior mortgage loans. If 245 Park is able
to obtain modifications and extensions of each mortgage loan, it is
expected that the interest rates applicable to the loans during the
extension period would be no greater than that in effect for the modified
first mortgage loan. However, there can be no assurance that 245 Park will
be able to reach a final agreement for any such modifications and
extensions of any of its mortgage indebtedness.
If 245 Park's efforts to extend its mortgage loans are unsuccessful,
245 Park may not be able to maintain ownership of the property as the
lenders may seek to acquire title to the property. This would result in
the recognition of substantial net gain to the Limited Partners for
financial reporting and Federal income tax purposes without any
corresponding cash distribution. In such event, the Partnership would then
proceed to terminate its affairs.
Even if 245 Park is successful in obtaining extensions and
modifications of its mortgage loans, due to the competitive market
conditions affecting the 245 Park Avenue building, it currently appears
that the Partnership's goal of capital appreciation will not be achieved.
If the 245 Park Avenue building is sold and a distribution of net proceeds
is made to the Partnership after repayment of the mortgage loans and
amounts owed to the O&Y partners and their affiliates, the term loans and
the demand note payable to JMB plus all related accrued interest must be
satisfied before remaining proceeds, if any, would be distributed to the
Limited Partners. Without a dramatic improvement in market conditions, the
Limited Partners will not receive a full return of their original
investment.
Assuming, among other things, an extension of the existing mortgage
loans, the investment property is expected to have nominal cash flow during
1995 after mortgage debt service and estimated releasing and capital
improvement costs. The Partnership's short-term liquidity is dependent
upon additional advances from JMB under the demand note discussed above.
The primary source of the Partnership's liquidity is dependent upon the
refinancing and/or eventual sale of the Partnership's investment property.
Although 245 Park has significant cash reserves at June 30, 1995, due to
property cash needs and the O & Y partners' claims, it is not expected that
any such cash reserves would be distributable to the Partnership.
The competitive market conditions in New York City have had a
significant adverse impact on the effective rental rates achieved on new
leases, which has in turn impacted the operating performance of 245 Park.
These conditions have resulted from new office building development since
the Partnership's acquisition of its interest in the building, as well as
from increased vacancy due to the severe downsizing of most of the major
financial services companies which dominate the New York office markets.
Although it appears that rental rates may have stabilized in the Midtown
market somewhat in 1994, no rental rate decreases are expected in the near
term. Despite re-leasing a substantial amount of space during the past few
years, the net operating income from the building reflects the reduced
effective rental rates on such new leases as compared to the effective
rental rates for the leases that have expired or otherwise terminated.
This decrease has partially offset the increase in annual base rent for a
majority of the Bear Stearns space. In addition, there have been higher
costs on a cumulative basis than originally anticipated associated with re-
leasing most of this space, primarily because of the costs incurred (which
are currently approximately $18 per square foot) to remove asbestos-
containing materials to comply with current New York City code requirements
adopted after the Partnership acquired its interest in the building. A
substantial portion of the asbestos removal work has been completed.
There are certain risks and uncertainties associated with the
Partnership's investment made through the joint venture, including the
possibility that the O&Y partners might become unable or unwilling to
fulfill their financial or other obligations, or that the O&Y partners may
have economic or business interests or goals that are inconsistent with
those of the Partnership. O&Y and certain of its affiliates have been
involved in bankruptcy proceedings in the United States (New York City) and
Canada (Toronto) and similar proceedings in England. The O&Y partners have
not been directly involved in these proceedings. In addition, a
reorganization of the management of the company's United States operations
has been completed and certain O&Y affiliates are in the process of
renegotiating or restructuring various loans affecting properties in the
United States in which they have an interest. The Partnership has been
unable to assess and cannot presently determine to what extent these
matters may adversely affect the willingness or ability of the O&Y partners
to meet their financial and other obligations, including those to the
Partnership and the joint venture. However, the financial difficulties of
O&Y and its affiliates as well as the pledge by the O&Y partners of their
interests in 245 Park discussed below, appear to be adversely affecting 245
Park's efforts both to refinance its mortgage loans and to re-lease vacant
space in the building.
The O&Y partners have granted security interests in their interests in
245 Park to a syndicate of banks in order to secure certain loan
obligations of certain O&Y affiliates. In August 1992, the Partnership
received notice from the lead bank of the syndicate alleging that such O&Y
affiliates were in default under these loan obligations and directing that
all payments and distributions due to the O&Y partners from 245 Park be
delivered to the lead bank. As of the date of this report, the lenders
have not, to the knowledge of the Partnership, attempted to realize upon
the O&Y partners' interests in 245 Park. According to published reports,
an investor group purchased participation in these obligations from the
original syndicate of banks. At this point, the Partnership does not know
to what extent it would be affected by this change in ownership of the loan
obligations or by the lenders' pursuing their remedies with respect to the
O&Y partners' interests in 245 Park, which they hold as collateral.
RESULTS OF OPERATIONS
The results of operations for the three and six months ended June 30,
1995 as compared to the three and six months ended June 30, 1994 are
primarily attributable to the operations of the real property owned by the
Partnership through the joint venture as described in Note 2.
The increase in bank overdrafts as of June 30, 1995 as compared to
December 31, 1994 is primarily due to the temporary financing of operating
costs, including the payment of principal and interest on the LIBOR Note.
The increase in accounts payable to affiliates as of June 30, 1995 as
compared to December 31, 1994 is primarily due to continued deferral of
expense reimbursements for legal and accounting services and out-of-pocket
costs owed to affiliates of the General Partners.
The increases in accrued interest, demand note payable, accrued and
deferred interest payable to affiliate and the decrease in bank obligations
payable as of June 30, 1995 as compared to December 31, 1994 are due to the
interest accruals on certain of the term loans discussed above, payment of
principal and interest due on the LIBOR Note out of advances under the
demand note payable to JMB and interest accruals on such advances as
discussed above.
The increase in interest expense for the three months ended June 30,
1995 as compared to the three months ended June 30, 1994 is primarily due
to higher average interest rates in 1995. The decrease in interest expense
for the six months ended June 30, 1995 as compared to the six months ended
June 30, 1994 is primarily due to a portion of the the swap interest
payment expensed in the first quarter of 1994 (approximately $386,000)
partially offset by higher average interest rates in 1995 (Notes 3(a) and
(b)).
The decrease in professional services for the three and six months
ended June 30, 1995 as compared to the three and six months ended June 30,
1994 is primarily due to reduced legal and audit fees incurred related to
the operations of the 245 Park venture's property.
The Partnership's share of loss from operations of unconsolidated
venture for the three and six months ended June 30, 1995 as compared to its
share of earnings from operations of unconsolidated ventures for the three
and six months ended June 30, 1994 is primarily due to the recognition in
1995 of interest expense at default rates on the 245 Park's mortgage loans
at rates ranging from 11.88% to 18% per annum. While interest is
recognized at default rates for financial reporting purposes, interest on
the mortgage loans is being paid at the rates in effect prior to the
maturity of the loans at rates ranging from 9% to 13% per annum.
Additionally, revenue of approximately $4,650,000 was recognized by 245
Park in the first quarter of 1994 due to a lease termination fee paid by
National Commerce Bank.
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
245 Park's first mortgage loan in the approximate principal amount of
$194,000,000 had an extended maturity date of January 1, 1994. 245 Park
did not repay the principal and accrued interest on the loan, but is
currently seeking a modification and extension of the loan. 245 Park has
continued to make, and the lender has continued to accept, monthly payments
of principal and interest in the same amount that were payable prior to its
original maturity date, October 31, 1993. 245 Park continues to negotiate
a further modification and extension of its first mortgage loan. Reference
is made to Note 2 and to the Liquidity and Capital Resources contained in
the Management's Discussion and Analysis of Financial Condition and Results
of Operations section of this Report for a discussion of the first mortgage
loan and 245 Park's efforts to obtain a modification and extension.
The Partnership was previously notified that the junior mortgage loans
in the aggregate principal amount of approximately $192,500,000, secured by
the 245 Park Avenue office building were in default due to non-compliance
with certain lender financial reporting requirements, and the loans
subsequently matured in October 1994. However, 245 Park has continued to
make, and the lender has continued to accept, monthly payments of interest
in the same amounts that were payable prior to October 1994 without
repayment. As of the date of this Report, the holder of the junior
mortgage loans has not, to the knowledge of the Partnership, attempted to
exercise its remedies against the property.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REGISTRANT'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000747159
<NAME> JMB/245 PARK AVENUE ASSOCIATES, LTD.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 18,302,844
<BONDS> 38,861,631
<COMMON> 0
0
0
<OTHER-SE> (117,370,676)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 57,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,565,604
<INCOME-PRETAX> (1,623,352)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,186,512)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,186,512)
<EPS-PRIMARY> (2,995)
<EPS-DILUTED> (2,995)
</TABLE>
