UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1994
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from to
Commission file number: 0-15463
MENDIK REAL ESTATE LIMITED PARTNERSHIP
Exact name of registrant as specified in its charter
New York 11-2774249
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation
3 World Financial Center, 29th Floor,
New York, New York 10285
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
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 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
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 the 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. [ X ]
The aggregate market value of Units held by non-affiliates of the registrant at
March 28, 1995 was $196,645,000, computed by reference to the price at which
Units were originally sold by the registrant.
Documents Incorporated by Reference: None
PART I
Item 1. Business
General
Mendik Real Estate Limited Partnership (the "Partnership" or "Registrant") is a
New York limited partnership which was formed in October 1985 pursuant to an
agreement of limited partnership (as amended, the "Partnership Agreement") for
the purpose of acquiring, maintaining and operating income-producing commercial
office buildings in the Greater New York Metropolitan Area. NY Real Estate
Services 1 Inc., a Delaware corporation ("NYRES1") (formerly known as Hutton
Real Estate Services XV, Inc.), and Mendik Corporation, a New York corporation
("Mendik Corporation"), are the general partners (together, the "General
Partners") of the Registrant. (See Item 10.)
Commencing May 7, 1986, the Partnership began offering up to a maximum of
1,000,000 units of limited partnership interest (the "Units") at $500 per Unit
with a minimum required purchase of 10 Units or $5,000 (four Units for an
Individual Retirement Account or Keogh Plan). The Partnership offered Class A
Units to taxable investors and Class B Units to tax-exempt investors. The
offering of Units was completed on September 18, 1987. The Partnership held
closings on June 18, 1986, September 4, 1986, January 22, 1987, March 31, 1987,
June 1, 1987 and September 18, 1987 at which time investors who purchased the
Units ("Investor Limited Partners") were admitted to the Partnership. Investor
Limited Partners are not required to make any further capital contributions to
the Partnership. Upon completion of the offering on September 18, 1987 the
Partnership had accepted subscriptions for 395,169 Units for gross aggregate
cash proceeds to the Partnership of $197,584,500. Net proceeds to the P
artnership after deducting selling commissions, organization expenses, and
other expenses of the offering were approximately $172,766,598. These proceeds
were used to: (i) repay the principal amount of and interest on interim
financing obtained by the Partnership to fund the acquisition of a property
located at 1351 Washington Boulevard, Stamford, Connecticut (the "Stamford
Property"); (ii) acquire the leasehold interests in a property located on
Mamaroneck Avenue in Harrison, New York (the "Saxon Woods Corporate Center")
and in a property located at 330 West 34th Street, New York, New York (the
"34th Street Property") and; (iii) acquire an approximate 60% interest in Two
Park Company, the joint venture which owns a property located at Two Park
Avenue, New York, New York (the "Park Avenue Property"). On December 29, 1994,
the Partnership transferred title to the Stamford Property to the mortgage
holder in lieu of foreclosure. See Item 2 and Item 7.
The Stamford Property, Saxon Woods Corporate Center, 34th Street Property and
Park Avenue Property are each referred to as a "Property" and collectively
referred to as the "Properties." See Item 2 of this Report and Note 5 to the
Consolidated Financial Statements for a further description of the Properties.
The Partnership does not intend to acquire any additional properties.
Following the acquisition of the Properties, a renovation program was
undertaken by the Partnership to upgrade each of the Properties to maximize its
investment potential. As of December 31, 1990, these renovations, exclusive of
ongoing tenant improvement work in connection with the leasing of space, were
substantially complete at all the Properties. See Item 2 of this Report.
The Partnership's primary investment objectives with respect to the Properties
(in no particular order of priority) are (i) capital appreciation, (ii)
distributions of Net Cash From Operations (as defined in the Partnership
Agreement), and (iii) preservation and protection of capital. The attainment
of the Partnership's investment objectives has been adversely affected by the
significant downturn in the commercial office real estate market in the Greater
New York Metropolitan Area. See Item 7 of this Report. The attainment of such
objectives in the future will depend on many factors, including an improvement
in such market conditions. There can be no assurance that such objectives will
be met.
Overview -- Real Estate Market - Over the past several years, the commercial
real estate market in the Greater New York Metropolitan Area weakened
considerably as the national and local economies slowed. As a result of the
downturn, businesses have experienced varying degrees of financial and
operating difficulties and many have downsized their operations. One
indication of the weakness in the region's economy relative to the rest of the
United States is the lack of employment growth. Between the official end of
the national recession in March 1991 and December 1994, employment in the
United States grew by 6.3 percent. In comparison, employment in New York City
declined by 3.6 percent. The unemployment rate in New York City in February
1995 was 9.0% as compared to 5.0% in December 1987. This compares to
unemployment rates for the entire United States of 5.4% and 5.7% in February
1995 and December 1987, respectively.
As businesses reduced personnel located in the Greater New York Metropolitan
Area or relocated outside of the area, the demand for office space in the area
declined and vacancy rates rose. In addition, the number of tenants attempting
to sublease their commercial office space increased significantly, thereby
exacerbating the oversupply of office space in the Greater New York
Metropolitan Area. The weakness in the marketplace has heightened competition
among landlords, resulting in generally lower rents and generous tenant
concession packages in the form of tenant improvements and free-rent periods.
The significant rise in the cost of tenant improvements to be funded by
landlords under both new and renewal leases has sharply increased the demand
for capital by landlords, including the Partnership. This increased demand for
capital comes at a time when banks and other traditional sources of capital
have sharply curtailed their lending and investment activities. In addition,
pressure from regulatory agencies has further eroded lending institutions'
abilities to invest in real estate or finance real estate projects.
The lack of liquidity has led to a dramatic decline in the volume of real
estate sales and financings reducing the ability of independent appraisers to
use "comparable sales" to establish valuations. In addition, the few sales
that have occurred have been at significantly reduced prices. As a result,
appraisers have relied increasingly on conservative assumptions in order to
assess a property's value. Based on the assumptions of generous concession
packages for new and renewal leases, longer free rent periods as well as
stagnant rental rates, appraised values have declined sharply.
Over the past several years, a strategic plan was developed and implemented by
the Partnership to enable each Property, to the extent possible, to meet
expenses as they come due using operating revenues generated by that Property
and loan proceeds from mortgages secured by that Property. See Item 7 of this
Report for a discussion of the Partnership's plan. See Item 2 of this Report
for a description of the Partnership's current leasing strategy at each of the
Properties.
Competition - Each of the Properties is subject to competition from similar
types of properties located in the same vicinity. The business of owning and
operating commercial office buildings in the Greater New York Metropolitan Area
is highly competitive, and the Partnership competes with a number of
established companies, some of which have greater resources than the
Partnership. Current economic conditions have increased the competition for
tenants.
Both of the General Partners and their respective affiliates participate
directly or through other partnerships or investment vehicles in the
acquisition, ownership, operation, and sale of properties which may be in
direct competition with one or more of the Properties.
Employees The Partnership has no employees. See Item 13 of this Report.
Item 2. Properties
Stamford Property
On December 29, 1994, the Partnership transferred title to the Property to New
York Life Insurance Company ("New York Life"), the mortgage holder, in lieu of
foreclosure. See below for a description of events leading up to the transfer
of the Stamford Property.
Description. The Stamford Property is located at 1351 Washington Boulevard in
the northwestern section of downtown Stamford, Connecticut. The office
building and adjacent parking garage are located on a 1.73 acre parcel of land.
The ten-story office building contains approximately 220,000 net rentable
square feet, based on current standards of measurement. The Stamford Property
was acquired by the Partnership for $31,250,000, excluding acquisition
expenses.
Financing and Transfer of Property. The Partnership previously restructured
the $12.5 million non-recourse first mortgage loan to which the Stamford
Property was subject (the "Stamford Loan") in 1991. The restructuring was
intended to enable the Stamford Property to generate sufficient cash flow to
meet its operating expenses and debt service obligations through 1993 without
utilizing the Partnership's working capital reserves in the hope that the
Stamford, Connecticut real estate market would recover and that, as leases at
the property expired, the Partnership would be able to enter into new or
renewal leases at rental rates in excess of the rates being paid by existing
tenants under current leases. However, the Stamford real estate market
continued to deteriorate resulting in a further erosion of market lease rates.
The cash flow from the Stamford Property, together with loans by Mendik
Corporation and an affiliate of NYRES1 and management fee deferrals by Mendik
Realty Company, Inc. ("Mendik Realty"), an affiliate of Mendik Corporation,
were sufficient to cover the property's operating expenses and debt service
obligations through 1993. However, upon the expiration of a 43,100 square foot
lease in December 1993 with the Property's largest tenant, D&B Computing
Services Inc.'s ("D&B"), the Partnership entered into a new lease effective
January 1, 1994 with D&B at a significantly reduced rental rate reflecting the
deterioration in the market. As a result, as expected, the Property's revenue
declined significantly and the Partnership failed to make full payment of debt
service beginning on February 10, 1994 with respect to the Stamford Loan. A
further reduction in the property's cash flow occurred when the Partnership's
lease with Automatic Data Processing Inc. ("ADP") for 34,700 square feet
expired on June 30, 1994 and ADP signed a renewal lease for only 3,500 square
feet. The Partnership attempted to sell the Property at a price sufficient to
pay off the outstanding mortgage debt, however, the property's value had
declined so significantly below the Stamford Loan's balance that these efforts
were unsuccessful. Consequently, on December 29, 1994, the Partnership
transferred title to the property to New York Life in lieu of foreclosure. The
transfer resulted in the loss of the Partnership's investment in the property;
however, because the loan was nonrecourse, the Partnership was not liable for
the principal balance of the mortgage or accrued interest thereon that was not
otherwise satisfied by the transfer of the Property.
Saxon Woods Corporate Center
Valuation. The Partnership's investment in the leasehold interest in the Saxon
Woods Corporate Center at acquisition was $20,664,379, excluding acquisition
expenses of $536,454. The Property's appraised value as of January 21, 1986
was $22,000,000. The appraised value of the leasehold interest as of December
31, 1994 was $15,000,000, as compared to appraised values of $15,000,000 at
December 31, 1993 and $14,000,000 at December 31, 1992.
Location. Saxon Woods Corporate Center is located on Mamaroneck Avenue in
Harrison, New York, approximately 18 miles north of New York City in
Westchester County. The office park is located near the Mamaroneck Avenue exit
of Hutchinson River Parkway, approximately one mile north of Interstate 95,
which is the major artery connecting New York City to Westchester County and
Connecticut. Westchester County Airport is located approximately three miles
north of the site.
Site and Improvements. Saxon Woods Corporate Center consists of two five-story
office buildings. The building at 550 Mamaroneck Avenue consists of
approximately 110,000 net rentable square feet and the building at 600
Mamaroneck Avenue contains approximately 115,000 net rentable square feet,
based on current standards of measurement. The buildings are situated on a
15.28 acre site, which provides ground-level parking for more than 800 cars.
Ground Lease. The parcel of land underlying each building is leased from an
unaffiliated ground lessor pursuant to a ground lease which terminates in
September 2027 and provides the Partnership with the option to renew for two
25-year periods and one 39-year period. Each ground lease provides for an
annual net rental of $170,000, with an increase of $20,000 every five years
commencing in January 1996.
Renovations. During the period from 1986 through 1994, the Partnership
expended approximately $9.1 million on capitalized renovations, including
tenant improvement construction, funded from cash flow, Partnership reserves,
and borrowings.
Financing. Through January 1995, the Partnership had borrowed approximately
$4.7 million and made commitments to borrow an additional $364,000 under a $6.5
million non-recourse line of credit secured by the Partnership's leasehold
interest in the Saxon Woods Corporate Center (the "Saxon Woods Line of
Credit"). Reference is made to Note 6 to the Consolidated Financial Statements
for additional information regarding the Saxon Woods Line of Credit.
Leasing. The Property's occupancy rates as of February 28, 1995, 1994 and 1993
were 80%, 75% and 67%, respectively. The vacancy rate in Westchester County,
where the Saxon Woods Corporate Center is located, was 18.6% as of December 31,
1994, as compared to a vacancy rate of 20.9% at December 31, 1993. During
1994, utilizing funds available under the Saxon Woods Line of Credit and cash
flow, the Partnership entered into leasing transactions covering approximately
27,000 square feet at the Property including lease extensions and expansions by
existing tenants. This activity is in addition to leases aggregating
approximately 30,000 square feet and 65,000 square feet that were signed during
1993 and 1992, respectively. During 1995, the General Partners will continue
to market the Property's available space to commercial office tenants using
cash flow and proceeds from the Saxon Woods Line of Credit to fund the costs of
additional leasing.
34th Street Property
Valuation. The Partnership's investment in the leasehold interest in the 34th
Street Property at acquisition was $34,883,132, excluding acquisition expenses
of $728,268. The Property's appraised value as of November 1, 1986 was
$39,000,000. The appraised value of the leasehold interest as of December 31,
1994 was $5,700,000 compared to appraised values of $9,800,000 at December 31,
1993 and $12,500,000 as of December 31, 1992. During the latter part of 1992,
the General Partners concluded that the Partnership may be unable to hold the
34th Street Property on a long-term basis. As a result, the Partnership is
accounting for the Property as held for disposition. Accordingly, the carrying
value of the Property was reduced to the lower of its depreciated cost or
estimated market value on December 31, 1994, December 31, 1993 and December 31,
1992.
Location. The 34th Street Property is located at 330 West 34th Street, New
York, New York, which is between Eighth and Ninth Avenues in Manhattan's Penn
Plaza district, five blocks west of the Empire State Building, one-half block
west of Pennsylvania Station and three blocks east of the Jacob Javits
Convention Center.
The Penn Plaza district is located in midtown Manhattan and comprises the
seven-block area that surrounds Pennsylvania Station, New York City's largest
transportation hub. Pennsylvania Station serves as the western terminus for
the Long Island Railroad, the Manhattan terminal for the Amtrak rail system and
the eastern terminus for the New Jersey Transit rail system. In addition,
several major arteries of the New York City subway system have stops in and
around Pennsylvania Station, providing access to passengers from the New York
City boroughs of Brooklyn, Queens and the Bronx. Madison Square Garden, New
York City's largest spectator arena, is located above Pennsylvania Station.
Site and Improvements. The 34th Street Property consists of an 18-story
structure and a two-story attached annex containing in the aggregate
approximately 627,000 net rentable square feet, based on current standards of
measurement. The 46,413 square foot site also includes an above-ground parking
area containing 39 spaces that is currently leased to an independent garage
operator.
Ground Lease. Per the terms of the ground lease agreement, the annual ground
lease payment to the unaffiliated ground lessor for the parcel of land
underlying the 34th Street Property increased from $1.25 million to $2.25
million effective January 1, 1992. Reference is made to Note 5 to the
Consolidated Financial Statements for additional information on the ground
lease.
Renovations. During the period from 1987 through 1994, the Partnership
expended approximately $10.1 million on capitalized renovations, including
tenant improvement construction, funded from cash flow, Partnership reserves,
and borrowings.
Financing. On August 12, 1993, the Partnership entered into a modification
of the terms of the nonrecourse first mortgage secured by the Partnership's
leasehold interest in the 34th Street Property, which modification was
subsequently amended twice, (the "34th Street Line of Credit") which will allow
the Partnership to buy out the 34th Street Line of Credit at a substantial
discount by payment of the sum of $6 million at any time through June 30, 1995
(the "Forbearance Agreement"). Should the Partnership be unable to pay off the
34th Street Line of Credit or obtain an extension, the Forbearance Agreement
provides that the Partnership will assign its leasehold interest in the
Property to the lender, at the lender's election, in lieu of a foreclosure.
Reference is made to Item 7 and Note 6 to the Consolidated Financial Statements
for additional information regarding the 34th Street Line of Credit.
In order further to supplement the Property's cash flow, beginning in January
1992, Mendik Realty agreed to defer its management fees of approximately
$170,000 a year that would otherwise have been payable with respect to the 34th
Street Property, although it had no obligation to do so. Pursuant to the
Forbearance Agreement, these fees will continue to be deferred. The
Partnership's outstanding obligation to pay the management fees to Mendik
Realty will bear interest at a rate per annum equal to the prime rate of Morgan
Guaranty Trust Company of New York less 1.25%. Principal and interest will be
payable on December 31, 2025, or such earlier date on which the term of the
Partnership terminates, subject to a mandatory prepayment from the net proceeds
from the sale of any of the Properties, after repayment of all debt secured by
the Property sold. In addition, Mendik Realty agreed to defer its leasing
commission with respect to the long-term lease with the City of New York and
any further leasing commissions associated with additional leasing activity at
the Property. Reference is made to Note 8 to the Consolidated Financial
Statements for additional information regarding the deferral of leasing
commissions.
Leasing. On February 17, 1993, the Partnership signed a long-term lease with
the City of New York effective August 1, 1992 for approximately 300,000 square
feet or approximately 48% of the Property's leasable area. The term of the
lease is for eight years and six months expiring on February 28, 2001. As with
substantially all New York City leases, the tenant has the right to terminate
the lease without penalty provided the City gives the Partnership one year's
notice of its intent to terminate the lease. However, should it terminate the
lease with respect to one or more floors, the City would be required to pay the
Partnership for certain improvement costs as defined in the lease. The City
will make annual base rental payments of approximately $5.4 million and will
pay its proportionate share of increases in real estate taxes and operating
expenses. The base rental income under the lease with the City represented
approximately 18% of the Partnership's consolidated rental income in 1994.
Approximately $1.25 million was spent by the Partnership for tenant improvement
costs required under the terms of the lease. Pursuant to an agreement with the
ground lessor, the Partnership funded the cost of improvements utilizing a
$1.25 million security deposit for the ground lease. Reference is made to Note
5 to the Consolidated Financial Statements for additional information regarding
the ground lease.
The Partnership has been marketing the Property's remaining available space to
light-industrial type tenants on an "as is" basis. While rental rates for
light-industrial type tenants are generally less than the rental rates received
from commercial office tenants, the Partnership does not have the resources to
fund tenant improvement and other costs associated with signing commercial
office leases. In addition, because of continuing uncertainty surrounding the
City's tenancy, the character of the City's tenancy and the nature of the
services it provides, it is uncertain whether the Partnership could sign leases
with traditional office tenants. The Partnership believes that renting space
substantially "as is" to light-industrial type tenants is an effective
alternative means to generate additional cash flow from the Property without
requiring a significant current investment in tenant improvements. The
Property's occupancy rates as of February 28, 1995, 1994 and 1993, were 65%,
61% and 57%, respectively. Although not entirely comparable, the Midtown West
District, where the 34th Street Property is located has seen the vacancy rate
for secondary office space increase from 13.5% at December 31, 1987 to 18.5% at
December 31, 1994. Subsequent to the end of 1994, a tenant occupying the
entire 15th floor or approximately 4% of the building abandoned its space in
the Property in default of its lease and the lease was subsequently terminated
by the Partnership. The Partnership is currently attempting to re-lease this
space.
Park Avenue Property
Valuation. Two Park Company, the joint venture in which the Partnership has an
approximate 60% interest, acquired the Park Avenue Property for $151,500,000.
The Property's appraised value as of September 1, 1987 was $165,000,000. The
appraised value of the Property as of December 31, 1994 was $105,000,000,
compared to appraised values of $115,000,000 as of December 31, 1993 and
$125,000,000 as of December 31, 1992. The Partnership's original investment in
its interest in Two Park Company at acquisition was $95,965,732, including
$35,820,000 which represents the Partnership's share of first mortgage debt to
which the Property was subject when the Partnership acquired its interest and
excluding $1,722,532 of acquisition expenses. The appraised value of the
Partnership's interest in the Property as of December 31, 1994 was $62,685,000,
compared to appraised values of $68,655,000 as of December 31, 1993,
$74,625,000 as of December 31, 1992 and $98,505,000 as of September 1, 1987.
Location. The Park Avenue Property is located at Two Park Avenue, New York,
New York, on an approximately one-acre site that occupies the entire western
frontage of Park Avenue between East 32nd and East 33rd Streets in midtown
Manhattan. The Park Avenue Property is located four blocks east of
Pennsylvania Station and nine blocks south of Grand Central Station, New York
City's largest transportation hubs. Grand Central Station serves as the
Manhattan terminal for the Metro North rail system. In addition to a subway
stop located below the building, several major arteries for the New York City
subway system have stops in and around Grand Central Station and Pennsylvania
Station, providing access to passengers from the New York City boroughs of
Brooklyn, Queens and the Bronx.
Site and Improvements. The improvements to the Park Avenue Property consist of
a 28-story office building that contains approximately 956,000 net rentable
square feet, based on current standards of measurement. The building includes
two lower levels consisting of a subway concourse, a small tenant garage
containing approximately 43 spaces, rentable storage areas and mechanical
facilities.
Renovations. During the period from 1987 through 1994, the Two Park Company
expended approximately $42.5 million on capitalized renovations, including
tenant improvement construction, funded from cash flow, property and
Partnership reserves, and borrowings.
Financing. Reference is made to Note 6 to the Consolidated Financial
Statements for information regarding the non-recourse first mortgage,
non-recourse second mortgage and non-recourse third mortgage secured by the
Park Avenue Property which aggregate $75 million.
Leasing. The Property's occupancy rates as of February 28, 1995, 1994 and
1993, were 94%, 89% and 90%, respectively. The vacancy rate for primary office
space in the Grand Central District of Midtown Manhattan, where the Park Avenue
Property is located, had increased from 10.2% at December 31, 1987 to 18.4% at
December 31, 1992. At December 31, 1994, the vacancy rate in the Grand Central
District had declined to 15.7%. During 1995, the Partnership will continue to
market the Property's available space to commercial office tenants.
Major tenants at the Park Avenue Property are Times Mirror Magazines, Inc. and
its affiliate Newsday, Inc. which, in the aggregate, lease 259,043 square feet
(approximately 27% of the total leasable area in the Property) under two leases
expiring on June 30, 2004 and National Benefit Life Insurance Company which
leases 99,800 square feet (approximately 10% of the total leasable area in the
Property) under a lease expiring on May 30, 1998. The base rental income under
the leases with Times Mirror Magazines, Inc. and Newsday, Inc., and National
Benefit Life Insurance Company represented approximately 21% and 9%,
respectively, of the Partnership's consolidated rental income in 1994.
Item 3. Legal Proceedings
Neither the Partnership nor any of the Properties is currently subject to any
material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1994, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1994, there were 19,791 holders of Units. No established
public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future. The transfer of Units is
subject to significant restrictions, including the requirement that an Investor
Limited Partner may transfer his Units only with the consent of the General
Partners, which consent may be withheld in the sole and absolute discretion of
the General Partners.
During the first quarter of 1989, distributions to the Partners were suspended
following a decision made by the Partnership to establish reserves in the
amount of what would otherwise be Net Cash From Operations to help meet
anticipated Partnership requirements. For the years ended December 31, 1994
and 1993, no distributions were paid to the Partners, and the Partnership does
not contemplate making any distributions during 1995. See Item 7 of this
Report.
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with the
Partnership's Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," also included elsewhere herein.
At or For The Year Ended December 31
1994 1993 1992 1991 1990
(Dollars in thousands,except for per Unit data) (1)
Total
income (2) $ 39,571 (6) $ 34,616 $ 34,437 $ 36,318 $ 35,931
Net Loss (3) 6,174 (6)(7) 11,407 (7) 52,416 (7) 8,063 5,755
Total
assets (2) 220,468 237,798 247,773 299,247 305,674
Total Mortgage
and Notes
Payable (2) 94,681 107,043 105,655 103,056 100,000
Net cash
provided by
operating
activities (2) 4,650 1,375 1,824 622 410
Net Loss
per Unit (3)(4) 15.47 (6)(7) 28.58 (7) 131.31 (7) 20.20 14.42
Cash
distributions
per Unit (2)(4)(5) -- -- -- -- --
Net asset value
per Unit (3)(4) 82 (8) 99 (8) 121 (8) 162 (8) 242 (8)
(1) Selected Financial Data and the Consolidated Financial Statements
include the accounts of Two Park Company, a joint venture of which the
Partnership owns an approximate 60% interest.
(2) Includes the approximate 40% interest in Two Park Company not owned by
the Partnership.
(3) Excludes the approximate 40% interest in Two Park Company not owned by
the Partnership.
(4) 395,169 Units outstanding.
(5) During the first quarter of 1989, a decision was made by the General
Partners to establish reserves in the amount of what would otherwise be Net
Cash From Operations to help meet anticipated Partnership requirements.
(6) Includes a $5,564,391 gain on foreclosure resulting from the transfer
of the Stamford Property on December 29, 1994.
(7) Includes an unrealized loss on properties held for disposition of
$4,010,962, $4,240,608 and $43,166,559 at December 31, 1994, 1993 and 1992,
respectively. See Item 7.
(8) The calculation of net asset value assumes a hypothetical sale of the
Properties at their appraised values and the distribution of the net proceeds
of such sales, together with the Partnership's working capital, to the
Partners. The net asset value represents an average per unit liquidation value
and, consistent with prior practice, is computed by dividing the total value of
the Partnership's assets by the total number of units outstanding. Pursuant to
the Partnership Agreement, distributions to individual unit holders upon
liquidation will vary from distributions upon sale or refinancing of individual
Properties when the Partnership is not liquidating. In a liquidation,
distributions are made in proportion to postive capital account balances which
vary between Class A and B units as a result of the annual allocation of
depreciation solely to Class A units, in accordance with the Partnership
Agreement. With respect to the individual Class A units, there is a further
variance in capital accounts resulting from the six separate closings for the
purchase of units. Separately computed, assuming a hypothetical liquidation as
of December 31, 1994, the amount distributable to an average Class A unit would
be approximately $50 per unit, with earlier issued units receiving less and
later issued units receiving more, and the amount distributable to a Class B
unit would be approximately $128 per unit. The calculation of net asset value
does not take into account numerous other factors which would determine the
actual value received for individual units, such as the timing of Property
sales and distribution of related proceeds, as well as the actual values
realizable upon sales of the Properties. In addition, as a result of these
factors and the lack of a public market for the resale of units, the price at
which units may be resold is likely to be significantly different from the
computed net asset value per unit.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The commercial real estate market in the Greater New York Metropolitan Area has
shown some limited signs of improvement. However, the significant cost of
tenant improvements required to be funded under both new and renewal leases has
sharply increased the demand for capital by landlords, including the
Partnership. Expenditures for tenant improvements have contributed to the
Partnership's reduced liquidity. In order to conserve its limited resources,
the Partnership has pursued a strategy intended to position each of the
Partnership's properties, to the extent possible, to meet its operating and
other expenses as they come due using only the operating income generated by
that Property, and, if necessary, proceeds from borrowings secured by such
Property.
During the year ended December 31, 1994, the Partnership funded operating
costs, the cost of tenant improvements, leasing commissions, and building
capital improvements from five sources: (i) cash flow generated by the
Properties, (ii) Partnership reserves, (iii) the deferral of property
management fees and leasing commissions by Mendik Realty with respect to
certain of the Properties, (iv) additional borrowings from the Saxon Woods Line
of Credit secured by a first leasehold mortgage on the Partnership's leasehold
interest in the Saxon Woods Corporate Center and (v) a portion of the $1.25
million security deposit maintained by the unaffiliated ground lessor for the
34th Street Property. It is expected that funds from certain of these sources
will be reduced or unavailable in the future.
Park Avenue Property - Since January 1, 1994, the Partnership has signed new
and renewal leases for approximately 104,000 square feet or approximately 11%
of the leasable area in the property. The largest of the new leases are with
Simplicity Patterns (41,200 square feet), K-III Magazine Corporation (29,500
square feet) and Lila Wallace - Reader's Digest Fund and DeWitt Wallace -
Reader's Digest Fund (25,100 square feet). In addition, subsequent to the end
of 1994, the Partnership signed a lease for approximately 33,000 square feet.
Although the Partnership continues to lease space at the property, new and
renewal leases generally have been signed at rental rates significantly less
than the rental rates received on leases signed in the mid-1980s, due to the
continuing softness in the real estate market. The property's cash flow,
however, is expected to remain stable over the near term because rental rate
increases negotiated in leases signed in earlier years have offset the lower
market rental rates reflected in the leases recently signed by the Partnership.
The costs of leasing space at the property are being funded with existing
property cash flow and reserves maintained by the joint venture that owns the
Park Avenue Property. In order to fund tenant improvements and leasing
commissions for the new leases as well as certain other leases currently under
negotiation, the Partnership utilized or committed to utilize substantially all
of the property's cash reserves which at year-end 1994 were approximately $4.5
million over and above a reserve for real estate taxes. However, it is
expected that these leases will increase the property's cash flow, which cash
flow will be available to re-establish reserves.
The Park Avenue Property currently generates, and is expected to generate over
the near term, sufficient cash flow to cover operating expenses and current
debt service charges. The indebtedness secured by the Park Avenue Property
currently matures in December 1998 (or December 1996 at the option of the
lender). The Partnership expects, as the maturity of the loan approaches, to
commence negotiations to extend the existing loan, to seek refinancing or sell
the property. However, as a result of the current lack of liquidity in the
financial marketplace, no assurances can be made that the Partnership will be
able to obtain an extension with the existing lender or refinance with a new
lender, on terms acceptable to the Partnership or at all. Additionally, the
lack of liquidity may hamper the Partnership's ability to secure a buyer for
the property at a price acceptable to the Partnership.
Saxon Woods Corporate Center - The Partnership expects that cash flow from the
Saxon Woods Corporate Center will cover operating expenses and debt service
obligations in 1995. Although the Saxon Woods Line of Credit is in the amount
of up to $6.5 million, as a result of Section 13(d) (xviii) of the Partnership
Agreement, which prohibits the Partnership from incurring indebtedness secured
by a property in excess of 40% of the then-appraised value of such property (or
40% of the value of such property as determined by the lender as of the date of
financing or refinancing, if such value is lower) (the "Borrowing Limitation"),
the Partnership is permitted to borrow only $6 million based on the most recent
appraisal of the Saxon Woods Corporate Center which was $15 million as of
December 31, 1994. The loan agreement provides that all available cash flow
from the property will be used for expenses incurred at the property prior to
borrowing any additional funds under the Saxon Woods Line of Credit. The
General Partners expect that additional leasing activity, the costs of which
will be funded in part by borrowing amounts remaining available under the Saxon
Woods Line of Credit, may result in an increase in the appraised value of the
property thereby enabling the Partnership to borrow the additional amounts
available under the Saxon Woods Line of Credit up to the full amount of $6.5
million. There can be no assurance that the property's appraised value will
increase in the future which would enable the Partnership to borrow additional
funds. As of December 31, 1994, the Partnership had borrowed $4,680,836 under
the Saxon Woods Line of Credit. The Partnership has made commitments to borrow
an additional $364,000 which would increase the total borrowings on the Saxon
Woods Line of Credit to $5,044,836.
The indebtedness secured by the Saxon Woods Corporate Center currently matures
in September 1996. The Partnership expects, as the maturity of the loan
approaches, to commence negotiations to extend the existing loan, seek
refinancing, or sell the Property. However, as a result of the current lack of
liquidity in the financial marketplace, no assurances can be made that the
Partnership will be able to sell the property, obtain an extension with the
existing lender, or refinance with a new lender, on terms acceptable to the
Partnership or at all.
34th Street Property - On February 17, 1993, the Partnership signed a long-term
lease with the City of New York (the "City") effective August 1, 1992 for
approximately 300,000 square feet (48% of the property's total leasable space)
in the 34th Street Property. The City has the right to terminate the lease on
a floor by floor basis without penalty provided the City gives the Partnership
one year's prior notice. However, should it terminate the lease with respect
to one or more floors, the City would be required to pay the Partnership for
certain improvement costs as defined in the lease. The terms of the lease call
for the City to make annual base rental payments of approximately $5.4 million
and pay its proportionate share of increases in real estate taxes and operating
expenses. Per the terms of the lease, approximately $1.25 million was spent by
the Partnership for required tenant improvements. In order to fund the tenant
improvements required by the City lease, the Partnership negotiated an
agreement with the unaffiliated ground lessor pursuant to which the ground
lessor agreed to make available the $1.25 million that was being held as
security under the ground lease. The ground lessor also agreed to waive the
lease requirement that the Partnership deposit an additional $1 million as
security with the ground lessor which would otherwise have been required in
connection with the increase in the annual ground rent in 1992 to $2.25
million.
During 1992, the cash flow from the 34th Street Property did not cover its debt
service obligations after payment of operating expenses, and it was not
expected to meet its debt service obligations in 1993. As a result, in order
to conserve the Partnership's limited working capital reserves and induce The
First National Bank of Chicago ("FNBC"), the Property's lender, to modify the
mortgage's terms, the Partnership suspended its interest payments to FNBC
beginning in September 1992. On August 12, 1993, the Partnership entered into
a Forbearance Agreement which modified the 34th Street Line of Credit.
Pursuant to the Forbearance Agreement, FNBC agreed to forbear through June 30,
1994 from exercising its remedies under the loan agreement as a result of the
Partnership's failure to pay interest. On August 15, 1994 an extension of the
Forbearance Agreement was entered into with FNBC extending the forbearance
period from June 30, 1994 to December 31, 1994. At the end of 1994, the
Partnership obtained a further extension of the forbearance period to June 30,
1995. The Forbearance Agreement allows the Partnership to pay off the 34th
Street Line of Credit for $6 million at any time through June 30, 1995, a
substantial discount to the 34th Street Line of Credit's current outstanding
balance. Also, through June 30, 1995, the Partnership will be permitted to
make interest payments to FNBC only to the extent of available cash flow from
the 34th Street Property. Since the Forbearance Agreement went into effect,
the Partnership has not made any interest payments to FNBC. As of December 31,
1994, there was $15 million of principal and approximately $2.3 million of
accrued interest outstanding on the 34th Street Line of Credit.
The Forbearance Agreement with FNBC provides the Partnership with an
opportunity to pay off the 34th Street Line of Credit at a substantial discount
while at the same time establishing a cost-effective means to ensure an orderly
and efficient transfer of the property to FNBC in the event the 34th Street
Line of Credit cannot be paid off or extended. The Partnership has no
assurances that it will be able to pay off the 34th Street Line of Credit and
any such pay off will depend on numerous factors. Chief among these is the
fact that many traditional sources of real estate financing such as banks,
insurance companies and pension funds have dramatically curtailed their
investment in commercial office properties. Consequently, only a limited
number of investors is likely to be available. As a result, the Partnership is
seeking to obtain either debt or equity financing even if such financing would
entail the Partnership's transferring all or a portion of its interest in the
property to the party providing the financing.
As an alternative to refinancing the debt, the Partnership would consider
selling the property for a price sufficient to pay off the debt. In the event
the Partnership obtains from a third party an offer to purchase the property or
provide financing of less than the $6 million required by FNBC, the Partnership
would explore with FNBC a pay off at a further discount below the $6 million.
Should the Partnership be unable to pay off the 34th Street Line of Credit
through a sale of the property or a refinancing by June 30, 1995 or should a
further extension of the Forbearance Agreement not be obtained, the Forbearance
Agreement provides that the Partnership will assign its interest in the
property and in the ground lease to the property to FNBC, at FNBC's election,
in lieu of foreclosure. Should this assignment occur, the Partnership will
lose its investment in the property.
In order to improve the 34th Street Property's cash flow, beginning in January
1992, Mendik Realty voluntarily agreed to defer its management fees of
approximately $170,000 a year that would otherwise have been payable with
respect to the 34th Street Property. In addition, Mendik Realty agreed to
defer its leasing commission with respect to the signing of the long-term lease
with the City of New York and any further leasing commissions associated with
additional leasing activity at the property. Both of these provisions have
remained in effect pursuant to the terms of the Forbearance Agreement with
FNBC. Through December 31, 1994, Mendik Realty had deferred approximately
$906,000 in leasing commissions and management fees with respect to the 34th
Street Property.
The Forbearance Agreement requires the Partnership to deposit all receipts from
the Property into a lockbox at FNBC. FNBC must approve all releases from the
lockbox to fund property costs. As of December 31, 1994, approximately
$1,000,000 was in the lockbox account maintained at FNBC which was available to
pay real estate taxes and ground rent due January 1, 1995.
Stamford Property - The Partnership previously restructured the nonrecourse
loan secured by the Stamford Property in 1991. As part of the terms of the
restructured loan, Mendik Corporation and an affiliate of NY Real Estate
Services 1 Inc. ("NYRES1") loaned $50,000 and $110,000, respectively, to the
Partnership in each of 1991, 1992 and 1993. The loans were required to be
deposited in an escrow account. During the first quarter of 1994, the balance
of these funds totalling approximately $280,000 was transferred from restricted
cash to operating cash to be used to pay costs and expenses related to the
Stamford Property. As part of the restructured agreement, Mendik Realty also
agreed to defer its management fees of approximately $70,000 a year in
connection with the Stamford Property in each of calendar years 1991, 1992 and
1993; Mendik Realty continued to defer its management fees in 1994 although it
had no obligation to do so.
The restructuring was intended to enable the Stamford Property to generate
sufficient cash flow to meet its operating expenses and debt service
obligations through 1993 without utilizing the Partnership's working capital
reserves in the hope that the Stamford real estate market would recover and
that, as leases at the property expired, the Partnership would be able to enter
into new or renewal leases at rental rates in excess of the rates being paid by
existing tenants under current leases. However, the Stamford real estate
market continued to deteriorate resulting in a further erosion of market lease
rates. The cash flow from the Stamford Property, together with the loans by
Mendik Corporation and an affiliate of NYRES1 and the management fee deferrals
by Mendik Realty, were sufficient to cover the property's operating expenses
and debt service obligations through 1993. However, upon the expiration of a
43,100 square foot lease in December 1993 with the Property's largest tenant,
D&B Computing Services Inc.'s ("D&B"), the Partnership entered into a new lease
effective January 1, 1994 with D&B at a significantly reduced rental rate
reflecting the deterioration in the market. As a result, as expected, the
Property's revenue declined significantly and the Partnership failed to make
full payment of debt service due February 10, 1994 through December 10, 1994
with respect to the Stamford Loan. A further reduction in the property's cash
flow occurred when the Partnership's lease with ADP for 34,700 square feet
expired on June 30, 1994 and ADP signed a renewal lease for only 3,500 square
feet. The Partnership was unsuccessful in its attempts to sell the property at
a price sufficient to pay off the mortgage. As a result, on December 29, 1994,
the Partnership transferred title to the Stamford Property to New York Life in
lieu of foreclosure. The transfer resulted in the loss of the Partn ership's
investment in the property; however, the Partnership was not liable for the
principal balance or accrued interest on the mortgage, that was not otherwise
satisfied by the transfer of the Property.
During the latter part of 1992, the General Partners concluded that the
Partnership may be unable to hold the 34th Street Property and the Stamford
Property on a long-term basis. As a result, the Partnership accounted for each
property as held for disposition. Accordingly, the carrying value of these
properties were reduced to the lower of their depreciated cost or estimated
market value on December 31, 1994, December 31, 1993 and December 31, 1992.
Cash Reserves - The Partnership's consolidated cash reserves decreased by
$1,999,604 to $8,347,080 at December 31, 1994 from $10,346,684 at December 31,
1993. During the year ended December 31, 1994, approximately $6.8 million was
expended for property improvements at the Park Avenue Property, Saxon Woods
Corporate Center and the 34th Street Property in connection with leasing
activity and other building improvements. These expenditures were funded by
additional borrowings under the Saxon Woods Line of Credit and cash flow from
operations generated during the year ended December 31, 1994.
As a result of the transfer of the Stamford Property, properties held for
disposition, mortgage and notes payable and deferred interest payable all
declined.
Accounts payable and accrued expenses increased $1,446,083 to $2,781,817 at
December 31, 1994 from $1,335,734 at December 31, 1993 primarily due to
accruals for real estate additions and an increase in prepaid rents. Accrued
interest payable increased primarily due to 1994 interest on the 34th Street
Property.
Results of Operations
1994 vs. 1993
For the year ended December 31, 1994, the Partnership generated net cash from
operating activities of $4,649,552 as compared to $1,374,752 during 1993. The
increase is primarily attributable to the increase in accrued interest payable
primarily related to the Stamford Loan. See below. The Partnership sustained
net losses of approximately $6.2 million for the year ended December 31, 1994
as compared to approximately $11.4 million for the year ended December 31,
1993. The change in net loss is primarily due to a $5,564,391 gain on
foreclosure under generally accepted accounting principles resulting from the
transfer of the Stamford Property in 1994.
Rental income for the year ended December 31, 1994 was $33,708,412 compared to
$34,333,599 for the year ended December 31, 1993. Rental income declined
primarily due to the reduction in income at the Stamford Property as a result
of lease expirations.
Property operating expenses for the year ended December 31, 1994 were virtually
unchanged from the year ended December 31, 1993 due primarily to reduced real
estate taxes resulting from decreases in assessed property values on the Park
Avenue Property, the 34th Street Property and the Saxon Woods Corporate Center.
Additionally, decreases in contract services at the Park Avenue and 34th Street
Properties resulted in decreases in property operating expenses. These
reductions were offset by increases in utilities at the Park Avenue Property,
and professional fees and contract services at the Stamford Property.
Interest expense increased primarily due to the default on the Stamford Loan
which resulted in an increase in the interest rate from 10.3% per annum to 15%
per annum. As the Stamford Loan was nonrecourse, the Partnership was not
liable for this additional interest when the property was transferred to New
York Life. To a lesser extent, additional borrowings on the Saxon Woods Line
of Credit and increases in the interest rates on the Saxon Woods Line of Credit
and 34th Street Line of Credit contributed to the increase.
As a result of the Partnership's decision to carry the 34th Street Property and
Stamford Property at the lower of their depreciated cost or estimated market
value, the Partnership recorded an unrealized loss on properties held for
disposition of $4,010,962 for the year ended December 31, 1994 and $4,240,608
for the year ended December 31, 1993.
1993 vs. 1992
During the year ended December 31, 1993, the Partnership generated net cash
from operating activities of $1,374,752 as compared to $1,823,821 during 1992.
As a result of the Partnership's decision to carry the 34th Street Property and
Stamford Property at the lower of their depreciated cost or estimated market
value, the Partnership recorded an unrealized loss on properties held for
disposition of $4,240,608 and $43,166,559 for the years ended December 31, 1993
and 1992, respectively. Including the unrealized losses, the Partnership
sustained a net loss after depreciation and amortization of $11,406,548 for the
year ended December 31, 1993 as compared to $52,415,692, for 1992. If the
Partnership had not recorded the unrealized losses in 1993 and 1992, the
Partnership would have recorded losses of $7,165,940 and $9,249,133 for the
years ended December 31, 1993 and 1992, respectively.
Consolidated rental income for the year ended December 31, 1993 was $34,333,599
as compared with $34,094,669 for the corresponding period in 1992.
Consolidated rental income remained stable from 1992 to 1993 as the income from
new leases signed in the Saxon Woods Corporate Center offset a decline in
rental income from the Two Park Avenue Property that resulted from leases being
renewed at the lower market rental rates. Consolidated interest income for
1993 was $282,740 as compared to $342,409 for the corresponding period in 1992.
The decline was due to lower interest rates earned on the Partnership's cash
balance and the Partnership's maintaining a lower average cash balance during
1993.
Consolidated property operating expenses for 1993 increased slightly from 1992.
Depreciation and amortization decreased in 1993 primarily due to the reduction
in the carrying value of the 34th Street Property and Stamford Property
effective December 31, 1992. Interest expense increased slightly during 1993
from the corresponding period in 1992 due to the increase in the principal
balance outstanding under the Saxon Woods Line of Credit.
Item 8. Financial Statements and Supplementary Data
See Index of the Consolidated Financial Statements and Financial Statement
Schedules at Item 14, filed as part of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. Mendik Corporation and NYRES1,
as General Partners, jointly manage and control the affairs of the Partnership
and have general responsibility and authority in all matters affecting its
business.
Mendik Corporation
Mendik Corporation was incorporated under the laws of the State of New York on
November 13, 1985. All of the capital stock of Mendik Corporation is owned by
Bernard H. Mendik. Pursuant to Section 22(b) of the Partnership Agreement, Mr.
Mendik has contributed to the capital of Mendik Corporation $2.5 million in the
form of a demand promissory note, which represents the only substantial asset
of Mendik Corporation. Mr. Mendik has a net worth in excess of such amount.
Mendik Corporation maintains its principal office at 330 Madison Avenue, New
York, New York 10017.
The executive officers and sole director of Mendik Corporation (none of whom
has a family relationship with another) are:
Name Age Office
Bernard H. Mendik 65 Chairman and Director
David R. Greenbaum 43 President
Christopher G. Bonk 40 Senior Vice President and Treasurer
Michael M. Downey 53 Senior Vice President
David L. Sims 48 Senior Vice President
Kevin R. Wang 37 Senior Vice President
John J. Silberstein 34 Senior Vice President and Secretary
All officers and directors of Mendik Corporation, except for John J.
Silberstein, have been officers or directors of the corporation since its
incorporation in November 1985. All officers of Mendik Corporation hold the
same position in Mendik Realty.
Bernard H. Mendik has been an owner/manager and developer of office and
commercial properties since 1957. Mr. Mendik was named Chairman of Mendik
Realty in 1990. Prior to his appointment as Chairman, Mr. Mendik had served as
President of Mendik Realty since 1978.
David R. Greenbaum was appointed President of Mendik Realty in 1990. Prior to
his appointment as President, Mr. Greenbaum had served as Executive Vice
President of Mendik Realty since 1982.
Christopher G. Bonk has been with Mendik Realty since 1981, most recently as
Senior Vice President and Treasurer.
Michael M. Downey has been with Mendik Realty since 1978, most recently as
Senior Vice President of Operations.
David L. Sims has been with Mendik Realty since 1984, most recently as Senior
Vice President of Leasing.
Kevin R. Wang has been with Mendik Realty since 1985, most recently as Senior
Vice President of Leasing.
John J. Silberstein has been with Mendik Realty since 1989, most recently as
Senior Vice President and Secretary.
NYRES1
NYRES1 is a Delaware Corporation formed on September 9, 1985, and is an
affiliate of Lehman Brothers, Inc. ("Lehman").
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the General Partners. However, the
assets acquired by Smith Barney included the name "Hutton." Consequently,
effective October 22, 1993, Hutton Real Estate Services XV, Inc. changed its
name to NY Real Estate Services 1 Inc. to delete any references to "Hutton."
Pursuant to Section 22(b) of the Partnership Agreement, an affiliate of Lehman
has contributed to the capital of NYRES1 $2.5 million in the form of a demand
promissory note, which represents the only substantial asset of NYRES1. Such
affiliate has a net worth in excess of such amount.
Certain officers and directors of NYRES1 are now serving (or in the past have
served) as officers or directors of entities which act as general partners of a
number of real estate limited partnerships which have sought protection under
the provisions of the Federal Bankruptcy Code. The partnerships which have
filed bankruptcy petitions own real estate which has been adversely affected by
the economic conditions in the markets in which the real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
The executive officers and sole director of NYRES1 (none of whom has a family
relationship with another) are:
Name Age Office
Kenneth L. Zakin 47 Director and President
Mark Sawicki 32 Vice President and Chief Financial
Officer
Kenneth L. Zakin has been an officer of NYRES1 since 1989. Mark Sawicki has
been an officer of NYRES1 since October 1990.
Kenneth L. Zakin is a Senior Vice President of Lehman Brothers and has held
such title since November 1988. He is currently a senior manager in Lehman
Brothers' Diversified Asset Group and was formerly group head of the Commercial
Property Division of Shearson Lehman Brothers' Direct Investment Management
Group responsible for the management and restructuring of limited partnerships
owning commercial properties throughout the United States. From January 1985
through November 1988, Mr. Zakin was a Vice President of Shearson Lehman
Brothers Inc. Mr. Zakin is a director of Lexington Corporate Properties, Inc.
He is a member of the Bar of the State of New York and previously practiced as
an attorney in New York City from 1973 to 1984 specializing in the financing,
acquisition, disposition, and restructuring of real estate transactions. Mr.
Zakin is currently an associate member of the Urban Land Institute and a member
of the New York District Council Advisory Services Committee. He received a
Juris Doctor degree from St. John's University School of Law in 1973 and a B.A.
degree from Syracuse University in 1969.
Mark Sawicki is a Vice President of Lehman Brothers. Mr. Sawicki joined Lehman
Brothers in 1988 and has been involved primarily in the management and
restructuring of real estate limited partnerships with investments in
residential, commercial office, and industrial properties. He has had
extensive experience in property management oversight and selection, budgeting
and forecasting, financial analysis, debt and equity financing and
restructurings, dispositions, bankruptcies and related legal issues, and
investor communications. Prior to joining Lehman, Mr. Sawicki was a senior
credit analyst with Republic National Bank of New York and prior to that, an
auditor and consultant in the London office of Arthur Young, a public
accounting firm. Mr. Sawicki has a B.S in Finance and a Diploma in Real Estate
from New York University.
Item 11. Executive Compensation
Neither of the General Partners nor any of their officers or directors received
any compensation from the Partnership. See Item 13 below of this Report with
respect to certain transactions of the General Partners and their affiliates
with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 30, 1995, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units.
Set forth below is a chart indicating, as of March 30, 1995, the name and the
amount and nature of beneficial ownership of Units held by the General Partners
and officers and directors thereof. Only those General Partners and officers
and directors thereof which beneficially own any Units are listed. No General
Partner or any officer or director thereof, or the officers and directors of
the General Partners as a group, beneficially owns in excess of 1% of the total
number of Units outstanding.
Beneficial Ownership of Units
Name of Beneficial Number of
Owner Units Owned
Bernard H. Mendik 1,276 (1)
David R. Greenbaum 485 (2)
Kevin R. Wang 20 (3)
Christopher G. Bonk 49
Michael M. Downey 33
David L. Sims 16
The General Partners and all officers and
directors thereof as a group (10 persons) 1,879 (1)(2)(3)
_________________________
(1) Includes 1,027 Units owned by Mr. Mendik, 200 Units held in trust for
Mr. Mendik's children and 49 Units owned by Mendik Realty. Does not include 40
Units owned by Mr. Mendik's wife, as to which he disclaims beneficial
ownership.
(2) Includes 285 Units owned by Mr. Greenbaum and 200 Units owned by Mr.
Greenbaum's wife.
(3) Does not include four Units owned by Mr. Wang's wife, as to which he
disclaims beneficial ownership.
Item 13. Certain Business Relationships and Related Transactions
As a result of the suspension of cash distributions, neither NYRES1 nor Mendik
Corporation received Net Cash from Operations with respect to the year ended
December 31, 1994. For the 1994 fiscal year, $10,813.50 of the Partnership's
net loss was allocated to each of NYRES1 and Mendik Corporation. For a
description of the shares of Net Cash From Operations and Sale or Refinancing
Proceeds (as defined in the Partnership Agreement) and the allocation of items
of income and loss to which the General Partners, the special limited partner,
and the Investor Limited Partners are respectively entitled, see Note 4 of
Notes to Consolidated Financial Statements.
Pursuant to Section 12 of the Partnership Agreement, Mendik Realty has agreed
to limit its payment of leasing commissions at any Property in any year to not
more than 3% of the gross operating revenues of that Property in such year less
leasing commissions paid to other brokers in connection with that Property in
such year. Any excess will be deferred but is payable only if and to the
extent such limit is not exceeded in the year paid. As of December 31, 1994,
there was a contingent liability of approximately $871,484 to Mendik Realty as
a result of leasing commissions earned in 1994 and prior periods from the 34th
Street Property, Park Avenue Property and Saxon Woods Corporate Center. During
1994, Mendik Realty deferred its leasing commissions earned in connection with
the leasing of space at the 34th Street Property and will continue to defer
these commissions during 1995.
The Shareholder Services Group provides partnership accounting and investor
relations services for the Registrant. Prior to May 1993, these services were
provided by an affiliate of a general partner. The Registrant's transfer agent
and certain tax reporting services are provided by Service Data Corporation, an
unaffiliated company.
B&B Park Avenue L.P., a limited partnership of which Mendik Corporation is a
general partner, owns the remaining 40% interest in Two Park Company, the joint
venture that owns the Park Avenue Property.
Mendik Realty receives fees for the management of the Partnership's Properties
and is reimbursed for the cost of on-site building management staff. During
1994, Mendik Realty earned management fees including deferred fees of $773,700
from the Partnership and was reimbursed $515,998 for the cost of on-site
building management salaries.
During 1994, Mendik Realty deferred certain management fees payable to it by
the Partnership in connection with the 34th Street Property and Stamford
Property. During 1995, Mendik Realty has agreed to continue to defer
management fees in connection with the 34th Street Property. See the
information under the caption "34th Street Property" in Item 2 of this Report.
See Note 8 of Notes to the Consolidated Financial Statements.
Building Management Service Corporation ("BMSC"), an affiliate of Mendik
Corporation, performs cleaning and related services for the properties at cost
(plus an allocable share of overhead expenses). As of January 1, 1993, Guard
Management Service Corporation ("GMSC"), an affiliate of Mendik Corporation,
began providing security services at the Park Avenue Property and Saxon Woods
Corporate Center, which services will be provided by GMSC at cost (plus an
allocable share of overhead expenses). During 1994, GMSC and BMSC earned from
the Partnership $4,451,039 for such services.
See Note 8 of Notes to Consolidated Financial Statements for additional
information concerning amounts paid or accrued to the General Partners
and their affiliates during the years ended December 31, 1994, 1993 and
1992 and all balances unpaid at December 31, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) (1),(2) See page 20.
(3) See Index to Exhibits contained herein.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fourth quarter of
fiscal year 1994.
(c) See Index to Exhibits contained herein.
(d) See page 20.
INDEX TO EXHIBITS
Exhibit No.
3 (a) Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership (included as
Exhibit A to the Prospectus of Registrant dated April
7, 1986 included as Exhibit 28(b) to the 1986 Annual
Report on Form 10-K of the Partnership and incorporated
herein by reference thereto).
(b) Amendments to Amended and Restated Certificate and
Agreement of Limited Partnership of the Partnership
(included as Exhibit A to the Prospectus Amendment of
Registrant dated April 29, 1987 included as Exhibit
29(c) to the 1989 Annual Report on Form 10-K of the
Partnership and incorporated herein by reference
thereto).
10 (a) Form of Property Management Agreement between the
Partnership and Mendik Realty Company, Inc. (included
as Exhibit 10(a) to Amendment No. 2 to the Registration
Statement (Registration No. 33-01779) (the
"Registration Statement") and incorporated herein by
reference thereto).
(b) James Felt Realty Services appraisal of the Stamford
Property (included as Exhibit 10(b) to the Registration
Statement and incorporated herein by reference
thereto).
(c) Contract of Sale, dated June 25, 1985, between 1351
Washington Blvd. Limited Partnership, Bernard H. Mendik
and Hutton Real Estate Services XV, Inc. and related
assignments (included as Exhibit 10(f) to Amendment No.
1 to the Registration Statement and incorporated herein
by reference thereto).
(d) Cushman & Wakefield, Inc. appraisal of Saxon Woods
Corporate Center (included as Exhibit 10(g) to
Amendment No. 2 to the Registration Statement and
incorporated herein by reference thereto).
(e) Copies of Ground Leases relating to Saxon Woods
Corporate Center (included as Exhibit 10(h) to
Amendment No. 2 to the Registration Statement and
incorporated herein by reference thereto).
(f) Memorandum of Contract, dated December 24, 1985,
between The Prudential Insurance Company of America and
550/600 Mamaroneck Company relating to the acquisition
of Saxon Woods Corporate Center (included as Exhibit
10(i) to Amendment No. 2 to the Registration Statement
and incorporated by reference thereto).
(g) The Weitzman Group, Inc. appraisal of the 330 West 34th
Street property (included as Exhibit 10(j) to
Post-Effective Amendment No. 2 to the Registration
Statement and incorporated herein by reference
thereto).
(h) Copy of Ground Lease relating to the 34th Street
property (included as Exhibit 10(k) to Post-Effective
Amendment No. 1 to the Registration Statement and
incorporated herein by reference thereto).
(i) Agreement of Assignment of Contract of Sale, dated
September 25, 1986, between 330 West 34th Street
Associates and M/H 34th Street Associates (included as
Exhibit 10(l) to Post-Effective Amendment No. 1 to the
Registration Statement and incorporated herein by
reference thereto).
(j) Agreement, dated December 5, 1986, between Park Fee
Associates, The Mendik Company, Chase Investors
Management Corporation New York and M/H Two Park
Associates relating to the acquisition of the Park
Avenue Property (included as Exhibit 10(m) to
Post-Effective Amendment No. 1 to the Registration
Statement and incorporated by reference thereto).
(k) James Felt Realty Services appraisal of the Park Avenue
Property (included as Exhibit 10(n) to Post-Effective
Amendment No. 7 to the Registration Statement and
incorporated herein by reference thereto).
(l) Exhibits (l) through (aa) to the Partnership's Form
10-K for the fiscal year ended December 31, 1990 are
incorporated herein by reference thereto.
(m) Loan Agreement of $6,500,000 to Mendik Real Estate
Limited Partnership from Friesch-Groningsche
Hypotheekbank Realty Credit Corporation dated September
25, 1991 secured by the Saxon Woods Corporate Center
(included as Exhibit 10(m) to the Partnership's Form
10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference thereto).
(n) Appraisal of the 34th Street Property as of January
1992 by Cushman & Wakefield, Inc. (included as Exhibit
10(n) to the Partnership's Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by
reference thereto).
(o) Letter Opinion of Value of the Park Avenue Property as
of January 1992 by Cushman & Wakefield, Inc. (included
as Exhibit 10(o) to the Partnership's Form 10-K for the
fiscal year ended December 31, 1991 and incorporated
herein by reference thereto).
(p) Letter Opinion of Value of the Stamford Property as of
January 1992 by Cushman & Wakefield, Inc. (included as
Exhibit 10(p) to the Partnership's Form 10-K for the
fiscal year ended December 31, 1991 and incorporated
herein by reference thereto).
(q) Letter Opinion of Value of the Saxon Woods Corporate
Center as of January 1992 by Cushman & Wakefield, Inc.
(included as Exhibit 10(q) to the Partnership's Form
10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference thereto).
(r) Modification effective January 1, 1991 of the
$12,500,000 first mortgage loan secured by the Stamford
Property between New York Life Insurance Company and
the Partnership (included as Exhibit 10(r) to the
Partnership's Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference
thereto).
(s) Reimbursement Agreement dated as of January 1, 1991
among the Partnership, Mendik Realty, Mendik
Corporation and SLH Lending Corp. related to the
deferral of management fees and loans made to the
Partnership with respect to the Stamford Property
(included as Exhibit 10(s) to the Partnership's Form
10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference thereto).
(t) Agreement dated as of January 1, 1992 among the
Partnership, Mendik Realty, Mendik Corporation and SLH
Lending Corp. (included as Exhibit 10(a) to the
Partnership's Form 10-Q for the quarter ended June 30,
1992 and incorporated herein by reference thereto).
(u) Appraisal of the 34th Street Property as of January
1993 by Cushman & Wakefield, Inc. (included as Exhibit
10(u) to the Partnership's Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference thereto).
(v) Letter Opinion of Value of the Park Avenue Property as
of January 1993 by Cushman & Wakefield, Inc. (included
as Exhibit 10(v) to the Partnership's Form 10-K for the
fiscal year ended December 31, 1992 and incorporated
herein by reference thereto).
(w) Letter Opinion of Value of the Stamford Property as of
January 1993 by Cushman & Wakefield, Inc. (included as
Exhibit 10(w) to the Partnership's Form 10-K for the
fiscal year ended December 31, 1992 and incorporated
herein by reference thereto).
(x) Letter Opinion of Value of the Saxon Woods Corporate
Center as of January 1993 by Cushman & Wakefield, Inc.
(included as Exhibit 10 (x) to the Partnership's Form
10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference thereto).
Form 10-K - Item 14 (a) (1) and (2)
MENDIK REAL ESTATE LIMITED PARTNERSHIP
INDEX OF THE CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of Mendik Real Estate Limited
Partnership and Consolidated Venture are included in Item 8:
Independent Auditors' Report F-1
Consolidated Balance Sheets at
December 31, 1994 and 1993 F-2
Consolidated Statements of Operations
for the years ended
December 31, 1994, 1993 and 1992 F-3
Consolidated Statements of Partners'
Capital (Deficit) for the years ended
December 31, 1994, 1993 and 1992 F-3
Consolidated Statements of Cash Flows
for the years ended
December 31, 1994, 1993 and 1992 F-4
Notes to Consolidated Financial Statements F-5
Schedule III - Real Estate and
accumulated depreciation F-18
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted since (1) the information required is disclosed in the consolidated
financial statements and the notes thereto; (2) the schedules are not required
under the related instructions; or (3) the schedules are inapplicable.
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.
MENDIK REAL ESTATE LIMITED PARTNERSHIP
BY: Mendik Corporation
General Partner
Date: March 31, 1995 BY: s/David R. Greenbaum/
Name: David R. Greenbaum
Title: President
BY: NY Real Estate Services 1 Inc.
General Partner
Date: March 31, 1995 BY: s/Kenneth L. Zakin/
Name: Kenneth L. Zakin
Title: Director and President
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 in the capabilities and on the dates indicated.
NY REAL ESTATE SERVICES 1 INC.
A General Partner
Date: March 31, 1995 BY: s/Kenneth L. Zakin/
Name: Kenneth L. Zakin
Title: Director and President
Date: March 31, 1995 BY: s/Mark Sawicki/
Name: Mark Sawicki
Title: Vice President and Chief Financial Officer
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 in the capabilities and on the dates indicated.
MENDIK CORPORATION
A General Partner
Date: March 31, 1995 BY: s/Bernard H. Mendik/
Name: Bernard H. Mendik
Title: Chairman and Director
Date: March 31, 1995 BY: s/David R. Greenbaum/
Name: David R. Greenbaum
Title: President
Date: March 31, 1995 BY: s/Christopher G. Bonk/
Name: Christopher G. Bonk
Title: Senior Vice President and Treasurer
Independent Auditors' Report
The Partners
Mendik Real Estate Limited Partnership
We have audited the consolidated financial statements of Mendik Real Estate
Limited Partnership and Consolidated Venture (a New York Limited Partnership)
as listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mendik Real Estate
Limited Partnership and Consolidated Venture at December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994 in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 15, 1995
Consolidated Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
Real estate investments, at cost:
Land $ 27,137,084 $ 27,137,084
Buildings and improvements 203,335,698 200,255,154
230,472,782 227,392,238
Less-accumulated depreciation (49,536,517) (44,575,753)
180,936,265 182,816,485
Properties held for disposition 5,700,000 18,950,000
Cash and cash equivalents 8,347,080 10,346,684
Restricted cash 2,111,117 2,390,734
Rents and other receivables
(net of allowance for
doubtful accounts of $618,832
in 1994 and $211,291 in 1993) 774,028 796,644
Deferred rent receivable 14,508,937 14,366,146
Other assets, net of accumulated
amortization of $5,038,398 in
1994 and $5,035,517 in 1993 8,090,275 8,131,577
Total Assets $ 220,467,702 $ 237,798,270
Liabilities and Partners' Capital
Liabilities:
Accounts payable and
accrued expenses $ 2,781,817 $ 1,335,734
Due to affiliates 2,263,552 1,349,919
Security deposits payable 1,168,590 1,007,873
Accrued interest payable 2,985,200 2,090,609
Mortgage and notes payable 94,680,836 107,042,677
Deferred interest payable -- 798,777
Total Liabilities 103,879,995 113,625,589
Minority interest 41,535,027 42,946,374
Partners' Capital (Deficit):
General Partners (1,487,096) (1,425,360)
Special Limited Partner (471,998) (471,998)
Limited Partners (395,169
units outstanding) 77,011,774 83,123,665
Total Partners'
Capital 75,052,680 81,226,307
Total Liabilities
and Partners' Capital $ 220,467,702 $ 237,798,270
Consolidated Statements of Operations
For the years ended December 31, 1994, 1993 and 1992
Income 1994 1993 1992
Rent $ 33,708,412 $ 34,333,599 $ 34,094,669
Gain on foreclosure 5,564,391 -- --
Interest 298,457 282,740 342,409
Total Income 39,571,260 34,616,339 34,437,078
Expenses
Property operating 21,097,441 22,408,960 21,426,266
Depreciation and
amortization 10,706,220 10,498,610 12,730,570
Interest 10,977,325 10,194,343 10,090,564
General and
administrative 364,286 472,146 466,505
Unrealized loss on
properties held
for disposition 4,010,962 4,240,608 43,166,559
Total Expenses 47,156,234 47,814,667 87,880,464
Loss before minority
interest (7,584,974) (13,198,328) (53,443,386)
Minority interest in
loss of consolidated
venture 1,411,347 1,791,780 1,027,694
Net Loss $ (6,173,627) $(11,406,548) $(52,415,692)
Net Loss Allocated:
To the General
Partners $ (61,736) $ (114,065) $ (524,156)
To the Limited Partners (6,111,891) (11,292,483) (51,891,536)
$ (6,173,627) $(11,406,548) $(52,415,692)
Per limited
partnership unit
(395,169) outstanding $ (15.47) $ (28.58) $ (131.31)
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1994, 1993 and 1992
Special
Limited General Limited Total
Partners' Partners' Partner's Partners'
Balance at
December 31, 1991 $ 146,307,684 $ (787,139) $ (471,998) $ 145,048,547
Net loss (51,891,536) (524,156) -- (52,415,692)
Balance at
December 31, 1992 94,416,148 (1,311,295) (471,998) 92,632,855
Net loss (11,292,483) (114,065) -- (11,406,548)
Balance at
December 31, 1993 83,123,665 (1,425,360) (471,998) 81,226,307
Net loss (6,111,891) (61,736) -- (6,173,627)
Balance at
December 31, 1994 $ 77,011,774 $ (1,487,096) $ (471,998) $ 75,052,680
Consolidated Statements of Cash Flows
For the years ended December 31, 1994, 1993 and 1992
Cash Flows from
Operating Activities: 1994 1993 1992
Net loss $ (6,173,627) $ (11,406,548) $ (52,415,692)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation and
amortization 10,706,220 10,498,610 12,730,570
Gain on foreclosure (5,564,391) -- --
Minority interest in
loss of consolidated
venture (1,411,347) (1,791,780) (1,027,694)
Provision for losses
on rents and
receivables 426,994 -- --
Unrealized loss on
properties held for
disposition 4,010,962 4,240,608 43,166,559
Increase (decrease)
in cash arising from
changes in operating
assets and liabilities:
Restricted cash 279,617 (475,920) 509,771
Rent and other
receivables (440,311) 1,010,411 (105,439)
Deferred rent
receivable (344,889) (729,445) (908,816)
Prepaid expenses -- -- 333,021
Other assets (1,866,041) (1,806,549) (1,141,102)
Accounts payable
and accrued
expenses 1,269,494 (563,977) 59,024
Due to affiliates 913,633 843,132 196,493
Accrued interest
payable 2,682,521 1,040,181 279,400
Security deposits
payable 160,717 440,238 115,741
Deferred interest
payable -- 75,791 31,985
Net cash provided by
operating activities 4,649,552 1,374,752 1,823,821
Cash Flows from Investing Activities:
Additions to real
estate investments (6,787,315) (2,845,613) (3,408,765)
Net cash used for
investing activities (6,787,315) (2,845,613) (3,408,765)
Cash Flows from Financing Activities:
Minority interest -
cash distribution -- -- (1,311,337)
Proceeds from mortgage
note payable 138,159 1,388,175 2,598,075
Net cash provided by
financing activities 138,159 1,388,175 1,286,738
Net decrease in cash
and cash equivalents (1,999,604) (82,686) (298,206)
Cash and cash equivalents
at beginning of period 10,346,684 10,429,370 10,727,576
Cash and cash equivalents
at end of period $ 8,347,080 $ 10,346,684 $ 10,429,370
Supplemental Disclosure of Cash Flow Information:
Cash paid during the
period for interest $ 8,294,804 $ 9,154,162 $ 9,779,179
Non-Cash Disclosure of Financing Activity:
On December 29, 1994, the Partnership transferred title to the 1351
Washington Boulevard property to New York Life Insurance Company, the mortgage
holder, in lieu of foreclosure. The transfer resulted in full satisfaction of
the property's debt.
Notes to Consolidated Financial Statements
December 31, 1994, 1993, and 1992
1. Organization
Mendik Real Estate Limited Partnership (the "Partnership") was organized as a
limited partnership under the laws of the State of New York pursuant to a
Certificate and Agreement of Limited Partnership dated and filed October 30,
1985 (the "Partnership Agreement"), as amended, and subsequently amended and
restated on 18, 1986. The Partnership was formed for the purpose of acquiring,
maintaining and operating income producing commercial office buildings in the
Greater New York Metropolitan Area. The general partners of the Partnership are
Mendik Corporation and NYRES1 (See below). The Partnership will continue until
December 31, 2025, unless sooner terminated in accordance with the terms of the
Partnership Agreement. The Partnership offered Class A units to taxable
investors and Class B units to tax exempt investors.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the general partners. However, the assets acquired by
Smith Barney included the name "Hutton." Consequently, effective October 22,
1993, Hutton Real Estate Services XV, Inc., a general partner, changed its name
to NY Real Estate Services 1 Inc. ("NYRES1") to delete any reference to
"Hutton."
2. Liquidity
The commercial real estate market in the Greater New York Metropolitan Area has
shown some limited signs of improvement. However, the significant cost of
tenant improvements required to be funded under both new and renewal leases has
sharply increased the demand for capital by landlords, including the
Partnership. Expenditures for tenant improvements have contributed to the
Partnership's reduced liquidity. In order to conserve the Partnership's
limited resources, the Partnership has pursued a strategy intended to position
each of the Partnership's properties, to the extent possible, to meet its
operating and other expenses as they come due using only the operating income
generated by that property, and if necessary, proceeds from borrowings secured
by such property.
Park Avenue Property - Although the Partnership continues to lease space at the
Property, with the continuing softness in the real estate market, new and
renewal leases generally have been signed at rental rates significantly less
than the rental rates received on leases signed in the mid-1980's. The
Property's cash flow, however, is expected to remain stable for the foreseeable
future because rental rate increases negotiated in leases signed in earlier
years have offset the lower market rental rates reflected in the leases
recently signed by the Partnership. The costs of leasing space at the property
are being funded with existing property cash flow and reserves maintained by
the joint venture that owns the Park Avenue Property. With the signing of the
new leases as well as certain other leases currently under negotiation, the
Partnership utilized or committed to utilize substantially all of the
property's cash reserves which at year-end 1994 were approximately $4.5 million
over and above a reserve for real estate taxes. However, it is expected that
these leases will increase the property's cash flow, which cash flow will be
available to reestablish reserves.
The Park Avenue Property currently generates, and is expected to generate over
the near term, sufficient cash flow to cover operating expenses and current
debt service charges under the loan. The indebtedness secured by the Park
Avenue Property currently matures in December 1998 (or December 1996 at the
option of the lender). The Partnership expects, as the maturity of the loan
approaches, to commence negotiations to extend the existing loan, to seek
refinancing or sell the property. However, as a result of the current lack of
liquidity in the financial marketplace, no assurances can be made that the
Partnership will be able to extend with the existing lender or refinance with a
new lender, on terms acceptable to the Partnership or at all. Additionally,
the lack of liquidity may hamper the Partnership's ability to secure a buyer
for the property at a price acceptable to the Partnership.
The property was 92% and 89% leased at December 31, 1994 and 1993,
respectively. During the first quarter of 1995, the Partnership executed a
lease for 33,000 square feet, bringing the property's leased rate to 94%.
Saxon Woods Corporate Center - The Partnership expects that cash flow from the
Saxon Woods Corporate Center will cover operating expenses and debt service
obligations in 1995. Although the Saxon Woods Line of Credit is in the amount
of up to $6.5 million, as a result of Section 13(d) (xviii) of the Partnership
Agreement which prohibits the Partnership from incurring indebtedness secured
by a Property in excess of 40% of the then-appraised value of such Property (or
40% of the value of such Property as determined by the lender as of the date of
financing or refinancing, if such value is lower) (the "Borrowing Limitation"),
the Partnership is permitted to borrow only $6 million based upon the most
recent appraisal of the Saxon Woods Corporate Center which as of December 31,
1994 was $15 million. The loan agreement provides that all available cash flow
from the Saxon Woods Corporate Center will be used for expenses incurred at the
Saxon Woods Corporate Center prior to borrowing additional funds under the
Saxon Woods Line of Credit. The Partnership believes that additional leasing
activity, the costs of which will be funded to the extent of borrowings
permitted under the Saxon Woods Line of Credit and operating cash flow, may
result in an increase in the appraised value of the Property thereby enabling
the Partnership to borrow additional amounts available under the Saxon Woods
Line of Credit. There can be no assurance that the property's appraised value
will increase in the future which would enable the Partnership to borrow
additional funds. As of December 31, 1994, the Partnership had borrowed
$4,680,836 under the Saxon Woods Line of Credit. The Partnership has made
commitments to borrow an additional $364,000 which would increase the total
borrowings on the Saxon Woods Line of Credit to $5,044,836.
The indebtedness secured by the Saxon Woods Corporate Center currently matures
in September 1996. The Partnership expects, as the maturity of the loan
approaches, to commence negotiations to extend the existing loan, to seek
refinancing or sell the property. However, as a result of the current lack of
liquidity in the financial marketplace, no assurances can be made that the
Partnership will be able to sell the property or extend with the existing
lender or refinance with a new lender, on terms acceptable to the Partnership
or at all.
The property was 78% and 72% occupied at December 31, 1994 and 1993,
respectively.
34th Street Property - On February 17, 1993, the Partnership signed a long-term
lease with the City of New York effective August 1, 1992 for approximately
300,000 square feet (48% of the Property's total leasable space) in the 34th
Street Property. The City has the right to terminate the lease on a floor by
floor basis without penalty provided the City gives the Partnership one year's
prior notice. However, should it terminate the lease with respect to one or
more floors, the City would be required to pay the Partnership for certain
improvement costs as defined in the lease. The terms of the lease call for the
City to make annual base rental payments of approximately $5.4 million and pay
its proportionate share of increases in real estate taxes and operating
expenses. Per the terms of the lease, approximately $1.25 million was spent by
the Partnership for required tenant improvements. In order to fund the tenant
improvements required by the City lease, the Partnership negotiated an
agreement with the unaffiliated ground lessor pursuant to which the ground
lessor agreed to make available the $1.25 million that was being held as
security under the ground lease. The ground lessor also agreed to waive the
lease requirement that the Partnership deposit an additional $1 million as
security with the ground lessor in connection with the increase in the annual
ground rent in 1992 to $2.25 million.
In order to improve the 34th Street Property's cash flow, beginning in January
1992, Mendik Realty voluntarily agreed to defer its management fees of
approximately $170,000 a year that would otherwise have been payable with
respect to the 34th Street Property. In addition, Mendik Realty agreed to
defer its leasing commission with respect to the signing of the long-term lease
with the City of New York and any further leasing commissions associated with
additional leasing activity at the Property. Both of these provisions will
remain in effect pursuant to the terms of the forbearance agreement with FNBC.
Through December 31, 1994, Mendik Realty has deferred approximately $906,000 in
leasing commissions and management fees with respect to the 34th Street
Property. Additionally, the forbearance agreement requires the Partnership to
deposit all receipts from the Property in a lockbox at FNBC. FNBC must approve
all releases from the lockbox to fund property costs. As of December 31, 1994,
approximately $1 million was in the lockbox account maintained at FNBC and
available to pay ground rent and real estate taxes on January 1, 1995.
During 1992, the cash flow from the 34th Street Property did not cover its debt
service obligations after payment of operating expenses, and it was not
expected to meet its debt service obligations in 1993. As a result, in order
to conserve the Partnership's limited working capital reserves and induce The
First National Bank of Chicago ("FNBC"), the Property's lender, to modify the
mortgage's terms, the Partnership suspended its interest payments to FNBC
beginning in September 1992. On August 12, 1993, the Partnership entered into
a forbearance agreement which modified the terms of the 34th Street Line of
Credit. Pursuant to the forbearance agreement, FNBC agreed to forbear through
June 30, 1994 from exercising its remedies under the loan agreement as a result
of the Partnership's failure to pay interest. On August 15, 1994, an extension
of the forbearance agreement was entered into with FNBC extending the
forbearance period from June 30, 1994 to December 31, 1994. At the end of
1994, the Partnership obtained a further extension of the forbearance period to
June 30, 1995. The forbearance agreement allows the Partnership to pay off the
34th Street Line of Credit for $6 million at any time through June 30, 1995, a
substantial discount to the 34th Street Line of Credit's current outstanding
balance. Also through June 30, 1995, the Partnership will be permitted to make
interest payments to FNBC only to the extent of available cash flow from the
34th Street Property. Since the forbearance agreement went into effect, the
Partnership has not made any interest payments to FNBC. As of December 31,
1994, there was $15 million of principal and approximately $2.3 million of
accrued interest outstanding on the 34th Street Line of Credit. The forbearance
agreement with FNBC provides the Partnership with an opportunity to pay off the
34th Street Line of Credit at a substantial discount while at th e same time
establishing a cost-effective means to ensure an orderly and efficient transfer
of the Property to FNBC in the event the 34th Street Line of Credit cannot be
paid off. The Partnership has no assurances that it will be able to pay off
the 34th Street Line of Credit and any such pay off will depend on numerous
factors. Chief among these is the fact that many traditional sources of real
estate financing such as banks, insurance companies and pension funds have
dramatically curtailed their investment in commercial office properties.
Consequently, only a limited number of investors is likely to be available. As
a result, the General Partners are seeking to obtain either debt or equity
financing even if such financing would entail the Partnership's transferring
all or a portion of its interest in the property to the party providing the
financing.
As an alternative to refinancing the debt, the General Partners would consider
selling the property for a price sufficient to pay off the debt. In the event
the Partnership obtains from a third party an offer to purchase the property or
provide financing of less than the $6 million required by FNBC, the Partnership
would explore with FNBC a pay off at a further discount below the $6 million.
Should the Partnership be unable to pay off the 34th Street Line of Credit
through a sale of the property or a refinancing by June 30, 1995 or should a
further extension of the forbearance agreement not be obtained, the forbearance
agreement provides that the Partnership will assign its interest in the
property and in the ground lease to the property to FNBC, at FNBC's election,
in lieu of foreclosure. Should this assignment occur, the Partnership will
lose its investment in the property.
The property was 65% and 64% occupied at December 31, 1994 and 1993,
respectively. Subsequent to the end of 1994, a tenant occupying the entire
15th floor, or approximately 4% of the building, abandoned its space in the
property in default of its lease and the lease was subsequently terminated by
the Partnership. The Partnership is currently attempting to re-lease this
space.
Stamford Property - The Partnership previously restructured the non-recourse
loan secured by the Stamford Property in 1991. As part of the terms of the
restructured loan, Mendik Corporation and an affiliate of NYRES1 loaned in each
of 1991, 1992 and 1993 $50,000 and $110,000, respectively, to the Partnership.
The loans were required to be deposited in an escrow account. During the first
quarter of 1994, the balance of these funds totalling approximately $280,000
was transferred from restricted cash to operating cash and used to pay costs
and expenses related to the Stamford Property. As part of the restructured
agreement, Mendik Realty also agreed to defer its management fees of
approximately $70,000 a year in connection with the Stamford Property in each
of calendar years 1991, 1992 and 1993. Mendik Realty continued to defer its
management fees in 1994, although it had no obligation to do so.
The restructuring was intended to enable the Stamford Property to generate
sufficient cash flow to meet its operating expenses and debt service
obligations through 1993 without utilizing the Partnership's working capital
reserves in the hope that the Stamford real estate market would recover and
that, as leases at the Property expired, the Partnership would be able to enter
into new or renewal leases at rental rates in excess of the rates being paid by
existing tenants under current leases. However, the Stamford real estate
market continued to deteriorate resulting in a further erosion of market lease
rates. The cash flow from the Stamford Property, together with the loans by
Mendik Corporation and an affiliate of NYRES1 and the management fee deferrals
by Mendik Realty, were sufficient to cover the Property's operating expenses
and debt service obligations through 1993. However, upon the expiration of a
43,100 square foot lease in December 1993 with the property's largest tenant
D&B, the Partnership entered into a new lease effective January 1, 1994 with
D&B at a significantly reduced rental rate reflecting the deterioration in the
market. As a result, as expected, the property's revenue declined
significantly and the Partnership failed to make full payment of debt service
due on February 10, 1994 through December 10, 1994 with respect to the Stamford
Loan. A further reduction in the property's cash flow occurred when the
Partnership's lease with ADP for 34,700 square feet expired on June 30, 1994
and ADP signed a renewal lease for only 3,500 square feet. The Partnership was
unsuccessful in its attempts to sell the property at a price sufficient to pay
off the mortgage. As a result, on December 29, 1994, the Partnership
transferred title to the Stamford Property to New York Life in lieu of
foreclosure. The transfer resulted in the loss of the Partnership's investment
in the prop erty; however, the Partnership was not liable for accrued interest
or the principal balance of the mortgage not otherwise satisfied by transfer of
the property.
The property was 47% occupied at the date of transfer of the property on
December 29, 1994 as compared to 60% occupied at December 31, 1993.
3. Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of
the Partnership and of Two Park Company, a joint venture in which the
Partnership owns an approximate 60% interest. The joint venture was formed to
own and operate a commercial office building. Intercompany accounts and
transactions between the Partnership and the venture have been eliminated in
consolidation.
Real Estate Investments - Real estate investments which consist of buildings,
are recorded at cost, less accumulated depreciation. Cost includes the initial
purchase price of the properties plus closing costs, acquisition and legal
fees, and capital improvements. Depreciation of the buildings is computed using
the straight-line method over an estimated useful life of 25 to 35 years.
Depreciation of personal property is computed under the straight-line method
over an estimated useful life ranging from 5 to 10 years. Tenant improvements
are amortized over the respective lease terms.
During the latter part of 1992 certain events occurred which caused the General
Partners to conclude that the Partnership may be unable to hold the 34th Street
and Stamford properties on a long term basis. As a result, the Partnership
accounted for each of these properties as held for disposition. Accordingly,
as of December 31, 1993, these properties were carried at the lower of their
depreciated cost or estimated market value. On December 29, 1994, the deed to
the Stamford property was transferred to New York Life in lieu of a foreclosure
sale. As of December 31, 1994, the carrying value of the 34th Street Property
was further reduced to reflect the lower of its depreciated cost or estimated
market value.
Reclassifications - Certain 1993 and 1992 amounts have been reclassified to
conform with the financial statement presentation used in 1994.
Lease Revenue - Rental income is recognized as earned under the leases.
Accordingly, as certain leases of the Partnership provide for tenant occupancy
during periods for which no rent or reduced rent is due, the Partnership
accrues rental income for the full period of occupancy on a straight-line basis
over the related lease terms.
The Partnership has determined that all leases associated with the rental of
space at the investment properties are operating leases.
Leasing Commissions - Leasing commissions are capitalized and amortized over
the respective lease terms.
Income Taxes - The Partnership allocates all profits, losses and other taxable
items to the individual partners. No provision for income taxes is made in the
financial statements as the liabilities for such taxes are those of the
partners rather than the Partnership.
Cash and Cash Equivalents - For the purposes of the statements of cash flows,
cash and cash equivalents consist of short-term, highly liquid investments
which have maturities of three months or less from the date of issuance.
Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit
is based upon the limited partnership units outstanding during the year and the
loss allocated to the limited partners in accordance with the terms of the
Partnership Agreement.
4. The Partnership Agreement
Taxable income and all depreciation for any fiscal year shall be allocated in
substantially the same manner as net cash from operations except that
depreciation allocated to the limited partners will be allocated solely to the
Class A units (for taxable investors). Tax losses for any fiscal year will
generally be allocated to the limited partners and special limited partner to
the extent of their positive capital accounts and then 99% to the limited
partners and 1% to the general partners.
The Partnership Agreement provides that the net cash from operations, as
defined, for each fiscal year will be distributed on a quarterly basis, 99% to
the limited partners and 1% to the general partners (as defined) until each
limited partner has received an amount equal to an 8% annual preferred return.
The net cash from operations will then be distributed, 99% to the special
limited partner, Bernard H. Mendik, and 1% to Mendik Corporation until the
special limited partner has received his special preferred return (as defined).
Thereafter, net cash from operations will be distributed 85% to the limited
partners, 14% to the special limited partner and 1% to the general partners.
Net proceeds from sales or refinancing will be distributed first to the limited
partners until each limited partner has received an 8% cumulative annual return
(as defined) and then an additional amount equal to his adjusted capital
contribution (as defined). Second, the net proceeds from sale or refinancing
will be distributed 99% to the special limited partner and 1% to the Mendik
Corporation until the special limited partner has received any shortfall on his
special cumulative return (as defined). Third, the net proceeds will be
distributed to the general partners until the general partners have received
their deferred incentive shares (as defined). Thereafter, net proceeds will be
distributed 75% to the limited partners, 20.33% to the special limited partner
and 4.67% to the general partners. Liquidating proceeds will be distributed to
the Partners in proportion to and to the extent of the positive capital account
balances of the Partners.
5. Real Estate Investments
The major tenants described below represented 51% of the Partnership's rental
income in 1994. See Note 2 for leasing activity.
The Stamford Property In 1985, the Partnership acquired the Stamford Property,
a ten-story office building containing approximately 220,000 net rentable
square feet (based on current standards of measurement) and an attached parking
garage located on 1351 Washington Blvd. in Stamford, Connecticut. The purchase
price of the property was $31,250,000. The property was transferred to the
lender in lieu of a foreclosure sale on December 29, 1994.
The Saxon Woods Corporate Center In 1986, the Partnership acquired Saxon Woods
Corporate Center, two office buildings located in Harrison, New York containing
an aggregate of approximately 225,000 net rentable square feet (based on
current standards of measurement), from an affiliate of the Partnership.
The property was purchased by the affiliate for the purpose of facilitating the
acquisition by the Partnership. The purchase price of $21,282,805 was paid from
the proceeds of the Partnership's offering and consisted of the purchase price
to the affiliate plus the acquisition and closing costs and costs associated
with carrying the property. The buildings are situated on a 15.28 acre site
which is subject to two ground leases, each of which terminates in September
2027 and provides the lessee with the option to renew for two 25-year periods
and one 39-year period. Each ground lease provides for an annual net rental of
$170,000 with an increase of $20,000 every five years, commencing January 1996.
The property was appraised at $15,000,000 at December 31, 1994 and December 31,
1993.
Major tenants at the Saxon Woods Corporate Center are Commodity Quotations
which leases 24,540 square feet (10% of the total leasable area) under leases
expiring October 31, 2001 and October 31, 1998. Commodity Quotations has the
option to cancel the lease expiring October 31, 2001 at the end of the seventh
year, October 23, 1998. Icon Capital Corp. leases 29,040 square feet (12% of
the total leasable area) under a lease expiring November 30, 2004. Commodity
Quotations and Icon Capital Corp represented approximately 14% and 16%,
respectively, of the property's rental income in 1994.
The 34th Street Property In 1987, the Partnership acquired the 34th Street
Property, an eighteen-story office building containing approximately 627,000
net rentable square feet (based on current standards of measurement) from an
affiliate of the Partnership. The building was purchased by the affiliate for
the purpose of facilitating the acquisition by the Partnership. The purchase
price of $35,611,400 consisted of the purchase price to the affiliate plus the
acquisition and closing costs and costs associated with carrying the property.
The building is situated on a 46,413 square foot site.
The parcel of land underlying the 34th Street Property is leased from an
unaffiliated third party pursuant to a ground lease with an initial term ending
on December 31, 1999 that provided for annual lease payments of $1.25 million
through December 31, 1991 and requires annual lease payments of $2.25 million
for the remaining eight years. The ground lease may be renewed at the option of
the Partnership for successive terms of 21, 30, 30, 30 and 39 years at annual
rentals, determined at the commencement of each renewal term, equal to 7% of
the then-market value of the land considered as if vacant, unimproved and
unencumbered, valued at the highest and best use under then-applicable zoning
and other land use regulations as office, hotel or residential property, but in
no event less than the higher of (i) $2.75 million or (ii) the base rent for
any consecutive 12-month period during the then-preceding renewal term. The
property was appraised at $5,700,000 at December 31, 1994. The appraised value
at December 31, 1993 was $9,800,000.
The major tenant at the 34th Street property is the City which leases 300,000
square feet (48% of the total leasable area in the property) under a lease
expiring February 28, 2001. As with substantially all leases with New York
City, the tenant has the right to terminate the lease on a floor by floor basis
without penalty provided the City gives the Partnership one year's prior
notice. However, should it terminate the lease with respect to one or more
floors, the City would be required to pay the Partnership for certain
improvement costs as defined in the lease. The City represented approximately
89% of the property's total revenue in 1994.
The Park Avenue Property - In 1987, the Partnership indirectly acquired from an
affiliate an approximate 60% interest in a joint venture, Two Park Company,
formed in 1986 for the purpose of acquiring and operating a parcel of land
located at Two Park Avenue, New York, New York, together with the 28-story
office building and related improvements located thereon containing
approximately 956,000 net rentable square feet (based on current standards of
measurement). The affiliate acquired such interest to facilitate the
acquisition by the Partnership. Two Park Company acquired the Park Avenue
Property in 1986 from an unaffiliated seller for approximately $151.5 million,
$60 million of which was financed by a first mortgage loan. The Partnership
acquired its interest by contributing $61,868,264 in cash, and assuming its
share of the $60 million loan secured by a first mortgage on the property. The
remaining approximate 40% interest in Two Park Company is owned by B & B Park
Avenue L.P., an affiliate of Mendik Corporation. At December 31, 1994, the
property was appraised at $105,000,000, and the appraised value of the
property net of the minority interest was $62,685,000. At December 31, 1993,
the property was appraised at $115,000,000, and the appraised value of the
property net of the minority interest was $68,655,000.
Major tenants at Two Park Avenue are Times Mirror Magazines, Inc. and its
affiliate Newsday, Inc. which lease 262,774 square feet (28% of total leasable
area in the property) under two leases expiring June 30, 2004 and National
Benefit Life Insurance Company which leases 99,800 square feet (11% of total
leasable area in the property) under a lease expiring May 30, 1998. Times
Mirror Magazines, Inc. and its affiliate Newsday, Inc. and National Benefit
Life Insurance Company represented 32% and 14%, respectively, of the property's
total rental income in 1994.
6. Mortgage and Notes Payable
The Partnership is currently only able to incur additional indebtedness secured
by the Saxon Woods Property, as a result of the Borrowing Limitation in the
Partnership Agreement. (See Note 2).
The Stamford Property The $12,500,000 non-recourse first mortgage loan was for
a term of ten years and accrued interest at the rate of 10% per annum through
December 10, 1993 and 10.3 % thereafter (See below) (the Stamford Loan ).
While the $12,500,000 principal amount exceeded the Borrowing Limitation, it
did not exceed the Borrowing Limitation when the loan was incurred. The loan
was modified effective January 1, 1991 whereby one-half of the monthly interest
payments due under the loan from January 10, 1991 to December 10, 1991 were
deferred until July 10, 1996, the loan s maturity date, and bore interest at
the rate of 10% per annum (collectively, the "Deferred Interest"). During the
period from December 10, 1991 to December 10, 1993, monthly payments of
interest only were due at the rate of 10% per annum on the principal balance of
the note. In addition, principal amortization payments previously required to
be paid commencing August 10, 1991 were deferred until the maturity of the
loan. Commencing December 10, 1993 through the maturity date of the loan,
interest was payable on the principal balance of the loan and the Deferred
Interest at the rate of 10.3% per annum.
The loan modification required that in each of calendar years 1991, 1992 and
1993, (i) Mendik Corporation lend the Partnership $50,000, (ii) an affiliate of
NYRES1 lend the Partnership $110,000, and (iii) Mendik Realty Company, Inc.
defer management fees of approximately $70,000 a year payable to it in
connection with services performed at the Stamford Property. Mendik Realty
continued to defer its management fees in 1994.
The loans by Mendik Corporation and the affiliate of NYRES1 were required to be
deposited in an escrow account and used only to pay building improvement costs,
lease-up costs and operating expenses related to the Stamford Property. During
the first quarter of 1994, the property utilized the remaining loan funds. The
loans and management fee deferral by Mendik Corporation, Mendik Realty and the
affiliate of NYRES1 are on a non-recourse basis and bear interest at the prime
rate less 1.25%. Principal and interest is payable on December 31, 2025, or
upon termination of the Partnership if earlier, subject to a mandatory
prepayment from the net proceeds from the sale of any of the properties, after
repayment of all debt secured by the property sold.
The Partnership failed to make full payment of debt service due commencing
February 10, 1994 with respect to the Stamford Loan due to a decline in the
property's revenue following the extension of D&B's lease in January 1994 at a
rate significantly less than the rate paid previously. As a result, the
Partnership was in default under the terms of the Stamford Loan. The
Partnership was unable to secure a loan modification, and title to the property
was transferred to the lender on December 29, 1994 in lieu of a foreclosure
sale, resulting in the loss of the Partnership's investment in the property.
The Saxon Woods Corporate Center In September 1991, the Partnership established
a non-recourse line of credit of $6,500,000 (the Saxon Woods line of credit )
secured by the Partnership s leasehold interest in the property located at
550/600 Mamaroneck Avenue, Harrison, New York (the Saxon Woods Property ). The
Saxon Woods line of credit has a term of five (5) years, is secured by a first
leasehold mortgage on the Saxon Woods Property and generally bears interest at
the rate of 2.5% per annum in excess of the London Interbank Offered Rate
("LIBOR"). The interest rate was 8.125% at December 31, 1994. In addition, the
Partnership is required to pay 1/2% per annum on the undrawn balance of the
Saxon Woods line of credit. As additional security for the repayment of the
Saxon Woods line of credit, the Partnership deposited $500,000 with the lender,
which deposit was used by the Partnership to pay operating expenses in
connection with the Saxon Woods Property prior to borrowing any sums under the
Saxon Woods line of credit for operating expenses. The Saxon Woods line of
credit provides the partnership with a source of funds to pay for those
improvements necessary to lease additional space at the property. In order to
reduce the need for additional borrowings under the Saxon Woods line of credit,
the Partnership has agreed to use all available cash flow from the Saxon Woods
Property (which cash flow has been pledged to the lender) for all expenses
incurred at the Saxon Woods Property prior to borrowing any additional funds
under the Saxon Woods line of credit.
Based on the current appraised value of the Saxon Woods Property, only $6
million of the Saxon Woods line of credit is available to the Partnership due
to the Borrowing Limitation. The Partnership believes that the Saxon Woods line
of credit will provide the Partnership with a source of funds which should be
sufficient to pay for those improvements necessary to lease certain additional
space at the property and anticipated operating shortfalls. As of December 31,
1994, the Partnership had borrowed $4,680,836 under the Saxon Woods line of
credit and committed to borrow an additional $364,000. The Partnership expects
that additional leasing activity, the costs of which will be covered by
borrowings from the Saxon Woods Line of Credit and operating cash flow, may
result in a further increase in the appraised value of the property thereby
enabling the Partnership to borrow the additional amounts available under the
Saxon Woods Line of Credit up to the full amount of $6,500,000. The Partnership
has the option to request an updated appraisal at any time; however, there can
be no assurance that subsequent appraised values for the Property will continue
to increase.
The Park Avenue Property - The $60,000,000 first mortgage is for a term of
twelve years and accrues interest at the rate of 9.75% per annum. Interest only
is payable in monthly installments until the maturity date (December 19, 1998)
at which time the full amount of principal and any accrued interest shall be
due and payable. On June 15, 1989, Two Park Company placed a second mortgage on
the Park Avenue Property in the amount of $10,000,000. Interest only is payable
in monthly installments at a rate of 10.791% through June 15, 1992 and
thereafter at the rate of 10.625% through December 19, 1998 at which time the
full amount of principal and any accrued interest shall be due and payable. On
December 26, 1990, Two Park Company placed a third mortgage on the Park Avenue
Property in the amount of $5,000,000. Interest only is payable in monthly
installments at a rate of 11.5% through its maturity date of December 19, 1998
at which time the full amount of principal and any accrued interest shall be
due and payable. The lender has the right to accelerate the maturity date of
the first, second and third mortgage loans (collectively the Park Avenue
Loans) to a date not earlier than December 19, 1996 upon at least 180 days
prior notice.
The Park Avenue Loans are being treated as one loan and at any time upon
request of Two Park Company, the lender will combine and consolidate all of the
loans to make a non-recourse first mortgage loan in the principal amount of
$75,000,000. While the $75,000,000 principal outstanding currently exceeds the
Borrowing Limitation, it did not exceed the Borrowing Limitation when the loans
were incurred.
The 34th Street Property - On December 12, 1989, the Partnership entered into a
loan agreement with First National Bank of Chicago ("FNBC"). The loan provided
for a $30,000,000 credit facility in the form of a first mortgage secured by
the Partnership's leasehold interest on the 34th Street Property (the 34th
Street line of credit ). The lender agreed to advance amounts under the credit
facility up to 40% of the lesser of the appraised value of the 34th Street
Property or the value thereof as determined by the lender. The credit facility
matures on May 31, 1997 and provided the Partnership with the flexibility to
draw funds at 110 basis points over Libor, or 110 basis points over FNBC's C.D.
rate or at FNBC's prime rate. If the net operating income (as defined) for the
property is less than 115% of the projected debt service for the property for
any six month period, the lender may increase the interest rate to 125 basis
points over Libor or 125 basis points over FNBC's C.D. rate.
As of December 31, 1992, $15,000,000 had been advanced under the 34th Street
line of credit. As a result of the default on the loan (See Note 2) and the
decline in the appraised value of the 34th Street Property, the Partnership is
currently prevented from borrowing any additional funds. While the $15,000,000
principal amount outstanding currently exceeds the Borrowing Limitation and the
appraised value, it did not exceed the Borrowing Limitation when the loan was
incurred.
The Partnership suspended its interest payments to the lender beginning with
the September 1992 payment. On August 12, 1993, the Partnership entered into a
forbearance agreement which modified the terms of the 34th Street Line of
Credit with FNBC, under which $15 million of principal and approximately $2.3
million of accrued interest is outstanding at December 31, 1994. Pursuant to
the forbearance agreement, FNBC agreed to forbear through June 30, 1994 from
exercising its remedies under the loan agreement as a result of the
Partnership's failure to pay interest. The forbearance period was subsequently
extended through June 30, 1995. The forbearance agreement allows the
Partnership to pay off the 34th Street Line of Credit for $6 million at any
time through June 30, 1995, a substantial discount to the 34th Street Line of
Credit's current outstanding balance. Also through June 30, 1995, the
Partnership will be permitted to make interest payments, based upon the
Corporate Base Rate or the prime rate beginning March 19, 1993, to FNBC only to
the extent of available cash flow from the 34th Street Property. No interest
payments have been made by the Partnership since entering into the forbearance
agreement. If the Partnership is not successful in obtaining the financing
necessary to pay off the 34th Street Line of Credit by June 30, 1995, or
obtaining a further extension, the Partnership has agreed to assign its
interest in the property and in the ground lease to the Property to FNBC, at
FNBC's election, in lieu of foreclosure. This agreement provides the
Partnership with an opportunity to pay off the 34th Street Line of Credit at a
substantial discount while at the same time establishing a cost-effective
means to ensure an orderly and efficient transfer of the Property to FNBC in
the event the 34th Street Line of Credit cannot be paid off. The Partnership
has no assurances that it will be able to obtain the financing necessary to
pay off the 34th Street Line of Credit and any such pay off will depend on
numerous factors including general market conditions. Should the Partnership
be unable to complete a refinancing, it might result in the loss of the
Partnership's investment in the Property.
The deferral of management fees and leasing commissions by Mendik Realty will
remain in effect pursuant to the terms of the forbearance agreement.
Additionally, the forbearance agreement gives FNBC control of the property's
cash flow by requiring the Partnership to maintain a lockbox at FNBC. FNBC
will approve all releases of funds from the lockbox. As of December 31, 1994,
approximately $1 million was in the lockbox account maintained by FNBC,
available to pay real estate taxes and ground rent due on January 1, 1995.
Mortgage and notes payable at December 31, 1994 and 1993 are summarized as
follows:
1994 1993
Secured by Stamford Property $ -- $ 12,500,000
Secured by Saxon Wood Corporate
Center, bearing interest at
a blended rate of 7.139% 4,680,836 4,542,677
Secured by Park Avenue Property,
bearing interest at a blended
rate of 10.159% 75,000,000 75,000,000
Secured by 34th Street Property,
bearing interest at a blended
rate of 7.245%. The loan is
currently in default. 15,000,000 15,000,000
$94,680,836 $107,042,677
The following summarizes the scheduled maturities of the Partnership's mortgage
and notes payable. The mortgage and notes payable secured by the 34th Street
property are presented as maturing in 1995 due to its default status.
Year Amount
1995 $ 15,000,000
1996 4,680,836
1997 -
1998 75,000,000
$ 94,680,836
If the Park Avenue Lender were to exercise its option to accelerate the
scheduled maturity date of its loans to the earliest possible permitted date,
then the amounts due in 1996 in the above table would be $79,680,836.
7. Rental Income Under Operating Leases
Based upon the leases currently in effect, future minimum rental income from
operating leases of the Partnership's properties (which are not cancellable by
their terms) as of December 31, 1994 is as follows:
Year Amount
1995 $ 29,499,583
1996 24,635,930
1997 23,562,798
1998 20,794,640
1999 17,912,550
Thereafter 73,118,403
$ 189,523,904
In addition to the minimum rental amounts, substantially all of the leases
provide for escalation charges to tenants for operating costs, real estate
taxes and electricity. For the years ended December 31, 1994, 1993, and 1992,
these amounts were $3,282,904, $3,524,411, and $4,390,234, respectively, which
amounts are included in rental income.
8. Transactions With General Partners and Affiliates
Cash reflected on the Partnership's balance sheet at December 31, 1994 was on
deposit with an affiliate of a general partner. Cash reflected on the
Partnership's balance sheet at December 31, 1993 was on deposit with a
non-affiliate.
The following is a summary of the amounts paid or accrued to the general
partners and their affiliates during the years ended December 31, 1994, 1993
and 1992 and all balances unpaid at December 31, 1994:
Due To/(From)
Affiliates
at December 31, Paid or Accrued
1994 1994 1993 1992
out of pocket expenses (A) $ -- $ -- $ 981 $ 5,803
administrative salaries
and expenses (B) 47,490 86,021 65,254 66,160
management fees and building
personnel salaries (C) 957,403 1,289,698 1,227,744 1,383,430
cleaning and related
services (D)(E) (92,825) 4,072,233 4,166,977 3,607,725
security (F) -- 378,806 414,219 --
leasing commissions (G) 871,484 555,147 770,710 61,932
loans (H) 480,000 -- -- --
$2,263,552 $6,381,905 $6,645,885 $5,125,050
(A) The Shareholder Services Group provides partnership accounting and
investor relations to the Partnership. Prior to May 1993, these services were
provided by an affiliate of a general partner.
(B) NYRES1, a general partner, is reimbursed for certain administrative
salaries and expenses for services rendered by a non-affiliate in connection
with maintaining Partnership operations.
(C) Mendik Realty Company, Inc. ("Mendik Realty"), an affiliate of Mendik
Corporation, receives fees for the management of the Partnership's Properties
and is reimbursed for the cost of on-site building management staff. Salaries
and benefits for building personnel, which has remained under the payroll of
Mendik Realty, for the years ended December 31, 1994, 1993 and 1992 totalled
$515,998, $527,019 and $583,571, respectively. Management fees paid or payable
to Mendik Realty totalled $773,700, $700,725 and $799,859 for the years ended
December 31, 1994, 1993 and 1992, respectively. These amounts are included in
the table. Certain management fees included in the above amounts are being
deferred as discussed in Note 6.
(D) Building Maintenance Service Corporation ("BMSC"), an affiliate of
Mendik Corporation, performs cleaning and related services at the properties.
Such cleaning and related services are provided by BMSC at its cost (plus an
allocable share of overhead expenses). Cleaning and related services payable
to BMSC totalled $3,278,621, $3,500,062 and $2,910,428 for the years ended
December 31, 1994, 1993 and 1992, respectively. The indicated amounts above
include salaries and benefits of the property engineering staff, which was
transferred from the payroll of Mendik Realty to BMSC's payroll during the
first quarter of 1992. The salaries and benefits for these employees were
$687,948, $584,942 and $581,112 in 1994, 1993 and 1992, respectively. These
amounts are included in the table. Included in the 1993 amounts are certain
amounts related to 1992 due to a difference between estimates and actual costs
incurred for 1992.
(E) BMSC provides metal and marble cleaning services to the Partnership at
its cost (plus an allocable share of overhead expenses), which were $105,664,
$81,973 and $116,185 in 1994, 1993 and 1992, respectively. These amounts are
included in the table.
(F) Effective January 1, 1993, Guard Maintenance Service Corporation
("GMSC"), an affiliate of Mendik Corporation, began providing security services
to the Partnership at its cost (plus an allocable share of overhead expenses),
which in 1994 and 1993 totalled $378,806 and $414,219, respectively. This
amount is included in the table. Security services paid to unaffiliated third
parties for the years ended December 31, 1993 and 1992 were $61,609 and
$545,365, respectively. These amounts are not included in the table.
(G) Mendik Realty has agreed to limit the payment of its leasing
commissions at any Property in any year to not more than 3% of the gross
operating revenues of the Property in such year less leasing commissions paid
to other brokers in connection with that property in such year. Any excess
will be deferred but is payable only if and to the extent such limit is not
exceeded in the year paid. As of December 31, 1994, there were deferred
commissions, on a consolidated basis, of approximately $871,484 as a result of
deferred leasing commissions from the 34th Street property, the Saxon Woods
Corporate Center and the Park Avenue property. Certain leasing commissions are
being deferred as per the loan modifications discussed in Note 6.
(H) Mendik Corporation loaned the Partnership $150,000, and an affiliate of
NYRES1 loaned the Partnership $330,000 pursuant to the Stamford loan
modification discussed in Note 6. <PAGE>
9. Reconciliation of Consolidated Financial
Statement Net Loss and Partners' Capital to Federal Income Tax Basis Net Loss
and Partners' Capital
Year ended December 31,
1994 1993 1992
Financial statement
consolidated net loss $ 6,173,627 $11,406,548 $52,415,692
Financial statement
write down of real
estate over tax basis
write down of
real estate (4,010,962) (4,240,608) (43,166,559)
Tax basis depreciation
over (under) financial
statement depreciation 1,115,277 971,960 (1,302,679)
Tax basis rental income
(over) under financial
statement rental income (132,615) 612,639 (63,668)
Tax loss on foreclosure
over financial statement
gain on foreclosure 20,933,471 -- --
Tax basis recognition of
loss of consolidated
venture over (under)
financial statement
recognition of loss of
consolidated venture (272,346) 677,456 685,810
Tax basis expenses over
(under) financial
statement expenses 78,807 (14,086) 28,067
Interest expense
capitalized for Federal
income tax purposes (13,507) (38,850) (76,561)
Other -- 57,584 21,569
Federal income tax
basis net loss $23,871,752 $ 9,432,643 $ 8,541,671
Reconciliation of financial statement partners' capital to federal income tax
basis partners' capital:
Year ended December 31,
1994 1993 1992
Financial statement
basis partners'
capital $ 75,052,680 $ 81,226,307 $ 92,632,855
Current year financial
statement net loss
over (under) Federal
income tax basis net
loss (17,698,122) 1,973,905 43,874,021
Cumulative financial
statement net loss
over Federal income
tax basis net loss 59,078,187 57,104,282 13,230,261
Federal income tax
basis partners'
capital $116,432,745 $140,304,494 $149,737,137
Because many types of transactions are susceptible to varying interpretations
under Federal and state tax laws and regulations, the amounts reported above
may be subject to change at a later date upon final determination by the taxing
authorities.
MENDIK REAL ESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
Initial Cost to Partnership
Buildings and
Description Encumbrances Land Improvements
Commercial Properties:
Partnership owned:
500/600 Mamaroneck Ave.
Harrison, NY $ 4,680,836 $ -- $ 21,282,805
Consolidated Venture:
Two Park Avenue
New York, NY 75,000,000 27,140,745 130,411,744
$ 79,680,836 $ 27,140,745 $ 151,694,549
Commercial Property
held for disposition:
Partnership owned:
330 West 34th Street
New York, NY $ 15,000,000 $ -- $ 35,611,400
MENDIK REAL ESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
(continued)
December 31, 1994
Cost Capitalized
Subsequent
To Acquisition
Buildings and Write-down
Description Land Improvements Adjustment
Commercial Properties:
Partnership owned:
500/600 Mamaroneck Ave.
Harrison, NY $ -- $ 9,122,562 $ --
Consolidated Venture:
Two Park Avenue
New York, NY (3,661) 42,518,587 --
$ (3,661) $ 51,641,149 $ --
Commercial Property
held for disposition:
Partnership owned:
330 West 34th Street
New York, NY $ -- $ 10,063,369 $ (39,974,769)
MENDIK REAL ESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
(continued)
December 31, 1994
Gross Amount at Which Carried at
Close of Period
Buildings and Accumulated
Description Land Improvements Total(1) Depreciation
Commercial Properties:
Partnership owned:
500/600 Mamaroneck Ave.
Harrison, NY $ -- $ 30,405,367 $ 30,405,367 $ 9,976,851
Consolidated Venture:
Two Park Avenue
New York, NY 27,137,084 172,930,331 200,067,415 39,559,666
$ 27,137,084 $203,335,698 $230,472,782 $ 49,536,517
Commercial Property
held for disposition:
Partnership owned:
330 West 34th Street
New York, NY $ -- $ 5,700,000 $ 5,700,000 $ --
MENDIK REALESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
(continued)
December 31, 1994
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Commercial Properties:
Partnership owned:
500/600 Mamaroneck Ave.
Harrison, NY 1969/1972 09/04/86 25 years
Consolidated Venture:
Two Park Avenue
New York, NY 1930 09/18/87 35 years
Commercial Property
held for disposition:
Partnership owned:
330 West 34th Street
New York, NY 1925 04/23/87 25 years
For Federal income tax purposes, the basis of land, building and improvements
wholly owned by the partnership at December 31, 1994 and 1993 is $77,192,928
and $117,291,806, respectively.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1994, 1993 and 1992:
Real Estate investments: 1994 1993 1992
Beginning of year $227,392,238 $227,087,155 $308,743,581
Additions 6,235,648 1,491,115 3,408,765
Deletions (3,155,104) (1,186,032) (85,065,191)
End of year $230,472,782 $227,392,238 $227,087,155
Accumulated Depreciation:
Beginning of year $ 44,575,753 $ 37,519,673 $ 44,749,922
Depreciation expense 8,115,868 8,242,112 11,668,383
Deletions (3,155,104) (1,186,032) (18,898,632)
End of year $ 49,536,517 $ 44,575,753 $ 37,519,673
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 8,347,080
<SECURITIES> 000
<RECEIVABLES> 1,392,860
<ALLOWANCES> 618,832
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 236,172,782
<DEPRECIATION> 49,536,517
<TOTAL-ASSETS> 220,467,702
<CURRENT-LIABILITIES> 000
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 75,052,680
<TOTAL-LIABILITY-AND-EQUITY> 220,467,702
<SALES> 33,708,412
<TOTAL-REVENUES> 39,571,260
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 36,178,909
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 10,977,325
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (6,173,627)
<EPS-PRIMARY> (15.47)
<EPS-DILUTED> 000
</TABLE>
