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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
Commission File
For the year ended December 31, 1997 Number 0-13500
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
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(exact name of Registrant as specified in its charter)
Massachusetts 04-2808184
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(State of organization) (IRS Employer Identification No.)
5 Cambridge Center, Cambridge, Massachusetts 02142
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 234-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
No market exists for the limited partnership interests of the registrant, and,
therefore, no aggregate market value can be computed.
DOCUMENTS INCORPORATED BY REFERENCE
- None -
Exhibit Index is located on Page 53
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PART I
Item 1. Business.
Organization
1626 New York Associates Limited Partnership (the "Partnership") was
organized as a Massachusetts limited partnership under the Massachusetts
Uniform Limited Partnership Act on December 6, 1983, for the purpose of owning
a general partnership interest in, and serving as a general partner of,
Nineteen New York Properties Limited Partnership (the "Operating
Partnership"), a Massachusetts limited partnership. The Operating Partnership
was organized on December 6, 1983 for the purpose of acquiring a diversified
portfolio of nineteen commercial properties (the "Properties") located in New
York City, from the John D. and Catherine T. MacArthur Foundation.
The general partners of the Partnership (collectively, the "General
Partners") are Two Winthrop Properties, Inc., a Massachusetts corporation
("Two Winthrop"), Winthrop Interim Partners I, A Limited Partnership, a
Maryland limited partnership ("WIPI") and Linnaeus-Lexington Associates
Limited Partnership, a Massachusetts limited partnership
("Linnaeus-Lexington"). Two Winthrop is a wholly-owned subsidiary of First
Winthrop Corporation ("First Winthrop"), a Delaware corporation which in turn
is controlled by Winthrop Financial Associates, A Limited Partnership ("WFA").
The general partners of WIPI are Two Winthrop and Linnaeus-Phoenix Associates
Limited Partnership, a Massachusetts limited partnership ("Linnaeus-Phoenix").
See "Change in Control".
The Partnership was initially capitalized with contributions totaling
$2,500,019 from the General Partners. On October 13, 1984, the Partnership
completed a private placement of 1,344 units of limited partnership interest
(the "Units") at an aggregate purchase price of $336,000,000 pursuant to
Regulation D under the Securities Act of 1933.
Description of Business
The business of the Partnership is investing as a general partner in
the Operating Partnership. The other general partner of the Operating
Partnership is First Winthrop. The limited partners of the Operating
Partnership are WFA and WFC Realty Co., Inc. ("WFC"), a Massachusetts
corporation which is a wholly-owned subsidiary of First Winthrop.
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The Properties
In January 1984, the Operating Partnership acquired the Properties
consisting of: (1) seventeen commercial office buildings and the land
underlying such buildings located at 757 Third Avenue (the land was acquired
in May 1984), 410 Park Avenue, 535 Fifth Avenue, 545 Fifth Avenue, 61
Broadway, 1372 Broadway, 366 Madison Avenue, 1697 Broadway, 509 Fifth Avenue,
300 Park Avenue South, 227 East 45th Street, 134 West 29th Street, 218-220
Fifth Avenue, 31-33-39 West 34th Street, 271 Church Street, 136-20 Roosevelt
Avenue and 345 Adams Street; (2) the 15 Columbus Circle building and a
leasehold interest in the ground underlying such building; and (3) the ground
underlying another office building located at 450 Park Avenue.
The Operating Partnership financed the acquisition of the Properties
primarily through (a) the $336,000,000 raised from Limited Partners of the
Partnership, (b) the assumption of existing mortgage loans, and (c) the
placement of the $330,000,000 loan from General Electric Pension Trust
("GEPT"), which has been refinanced.
As of December 31, 1997, the remaining Properties in which the
Operating Partnership owned an interest consisted of six commercial buildings
and the land underlying them, including 757 Third Avenue, 535 Fifth Avenue,
545 Fifth Avenue, 509 Fifth Avenue, 1372 Broadway and 300 Park Avenue South.
However, on January 13, 1998, the Operating Partnership sold its 1372 Broadway
property. From 1984 through 1992, the Operating Partnership sold seven of its
properties and exchanged two other properties for the land underlying The 15
Columbus Circle Building, which land and building were subsequently
transferred to GEPT pursuant to a consensual bankruptcy plan in full
satisfaction of the loan encumbering the property. The Operating Partnership
sold one additional property in 1993 and conveyed its 227 East 45th Street
property to a designee of the lender by a deed in lieu of foreclosure in the
first quarter of 1996. See "Property Matters"
Property Matters
A. Sales/Dispositions
1372 Broadway - On January 13, 1998, this property was sold to an
unaffiliated third party for $52,000,000. Prior to the sale, the purchaser
acquired the portion of the Modified Loan (as defined below) allocated to 1372
Broadway thereby removing it from the cross-collateralization provision of the
Modified Loan. The unsatisfied portion of the loan originally allocated to
1372 Broadway was reallocated among the other properties.
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227 East 45th Street - During 1995, the Partnership concluded that
the debt securing the property was substantially greater than the value of the
property. As a result, on January 15, 1996 the Partnership and Sanwa Business
Credit Corporation ("Sanwa"), the lender holding the mortgage on the property,
agreed that in exchange for the delivery by the Partnership of a deed in lieu
of foreclosure to a designee of Sanwa, Sanwa would release the Partnership
from any liabilities or obligations associated with the mortgage loan on 227
East 45th Street and would release its second mortgage on the 509 Fifth Avenue
property for no additional consideration. The Operating Partnership
transferred title to the property to Sanwa on January 24, 1996. As required by
the terms of the January 15 agreement, Sanwa released the Operating
Partnership, as of the closing date, from all claims, demands, liabilities,
obligations, actions and causes of any kind with regard to the Sanwa loan,
other than the second mortgage on 509 Fifth Avenue, which second mortgage was
subsequently released. See "Item 8, Consolidated Financial Statements and
Supplementary Data, Note-3."
B. Loan Restructuring.
The Fuji Loan - 535 Fifth Avenue, 545 Fifth Avenue, 1372 Broadway and
757 Third Avenue. Over the course of time, it became apparent to the Operating
Partnership and The Fuji Bank, Ltd. ("Fuji"), the holder of the mortgage debt
encumbering 535 and 545 Fifth Avenue, 1372 Broadway and 757 Third Avenue (the
"Fuji Properties"), that the reserves established to fund improvements and
operating deficits under the restructured Fuji loan would be exhausted, and
the Fuji loan would go into default, as early as 1996. Early in 1995, the
Operating Partnership began marketing for sale of 535-545 Fifth Avenue. A sale
at the price established by the General Partners would have accomplished,
among other goals, a reduction in the loan balance, a reduction in the monthly
drain on reserves and delay a default on the remaining loan balance until
1997. In April 1995, Fuji noted in a letter to the Partnership its belief that
the reserves would be depleted in early 1996. Over the following months, the
Operating Partnership continued to market 535-545 Fifth Avenue and also began
pursuing discussions with Fuji aimed at restructuring the debt to continue to
preserve the Partnership's interest in the remaining Fuji Properties. By
September of 1995, the Operating Partnership had not received interest at a
price sufficient to conclude a sale of the properties and terminated its
marketing efforts on 535-545 Fifth Avenue. At this point, the Operating
Partnership also evaluated a bankruptcy strategy; however, restrictions in the
applicable loan documents gave the Operating Partnership's lenders effective
control over substantially all of the Operating Partnership's cash and cash
flow, so that neither
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the Operating Partnership nor the Partnership had sufficient reserves to fund
a bankruptcy reorganization.
Based on its belief of an impending default on the Fuji loan, Fuji
began formally soliciting third-party offers for the loan in late September
1995. Fuji's decision to sell the loan effectively put an end to further
discussions with Fuji regarding a restructuring of the loan. At that time, the
loan had a principal balance of approximately $207 million, plus accrued
interest of approximately $40 million. The Fuji loan accrued interest at fixed
annual interest rate of 9.69%, but required payments to be made at a rate of
6.5% per annum (scheduled to increase to 7.5% on January 1, 1998). The Fuji
loan was scheduled to mature in January 2001.
Among other bidders, a venture comprised of Apollo Real Estate
Advisors, L.P. ("Apollo"), an affiliate of the General Partners, and Emmes
Ventures, Inc. ("Emmes") submitted a proposal to purchase the Fuji loan. After
a period of negotiations, the Apollo/Emmes proposal to purchase the Fuji loan
was accepted. Zeus Property LLC ("Zeus"), a newly-organized limited liability
company owned by affiliates of Apollo and Emmes, purchased the loan for $115
million on February 28, 1996. See "Change in Control" below.
In connection with its purchase of the Fuji loan, Zeus agreed to
grant the Operating Partnership certain concessions. The Operating Partnership
obtained a reduction in the current interest required to be paid under the
modified loan which, based on current projections, would greatly reduce the
likelihood of monetary default under the loan prior to February 28, 1998, the
new maturity date for a portion of the loan (which maturity date was
subsequently extended). Zeus also arranged to provide the Operating
Partnership with additional financing of up to $19.5 million to be extended on
an unsecured, non-recourse basis to be used for capital improvements and
tenant lease-up costs to the Fuji Properties. The amount to be loaned and the
costs to be funded are each within the discretion of Zeus. At December 31,
1997, the Partnership had borrowed approximately $12,761,000 under this credit
line. As part of the restructuring of the Fuji loan, each Fuji Property was
conveyed by the Operating Partnership to separate newly-created limited
liability companies indirectly wholly-owned by the Operating Partnership and
its partners.
The modified Fuji loan (the "Modified Loan") is comprised of several
component non-recourse loans, all held by Zeus and its affiliates. The most
senior loan component consists of a series of secured notes in the aggregate
principal amount of $104,550,000, each having an annual interest rate of 295
basis
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points over 30-day LIBOR, maturing on February 28, 1998 unless extended at
Zeus' option (the "Secured A Notes"). Zeus exercised its option to extend the
maturity date of this portion of the Modified Loan to March 31, 1998. It is
expected that Zeus will continue to extend the Modified Loan on a month by
month basis until the Properties are sold. There can be no assurance, however,
that Zeus will continue to extend this note.
A junior component consists of secured notes in the aggregate
principal amount of $102,450,000, each having a fixed annual interest rate of
14% for the next three years and then 16.75% thereafter, maturing on February
28, 2016 (the "Secured B Notes"). The Secured A Notes and Secured B Notes are
collectively secured by first mortgages on the Fuji Properties. A third
component is the unsecured $19,550,000 note (the "Unsecured Note")
representing the additional financing expected to be drawn upon by the
Operating Partnership to fund capital improvements and tenant lease-up costs
with respect to the Fuji Properties. The Unsecured Note bears interest at a
fixed annual rate of 14% for the next three years and then 16.75% thereafter
and were scheduled to mature on February 28, 1998. As with the Secured A
Notes, Zeus, however, is currently extending the Unsecured Note on a month by
month basis. There can be no assurance, however, that Zeus will continue to
extend this note.
In the absence of a substantial improvement in the commercial rental
market and the operation of the Fuji Properties, the Partnership is not
expected be able to meet its financial obligations on the Modified Loan. See
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for information relating to the ability of the
Partnership to make distributions to its partners. The principal benefit of
the Modified Loan to the Operating Partnership was the substantial reduction
in current debt service requirements through maturity. The only current debt
service payments required to be made under the Modified Loan for this two-year
period are the interest payments on the Secured A Notes. Interest on all other
components of the Modified Loan are payable to the extent of available cash
flow from the Fuji Properties and otherwise accrue until sufficient cash flow
is available for payment. A mandatory prepayment of $25 million against the
Secured B Notes was required to be made on March 15, 1998, which payment date
was extended on a month by month basis, and the Fuji Properties will be
required to meet a Value to Loan test of 125% coverage. As a result of the
modification, the likelihood of a monetary default has been deferred from 1996
to maturity. Consequently, the negative tax consequences associated with a
foreclosure or other transfer of the Fuji Properties was deferred for at least
two years. It is expected that Zeus will not foreclose on the Properties but
instead will direct that they be sold. It is not expected that
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the sales proceeds will be sufficient to generate any net proceeds to the
Partnership.
In exchange for this deferral, and for the credit facility of $19.55
million available for capital improvements and tenant leasing costs, the
Operating Partnership has agreed to modify certain of the remedy provisions
which would apply after a default. Essentially, these provisions have the
effect of facilitating and expediting a transfer of the Fuji Properties in the
event of a default. Further, the Modified Loan grants Zeus the right to
require a transfer of one or more of the Fuji Properties at any time after
March 15, 1998 or immediately in the event Zeus delivers to the Operating
Partnership a letter from an acceptable law firm to the effect that such
transfer will not result in any cancellation of indebtedness income to the
Operating Partnership (as was the case with respect to 1372 Broadway). See
"Property Matters." As described below, the Operating Partnership also
consented to the replacement of Winthrop Management as the managing and
leasing agent for the properties and the appointment of new third-party
management and leasing agents. See "Property Management".
The Receivables Loan - 300 Park Avenue South and 509 Fifth Avenue. In
connection with the Modified Loan, certain affiliates of the General Partners
(collectively, the "Affiliates") entered into an agreement with the Operating
Partnership, the Partnership and an affiliate of Zeus with regard to amounts
owed to the Affiliates by the Operating Partnership and the Partnership (the
"Winthrop Debt Agreement"). Prior to the entering into of this agreement, the
Affiliates were owed in the aggregate approximately $46.6 million by the
Operating Partnership and the Partnership. This amount was comprised of cash
advances made to the Partnership and the Operating Partnership in order to
fund operating deficits and also includes accrued interest on outstanding
balances as well as unpaid deferred fees related to the on-site management of
the properties, asset management and syndication. Under the Winthrop Debt
Agreement, the Affiliates contributed approximately $36.6 million of the $46.6
million to the Operating Partnership. The remaining $10 million receivable was
evidenced by a promissory note (the "Receivables Note") issued by the
Operating Partnership which is secured by a pledge of the excess cash flow
from 509 Fifth Avenue and 300 Park Avenue South and is payable only from those
properties. See "The Dime Loan" below. The Receivables Note was then sold to
an affiliated of Zeus for a payment of $6,000,000. The Receivables Note has an
annual base interest rate of 6% and an additional annual contingent interest
rate of 9%. Interest is payable only from available cash flow after payment of
debt service on the Dime Loan. Interest, to the extent it cannot be paid
currently, accrues until the maturity of the Receivables Note which was
extended from July 31, 1997 to August 31, 1999.
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The Dime Loan - 300 Park Avenue South and 509 Fifth Avenue. On August
25, 1997, the Partnership refinanced its existing indebtedness secured by its
300 Park Avenue South and 509 Fifth Avenue properties. The existing loans,
aggregating $19,091,000 (plus $824,000 of accrued and unpaid interest) which
were scheduled to mature were refinanced with two new loans aggregating
$24,000,000. These loans have an annual interest rate of 265 basis points over
30-day LIBOR (8.5% at December 31, 1997), maturing on the earlier of two
years. In addition, a capital improvement escrow account was established at
closing with the excess proceeds from the loans. In connection with the
refinancings, the Operating Partnership's 300 Park Avenue South and 509 Fifth
Avenue properties were conveyed by the Operating Partnership to newly created
limited liability companies which are wholly-owned, indirectly, by the
Operating Partnership and its partners. The Partnership incurred approximately
$944,000 in financing costs in connection with the refinancings.
Deferred Purchase Price
In connection with the acquisition of the Properties, the Operating
Partnership agreed to make deferred payments to the seller in future years
equal to 6% of the gross proceeds of certain refinancings, sales or transfers
of any of the Properties or equal to the fair market value of any Properties
not disposed of by January 18, 2006. At the time of the acquisition of the
Properties, the Operating Partnership estimated this liability at $25,296,177
based on the cash portion of the purchase price paid at that time. In
connection with the various refinancings and sales which have occurred in
1990, as well as the payments of $22,705,703 already made to the seller as a
Deferred Purchase Price, the total liability is now estimated to be
$1,497,612. In connection with the sale of 1372 Broadway in January 1998, the
Registrant paid $209,000 against the Deferred Purchase Price.
Winthrop Funding
In 1985, the Partnership obtained a 99.99% interest in Winthrop
Funding for $99.99 and also contributed to Winthrop Funding the final
installment of the Investor Notes in the aggregate amount of $42,998,592.
Winthrop Funding issued zero coupon bonds in the face amount of $40,850,000 at
a discount of $21,367,818 with the final installment of the Investor Notes
pledged as collateral. As of March 1992, Winthrop Funding collected the entire
amount of the last installment of the Investor Notes except for $68,542 which
remains outstanding as of December 31, 1997. As of May 1992, Winthrop Funding
paid the entire face amount of the zero coupon bonds to the bondholders.
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Employees
As of December 31, 1997, the Partnership did not have any employees.
Services are generally performed for the Partnership by the General Partners
and their affiliates and agents retained by them. Other services are performed
for the Operating Partnership by affiliates and agents retained by the
Operating Partnership.
Property Management
From 1985 until March 1996, Winthrop Management (a Massachusetts
general partnership and an affiliate of WFA) or its affiliates performed the
day to day management services for the Properties, including preparation of
operating budgets, collection of rents, repairs and maintenance, advertising,
maintenance of records, maintenance of insurance and financial reporting. See
Item 13, "Certain Relationships and Related Transactions."
As part of the sale and restructuring of the Fuji loan, the Operating
Partnership agreed to retain new management and leasing agents for all of its
properties. On March 1, 1996, the Operating Partnership's properties began
being managed by Axiom Real Estate Management, Inc. (an affiliate of Grubb &
Ellis Company) and leasing activity will be performed by the Galbreath
Company, Newmark & Co. and Koll Company. These firms are neither affiliated
with WFA nor Apollo, Emmes or Zeus, except that Apollo is a minority
stockholder of Koll. The terms of these contracts are at market rates. The
Operating Partnership is not permitted to change the management agent or
leasing agents unless these parties are in default of their obligations under
their respective agreements and the Operating Partnership shall have submitted
to Zeus a suitable replacement candidate(s), acceptable to Zeus. One effect of
this is to terminate the payment of all management or leasing fees to the
General Partners and their affiliates by the Operating Partnership, the
Partnership or the properties. The Partnership will receive from the
Properties up to $240,000 as reimbursement for Partnership expenses.
Effective April 1, 1998, property management services will begin
being performed by New Rock Realty Management Company, LLC ("New Rock"), an
affiliate of Zeus. New Rock will provide these services on the same terms as
these services are currently being provided.
Insurance
The Partnership maintains property and liability insurance on the
Properties which it believes to be adequate.
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Change in Control
Until December 22, 1994, the sole general partner of Linnaeus
Associates Limited Partnership ("Linnaeus"), which was the sole general
partner of WFA, was Arthur J. Halleran, Jr. On December 22, 1994, the general
partnership interest in Linnaeus was transferred to W.L. Realty, L.P. ("W.L.
Realty") pursuant to an Investment Agreement entered into among Nomura Asset
Capital Corporation ("NACC"), Mr. Halleran and certain other individuals who
comprised the then senior management of WFA. W.L. Realty is a Delaware limited
partnership, the general partner of which was, until July 18, 1995, A.I.
Realty Company, LLC ("Realtyco"), an entity owned by certain employees of
NACC. On July 18, 1995 Londonderry Acquisition II Limited Partnership
("Londonderry II"), a Delaware limited partnership, and affiliate of Apollo
Real Estate Advisors, L.P. ("Apollo"), acquired, among other things,
Realtyco's general partner interest in W.L. Realty and a sixty four percent
(64%) limited partnership interest in W.L. Realty and WFA acquired the general
partner interest in Linneaus-Lexington.
As a result of the foregoing acquisitions, Londonderry II is the sole
general partner of W.L. Realty, which is the sole general partner of Linnaeus
and, which in turn was, until October 27, 1997 the sole, and currently is the
managing, general partner of WFA. As a result of the foregoing, effective July
18, 1995, Londonderry II, an affiliate of Apollo, became the controlling
entity of Two Winthrop and WIPI. In connection with the transfer of control,
the officers and directors of Two Winthrop and WIPI resigned and Londonderry
II appointed new officers and directors. See Item 10, "Directors and Executive
Officers of Registrant."
Item 2. Properties.
The Partnership does not own any interest in real property other than
its general partnership interest in the Operating Partnership. The Operating
Partnership does not own any interests in real property other than the
Properties, which are described under the caption "The Properties" in Item 1
above and below.
757 Third Avenue. The property, which is currently being marketed for sale,
consists of a 27-story office building containing approximately 468,327
rentable square feet of space and approximately 24,567 square feet of land.
The property is located at the northeast corner of Third Avenue and East
Forty-Seventh Street in midtown Manhattan and is used principally by
telecommunications, law, financial and retail firms. Planned
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capital improvements at the property include cooling tower upgrade and tenant
improvements.
KPMG Peat Marwick, a big-six accounting firm, currently leases
approximately 97,302 square feet (21% of total space). In addition, this
tenant has entered into lease amendments pursuant to which it will occupy an
additional 74,841 square feet (16.4% of total space) during 1998 and 1999. The
lease with KPMG Peat Marwick is scheduled to expire May 2012.
The following table sets forth the occupancy rates for the last five
years and the associated gross rental per square foot amount, as footnoted.
Percentage Average Annual Total
Occupancy Gross Rental Per SF
Year Rate(1) of Occupied Space (2)
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1993 94% 42.52
1994 95% 42.93
1995 98% 38.34
1996 87% 34.66
1997 93% 37.94
(1) Occupancy rates are based on December 31 of indicated year and are not
yearly averages.
(2) Calculated using operating revenues, including rent escalations and
other revenues, for the entire year divided by the total square
footage of occupied space (based on the occupancy rates reported in
this table).
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The following table sets forth certain information concerning lease
expirations (assuming no renewals for this property for the period from
January 1, 1998 through December 31, 2007).
Number of Aggregate SF Annualized Percentage
Tenants Whose Covered by Rental for of Total
Leases Expiring Leases Annualized
Expire Leases Expiring Rental (1)
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1998 6 74,932 1,931,375 14%
1999 6 31,282 1,408,101 12%
2000 4 18,028 548,400 5%
2001 1 3,659 120,747 1%
2002 4 65,159 2,065,747 22%
2003 5 28,010 1,189,190 16%
2004 1 6,235 218,225 4%
2005 1 11,740 406,452 7%
2006 0 0 0 0%
2007 4 58,058 2,000,135 36%
(1) Based on actual base rent plus increase from various escalation
provisions as of December 31, 1996.
535 Fifth Avenue. The property consists of a 36-story multi-tenant building
containing approximately 292,266 rentable square feet of space and
approximately 16,545 square feet of land. The property is located on the
northeast corner of Fifth Avenue and East 44th Street. The space is
principally leased by personnel, law, banking, retail and accounting firms.
Planned capital improvements at the property include base building work and
facade upgrade.
The Chase Manhattan Bank, a financial institution, has a lease for
31,300 square feet (10.7% of the total space). The total annualized rent
payable by Chase was $1,000,000, for the year ended December 31, 1997. This
lease was scheduled to expire on January 31, 2005; however, effective February
28, 1998, a lease termination agreement was entered into pursuant to which
this lease was terminated. The Operating Partnership received a payment of
$1,091,549.58 in consideration of the lease termination.
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The following table sets forth the occupancy rates or the last five
years and the associated gross rental per square foot amount, as footnoted.
Percentage Average Annual Total
Occupancy Gross Rental Per SF
Year Rate (1) of Occupied Space (2)
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1993 66% 31.75
1994 73% 29.14
1995 79% 28.87
1996 89% 25.60
1997 87% 25.24
(1) Occupancy rates are based on December 31 of indicated year and are
not yearly averages.
(2) Calculated using operating revenues, including rent escalations and
other revenues, for the entire year divided by the total square
footage of occupied space (based on the occupancy rates reported in
this table).
The following table sets forth certain information concerning lease
expirations (assuming no renewals for this property for the period from
January 1, 1998 through December 31, 2007).
Aggregate SF Annualized Percentage
Number of Covered by Rental for of Total
Tenants Whose Expiring Leases Annualized
Leases Expire Leases Expiring (1) Rental(1)
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1998 2 1,444 35,431 1%
1999 7 11,215 284,353 4%
2000 6 43,468 1,073,124 16%
2001 1 2,427 63,102 1%
2002 4 8,457 280,419 5%
2003 5 35,726 1,046,620 19%
2004 3 8,345 189,491 4%
2005 7 47,304 1,623,341 37%
2006 3 13,632 361,396 8%
2007 1 2,469 70,417 3%
(1) Based on actual base rent plus increases from various escalation
provisions as of December 31, 1997.
545 Fifth Avenue. The property consists of a 13-story multi-tenant building
containing 173,878 rentable square feet of space and approximately 12,575
square feet of land. The property is located on the southeast corner of Fifth
Avenue and East 45th Street. The space is principally leased by post
production, communication and retail firms. Planned capital improvements at
the property include base building work. The property's book value and gross
revenues contribute less than 10 percent to the
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total assets and revenue of the registrant and its consolidated subsidiaries.
509 Fifth Avenue. The property consists of a 12-story building containing
53,800 rentable square feet of space and 4,625 square feet of land. The
property is located between East 42nd and 43rd streets in midtown Manhattan.
The space is used by banking and retail businesses. The property's book value
and gross revenues contribute less than 10 percent to the total assets and
revenue of the registrant and its consolidated subsidiaries. Planned capital
improvements at the property include elevator cab rehabilitation.
300 Park Avenue South. The property consists of a 14-story multi-tenant office
building containing approximately 176,895 rentable square feet of space and
11,406 square feet of land. The property is located on the northeast corner of
Park Avenue South and East 22nd in the Gramercy Park area of Manhattan. The
space is used by a variety of businesses, including, publishing, personnel and
modeling agencies. The property's book value and gross revenues contribute
less than 10 percent to the total assets and revenue of the registrant and its
consolidated subsidiaries. Planned capital improvements at the property
include sidewalk restoration.
Item 3. Legal Proceedings.
To the best of the General Partners' knowledge, as of December 31,
1997, there are no material pending legal proceedings to which the Partnership
or the Operating Partnership is a party or to which any of their properties
are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the
period covered by this report.
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PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
There is no public trading market for the Units of limited
partnership interest in the Partnership. Trading is infrequent and occurs only
through private transactions. Furthermore, transfers of Units are subject to
significant limitations contained in the Partnership's partnership agreement
including a requirement that the General Partners consent to the transfer,
which consent may be granted or withheld in the sole discretion of the General
Partners. A copy of the Partnership's partnership agreement (the "Partnership
Agreement") was filed as Exhibit 3 to the Registration Statement.
As of March 1, 1998, there were 1,171 holders of 1,339 Units.
The Partnership Agreement provides that Cash Flow (as defined
therein) will be distributed to the partners in specified proportions at
reasonable intervals during the fiscal year, but in any event no less often
than 90 days after the close of each fiscal year. There are no restrictions
under the Partnership Agreement on the Partnership's present or future ability
to make distributions of cash flow. The Partnership, at the sole discretion of
the General Partners, may retain all or any portion of the Partnership's net
distributable cash flow to the extent deemed necessary to cover anticipated
expenses and to provide reserves for unexpected future property and
Partnership financial needs. Cash flow distributed to partners will be net of
any such amounts so retained. The Partnership did not make any cash
distributions in 1997, 1996 or 1995. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for information
with respect to the Partnership's ability to make distributions in the future.
15
<PAGE>
Item 6. Selected Financial Data.
The following represents selected financial data for Registrant for
the years ended December 31, 1997, 1996, 1995, 1994 and 1993. The data should
be read in conjunction with the financial statements included elsewhere
herein. This data is not covered by the independent auditors' report.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands except per unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 43,302 $ 43,864 $ 47,957 $ 49,084 $ 51,425
Total Expenses 64,970 62,992 87,165 62,715 66,488
Loss Before Gain(Loss) on Sales (21,668) (19,128) (39,208) (13,631) (15,063)
Gain(Loss) on Sale of
Properties/Interest in Joint
Venture -- -- -- -- 1,403
Net Loss Before
Extraordinary Gain (21,668) (19,128) (39,208) (13,631) (13,660)
Extraordinary Gain -- 14,419 -- -- 40,091
Net Income (Loss) $ (21,668) $ (4,709) $ (39,208) $ (13,631) $ 26,431
========= ========= ========= ========= =========
Net (Loss) Income per Unit
Of Limited Partnership
Outstanding $ (15,537) $ (5,740) $ (27,747) $ (9,997) $ 17,731
Total Assets 171,508 163,647 178,713 214,670 223,715
Total Liabilities (1) 316,958 287,429 334,948 331,697 337,854
Investment in Joint
Ventures Total Deficit (2) $(145,450) ($123,782) $(156,235) $(117,027) $(114,139)
</TABLE>
- ------------------------
(1) Total Liabilities includes long-term debt net of unamortized discount
of $252,658,000, $251,641,000, $250,681,000, $224,342,000 and
$228,403,000 for the years 1993, 1994, 1995, 1996 and 1997
respectively.
(2) Does not include receivables represented by Investor Note
installments totaling $68,542 at December 31, 1993, 1994, 1995, 1996
and 1997. Such installments are credited to capital upon actual
receipt.
16
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
The matters discussed in this Form 10-K contain certain
forward-looking statements and involve risks and uncertainties (including
changing market conditions, competitive and regulatory matters, etc.) detailed
in the disclosure contained in this Form 10-K and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Registrant's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
Liquidity and Capital Resources
The Registrant serves as the general partner of Nineteen New York
Properties Limited Partnership (the "Partnership"). As of March 1, 1998, all
of the Partnership's five remaining properties (the "Properties") are office
buildings located in New York City. On January 13, 1998, the Partnership sold
its 1372 Broadway property. The Registrant's sole source of revenue is from
distributions from the Partnership and interest income on cash reserves. The
Registrant is responsible for its operating expenses. The Partnership receives
rental revenue from tenants and is responsible for operating expenses,
administrative expenses, capital improvements and debt service payments.
The Registrant had maturing mortgage debt, totaling approximately
$29,000,000, plus accrued interest, due between July 31, 1997 and December 31,
1997, approximately $102,000,000 (the Secured A Notes) due February 28, 1998
and a $25,000,000 mandatory principal payment (against the Secured B Notes)
due March 15, 1998. The Registrant has extended $10,000,000 of the 1997
maturing liabilities until August 31, 1999. The remaining $19,000,000 of debt,
which was due in 1997, was refinanced with a new lender and a portion of the
Secured A Notes was satisfied when the Registrant's 1372 Broadway property was
sold in January 1998 (see below). On February 15, 1998, Zeus extended the
maturity date of the Secured A Notes and the $25 million prepayment against
the Secured B Notes until March 31, 1998. See Item 1, "Property Matters" and
Item 8, "Consolidated Financial Statements and Supplementary Data", Notes 3,
4, and 10 for a
17
<PAGE>
description of the terms and conditions of the current loans encumbering
Registrant's Properties. As a result, the Registrant has maturing mortgage
debt, totaling approximately $89,100,000, due March 31, 1998. Although there
can be no assurance the lender will do so, it is anticipated that the lender
will continue to extend the maturity date on a month by month basis for the
near future. Based on the current value of the Properties it is highly
unlikely the Registrant will be able to meet its 1998 obligations.
Accordingly, there is a substantial likelihood that some or all of the
Properties will be sold or lost through foreclosure in 1998. This raises
substantial doubt about the Registrant's ability to continue as a going
concern. In the event that Properties are sold, all proceeds would be used to
satisfy any related outstanding indebtedness.
The Registrant's original objective of capital appreciation will not
be achieved and it is anticipated that the Registrant's partners will not
receive any future distributions. Accordingly, the Registrant's partners will
not receive a return of their original investment.
The Registrant and the Partnership had $221,000 of cash and cash
equivalents and $7,341,000 of restricted cash at December 31, 1997, as
compared to $125,000 and $9,406,000, respectively, at December 31, 1996.
Restricted cash primarily includes amounts held in mortgage collateral
accounts. The $96,000 increase in cash and cash equivalents at December 31,
1997, as compared to December 31, 1996, was due to $28,900,000 of cash
provided by financing activities, which was substantially offset by
$19,356,000 of cash used in investing activities and $9,448,000 of cash used
in operating activities. Cash provided by financing activities consisted of
$24,000,000 of proceeds received from the refinancing of the Registrant's 300
Park Avenue South and 509 Fifth Avenue properties, which was offset by
$19,091,000 of cash used for the repayments of the prior first mortgages and
$944,000 of cash used for deferred financing costs. Cash from financing
activities was also adjusted by the accrual of $13,165,000 of interest on
mortgage notes payable, $9,869,000 in borrowings against the unsecured line of
credit and $254,000 in accrued and unpaid interest thereon, and $920,000 of
accrued and unpaid interest on the Receivables Note. In addition, Registrant
used $1,421,000 of cash provided by financing activities for principal
payments on mortgage notes to affiliates. Cash used in investing activities
consisted of $14,546,000 of improvements to real estate, the majority of which
were tenant improvements, and $4,810,000 of cash used for deferred leasing
costs. All other increases (decreases) in certain assets and liabilities are
the result of the timing of receipt and payment of various activities.
18
<PAGE>
The Partnership's only other source of liquidity is a $19,550,000
unsecured credit line provided by Zeus. This credit line can be used by the
Partnership to fund capital improvements and tenant lease-up costs at the Fuji
Properties. However, any borrowings under this credit line are subject to
Zeus' discretion. Accordingly, it is possible that the Partnership may not be
able to borrow against this credit line each time it deems it necessary. As of
December 31, 1997, the outstanding borrowings against the unsecured credit
line were $12,761,000.
In August 1997, the senior portion of the Modified Loan, that was
allocated to 1372 Broadway, was sold by Zeus to the ultimate purchaser of the
property. On January 13, 1998, the Partnership sold its 1372 Broadway property
to an unaffiliated third party for $52,000,000. All of the proceeds were used
to partially satisfy the $94,000,000 allocated portion of the Modified Loan
(including accrued and unpaid interest), with the unsatisfied portion of the
Modified Loan being reallocated among the remaining Fuji Properties. For
financial reporting purposes, the sale will result in a gain in 1998. For tax
reporting purposes, the Registrant's partners will be allocated a substantial
gain in 1998 due to recapture of tax benefits received in prior years.
On August 25, 1997, the Partnership refinanced its existing
indebtedness secured by its 300 Park Avenue South and 509 Fifth Avenue
properties which was scheduled to mature. The existing loans, aggregating
$19,091,000 (plus $824,000 of accrued and unpaid interest) were refinanced
with a new loan aggregating $24,000,000 (allocated $16,800,000 to 300 Park
Avenue South and $7,200,000 to 509 Fifth Avenue). The loan has an annual
interest rate of 265 basis points over 30-day LIBOR (8.50% at December 31,
1997), and matures in two years. No scheduled principal payments are required
until maturity. Any principal payments that are made will be made out of the
excess cash flows from the Properties, as defined. In addition, a capital
improvement escrow account was established at closing with the excess proceeds
from the loan. In connection with the refinancing, the Partnership's 300 Park
Avenue South and 509 Fifth Avenue properties were conveyed by the Partnership
to newly created limited liability companies which are wholly-owned,
indirectly, by the Partnership and its partners. The Partnership incurred
approximately $944,000 in financing costs in connection with the refinancing.
There have been, and it is possible there may be other Federal, state
and local legislation and regulations enacted relating to the protection of
the environment and individual rights (such as the American with Disabilities
Act). The Partnership is unable to predict the extent, if any, to which such
new legislation or regulation might occur and the degree to
19
<PAGE>
which such existing or new legislation or regulations might adversely affect
the Partnership's liquidity and capital resources.
The Registrant is dependent upon the General Partner for management
and administrative services. The General Partner has completed an assessment
and believes that its computer systems will function properly with respect to
dates in the year 2000 and thereafter (the "Year 2000 Issue"). Accordingly, it
is not expected that the Registrant will incur any material costs associated
with, or be materially affected by, the Year 2000 Issue.
Real Estate Market
The income and expenses of operating the Properties owned by the
Partnership are subject to factors outside its control, such as the
over-supply of similar properties, increases in unemployment, population
shifts, or changes in patterns or needs of users. Expenses, such as local real
estate taxes and miscellaneous expenses, are subject to change and cannot
always be reflected in rental rate increases due to market conditions. In
addition, there are risks inherent in owning and operating office buildings
because such properties are labor intensive and are susceptible to the impact
of economic and other conditions outside the control of the Registrant.
Results of Operations
a. 1997 Compared to 1996
The Registrant generated a net loss of approximately $21.7 million
for the year ended December 31, 1997, as compared to a net loss before
extraordinary gain of approximately $19.1 million for the year ended December
31, 1996. The increase in net loss before the extraordinary gain was due to a
decrease in revenues and an increase in expenses.
Base rent and rent escalations (collectively "rental income")
decreased to approximately $42.3 million for the year ended December 31, 1997,
as compared to approximately $43.3 million for the year ended December 31,
1996. Rental income declined due to a decrease in rental income at 757 Third
Avenue and 535 Fifth Avenue, which was slightly offset by an increase in
rental income at 545 Fifth Avenue. The lower rental income was primarily the
result of new tenants occupying space at the Properties with current base
years for escalation purposes, thus reducing the amount of escalation billings
for 1997, as compared to 1996. Rental income at the other properties remained
relatively constant.
20
<PAGE>
Expenses increased by approximately $2.0 million for the year ended
December 31, 1997, as compared to 1996. The increase in interest, depreciation
and amortization expenses were partially offset by a decrease in asset and
property management fees. Overall operating expenses (i.e., real estate and
other taxes, payroll, utilities, repairs and maintenance, and cleaning and
security) remained relatively constant.
Interest expense increased primarily due to an increase in the
principal indebtedness on the unsecured line of credit and the Modified Loan
incurring interest at an overall higher interest rate in 1997, as compared to
1996. Depreciation and amortization expenses increased due to the effect of
the current years additions to fixed assets, primarily tenant improvements,
and the increase in amortization of leasing costs. This increase was slightly
offset by the effect of assets becoming fully depreciated in 1996. Asset and
property management fees declined due to the elimination of the asset
management fee payable to a related party and the new management agreement
(which changed the previous fee of 2.5% of cash receipts to a fixed fee).
On May 27, 1997, approximately 90,000 square feet of unoccupied space
at the Partnerships 757 Third Avenue Property was re-leased, representing
approximately 20% of the building. As of December 31, 1997 and 1996, the
current portfolio's occupancy was 92% and 84%, respectively. During 1997, the
Operating Partnership signed new, renewal, extension, and expansion leases
totaling 419,782 square feet at rental terms comparable to buildings of
similar quality in the market. The increase in occupancy and the ability to
retain tenants is a direct result of the improved economy.
b. 1996 compared to 1995
The Registrant generated a net loss before extraordinary gain of
approximately $19.1 million for the year ended December 31, 1996, as compared
to a net loss of approximately $39.2 million for the year ended December 31,
1995. The decrease in net loss was due to the loss due to permanent impairment
recorded in 1995.
Base rent and rent escalations (collectively "rental income")
decreased to approximately $43.3 million for the year ended December 31, 1996,
as compared to approximately $47.0 million for the year ended December 31,
1995. Rental income was negatively impacted by the loss of the 227 East 45th
property by approximately $3,125,000, coupled with a decrease in rental income
at 757 Third Avenue and 1372 Broadway of approximately
21
<PAGE>
$1,992,000 and approximately $1,236,000, respectively, for the year ended
December 31, 1996, as compared to 1995.
These decreases were partially offset by an increase in rental income
at 535 Fifth Avenue of approximately $1,075,000. The lower rental revenues
were primarily the result of lower effective rental rates and decreased
occupancy. Rental income at the other properties remained relatively constant.
Expenses, before loss for permanent impairment of 22.5 million, for
the year ended December 31, 1996, as compared to 1995, declined by
approximately $1,673,000 partially as a result of the loss of Registrant's 227
East 45th Street property. The decreases in overall operating expenses (i.e.,
real estate and other taxes, payroll, utilities, repairs and maintenance, and
cleaning and security) of $2,019,000, asset and property management fees of
$1,102,000 and depreciation and amortization expense of approximately
$1,680,000, were only partially offset by an increase in interest expense of
$3,633,000.
Operating expenses declined as a result of Registrant's 227 East 45th
Street deed in lieu of foreclosure. Asset and property management fees
declined due to the elimination of the asset management fee payable to a
related party, the new management agreement (which changed the previous fee of
2.5% of cash receipts to a fixed fee) and the disposition of Registrant's 227
East 45th Street property. Depreciation and amortization expenses declined due
to the recorded loss on permanent impairment recorded on Registrant's
properties.
The extraordinary gain was recognized on the transfer of Registrant's
227 East 45th Street property. The recorded amount of all of the obligations
associated with the property was $25,140,000, which exceeded the net book
value of assets and liabilities of the property by $14,419,000.
As of December 31, 1996 and 1995, the current portfolio's occupancy
was 84% and 89%, respectively. For the year ended December 31, 1996, the
Partnership signed new, renewal, extension, and expansion leases totaling
143,000 square feet at rental terms comparable to buildings of similar quality
in the market. This leasing activity only slightly offset the decline in
occupancy.
22
<PAGE>
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
INDEX
Page
----
Independent Auditors' Reports............................................F - 2
Consolidated Financial Statements:
Balance Sheets as of December 31, 1997 and 1996..........................F - 4
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................................F - 5
Statements of Changes in Partners' Deficit for the
Years Ended December 31, 1997, 1996 and 1995...........................F - 6
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................................F - 7
Notes to Consolidated Financial Statements...............................F - 8
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1997...............................................F - 25
Financial statement schedules not included have been omitted because of the
absence of conditions under which they are required or because the information
is included elsewhere in the consolidated financial statements.
F-1
<PAGE>
Independent Auditors' Report
To the Partners
1626 New York Associates Limited Partnership:
We have audited the accompanying consolidated balance sheets of 1626 New York
Associates Limited Partnership, (a Massachusetts limited partnership) and
subsidiaries (the "Partnership") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in partners' deficit
and cash flows for the years then ended. Our audits also included the
consolidated financial statement schedule supplied pursuant to Item 14(a)(2).
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the Partnership has balloon payments
totaling approximately $89,100,000 due on March 31, 1998. The inability of the
Partnership to meet these obligations raises substantial doubt about the
Partnership's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of 1626 New York Associates Limited Partnership and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Imowitz Koenig & Co., LLP
New York, N.Y.
March 24, 1998
<PAGE>
To the Partners of 1626 New York Associates Limited Partnership:
We have audited the accompanying consolidated statement of operations, changes
in partners' deficit and cash flows of 1626 New York Associates Limited
Partnership (the Partnership) for the year ended December 31, 1995. These
financial statements are the responsibility of the Partnership's 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 results of operations and cash flows of 1626 New York
Associates Limited Partnership for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1996
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Real estate:
Land $ 24,440 $ 24,440
Buildings and improvements, net of accumulated
depreciation of $141,658 and $130,617,
in 1997 and 1996, respectively 114,383 110,878
-------- --------
138,823 135,318
Other Assets:
Cash and cash equivalents 221 125
Restricted cash 7,341 9,406
Accounts receivable, net of reserves of $259 and $748
in 1997 and 1996, respectively 489 751
Prepaid expenses and other assets 4,630 4,796
Deferred rent receivable 12,306 8,424
Deferred costs, net 7,698 4,827
-------- --------
Total Assets $171,508 $163,647
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Unit Data)
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT DECEMBER 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Liabilities:
Mortgage notes payable to affiliates $ 166,536 $ 205,171
Other mortgage notes payable 61,867 19,171
Accounts payable, notes and loans payable, and accrued
interest to general partners and affiliates 24,739 13,695
Accounts payable, accrued expenses, security
deposits and other liabilities 10,085 8,826
Accrued interest on mortgage notes to affiliates 52,135 38,108
Accrued interest on other mortgage notes 98 960
Deferred purchase price obligation 1,498 1,498
--------- ---------
Total Liabilities 316,958 287,429
--------- ---------
Commitments and Contingencies
Partners' Deficit:
Limited Partners' Deficit - Units of Investor Limited Partnership
Interest $250,000 stated value per unit; authorized, issued and
outstanding -1,340 as of December 31, 1997
and 1996 (149,968) (129,148)
Less: investor notes (68) (68)
--------- ---------
(150,036) (129,216)
General Partners' Equity 4,586 5,434
--------- ---------
Total Partners' Deficit (145,450) (123,782)
--------- ---------
Total Liabilities and Partners' Deficit $ 171,508 $ 163,647
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Base rent $ 35,824 $ 34,896 $ 36,751
Rent escalations 6,506 8,391 10,231
Other 972 577 975
----------- ----------- -----------
Total revenues 43,302 43,864 47,957
----------- ----------- -----------
Expenses (including $25,049, $21,961 and $6,547
paid or accrued to the general partners and affiliates
in 1997, 1996 and 1995) (see Notes 4 and 6):
Interest 28,807 26,592 22,628
Depreciation 11,041 9,969 11,598
Amortization 1,794 1,281 1,634
Real estate and other taxes 9,502 9,626 10,339
Utilities 4,590 4,889 5,130
Cleaning and security 4,080 3,804 4,416
Asset and property management fees 549 1,460 2,562
Repairs and maintenance 1,314 1,563 1,774
Payroll 1,350 1,198 1,440
General and administrative 1,194 1,219 1,548
Professional fees 544 1,049 1,288
Provision for doubtful accounts 205 342 308
Loss due to permanent impairment -- -- 22,500
----------- ----------- -----------
Total expenses 64,970 62,992 87,165
----------- ----------- -----------
Loss before extraordinary gain (21,668) (19,128) (39,208)
Extraordinary gain on transfer of 227 East 45th Street -- 14,419 --
----------- ----------- -----------
Net loss $ (21,668) $ (4,709) $ (39,208)
=========== =========== ===========
Net (loss) income allocated to general partners $ (848) $ 2,982 $ (2,027)
=========== =========== ===========
Net loss before extraordinary item allocated to
investor limited partners $ (20,820) $ (18,393) $ (37,181)
Extraordinary gain allocated to investor limited partners -- 10,702 --
----------- ----------- -----------
Net loss allocated to investor limited partners $ (20,820) $ (7,691) $ (37,181)
=========== =========== ===========
Net loss per unit of investor limited partnership
interest before extraordinary gain $(15,537.31) $(13,726.12) $(27,747.01)
Extraordinary gain per unit of investor limited
partnership interest -- 7,986.57 --
----------- ----------- -----------
Net loss per unit of investor limited
partnership interest $(15,537.31) $ (5,739.55) $(27,747.01)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
Units of
Investor Investor General
Limited Limited Partners' Total
Partnership Partners' (Deficit) Partners'
Interest (Deficit) Equity (Deficit)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1994 1,340 $ (84,344) $ (32,683) $ (117,027)
Net Loss -- (37,181) (2,027) (39,208)
----------- ----------- ----------- -----------
Balance - December 31, 1995 1,340 (121,525) (34,710) (156,235)
Net (Loss) Income -- (7,691) 2,982 (4,709)
Capital Contributions -- -- 37,162 37,162
----------- ----------- ----------- -----------
Balance - December 31, 1996 1,340 (129,216) 5,434 (123,782)
Net Loss -- (20,820) (848) (21,668)
----------- ----------- ----------- -----------
Balance - December 31, 1997 1,340 $ (150,036) $ 4,586 $ (145,450)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(21,668) $ (4,709) $(39,208)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 13,925 12,086 13,737
Interest expenses to related party -- 694 3,765
Deferred fees to related party -- 267 1,858
Change in deferred rent receivable (3,882) (484) 536
Reduction in carrying value of income producing properties -- -- 22,500
Gain on transfer of 227 East 45th Street -- (14,419) --
Provision for doubtful accounts (489) 337 (683)
Changes in operating assets and liabilities:
Decrease in accounts receivable, prepaid
expenses and other assets 1,407 8 65
Increase (decrease) in accounts payable, accrued expenses,
security deposits and other liabilities 1,259 1,359 (4,765)
Increase in accrued mortgage interest -- -- 2,877
-------- -------- --------
Net cash (used in) provided by operating activities (9,448) (4,861) 682
-------- -------- --------
Cash Flows from Investing Activities:
Additions to buildings and improvements (14,546) (7,549) (7,746)
Increase in deferred leasing costs (4,810) (863) (1,510)
-------- -------- --------
Cash used in investing activities (19,356) (8,412) (9,256)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from other mortgage notes payable 24,000 -- --
Repayment of other mortgage notes payable (19,091) -- --
Increase in accrued mortgage interest 13,165 11,138 --
Principal payments on mortgage notes to affiliates (1,421) (1,829) --
Increase in accounts payable, notes and loans
payable and accrued interest to general partners and affiliates 11,697 3,694 475
Principal payments on other mortgage notes (80) (101) (959)
Decrease in restricted cash 1,574 229 9,217
Payment of deferred refinancing costs (944) -- --
-------- -------- --------
Net cash provided by financing activities 28,900 13,131 8,733
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 96 (142) 159
Cash and cash equivalents, beginning of year 125 267 108
-------- -------- --------
Cash and cash equivalents, end of year $ 221 $ 125 $ 267
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 13,377 $ 13,120 $ 16,368
======== ======== ========
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Transfer of debt in 1997 - See Note 4
Deed in lieu of foreclosure in 1996 - See Note 5
Related party debt forgiveness and modification in
1996 - See Notes 2 and 6
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - ORGANIZATION
1626 New York Associates Limited Partnership (the "Investor
Partnership") was organized on December 6, 1983 under the
Massachusetts Uniform Limited Partnership Act to acquire and
own a 99% General Partnership interest in and serve as a
General Partner of Nineteen New York Properties Limited
Partnership, a Massachusetts Limited Partnership (the
"Operating Partnership"), which was also organized on December
6, 1983. The Investor Partnership and the Operating
Partnership are collectively referred to as the
"Partnerships".
As of December 31, 1997, the Operating Partnership owns six
commercial rental properties located in New York City. These
properties are referred to herein individually as a "Property"
and collectively as the "Properties". On January 13, 1998, the
Operating Partnership sold its 1372 Broadway property (see
Note 10).
The Operating Partnership financed the purchase of the
Properties through a private offering by the Investor
Partnership of 1,344 units of Limited Partnership Interest
(1340 units outstanding at December 31, 1997 and 1996) at
$250,000 per Unit (the "Unit") for an approximate 94% interest
in operating profits and losses of the Investor Partnership
(see Note 6).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Going Concern
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business. The Partnerships have maturing mortgage
debt, totaling approximately $89,100,000 due March 31, 1998
(see Notes 3, 4 and 6). Based on the current value of the
Properties, it is highly unlikely the Partnerships will be
able to meet their 1998 obligations. Accordingly, it appears
there is a substantial likelihood that some or all of the
Properties, if not sold, will be lost through
F-8
<PAGE>
foreclosure in 1998. In the event that Properties are sold,
all proceeds would be used to satisfy any related outstanding
indebtedness. This raises substantial doubt about the
Partnerships' ability to continue as a going concern. The
consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
Consolidation
The accompanying consolidated financial statements of the
Investor Partnership have been prepared on a consolidated
basis with those of the Operating Partnership and its wholly -
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Such estimates that are particularly susceptible to change
relate to the Partnership's estimate of the fair value of real
estate. Actual results could differ from those estimates.
Real Estate
Real estate is carried at cost, adjusted for depreciation and
impairment of value. Acquisition fees are capitalized as a
cost of real estate. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of long-lived Assets and for long-lived Assets to
Be Disposed Of", the Partnership records impairment losses for
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows are not
sufficient to recover the asset's carrying amount. The
impairment loss is measured by comparing the fair value of the
asset to its carrying amount.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with
an original maturity of three months or less at the time of
purchase to be cash equivalents.
F-9
<PAGE>
Depreciation
The Operating Partnership provides for depreciation of its
depreciable assets using the straight-line method over their
estimated useful lives of 14 to 30 years for building and
improvements and five to eight years for furnishings. Tenant
improvements are depreciated by the straight-line method over
the life of the respective tenant's lease.
Deferred Rent Receivable
The Operating Partnership leases space to tenants under
various lease terms. For leases containing fixed rental
increases during their term, rents are recognized on a
straight-line basis over the term of the leases. For all other
leases, rents are recognized over the term of the leases as
earned.
Deferred Costs
Financing costs and leasing costs are capitalized and
amortized using the straight-line method over the term of the
related agreements. Financing costs are amortized as interest
expense.
Deferred costs at December 31, are as follows (in thousands):
Category 1997 1996
-------- ---- ----
Financing costs $ 5,310 $ 5,252
Leasing costs 26,137 21,361
-------- --------
31,447 26,613
Less: accumulated amortization (23,749) (21,786)
-------- --------
$ 7,698 $ 4,827
======== ========
Income Taxes
Taxable income or loss of the Partnership is reported in the
income tax returns of its partners. Accordingly, no provision
for income taxes is made in the consolidated financial
statements of the Partnership.
Advertising
The Operating Partnership expenses the cost of advertising as
incurred. Advertising expenses of
F-10
<PAGE>
$134,000, $300,000 and $424,000 were incurred for 1997, 1996
and 1995, respectively, and are included in general and
administrative expenses.
Restricted Cash
Restricted cash consists primarily of amounts restricted
pursuant to debt agreements and tenant security deposits.
Disclosures About the Fair Value of Financial
Instruments
SFAS No. 107 "Disclosures About the Fair Value of Financial
Instruments", requires that disclosure be made of estimates of
the fair value of each class of financial instrument.
Financial instruments held by the Partnership as of December
31, 1997 and 1996, consisted primarily of cash and cash
equivalents, short-term trade receivables and payables, for
which the carrying amounts approximate fair values due to the
short-term maturity of these instruments, and mortgage notes
payable. Due to the reduced value of the Partnership's real
estate properties, which is the security for these mortgages
and the uncertainty of obtaining replacement financing, it is
not practicable to estimate the fair value of such debt.
Reclassifications
Certain amounts from 1996 and 1995, have been reclassified to
conform to the 1997 presentation.
Partnership Allocations
The net operating profits and losses and distributions of cash
flow, as defined in the Partnership agreement of the Investor
Partnership, with the exception of the depreciation
deductions, which are allocated solely to the limited partners
of the Investor Partnership, are, in general, allocated as
follows:
Partner Percentage
------- ----------
Investor Limited Partners 94.000%
Winthrop Interim Partners I,
A Limited Partnership ("WIPI:) 5.200%
Lineups Lexington Associates
Limited Partnership ("Linnaeus Lexington") .752%
Two Winthrop Properties, Inc. ("Two Winthrop") .048%
F-11
<PAGE>
Any gains (losses) resulting from sales, dispositions or
refinancing of any of the properties are to be allocated first
to the Partners having negative (positive) capital account
balances, in proportion to and to the extent of such negative
(positive) balances, and thereafter, according to the various
provisions of the Partnership agreement. Due to this
provision, $3,717,000 of the gain arising from the foreclosure
of the Partnership's 227 East 45th Street property was
allocated to the General Partners in 1996. No cash
distributions to the Partners have been made.
In connection with a related party debt modification (the
"Related Party Debt") in 1996, the General Partners and
certain of their affiliates contributed $37,162,000 to the
Operating Partnership. This transaction has been treated as a
capital contribution by the General Partners.
NOTE 3 - MORTGAGE NOTES PAYABLE
Dime Mortgage Loans
The Dime Savings Bank loans (the "Dime Loan(s)") were secured
by the Partnerships, 300 Park Avenue South and 509 Fifth
Avenue properties. In 1992, the maturity date and payment
terms with respect to the mortgage encumbering 300 Park Avenue
South were modified.
The interest rate of 9.5% and pay rate of interest only plus
amortization payments (based on a 30-year amortization) were
reduced as follows:
Period Interest Rate Pay Rate
------ ------------- --------
5/01/92-12/31/92 0% 0%
1/01/93-12/31/95 8% 6%
1/01/96-12/31/97 8% 8%
The percentages shown are based on the $11,882,000 loan
balance and the difference between the pay rate and the
interest rate is deferred without interest.
Due to the extension of the maturity date and the deferral of
principal and certain interest payments, this restructuring
constituted a troubled debt restructuring, as defined in SFAS
No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings. In accordance with SFAS 15, interest expense
was
F-12
<PAGE>
computed using the effective interest method. The resulting
effective interest rate was 6.15% per annum as of August 25,
1997 and December 31, 1996. As of August 25, 1997 and December
31, 1996, accrued and unpaid interest related to the Dime Loan
with respect to 300 Park Avenue South, calculated in
accordance with SFAS 15, was $824,000 and $903,000,
respectively.
On August 25, 1997, the Dime Loans were refinanced with
Solomon Brothers Realty Corp. ("SBRC"). The existing Dime
loans, aggregating $19,091,000 (plus $824,000 of accrued and
unpaid interest) were refinanced with a new loan aggregating
$24,000,000 (allocated $16,800,000 to 300 Park Avenue South
and $7,200,000 to 509 Fifth Avenue). The SBRC loan has an
annual interest rate of 265 basis points over 30-day LIBOR
(8.50% at December 31, 1997), and matures in two years. No
scheduled principal payments are required until maturity. Any
principal payments that are made will be made out of the
excess cash flows from the Properties, as defined. In
addition, a capital improvement escrow account was established
at closing with the excess proceeds from the loan. In
connection with the refinancing, the Operating Partnership's
300 Park Avenue South and 509 Fifth Avenue properties were
conveyed by the Operating Partnership to newly created limited
liability companies which are wholly-owned, indirectly, by the
Operating Partnership and its partners. The Partnership
incurred approximately $944,000 in financing costs in
connection with the refinancing.
Transfer of Debt
In August 1997, a portion of the Related Party Debt, that was
allocated to the 1372 Broadway property, was sold by the
related party to the ultimate purchaser of the property, thus
eliminating the property from the cross-collateralization
provision of the related party loan (see Note 4).
The principal balance in other mortgage notes payable as of
December 31, 1997 and 1996, is as follows (in thousands):
Property 1997 1996
-------- -------- --------
300 Park Avenue South $ 16,800 $ 11,882
509 Fifth Avenue 7,200 7,289
1372 Broadway 37,867 -
-------- --------
$ 61,867 $ 19,171
======== ========
F-13
<PAGE>
On January 13, 1998, the Partnership sold its 1372 Broadway
property (see Note 10).
Fuji Mortgage Notes
The Fuji Bank, Ltd. Loan ("Fuji Loan" or "Fuji") with an
outstanding loan balance of $207,000,000, and secured by the
Partnerships' 757 Third Avenue, 535 Fifth Avenue, 545 Fifth
Avenue, and 1372 Broadway properties ("Fuji Properties") was
restructured on September 30, 1992. The interest rate through
January 17, 1997 was to remain at 9.69% and was to adjust
monthly thereafter at LIBOR plus .63%. The pay rates were
reduced to equal ( as a percentage of $207,000,000) 6.5% from
January 1, 1992 through December 31, 1997, 7.5% from January
1, 1998 through December 31, 1999 and 8.25% from January 1,
2000 through January 17, 2001, the new maturity date. Due to
the extension of the maturity date and the deferral of certain
interest amounts, this restructuring constituted a troubled
debt restructuring as defined by SFAS 15. In accordance with
SFAS 15, interest expense was computed using the effective
interest rate method. The resulting effective interest rate
was approximately 7.0% and 6.5%, per annum, in 1995 and 1994,
respectively. At February 28, 1996, accrued and unpaid
interest related to the Fuji Loan, calculated in accordance
with SFAS 15, was $27,300,000.
On February 28, 1996, the Fuji Loan was sold to an affiliate
of the General Partner (see Note 4). In connection with the
sale of the Fuji Loan, the Related Party Debt was modified
(see Note 6).
Sanwa Mortgage Notes
The Operating Partnership had two non-recourse loans from
Sanwa Business Credit Corporation ("Sanwa"). The Sanwa loans
had been restructured in 1992. The interest rate on the
restructured Sanwa loans was to equal the prime rate plus 2%,
effective September 1, 1991. The pay rates required equaled 7%
from September 1, 1992 through August 31, 1995; 8% from
September 1, 1995 through August 31, 1998; and 9% from
September 1, 1998 through December 31, 2001. The difference
between the pay rate and the interest rate was deferred
without interest. Interest expense in the accompanying
consolidated financial statements for 1995 was computed using
the effective interest method. The resulting effective
interest rate was approximately 2.5% per annum in 1995.
F-14
<PAGE>
In January 1996, a deed in lieu of foreclosure agreement was
reached between the Operating Partnership and Sanwa (see Note
5).
NOTE 4 - MORTGAGE NOTES PAYABLE TO AFFILIATES
The Managing General Partner and Fuji both recognized that the
Partnership would not be able to comply with the terms of the
Fuji Loan and the Fuji Loan would go into default in early
1996. On December 31, 1995, the loan had a principal balance
of $207,000,000, plus accrued interest of $26,866,000
(calculated utilizing the effective interest method). A
venture comprised of Apollo Real Estate Advisors, L.P.
("Apollo"), an affiliate of the General Partners, and Emmes
Ventures, Inc. ("Emmes") submitted a proposal to purchase the
Fuji loan. Zeus Property LLC ("Zeus"), a newly-organized
limited liability company owned by affiliates of Apollo and
Emmes, purchased the loan from Fuji for $115 million on
February 28, 1996.
Under the terms of the modified Fuji Loan (the 'Modified
Loan"), the Operating Partnership obtained a reduction in the
current interest required to be paid under the Modified Loan
which, based on projections, would greatly reduce the
likelihood of monetary default under the loan prior to
February 28, 1998, the new maturity date for a component of
the modification. As part of the restructuring of the Fuji
loan, each of the Fuji Properties was conveyed by the
Operating Partnership to newly-created limited liability
companies which are wholly-owned, indirectly, by the Operating
Partnership and its partners.
The Modified Loan is comprised of several component
non-recourse loans, all held by Zeus and its affiliates. In
August 1997, the senior portion of the Modified Loan, that was
allocated to 1372 Broadway, was sold by Zeus to the ultimate
purchaser of the property, thus eliminating the property from
the cross-collateralization provision of the Modified Loan
(see Note 10). The remaining senior component consists of a
series of secured notes in the aggregate principal amount
$64,086,000 and $102,721,000 at December 31, 1997 and 1996,
respectively, (the "Secured A Notes"). These notes have an
annual interest rate of 295 basis points over 30-day LIBOR
(8.80% and 8.33% at December 31, 1997 and 1996, respectively),
were scheduled to mature on February 28, 1998, but were
extended to March 31, 1998.
F-15
<PAGE>
The junior component consists of secured notes in the
aggregate principal amount of $102,450,000 at December 31,
1997 and 1996 (the "Secured B Notes"). These notes have a
fixed annual interest rate of 14% through February 28, 1999
and then 16.75% thereafter, maturing on February 28, 2016. A
mandatory prepayment of $25 million against the Secured B
Notes was scheduled to be made on March 15, 1998, but was
extended to March 31, 1998.
The Secured A Notes and Secured B Notes are collectively
secured by first mortgages on the Fuji Properties.
The following is a summary of the scheduled principal
maturities by year under the Modified Loan (in thousands):
Year Amount
---- --------------
1998 $ 89,086
1999 -
2000 -
2001 -
Thereafter 77,450
--------------
$ 166,536
==============
A third component of the Modified Loan is an unsecured
$19,550,000 note (the "Unsecured Note") representing the
additional financing expected to be drawn upon by the
Operating Partnership to fund capital improvements and tenant
lease-up costs with respect to the Fuji Properties. However,
any borrowings under this credit line are subject to Zeus'
discretion. Accordingly, it is possible that the Operating
Partnership may not be able to borrow against this credit line
each time it deems it necessary. The outstanding balance
against the Unsecured Note was $12,761,000 and $2,892,000 as
of December 31, 1997 and 1996, respectively, and is included
in accounts payable, notes and loans payable and accrued
interest to general partners and affiliates. The Unsecured
Note bears interest at a fixed annual rate of 14% through
February 28, 1999 and then 16.75% thereafter and was scheduled
to mature on February 28, 1998, but was extended to March 31,
1998.
Interest expense incurred for the years ended December 31,
1997 and 1996, relating to the Modified Loan was $23,504,000
and $19,659,000, respectively.
F-16
<PAGE>
The principal benefit of the Modified Loan to the Partnership
was a substantial reduction in current debt service
requirements through February 1998. The only current debt
service payments that were required to be made under the
Modified Loan for this two-year period were the interest
payments on the Secured A Notes. Interest on all other
components of the Modified Loan were payable to the extent of
available cash flow from the Fuji Properties, and otherwise,
accrue until sufficient cash flow was available for payment.
As a result of this modification, the likelihood of a monetary
default had been deferred from 1996 to 1998.
NOTE 5 - DEED IN LIEU OF FORECLOSURE
In January 1996, a deed in lieu of foreclosure agreement was
reached between the Operating Partnership and Sanwa. Pursuant
to the deed in lieu of foreclosure agreement, the Operating
Partnership transferred title to the property located at 227
East 45th Street to Sanwa on January 24, 1996. In exchange,
Sanwa released, as of the closing date, the Operating
Partnership from all claims, demands, liabilities,
obligations, actions and causes of any kind with regard to
Sanwa.
As of December 31, 1995, the related indebtedness to Sanwa was
$24,409,000. As a result of the above described transactions,
the Operating Partnership has recognized an extraordinary gain
on extinguishment of debt of $14,419,000 in 1996. The property
was stated at its fair value at December 31, 1995 as a result
of a recorded write-down (see Note 7).
NOTE 6 - CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The General Partners of the Investor Partnership are Linnaeus
Lexington, Two Winthrop and WIPI. Two Winthrop, the Managing
General Partner of the Investor Partnership is wholly owned by
First Winthrop Corporation ("First Winthrop") which in turn is
controlled by Winthrop Financial Associates ("WFA"). The
General Partners, who are all affiliates of WFA, own the
remaining 6% interest in the profits and losses of the
Investor Partnership. Additionally, WFA, First Winthrop and a
subsidiary, WFC Realty Co., Inc. ("WFC Realty"), collectively
own a 1% interest in the profits and losses of the Operating
Partnership.
F-17
<PAGE>
WIPI is a public real estate limited partnership whose general
partners are Two Winthrop and a limited partnership, some of
whose partners are affiliates of WFA. Linnaeus Lexington, the
other General Partner, is a limited partnership, some of whose
partners are affiliates of WFA. WFA and its affiliates manage
or advise a large number of partnerships organized to own or
operate real estate as well as other investments, or to invest
in other limited partnerships that own or operate real estate
or other investments. An affiliate of Apollo acquired control
of the general partner of WFA in July 1995. As a result,
Apollo and its affiliates control the Partnerships.
The following table sets forth the amount of fees, commissions
and other costs which the Partnerships paid or accrued to the
General Partners and their affiliates for the years ended
December 31, 1997, 1996 and 1995 (in thousands):
Type of Compensation 1997 1996 1995
-------------------- ---- ---- ----
Asset Management Fee $ - $ - $1,377
Property Management Fees - 329 1,185
Leasing Commissions - 63 476
(capitalized as deferred costs)
Cleaning Fees and
Security Fees - - 220
Construction Supervision Fee - 72 609
(capitalized to the costs of
Buildings and Improvements)
Reimbursement for 24 - -
accounting and
administrative services
As part of the sale of the Fuji Loan, the Partnership agreed
to retain new management and leasing agents for all of its
properties.
In connection with the sale of the Fuji Loan, WFA and certain
of its affiliates entered into an agreement with the Investor
Partnership, the Operating Partnership and an affiliate of
Zeus with regard to amounts owed to WFA and its affiliates by
the Partnerships (the "Winthrop Debt Agreement"). Prior to
this agreement, WFA and its affiliates were owed, in the
aggregate, $47,162,000 by the Partnerships. This amount is
comprised of cash advances made by WFA to the Operating
Partnership, as well as unpaid deferred fees related to the
on-site management of the properties, asset management and
F-18
<PAGE>
syndication. This amount also includes accrued interest on
these outstanding balances.
Under the Winthrop Debt Agreement, WFA and its affiliates
contributed $37,162,000 of the $47,162,000 to the Operating
Partnership in 1996. The remaining $10,000,000 receivable has
been evidenced by a promissory note issued by the Operating
Partnership (the "Receivables Note") and is payable from the
excess cash flow, as defined, from 509 Fifth Avenue and 300
Park Avenue South. WFA then sold the Receivables Note to an
affiliate of Zeus for a payment of $6 million in cash. The
Receivables Note has an annual base interest rate of 6% and an
additional annual contingent interest rate of 9%. Interest, to
the extent that it cannot be paid currently, accrues until
maturity. The Note, which was scheduled to mature on July 31,
1997, was extended to the earlier of August 31, 1999 or such
time that the SBRC loan becomes due. Interest expense incurred
during 1997 and 1996, relating to the Receivables Note was
$1,521,000 and $1,279,000, respectively.
WFA was entitled to nonrecurring fees for organizing the
Investor Partnership, providing services for tax consultation,
and acquisition and financing of the Properties. The total
fees for these services were $44,911,000, of which $9,020,000
was outstanding at February 28, 1996 and December 31, 1995,
which was included in the Winthrop Debt Agreement.
The Partnerships accrued interest on any unpaid fees or
advances due to First Winthrop and its affiliates at an
interest rate of prime plus .75%. The total interest incurred
during 1996 and 1995 was $694,000 and $3,765,000,
respectively. All unpaid fees, advances, and accrued and
unpaid interest were included in the Winthrop Debt Agreement.
NOTE 7 - IMPAIRMENT OF VALUE OF REAL ESTATE
During 1995, Management determined that the Properties
suffered an impairment in value which was considered to be
other than temporary. Management's assessment of impairment in
1995 was primarily related to the continued weak New York City
commercial real estate market. As a result, the Partnership
wrote down its investment in the Fuji Properties by
$22,500,000 in 1995. As a result of the transfer of the
Partnership's 227 East 45th Street property during 1996, the
remaining impairment of value of real estate is $20,523,000,
and
F-19
<PAGE>
is allocated $11,124,000 to 757 Third Avenue, $5,664,000 to
535 Fifth Avenue and $3,735,000 to 545 Fifth Avenue.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(a) The Operating Partnership leases the properties to
tenants under a variety of terms, including escalation
provisions, renewal options and obligations of the
tenants to reimburse operating expenses.
The aggregate future minimum fixed lease payments receivable
under non-cancelable leases at December 31, 1997, excluding
1372 Broadway, are as follows (in thousands):
Year Amount
---- --------
1998 $ 27,712
1999 26,463
2000 24,672
2001 22,814
2002 21,498
Thereafter 98,199
--------
$221,358
========
(b) Deferred Purchase Price Obligation
As part of the original purchase price of the Properties, the
Operating Partnership agreed to make deferred purchase price
payments to the seller in future years, with respect to each
Property, equal to 6% of the gross proceeds of certain
refinancings, sales or transfers of the Property, or, if a
Property has not been sold or deemed disposed of by January
18, 2006, the Operating Partnership must pay the seller on
that date an amount equal to the excess of (i) 6% of the
appraised fair market value of such Property as encumbered by
all liens, charges and other encumbrances on such Property
except mortgage loans or any other mortgage encumbering such
Property, over (ii) the amount of any deferred purchase price
payments previously made with respect to such Property.
At the acquisition date, the Operating Partnership recorded a
liability to the seller of $25,296,000, representing the
Operating Partnership's estimate of the amount due based on
the original purchase price of the
F-20
<PAGE>
Properties. The total liability has been reduced to $1,498,000
due to sales and transfers of various properties and
management's estimate of fair market value. No payments were
required as a result of the Operating Partnership transferring
its 227 East 45th Street property to Sanwa in 1996. In
connection with the sale of 1372 Broadway in January 1998 (see
Note 10), the Partnership paid $209,000 against its deferred
purchase price obligation.
(c) Litigation
The Operating Partnership has been named as a defendant in
various lawsuits. These actions are at varying stages within
the legal process, and the Operating Partnership has
counterclaimed on several of the actions. The Partnership's
management expects that the outcome of these actions will not
have a material adverse impact on the accompanying
consolidated financial statements.
NOTE 9 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The differences between the accrual method of accounting for
income tax reporting and the accrual method of accounting used
in the consolidated financial statements are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net loss - financial statements $(21,668) $ (4,709) $(39,208)
Differences resulted from:
Depreciation (1,961) (2,785) (1,891)
Rent concessions (5,276) (2,003) (2,693)
Rental revenues 2,710 2,000 1,512
Loss due to permanent impairment -- -- 22,500
Amortization (738) (603) 152
Mortgage recording taxes 151 352 94
Bad debt expense (484) 334 (684)
Interest expense 8,995 7,194 1,791
Gain on disposal -- 1,107 --
Other timing differences 215 1,021 368
-------- -------- --------
Net (loss) income -
income tax method $(18,056) $ 1,908 $(18,059)
======== ======== ========
</TABLE>
The Partnership's taxable (loss) income per unit of limited
partnership interest for 1997, 1996 and 1995 was $(13,256),
$678 and $(12,551), respectively.
NOTE 10 - SUBSEQUENT EVENTS
On January 13, 1998, the Partnership sold its 1372 Broadway
property to an unaffiliated third party for
F-21
<PAGE>
$52,000,000. All of the proceeds were used to partially
satisfy the approximately $94,000,000 allocated portion of the
Modified Loan (including accrued and unpaid interest), with
the unsatisfied portion of the Modified Loan being reallocated
among the remaining Fuji Properties. For financial reporting
purposes, the sale will result in a gain in 1998.
On March 10, 1998, in connection with the extension of the
maturity date of the Secured A Notes, the $25 million
prepayment against the Secured B Notes, and the Unsecured Note
until March 31, 1998, the Partnership agreed to retain an
entity affiliated with Zeus as its new managing agent for all
properties, effective April 1, 1998.
NOTE 11 - PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated balance sheet as of
December 31, 1997 and the pro forma consolidated statement of
operations for the year then ended give effect to the sale of
the Partnership's 1372 Broadway property. The adjustments
related to the pro forma consolidated balance sheet assume the
transaction was consummated at December 31, 1997, while the
adjustments to the pro forma consolidated income statement
assume the transaction was consummated at the beginning of the
year presented. The sale occurred on January 13, 1998.
The pro forma adjustments required are to eliminate the
assets, liabilities and operating activity of 1372 Broadway.
These pro forma adjustments are not necessarily reflective of
the results that actually would have occurred if the sale had
been in effect, as of, and for the period presented or what
may be achieved in the future.
F-22
<PAGE>
Pro Forma Consolidated Balance Sheet
December 31, 1997
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Real Estate:
Land $ 24,440 $ (4,298) $ 20,142
Buildings and improvements 256,041 (63,722) 192,319
Accumulated depreciation (141,658) 39,593 (102,065)
------------ ------------ ------------
138,823 (28,427) 110,396
Other Assets:
Cash and cash equivalents 221 -- 221
Restricted cash 7,341 (2,424) 4,917
Accounts receivable, net 489 (117) 372
Prepaid expenses and other assets 4,630 (1,115) 3,515
Deferred rent receivable 12,306 (3,219) 9,087
Deferred costs, net 7,698 (1,299) 6,399
------------ ------------ ------------
Total Assets $ 171,508 $ (36,601) $ 134,907
============ ============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable to affiliates $ 166,536 $ -- $ 166,536
Other mortgage notes payable 61,867 (37,867) 24,000
Accounts payable, notes and loans payable,
and accrued interest to general partners
and affiliates 24,739 -- 24,739
Accounts payable, accrued expenses, security
deposits and other liabilities 10,085 (3,868) 6,217
Accrued interest on mortgage notes to affiliates 52,135 -- 52,135
Accrued interest on other mortgage notes 98 -- 98
Deferred purchase price obligation 1,498 (209) 1,289
------------ ------------ ------------
Total Liabilities 316,958 (41,944) 275,014
------------ ------------ ------------
Partners' Deficit:
Limited Partners' Deficit - Units of
Investor Limited Partnership Interest
$250,000 stated value per unit; authorized,
issued and outstanding -1,340 as of
December 31, 1997 and 1996 (149,968) 5,135 (144,833)
Less: investor notes (68) -- (68)
------------ ------------ ------------
(150,036) 5,135 (144,901)
General Partners' Equity 4,586 208 4,794
------------ ------------ ------------
Total Partners' Deficit (145,450) 5,343 (140,107)
------------ ------------ ------------
Total Liabilities and Partners' Deficit $ 171,508 $ (36,601) $ 134,907
============ ============ ============
</TABLE>
F-23
<PAGE>
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1997
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Base rent $ 35,824 $ (9,583) $ 26,241
Rent escalations 6,506 (1,522) 4,984
Other 972 (201) 771
------------ ------------ ------------
Total Revenues 43,302 (11,306) 31,996
------------ ------------ ------------
Expenses:
Interest 28,807 (3,628) 25,179
Depreciation 11,041 (3,064) 7,977
Amortization 1,794 (647) 1,147
Real estate and other taxes 9,502 (2,275) 7,227
Utilities 4,590 (1,136) 3,454
Cleaning and security 4,080 (675) 3,405
Asset and property management fees 549 (131) 418
Repairs and maintenance 1,314 (203) 1,111
Payroll 1,350 (295) 1,055
General and administrative 1,194 (286) 908
Professional fees 544 (97) 447
Provision for doubtful accounts 205 -- 205
------------ ------------ ------------
Total Expenses 64,970 (12,437) 52,533
------------ ------------ ------------
Net loss $ (21,668) $ 1,131 $ (20,537)
============ ============ ============
Net loss allocated to general partners $ (848) $ (103) $ (951)
============ ============ ============
Net loss allocated to investor limited partners $ (20,820) $ 1,234 $ (19,586)
============ ============ ============
Net loss per unit of investor limited
partnership interest $ (15,537.31) $ 920.89 $ (14,616.42)
============ ============ ============
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
Schedule III
1626 New York Associates Limited Partnership
Real Estate and Accumulated Depreciation
----------------------------------------
December 31, 1997
-----------------
(In Thousands)
January 1984 Acquisition Costs
Real Estate Assets Mortgage
------------------------------------ Discount
Encumbrances Buildings Allocation
(excluding and ----------------------------------
Description accrued interest) Land Improvements Land Bldgs & Imp. Total
- ---------------- ----------------- ---------------- ------------------ ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
757 Third Avenue $ 74,362 $ 11,934 $ 66,872 $ (125) $ (397) $ 78,284
535 Fifth Avenue 34,792 6,034 29,991 (300) (1,222) 34,503
545 Fifth Avenue 17,427 3,152 18,013 (331) (1,351) 19,483
1372 Broadway (4) 77,822 4,385 34,343 (155) (491) 38,082
509 Fifth Avenue 7,200 900 4,053 (88) (351) 4,514
300 Park Avenue 16,800 1,982 14,230 (46) (145) 16,021
----------------- ---------------- ------------------ ---------------- ---------------- -----------------
TOTAL $ 228,403 $ 28,387 $ 167,502 $ (1,045) $ (3,957) $ 190,887
================= ================ ================== ================ ================ =================
<CAPTION>
Costs Capitalized / (Deducted) Gross Balances @ 12/31/97 (1)
Subsequent to Acquisition ------------------------------------------------------------------------
--------------------------------- Impairments
Buildings Buildings to Land
and and &
Description Land Improvements Land Improvements Building Total (2)
- ---------------- ---------------- ---------------- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
757 Third Avenue $ 130 $ 30,626 $ 11,939 $ 97,382 $ (11,124) $ 98,197
535 Fifth Avenue (10) 21,291 5,724 50,060 (5,664) 50,120
545 Fifth Avenue (5) 17,689 2,816 34,351 (3,735) 33,432
1372 Broadway (4) 68 30,151 4,298 63,722 - 68,020
509 Fifth Avenue (1) 230 811 3,932 - 4,743
300 Park Avenue (5) 9,953 1,931 24,038 - 25,969
---------------- ---------------- ---------------- ----------------- ---------------- ----------------
TOTAL $ 177 $ 109,940 $ 27,519 $ 273,485 $ (20,523) $ 280,481
================ ================ ================ ================= ================ ================
<CAPTION>
Life
on which
Deprecia-
tion is
computed
Date in latest
Accumulated of statement of
Description Depreciation (3) Constr. operations
- ---------------- ----------------- --------------- --------------
<S> <C> <C> <C>
757 Third Avenue $ 47,811 1963 5 - 30 Years
535 Fifth Avenue 23,487 1926 5 - 30 Years
545 Fifth Avenue 14,091 1900 5 - 30 Years
1372 Broadway (4) 39,593 1914 5 - 30 Years
509 Fifth Avenue 3,098 1915 5 - 30 Years
300 Park Avenue 13,578 1920 5 - 30 Years
-----------------
TOTAL $ 141,658
=================
</TABLE>
See accompanying notes.
F-25
<PAGE>
SCHEDULE III
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
NOTES:
<S> <C> <C>
(1) The aggregate cost federal income tax purpose is $302,474.
(2) Balance, January 1, 1995 $ 289,511
Improvements capitalized subsequent to acquisition 7,746
Impairment of value (22,500)
-------------
Balance, December 31, 1995 274,757
Improvements capitalized subsequent to acquisition 7,549
Cost of rental property disposed of (18,348)
Impairment of value of rental property disposed of 1,977
-------------
Balance, December 31, 1996 265,935
Improvements capitalized subsequent to acquisition 14,546
-------------
Balance, December 31, 1997 $ 280,481
=============
(3) Balance, January 1, 1995 $ 117,422
Additions charged to expense 11,598
-------------
Balance, December 31, 1995 129,020
Additions charged to expense 9,969
Accumulated depreciation of rental property disposed of (8,372)
-------------
Balance, December 31, 1996 130,617
Additions charged to expense 11,041
-------------
Balance, December 31, 1997 $ 141,658
=============
(4) Property was sold on January 13, 1998.
</TABLE>
F-26
<PAGE>
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
Effective September 19, 1996, the Partnership dismissed its prior
Independent Auditors, Arthur Andersen LLP ("Arthur Andersen") and retained as
its new Independent Auditors, Imowitz Koenig & Co., LLP ("Imowitz Koenig").
Arthur Andersen's Independent Auditors' Report on the Partnership financial
statements for calendar year ended December 31, 1995, did not contain an
adverse opinion or a disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. The decision to
change Independent Auditors was approved by the Partnership managing general
partner's directors. During calendar year ended 1995 and through September 19,
1996, there were no disagreements between the Registrant and Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure which disagreements if not resolved
to the satisfaction of Arthur Andersen, would have caused it to make reference
to the subject matter of the disagreements in connection with its reports.
Effective September 19, 1996, the Partnership engaged Imowitz Koenig
as its Independent Auditors. The Partnership did not consult Imowitz Koenig
regarding any of the matters or events set forth in Item 304(a)(2) of
Regulation S-K prior to September 19, 1996.
49
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant.
The Partnership has no officers or directors. Two Winthrop manages
and controls substantially all of Registrant's affairs and has general
responsibility and ultimate authority in all matters effective its business.
As of March 1, 1998, the names of the directors and executive officers of Two
Winthrop and the position held by each of them, are as follows:
Has Served as
Position Held with the a Director or
Name Managing General Partner Officer Since
- ---- ------------------------ -------------
Michael L. Ashner Chief Executive Officer 1-96
and Director
Edward Williams Chief Financial Officer 4-96
Vice President and
Treasurer
Peter Braverman Senior Vice President 1-96
and Director
Carroll Vinson Vice President - Residential 10-97
and Director
Carolyn Tiffany Vice President and Clerk 10-95
Michael L. Ashner, age 46, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") since January 15,
1996. From June 1994 until January 1996, Mr. Ashner was a Director, President
and Co-chairman of National Property Investors, Inc., a real estate investment
company ("NPI"). Mr. Ashner was also a Director and executive officer of NPI
Property Management Corporation ("NPI Management") from April 1984 until
January 1996. In addition, since 1981 Mr. Ashner has been President of Exeter
Capital Corporation, a firm which has organized and administered real estate
limited partnerships.
Edward V. Williams, age 57, has been the Chief Financial Officer of
WFA since April 1996. From June 1991 through March 1996, Mr. Williams was
Controller of NPI and NPI Management. Prior to 1991, Mr. Williams held other
real estate related positions including Treasurer of Johnstown American
Companies and Senior Manager at Price Waterhouse.
Peter Braverman, age 46, has been a Senior Vice President of WFA
since January 1996. From June 1995 until January 1996, Mr.
50
<PAGE>
Braverman was a Vice President of NPI and NPI Management. From June 1991 until
March 1994, Mr. Braverman was President of the Braverman Group, a firm
specializing in management consulting for the real estate and construction
industries. From 1988 to 1991, Mr. Braverman was a Vice President and
Assistant Secretary of Fischbach Corporation, a publicly traded, international
real estate and construction firm.
Carroll D. Vinson, age 57, has been Vice President - Residential and
a Director of Two Winthrop since October 1997. He has acted as Chief Operating
Officer of Insignia Properties Trust since May 1997. During 1993 to August
1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm)
and engaged in various other investment and consulting activities which
included portfolio acquisitions, asset dispositions, debt restructurings and
financial reporting. Briefly, in early 1993, Mr. Vinson served as President
and Chief Executive Officer of Angeles Corporation, a real estate investment
firm.
Carolyn Tiffany, age 31, has been employed with WFA since January
1993. From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and
Associate in WFA's accounting and asset management departments. From October
1995 to present Ms. Tiffany has been a Vice President in the asset management
and investor relations departments of WFA.
One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered
pursuant to Section 12(g) of the Securities and Exchange Act of 1934, or are
subject to the reporting requirements of Section 15(d) of such Act: Winthrop
Partners 79 Limited Partnership; Winthrop Partners 80 Limited Partnership;
Winthrop Partners 81 Limited Partnership; Winthrop Residential Associates I, A
Limited Partnership; Winthrop Residential Associates II, A Limited
Partnership; Winthrop Residential Associates III, A Limited Partnership; 1999
Broadway Associates Limited Partnership; Nantucket Island Associates Limited
Partnership; One Financial Place Limited Partnership; Presidential Associates
I Limited Partnership; Riverside Park Associates Limited Partnership;
Springhill Lake Investors Limited Partnership; Twelve AMH Associates Limited
Partnership; Winthrop California Investors Limited Partnership; Winthrop
Growth Investors I Limited Partnership; Winthrop Interim Partners I, A Limited
Partnership; Southeastern Income Properties Limited Partnership; Southeastern
Income Properties II Limited Partnership; and Winthrop Miami Associates
Limited Partnership.
Except as indicated above, neither the Partnership nor Two Winthrop
has any significant employees within the meaning of Item
51
<PAGE>
401(b) of Regulation S-K. There are no family relationships among the officers
and directors of Two Winthrop.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership under Rule 16a-3(e) during the Partnership's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Partnership with respect to its most recent fiscal year, the Partnership is
not aware of any director, officer or beneficial owner of more than ten
percent of the units of limited partnership interest in the Partnership that
failed to file on a timely basis, as disclosed in the above Forms, reports
required by section 16(a) of the Exchange Act during the most recent fiscal
year or prior fiscal years.
Item 11. Executive Compensation.
The Partnership is not required to and did not pay any compensation
to the officers or directors of Two Winthrop. Two Winthrop does not presently
pay any compensation to any of its officers or directors. (See Item 13,
"Certain Relationships and Related Transactions.")
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners.
Two Winthrop, WIPI and Linnaeus-Lexington own all the
outstanding general partnership interests in the Partnership. No other person
or group is known by the Partnership to be the beneficial owner of more than
5% of the outstanding partnership interests as of December 31, 1997.
(b) Security Ownership of Management.
No officers, directors or partners of Linnaeus-Lexington and First
Winthrop and none of the other officers, directors or general partners of WIPI
beneficially own any Units. Affiliates of First Winthrop, however, own in the
aggregate, 19 units which represents less than one percent of the total
outstanding units.
(c) Changes in Control.
There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the
Partnership.
52
<PAGE>
Item 13. Certain Relationships and Related Transactions.
The General Partners and their affiliates are entitled to receive
certain cash distributions and allocations of taxable income or loss. In
addition, the General Partners and their affiliates have earned various fees
in connection with the formation and operation of the Partnership and
Operating Partnership. Further, subsequent to the offering of units, the
General Partners and their affiliates entered into contracts to perform
various services for the Operating Partnership.
In February 1996, certain affiliates of the General Partners (the
"Affiliates") entered into an agreement with the Operating Partnership, the
Partnership and an affiliate of Zeus with regard to amounts owed to the
Affiliates by the Operating Partnership and the Partnership (the "Winthrop
Debt Agreement"). Prior to the entering into of this agreement, the Affiliates
were owed in the aggregate approximately $46.6 million by the Operating
Partnership and the Partnership. This amount was comprised of cash advances
made to the Partnership and the Operating Partnership in order to fund
operating deficits and also includes accrued interest on outstanding balances
as well as unpaid deferred fees related to the on-site management of the
properties, asset management and syndication. Under the Winthrop Debt
Agreement, the Affiliates contributed approximately $36.6 million of the $46.6
million to the Operating Partnership. The remaining $10 million receivable has
been evidenced by a promissory note (the "Receivables Note") issued by the
Operating Partnership which is secured by a pledge of the excess cash flow
from 509 Fifth Avenue and 300 Park Avenue South and is payable only from those
properties. Upon receiving consent of The Dime Savings Bank, the holder of the
first mortgage on these properties, the Affiliate Note is to be secured by a
second mortgage on 509 Fifth Avenue and 300 Park Avenue South. The Receivables
Note was then sold to an affiliated of Apollo Real Estate Advisors, L.P.
("Apollo"), an affiliate of the Partnership, for a payment of $6,000,000. The
Receivables Note has an annual base interest rate of 6% and an additional
annual contingent interest rate of 9%. Interest is payable only from available
cash flow after payment of debt service on the Dime Loan. Interest, to the
extent it cannot be paid currently, accrues until the maturity of the
Receivables Note on July 31, 1997.
As a result of the sale of the Receivables Note and the purchase by
Zeus of the Fuji Loan, these loans are held by affiliates of the Partnership.
Prior to the consummation of the transactions contemplated by the
Winthrop Debt Agreement, the Affiliates performed management, cleaning,
construction and leasing services for the properties and advanced certain
amounts to the Partnership or the
53
<PAGE>
Operating Partnership to fund operating deficits and loan guarantees. All of
these amounts were either contributed to the Partnership or included in the
Receivables Note. Accordingly, subsequent to the closing of the transactions
contemplated by the Winthrop Debt Agreement and the sale of the Receivables
Note, the Partnership and the Operating Partnership had no amounts due to the
Affiliates and the property management, cleaning, leasing and construction
services are being performed by unaffiliated third parties.
The following table sets forth the amounts of fees, commissions and
cash distributions which the Partnership and the Operating Partnership accrued
for the account of the General Partners and their affiliates for the years
ended December 31, 1997, 1996 and 1995. As described above, these fees have
either been contributed to the Partnership or are evidenced by the Receivables
Note.
Receiving
Entity Type of Compensation 1997 1996 1995
- ------ -------------------- ---- ---- ----
Winthrop Asset Management Fee -- -- $1,377,000
Management
Winthrop Property Management -- $329,000 $1,184,662
Management
Winthrop Leasing Commissions -- $ 63,000 $ 475,868
Management
The Cleaning Cleaning Fees -- -- $ 220,491
Force
Winthrop Construction -- $ 72,000 $ 609,205
Financial Supervision Fee
Winthrop Accounting and
Management Administrative $24,000 -- --
Service
WFA was entitled to nonrecurring fees for organizing the Operating
Partnership, providing services for tax consultation, and acquisition and
financing of the Properties. The total fees for these services were
$44,911,000, of which $9,020,000 was outstanding at February 28, 1996 and
December 31, 1995.
The Operating Partnership accrues on any unpaid fees or advances due
to First Winthrop and its affiliates at an interest rate of prime plus .75%.
The total interest incurred during 1996 and 1995 was $694,000 and $3,765,000,
respectively. All unpaid fees, advances and accrued and unpaid interest were
included in the Winthrop Debt Agreement.
For the years ended December 31, 1995, 1996 and 1997, the Partnership
allocated $2,172, $10,478 and $(2,445), respectively, of taxable income
(losses) to Two Winthrop in accordance with its interest in the Partnership.
For the years ended December 31, 1995, 1996, and 1997 the Partnership
allocated $34,023, $232,300
54
<PAGE>
and $(38,323), respectively, of taxable income (losses) to Linnaeus-Lexington
in accordance with its interest in the Partnership. For the years ended
December 31, 1995, 1996 and 1997, the Partnership allocated $235,268,
$1,887,389 and $(265,000), respectively, of taxable income (losses) to WIPI in
accordance with its interest in the Partnership.
The directors, officers and partners of First Winthrop and
Linnaeus-Lexington and the directors, officers and general partners of WIPI
receive no remuneration or other compensation from the Partnership, the
Operating Partnership or the Joint Ventures.
55
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements - The Consolidated Financial
Statements listed on the accompanying Index to Consolidated Financial
Statements are filed as a part of this Annual Report.
2. Financial Statement Schedules - The Consolidated
Financial Statement Schedules listed on the accompanying Index to Consolidated
Financial Statements are filed as a part of this Annual Report.
3. Exhibits - The Exhibits listed on the accompanying
Exhibit Index are filed as a part of this Annual Report.
(b) Reports on Form 8-K - None
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
1626 NEW YORK ASSOCIATES LIMITED
PARTNERSHIP
By: TWO WINTHROP PROPERTIES, INC.
Managing General Partner
By: /s/ Michael L. Ashner
---------------------------
Michael Ashner
Chief Executive Officer
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature/Name Title Date
- -------------- ----- ----
/s/ Michael Ashner Chief Executive March 31, 1998
- ---------------------- Officer and Director
Michael Ashner
/s/ Edward V. Williams Chief Financial March 31, 1998
- ---------------------- Officer
Edward V. Williams
/s/ Peter Braverman Senior Vice President March 31, 1998
- ---------------------- and Director
Peter Braverman
57
<PAGE>
EXHIBITS INDEX
Exhibit Page
------- ----
3,4 Amended and Restated Limited Partnership Agreement of 1626 (1)
New York Associates Limited Partnership (the "Partnership")
3(a) Amendment to Amended and Restated Limited Partnership (2)
Agreement dated August 23, 1995
10(a) Third Amended and Restated Limited Partnership Agreement of (3)
Nineteen New York Properties Limited Partnership ("19 NY")
dated as of September 20, 1990
10(b) Commercial Brokerage Agreements between 19 NY and First (3)
Winthrop Realty Co., Inc., as amended
10(c) Commercial Management Agreements between 19 NY and Winthrop (3)
Management, as amended
10(d) Agreements for building cleaning services between 19 NY and (3)
Venture Services, as amended
10(e) Pledge and Security Agreement by Winthrop Interim Partners I, (1)
A Limited Partnership ("WIPI") and Winthrop Financial Co.,
Inc. ("WFC") in favor of Chemical Bank
10(f) Investor Note Loan Agreement dated September 17, 1984 between (1)
the Partnership and Chemical Bank as agent of The First
National Bank of Boston, Citibank, N.A., Bank of Montreal,
Bankers Trust Company and Manufacturers Hanover Trust Company
10(g) Intercreditor Agreement dated as of September 17, 1984 by and (1)
between Continental Casualty Company and Chemical Bank acting
on behalf of itself and The First National Bank of Boston,
Bankers Trust Company, Citibank, N.A., Bank of Montreal and
Manufacturers Hanover Trust Company
10(h) Form of Investor Bond issued to the Investor Partnership by (1)
Continental Casualty Company
10(i) Mortgage made by 19 NY Limited Partnership to The Fuji Bank (3)
("Fuji") relating to a $250 million
58
<PAGE>
Mortgage Loan on 757 Third Avenue, 410 Park Avenue, 535 Fifth
Avenue, 545 Fifth Avenue and 1372 Broadway, dated as of
January 18, 1990, and related Mortgage Note Consolidation,
Modification and Restatement Agreement
10(j) Fuji Loan Mortgage Modification and Restatement Agreement (3)
between Fuji and 19 NY, dated as of September 18, 1990, and
related Mortgage Note Modification and Restatement Agreement,
dated September 18, 1990
10(k) Second Amended and Restated Mortgage Note, Second Amended and (3)
Restated Mortgage, and Renovation Agreement between Fuji and
19 NY, relating to The Fuji Bank Loan Restructuring, dated as
of September 30, 1992
10(l) Restructuring Agreement, dated February 28, 1996 among Fuji, (4)
19 NY and 535 Fifth Avenue LLC, 545 Fifth Avenue LLC, 757
Third Avenue LLC and 1372 Broadway LLC (collectively, the
"LLCs"), Four New York Properties Holdings LLC ("Holdings")
and Zeus Property LLC ("Zeus") and Westhill Equities LLC
10(m) Debt Modification and Purchase Agreement dated February 28, (4)
1996 among 19 NY, the Partnership, Isaac Asset LLC, WFC,
First Winthrop Corporation, Winthrop Financial Associates, A
Limited Partnership, Winthrop Management, The Cleaning Force,
A Limited Partnership and First Winthrop Properties, Inc.
10(n) Second Amended and Restated Deposit, Disbursement and (4)
Security Agreement dated February 28, 1996, between the LLCs
and Fuji
10(o) Splitter Note A1, dated as of February 28, 1996, between Fuji (4)
and the LLCs
10(p) Form of Splitter Note A2-A29, dated as of February 28, 1996, (4)
between Fuji and the LLCs
10(q) Form of Splitter Note B1 and B2, dated as of February 28, (4)
1996, between Fuji and the LLCs
10(r) Unsecured Promissory Note, dated as February 28, 1996, (4)
between Zeus and the LLCs
10(s) Unsecured Loan Agreement, dated February 28, 1996 (4)
59
<PAGE>
between the LLCs and Zeus.
16. Letter dated September 19, 1996 from Arthur Andersen LLP. (5)
27. Financial Date Schedule 61
(1) Incorporated by reference the Partnership's Registration Statement on Form
10, File No. 0-13500 as filed on April 30, 1985 and thereafter amended
(2) Incorporated by reference to the Partnership's Current Report on Form 8-K
filed on September 6, 1995
(3) Incorporated by reference to the Partnership's Annual Report filed on Form
10-K for the year ended December 31, 1991.
(4) Incorporated by reference to the Partnership's Annual Report filed on Form
10-K for the year ended December 31, 1995
(5) Incorporated by reference to the Partnership's Current Report on Form 8-K
dated September 19, 1996.
60
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 1626 New York
Associates Limited Partnership and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,562,000 <F1>
<SECURITIES> 0
<RECEIVABLES> 748,000
<ALLOWANCES> (259,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 280,481,000
<DEPRECIATION> (141,658,000)
<TOTAL-ASSETS> 171,508,000
<CURRENT-LIABILITIES> 0
<BONDS> 305,375,000 <F2>
<COMMON> 0
0
0
<OTHER-SE> (145,450,000)
<TOTAL-LIABILITY-AND-EQUITY> 171,508,000
<SALES> 0
<TOTAL-REVENUES> 42,330,000
<CGS> 0
<TOTAL-COSTS> 34,969,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,807,000
<INCOME-PRETAX> (21,668,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,668,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,668,000)
<EPS-PRIMARY> (15,537.31)
<EPS-DILUTED> (15,537.31)
<FN>
<F1> Cash includes $7,341,000 of restricted cash,
<F2> Includes accrued interest of $54,211,000.
</FN>
</TABLE>
