SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
December 31, 1998 Commission File Number 0-13545
JMB/245 PARK AVENUE ASSOCIATES, LTD.
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(Exact name of registrant as specified in its charter)
Illinois 36-3265541
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(State of organization) (I.R.S. Employer Identification No.)
900 N. Michigan Ave., Chicago, Illinois 60611
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(Address of principal executive office) (Zip Code)
The undersigned registrant hereby amends the following section of its
Report for the year ended December 31, 1998 on Form 10-K405 as set forth in
the pages attached hereto:
PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. Pages 6 through 9A.
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
GAILEN J. HULL
By: Gailen J. Hull
Vice President and
Principal Accounting Officer
Dated: May 4, 1999
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Capitalized terms used but not defined in this Item 7 have the same
meanings as used in Item 1. Business or in the Notes.
On May 7, 1984, the Partnership commenced a private offering of
$124,300,000 in Limited Partnership Interests pursuant to a Private
Placement Memorandum. A total of 1,000 Interests were sold at $124,300 per
Interest (except for twenty Interests which were sold net of any selling
commission) of which $10,500 per Interest was due upon admission, with the
remaining purchase price paid in annual installments from 1985 through 1990
(all of which have been received). The purchase price installments have
been utilized primarily for the payment of the Partnership's bank
borrowings and related interest.
Since the Partnership had not been receiving operating cash flow
distributions from its original investment 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 its cash requirements. These reserves were 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. The Partnership and its bank lender reached a modification and
extension agreement regarding the $50,000,000 term loans that matured in
October 1993. These term loans were secured by the Partnership's interest
in its real estate investment, and a guaranty by JMB Realty Corporation
("JMB"), an affiliate of the Corporate General Partner, of $25,000,000 of
the term loans. The terms of the modification and extension generally
provided for (i) an extension period through December 1998; (ii) interest
payable currently on one-half of the principal amount of the term loans at
a rate related to the London Interbank Offer Rate (LIBOR) while interest on
the balance of the term loans accrued 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") were subject to periodic
amortization through payment of quarterly installments of principal
(principal in the amount of $2,500,000 per annum in 1994 and $2,707,000 in
1995); and (iv) the past due lump sum interest swap payment in the amount
of $2,194,631 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 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 for the period January through December 1994. An
additional $1,249,000 and two payments of $729,000 each were paid in
January through June 1995, respectively. All payments of principal and
interest made by JMB under its guaranty of the $25,000,000 portion of the
Partnership's term loans have been treated as advances to the Partnership.
As of December 31, 1998, JMB has advanced approximately $12,376,000,
evidenced by a demand note, which reflects 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 plus 1% (8.75% at December 31, 1998
and 9.5% at December 31, 1997). The demand note payable to JMB, which
allows a maximum principal sum of a specified amount, had been subordinate
to payment of the LIBOR Note but is no longer subordinated and is now
secured by the Partnership's interest in its real estate investment.
Reference is made to the Notes for further information concerning
borrowings incurred by the Partnership.
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In July 1995, JMB purchased from the lenders the term loans (including
the note representing the interest swap payment) and their security
interests in the related collateral, including the JMB guarantee, which was
terminated. JMB continues to hold the notes for these loans generally
under the same terms and conditions that were in effect prior to the
purchase. However, no scheduled principal payments were required prior to
maturity of the LIBOR Note. Interest on the LIBOR Note accrues and is
payable monthly at a floating rate which, at the option of the Partnership,
is related to either LIBOR or the prime rate of Bank of America. No
payments of interest on the LIBOR Note have been made subsequent to
July 31, 1995. The scheduled maturity of the term loans was December 31,
1998. However, JMB has not pursued its remedies under these notes as a
result of the non-payment of interest under the LIBOR Note or the maturity
of these notes. The Partnership is currently discussing with JMB a
possible resolution related to the scheduled maturity of such term loan
notes. These loans and the demand loan payable to JMB are secured by the
Partnership's interest in BFP, LP and are subject to mandatory payment of
principal and interest out of any distributions received by the Partnership
from BFP, LP.
As a result of the financial difficulties of the O&Y partners, in
October 1995 each of the O&Y partners and certain other O&Y affiliates (but
not the Joint Venture) filed for bankruptcy protection from creditors under
Chapter 11 of the United States Bankruptcy Code. During 1996, the O&Y
partners and these certain other O&Y affiliates restructured their
ownership interest in various office buildings, including their interest in
the 245 Park Avenue office building. In connection with such
restructuring, the Joint Venture filed for bankruptcy under Chapter 11 of
the United States Bankruptcy Code in April 1996 seeking approval of a plan
of reorganization by its creditors and the partners of the Joint Venture,
including the Partnership, and in August 1996, the Third Amended Joint Plan
of Reorganization and Disclosure Statement (the "Plan") was filed with the
Bankruptcy Court. The Plan was accepted by the various classes of claims
and equity holders and confirmed by the Court on September 20, 1996. The
Plan became effective on November 21, 1996 ("Effective Date") upon
completion of several additional steps. The conditions to the Plan
included, but were not limited to, the completion of significant
refinancing and capital transactions regarding 245 Park Avenue as well as
other properties. Pursuant to the terms of the Plan, the Partnership owns
(through a limited liability company of which the Partnership is a 99%
member) an approximate 5.56% general partner interest in Brookfield
Financial Properties, L.P. ("BFP, LP") formerly known as World Financial
Properties, L.P. ("WFP, LP"). The managing general partner of BFP, LP is
an entity affiliated with certain O&Y creditors and the proponents of the
Plan and, subject to the partnership agreement, has full authority to
manage its affairs. BFP, LP's principal assets are wholly-owned or
majority and controlling interests in the seven office buildings located in
New York, New York and Boston, Massachusetts.
BFP, LP and the Partnership each have a substantial amount of
indebtedness remaining. If any of the buildings are sold, any proceeds
would be first applied to repayment of the mortgage and other indebtedness
of BFP, LP. In any event, any net proceeds obtained by the Partnership
would then be required to be used to satisfy notes payable and deferred
interest (aggregating $69,009,231 at December 31, 1998) to JMB. Only after
such applications would any remaining proceeds be available to be
distributed to the Holders of Interests. As a result, it is unlikely that
the Holders of Interests ever will receive any significant portion of their
original investment. However, it is expected that over the remaining term
of the Partnership, as a result of sale or other disposition of the
properties (including a transfer to the lenders), or of the Partnership's
interest in BFP, LP, the Holders of Interests will be allocated substantial
gain for Federal income tax purposes (corresponding at a minimum to all or
most of their deficit capital accounts for tax purposes) without a
significant amount of proceeds from such sale or disposition. Such gain
may be offset by suspended losses from prior years (if any) that have been
allocated to the Holders of Interests. The actual tax liability of each
Holder of Interests will depend on such Holder's own tax situation.
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Pursuant to the terms of the JMB Transaction Agreement dated
November 21, 1996, the Partnership is entitled to receive one third of the
monthly management fees earned at the 245 Park Avenue property through
December 2001. Amounts received may not be less than $400,000 or exceed
$600,000 for any twelve month period and may not be less than $2,300,000
over the term of the agreement.
The Partnership's liquidity and ability to continue as a going concern
is dependent upon the successful resolution related to the scheduled
maturity date (December 31, 1998) of the term loans, the receipt of one-
third of the property management fees earned at the 245 Park Avenue
property and, if necessary, additional advances from JMB under the demand
loan. The Partnership is discussing with JMB a possible resolution related
to the term loan notes, which have a scheduled maturity of December 31,
1998.
RESULTS OF OPERATIONS
The increase in cash at December 31, 1998 as compared to December 31,
1997 is primarily due to receipt of one third of the monthly management
fees earned at the 245 Park Avenue property, a portion of which have been
used to fund Partnership operating expenses.
The increase in deferred interest payable to an affiliate as of
December 31, 1998 as compared to December 31, 1997 is due to the interest
accruals on the term loans and the demand note payable to JMB.
The increase in interest and other income for the years ended
December 31, 1998 and 1997 as compared to the year ended December 31, 1996
is primarily a result of income from the Partnership's share of the
property management fees from the 245 Park Avenue property. Pursuant to
the terms of the JMB Transaction Agreement described above, commencing in
November, 1996, the Partnership is entitled to one third of the monthly
property management fees earned at the 245 Park Avenue property.
The increase in interest expense for the year ended December 31, 1998
as compared to the year ended December 31, 1997 and the year ended
December 31, 1997 as compared to December 31, 1996 is primarily due to an
increase in the aggregate amounts outstanding on the Partnership's term
loans due to accrued interest, which is deferred and accrues additional
interest.
The decrease in professional services for the year ended December 31,
1998 as compared to the years ended December 31, 1997 and 1996 is primarily
attributable to the legal fees and other professional services in
connection with the restructuring of the Partnership's interest in 245
Park, net of any reimbursements. Pursuant to the Plan of Reorganization,
during 1996, the Partnership received reimbursements of $375,000 for legal
fees incurred related to the restructuring of the Partnership's interest in
245 Park.
The increase in Partnership's share of income (loss) from operations
of unconsolidated venture for the years ended December 31, 1998 and
December 31, 1997 compared to the year ended December 31, 1996 is due to
the restructuring of the Partnership's interest in 245 Park and refinancing
of the debt for certain of the properties owned by BFP, LP. Pursuant to
the restructuring, effective November 21, 1996, the Partnership's 46.5%
interest in 245 Park was exchanged for an approximate 5.56% interest in
BFP, LP, which has wholly-owned or majority and controlling interests in
the 245 Park Avenue office building and six other office buildings.
The Partnership's share of gain on forgiveness of indebtedness
recognized by 245 Park related to the restructuring of the junior mortgage
loans in 1996, for which default interest was forgiven.
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INFLATION
Due to the decrease in the levels of inflation in recent years,
inflation generally has not had a material effect on rental income or
property operating expenses.
However, to the extent that inflation in future periods would have an
adverse impact on property operating expenses, the effect would generally
be offset by amounts recovered from tenants as many of the long-term leases
at the Partnership's commercial properties have escalation clauses covering
increases in the cost of operating the properties as well as real estate
taxes. Therefore, there should be little effect on operating earnings if
the properties remain substantially occupied.
YEAR 2000
The year 2000 problem is the result of computer programs being written
with two digits rather than four to define a year. Consequently, any
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations
including, among other things, an inability to process transactions or
engage in other normal business activities.
The Partnership uses the telephone, accounting, transfer agent and
other administrative systems, which include both hardware and software,
provided by affiliates of the Corporate General Partner and certain third
party vendors. Except as noted in the following sentence, the Partnership
or its affiliates have received representations to the effect that the
telephone, accounting, transfer agent and other administrative systems are
year 2000 compliant in all material respects. Both the hardware and
software for individual personal computers used in the Partnership's
administrative systems are expected to be tested for their year 2000
compliance during the summer of 1999.
BFP, LP has segregated its year 2000 issues into two categories:
those that affect its administrative/business operations and those that
affect its property operations. BFP, LP has advised the Partnership that
BFP, LP has completed an inventory of its hardware and software relating to
its administrative/business operations and has identified all non-compliant
systems. Further, BFP, LP has conducted an assessment of the business risk
associated with each non-compliant system and has developed corrective
action plans to address technical matters that require replacement or
modification.
BFP, LP has also identified all building systems for its property
operations that are date-sensitive and has requested confirmation of year
2000 compliance from the manufacturers and/or suppliers for any systems
considered at risk for a particular property. BFP, LP has advised the
Partnership that BFP, LP has reviewed building security, elevator controls,
lighting and mechanical systems and a number of other areas relating to its
properties, has compiled or is compiling responses for each of its
properties and is undertaking remedial action. BFP, LP has estimated that
these remedial actions will be completed by mid-year 1999. BFP, LP has
conducted and will continue to conduct testing of building systems where
required. BFP, LP has not advised the Partnership of BFP, LP's actual or
estimated costs for addressing and remediating its year 2000 issues for
BFP, LP's administrative/business operations or property operations. BFP,
LP also has not indicated whether it has received representations from its
(or its properties') vendors or suppliers regarding their year 2000
compliance.
The Partnership has not developed, and does not intend to develop, any
contingency plans to address the year 2000 problem. Given its limited
operations, the Partnership believes that its accounting, transfer agent
and most of its other administrative systems functions could, if necessary,
be performed manually (i.e., without significant information technology)
for an extended period of time without a material increase in costs to the
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Partnership. The Partnership has not incurred and does not expect to
incur, any material direct costs for year 2000 compliance.
The Partnership is relying on the statements of BFP, LP in regard to
its year 2000 issues and on the ability to BFP, LP to have its
administrative/business operations and property operations year 2000
compliant in all material respects. In the event that it does not achieve
such compliance, or in the event any vendor or supplier that has a material
relationship with BFP, LP or its properties does not achieve such
compliance, BFP, LP could experience various operational difficulties, such
as an inability to process transactions or information relating to its
properties and/or systems failures (such as elevators, alarm and security
systems) at its properties. Such operational difficulties could result in
remediation and other costs and expenses. If such were to occur, there is
no assurance that such costs and expenses would not have a material adverse
effect on the Partnership's investment in BFP, LP.
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