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, 1995
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No 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
incorporation or organization Identification No.
Attn: Andre Anderson 10285
3 World Financial Center, 29th Floor, New York, New York Zip Code
Address of principal executive offices
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 ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.
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
Partnership 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 Notes 2, 5 and 6 to the Consolidated
Financial Statements for a further discussion of the transfer of the Stamford
Property.
The 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 difficulties 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
Beginning in 1988 and into the early 1990s, 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
experienced varying degrees of financial and operating difficulties and many
have downsized their operations, which has had an adverse impact on the demand
for commercial office space. One indication of the weakness in the region's
economy relative to the rest of the United States has been the lack of
employment growth. Between the official end of the national recession in March
1991 and December 1995, employment in the United States grew by 6.5 percent.
In comparison, employment in New York City declined by 3.4 percent. The
unemployment rate in New York City in February 1996 was 8.5% as compared to
5.0% in December 1987. This compares to unemployment rates for the entire
United States of 5.5% and 5.7% in February 1996 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 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 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
sharply increased the demand for capital by landlords, including the
Partnership. This increased demand for capital came 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 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
occurred were at significantly reduced prices. Furthermore, generous
concession packages for new and renewal leases, longer free rent periods and
stagnant rental rates contributed to sharp declines in appraised values.
More recently, conditions in Midtown Manhattan, where the Partnership's Two
Park Avenue and 330 West 34th Street properties are located, and Westchester
County, where the Saxon Woods Corporate Center is located, have exhibited
limited signs of modest improvement. Specifically, although landlords continue
to offer concessions to existing and potential tenants, the level at which such
concessions are being offered in comparison to recent years has decreased as
the existing supply of office space continues to be absorbed. In addition,
vacancy rates in both of these markets have begun to decline, albeit gradually,
and overall average rental rates have stopped declining. Despite these signs
of modest improvement, it is important to note that any future improvement is
expected to be gradual and will be a function of the area's ability to sustain
an economic recovery.
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 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. For a discussion on transactions with
affiliates, see Item 13 and Note 8 to the Consolidated Financial Statements.
Item 2. Properties
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, 1995 was $95,000,000,
compared to appraised values of $105,000,000 as of December 31, 1994 and
$115,000,000 as of December 31, 1993. The decline in the appraised value from
December 31, 1994 to December 31, 1995 is primarily due to the lease
prepayment received from a tenant in the amount of $13,839,000 (see Item 7).
The Partnership's original investment in its interest in Two Park Company at
acquisition was $95,965,732, including $35,820,000 which represented 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, 1995 was $56,715,000, compared to appraised values
of $62,685,000 as of December 31, 1994, $68,655,000 as of December 31, 1993 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 948,000 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 1995, the Two Park Company
expended approximately $46.7 million on capitalized renovations, including
tenant improvement construction, funded from cash flow, Property and
Partnership reserves, and borrowings.
Financing. Reference is made to Item 7 and Note 6 to the Consolidated
Financial Statements for information regarding the non-recourse mortgages
secured by the Park Avenue Property which aggregate $65 million.
Leasing. The Property's occupancy rates as of February 28, 1996, 1995 and
1994, were 97%, 94% and 89%, respectively. During 1996, the Partnership will
continue to market the Property's available space to commercial office tenants.
Based upon data provided by an unaffiliated real estate services firm, the
vacancy rate for primary office space in the Murray Hill section of Midtown
Manhattan, where the Park Avenue Property is located, totalled 17.1% at
December 31, 1995.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 272,000 square feet (approximately 29% of the total
leasable area in the Property) under a lease expiring on September 30, 2010
(see Item 7) and National Benefit Life Insurance Company which leases
approximately 99,800 square feet (approximately 11% of the total leasable area
in the Property) under a lease expiring on May 30, 1998. National Benefit Life
Insurance Company has notified the Partnership that it will vacate its space
once the current lease expires. The base rental income under the leases with
The Times Mirror Company Inc. and National Benefit Life Insurance Company
represented approximately 20% and 9%, respectively, of the Partnership's
consolidated rental income in 1995.
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,
1995 was $2,700,000 compared to appraised values of $5,700,000 at December 31,
1994 and $9,800,000 as of December 31, 1993. 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
accounted 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 and December 31, 1993. In June
1995, the Partnership completed a payoff of the nonrecourse first mortgage
secured by the Partnership's leasehold interest in the 34th Street Property
(the "34th Street Line of Credit"). See Financing below. As a result, the
Partnership intends to hold the Property and has again accounted for it as a
real estate investment.
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 637,000 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 to $2.25 million effective
January 1, 1992 through December 31, 1999. 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.
Renovations. During the period from 1987 through 1995, the Partnership
expended approximately $10.3 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 an agreement with
The First National Bank of Chicago ("FNBC"), the Property's lender, which
modified the 34th Street Line of Credit (the "Forbearance Agreement"). The
Forbearance Agreement provided the Partnership with an opportunity to pay off
the 34th Street Line of Credit at a substantial discount to the 34th Street
Line of Credit's outstanding balance.
In May 1995, the Partnership successfully negotiated an agreement with FNBC to
reduce the amount needed to pay off the 34th Street Line of Credit to $1.75
million, compared to the Property's outstanding debt balance of approximately
$18 million, including accrued interest. Concurrently, since the Partnership
was not able to obtain financing from a third party, an agreement was entered
into with an affiliate of NYRES1 to lend the Partnership the $1.75 million
unsecured loan needed to payoff the 34th Street Line of Credit (the "NYRES1
Loan"). FNBC's agreement to accept only $1.75 million in full satisfaction of
the 34th Street Line of Credit effectively meant that substantially all of the
outstanding principal balance of the loan was forgiven by FNBC. On June 26,
1995, the Partnership completed the payoff of the 34th Street Line of Credit.
Reference is made to Item 7 and Note 6 to the Consolidated Financial Statements
for additional information regarding the payoff of the 34th Street Line of
Credit and the terms of the NYRES1 Loan.
In order further to supplement the Property's cash flow, beginning in January
1992, Mendik Realty Company Inc. ("Mendik Realty"), an affiliate of Mendik
Corporation, 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. In connection with the
NYRES1 Loan, 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 47% 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 on a floor by floor basis without penalty provided the
City gives the Partnership one year's notice of its intent to terminate the
lease. To date, the Partnership has not received any indication that the City
intends to terminate any portion of the lease. However, the City has retained
a real estate brokerage firm to evaluate its space needs at various locations
in New York City, including the 34th Street Property. The Partnership has had
preliminary discussions with the brokerage firm in connection with a long-term
extension of the City's lease. The City makes 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 1995.
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, 1996, 1995 and 1994, were 90%,
65% and 61%, respectively. The increase in occupancy from 1994 to 1995 is the
result of the signing of leases for approximately 205,000 square feet during
1995 on a substantially "as is" basis. Based upon data provided by an
unaffiliated real estate services firm, the vacancy rate for secondary office
space in the Penn Station section of Midtown Manhattan, where the 34th Street
Property is located, totalled 22.9% at December 31, 1995.
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, 1995 was $15,200,000, compared to $15,000,000 at December 31, 1994 and
December 31, 1993.
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 109,000 net rentable square feet and the building at 600
Mamaroneck Avenue contains approximately 123,000 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 1995, the Partnership
expended approximately $10.2 million on capitalized renovations, including
tenant improvement construction, funded from cash flow, Partnership reserves,
and borrowings.
Financing. Through December 1995, the Partnership had borrowed approximately
$5 million and may borrow an additional $1 million 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"). The Saxon
Woods Line of Credit matures in September 1996. The Partnership has commenced
discussions with the lender in an effort to extend the maturity date of the
mortgage. In the event an agreement with the lender cannot be reached, the
Partnership will pursue other options, including a refinancing with a new
lender or a possible sale of the Property. However, there can be no assurance
that such efforts would be successful. Reference is made to Note 6 to the
Consolidated Financial Statements and Item 7 for additional information
regarding the Saxon Woods Line of Credit.
Leasing. The Property's occupancy rates as of February 28, 1996, 1995 and 1994
were 81%, 80% and 75%, respectively. The vacancy rate in Westchester County,
where the Saxon Woods Corporate Center is located, was 17.6% as of December 31,
1995, as compared to a vacancy rate of 18.6% at December 31, 1994. During
1995, utilizing funds available under the Saxon Woods Line of Credit,
Partnership reserves and cash flow, the Partnership entered into leasing
transactions covering approximately 34,000 square feet at the Property
including lease extensions and expansions by existing tenants. During 1996,
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.
Item 3. Legal Proceedings
On February 6, 1996, a purported class action, Sword v. Lehman Brothers
Holdings, Inc., was commenced on behalf of, among others, all Unitholders in
the Circuit Court for Baltimore, Maryland against the Partnership, Lehman
Brothers Holdings, Inc., E.F. Hutton & Company, Inc. and others. The complaint
alleges that the Unitholders were induced to purchase Units based upon
misrepresentations and/or omitted statements in the sales materials used in
connection with the offering of Units in the Partnership. The complaint
alleges, inter alia, claims of fraud, negligent misrepresentation and breach of
fiduciary duty. The defendants intend to defend the action vigorously.
On March 7, 1996, a purported class action, Ressner v. Lehman Brothers Inc.,
was commenced on behalf of, among others, all Unitholders in the Court of
Chancery for New Castle County, Delaware, against the NYRES1 general partner of
the Partnership, Lehman Brothers Inc. and others. The complaint alleges, among
other things, that the Unitholders were induced to purchase Units based upon
misrepresentation and/or omitted statements in the sales materials used in
connection with the offering of Units in the Partnership. The complaint
purports to assert a claim for breach of fiduciary duty based on the foregoing.
The defendants intend to defend the action vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1995, 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, 1995, there were 19,695 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, 1995
and 1994, no distributions were paid to the Partners, and the Partnership does
not contemplate making any distributions during 1996. 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 December 31 December 31 December 31 December 31
1995 1994 1993 1992 1991
(Dollars in thousands, except for per Unit data) (1)
Total
income (2) $ 33,634 (5) $ 39,571 (6) $ 34,616 $ 34,437 $ 36,318
Net
income
(Loss) (3) 11,613 (5) (6,174) (6)(7) (11,407) (7) (52,416) (7) (8,063)
Total
assets (2) 212,737 220,468 237,798 247,773 299,247
Total
mortgages
and notes
payable (2) 72,275 95,161 107,043 105,655 103,056
Net cash
provided by
operating
activities (2) 15,247 4,279 1,275 1,824 622
Net income
(Loss) per
Unit (3)(4) 24.43 (5) (15.47) (6)(7) (28.58) (7) (131.31) (7) (20.20)
Cash
distributions
per Unit (4) -- -- -- -- --
Net asset
value per
Unit (3)(4) $ 99 (8) $ 82 (8) $ 99 (8) $ 121 (8) $ 162 (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) Includes a $16,247,734 gain on retirement of debt resulting from the
discounted payoff of the 34th Street Line of Credit in June 1995.
(6) Includes a $5,564,391 gain on transfer in lieu of 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 positive 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, 1995, the amount distributable to an
average Class A unit would be approximately $78.83 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 $129.04 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 realized 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. The Times Mirror lease pre-payment, as discussed in Item
7 below, has been treated as a capital transaction and, accordingly, this
income was allocated to the Class A Limited Partners in accordance with
the Partnership Agreement.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
Beginning in 1988 and into the early 1990s, 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
experienced varying degrees of financial and operating difficulties and many
have downsized their operations, which has had an adverse impact on the demand
for commercial office space. The weakness in the marketplace 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 cost of tenant improvements required to be funded
under both new and renewal leases 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 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, 1995, 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) proceeds from the Saxon Woods Line of Credit
and (v) the prepayment of rent by The Times Mirror Company Inc., in connection
with the lease restructuring at the Park Avenue Property in November 1995 as
discussed below. It is expected that funds from certain of these sources will
be reduced or unavailable in the future.
Park Avenue Property - For the year ended December 31, 1995, the Partnership
signed new and renewal leases and amended leases for 408,732 square feet or
approximately 43% of the leasable area in the Property. The largest of the new
leases was with The Times Mirror Company Inc. During the fourth quarter of
1995, the Partnership was successful in negotiating a six and one quarter year
lease extension from June 30, 2004 through September 30, 2010 on substantially
an "as is" basis with Times Mirror Magazines Inc. and its affiliate, Newsday
Inc. As part of the extension, The Times Mirror Company Inc., the parent
company of Times Mirror Magazines Inc. and Newsday Inc., took over the leases,
which total approximately 263,000 square feet. The Times Mirror Company Inc.,
whose financial condition is more secure than those of its subsidiaries, also
leased an additional 9,000 square feet, bringing its total leased space to
approximately 272,000 square feet or approximately 29% of the Property. As
part of the lease amendment, The Times Mirror Company Inc. pre-paid a portion
of the rents due through the original lease expiration of June 30, 2004. The
lease prepayment was used by the Partnership to prepay, without penalty, $10
million of the outstanding balance of the loans secured by the Property,
reducing the principal balance of the loans to $65 million. The balance of
funds from the prepayment was used for tenant improvements, leasing commissions
and other costs associated with the execution of the amended lease with The
Times Mirror Company Inc. Such prepayment was made in November 1995. The
Times Mirror pre-payment has been treated as a capital transaction and,
accordingly, this income was allocated to the Class A Limited Partners in
accordance with the Partnership Agreement.
The Property's cash flow in 1996 is expected to remain stable. 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 1995 were approximately $3.5 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 and with 180 days written notice). The lender has, to date, given
neither formal notice nor any indication that it will or intends to accelerate
the maturity date of the loans. If the maturity of the loans is accelerated,
the Partnership will explore other options, including either a refinancing with
a new lender or a possible sale of the Property. However, no assurances can be
given that the Partnership would be able to refinance or sell the Property on
terms acceptable to the Partnership.
Saxon Woods Corporate Center - During 1995, the Partnership executed leases for
34,350 square feet. The Partnership expects that cash flow from the Saxon
Woods Corporate Center will cover operating expenses and debt service
obligations in 1996. The Saxon Woods Line of Credit is in the amount of up to
$6.5 million. As of December 31, 1995, the Partnership had borrowed $5,044,524
under the Saxon Woods Line of Credit. Pursuant to 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 currently permitted to borrow up to
$6,080,000 based on the most recent appraisal of the Saxon Woods Corporate
Center which was $15,200,000 as of December 31, 1995. 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 indebtedness secured by the Saxon Woods Corporate Center currently matures
in September 1996. The Partnership has commenced discussions with the lender
in an effort to extend the maturity date of the mortgage. In the event an
agreement with the lender cannot be reached, the Partnership will pursue other
options, including a refinancing with a new lender or a possible sale of the
Property. However, there can be no assurance that such efforts would be
successful.
34th Street Property - During 1995, the Partnership entered into leasing
transactions for 205,310 square feet on a substantially "as is" basis,
resulting in a 25% increase in the Property's December 31, 1995 leased rate as
compared to the leased rate at December 31, 1994. The largest tenant in the
Property is the City of New York Human Resources Administration occupying
approximately 47% of the total leasable area under a lease which is scheduled
to expire in February 2001. 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.
As with most New York City leases, the tenant has the right to terminate its
lease on a floor by floor basis upon one year's notice although it must
reimburse the Partnership's unamortized costs of tenant improvements associated
with the lease. To date, the Partnership has not received any indication that
the City intends to terminate any portion of the lease. However, the City has
retained a real estate brokerage firm to evaluate its space needs at various
locations in New York City, including the 34th Street Property. The
Partnership has had preliminary discussions with the brokerage firm in
connection with a long-term extension of the City's lease.
In May 1995, the Partnership successfully negotiated an agreement with FNBC to
reduce the amount needed to pay off the 34th Street Line of Credit to $1.75
million, compared to the Property's outstanding debt balance of approximately
$18 million, including accrued interest. Concurrently, an agreement was
entered into with an affiliate of NY Real Estate Services 1 Inc. to lend the
Partnership the $1.75 million unsecured loan needed to complete the payoff of
the 34th Street Line of Credit prior to June 30, 1995. FNBC's agreement to
accept only $1.75 million in full satisfaction of the 34th Street Line of
Credit effectively meant that substantially all of the outstanding principal
balance was forgiven by FNBC. On June 26, 1995, the Partnership completed the
payoff of the 34th Street Line of Credit. As a result of the successful
payoff, the Partnership will be able to retain its interest in the Property and
have the opportunity to benefit from a possible improvement in the market.
The NYRES1 Loan bears interest at the prime rate less one and one-quarter
percent. Payments of accrued interest and principal will be payable on a
current basis to the extent there is net cash flow available from the 34th
Street Property. To the extent that interest has not been paid on a current
basis from the Property's cash flow, any net proceeds realized from the
conveyance or refinancing of the 34th Street Property or any of the
Partnership's other properties will be used to pay accrued interest and
principal on the loan. The NYRES1 Loan matures upon the earlier of December
31, 2025 or the termination of the Partnership and is not secured by a mortgage
on the Property, but remains an unsecured obligation of the Partnership. In
connection with the NYRES1 Loan, Mendik Realty, an affiliate of Mendik
Corporation, agreed to continue to defer its management fees and leasing
commissions associated with any additional leasing activity that would
otherwise have been payable with respect to the Property.
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 accounted 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. Now that the
Partnership has replaced the first mortgage debt on the Property with the
NYRES1 Loan, the Partnership intends to hold the Property and has again
accounted for it as a real estate investment.
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, although it had no obligation to do so.
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. As noted above, in connection with the NYRES1 Loan, these fees and
commissions will continue to be deferred. Through December 31, 1995, Mendik
Realty had deferred approximately $1,367,413 in leasing commissions and
management fees, including accrued interest, with respect to the 34th Street
Property.
Operating Cash Reserves
The Partnership's consolidated cash reserves decreased by $664,367 to
$4,673,561 at December 31, 1995 from $5,337,928 at December 31, 1994 primarily
as a result of payments for tenant improvements at the Park Avenue Property.
The decrease was partially offset by cash flow generated by the 34th Street
Property. During the year ended December 31, 1995, approximately $5.6 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
cash flow from operations generated during 1995, proceeds from the Saxon Woods
Line of Credit, Partnership cash reserves, the deferral of property management
fees and leasing commissions by Mendik Realty with respect to certain of the
Properties, and the prepayment of rent by The Times Mirror Company Inc. in
connection with the lease restructuring at the Park Avenue Property in
November 1995.
The Partnership's restricted cash balance at December 31, 1995 decreased by
$1,045,662 to $1,065,455 at December 31, 1995 from $2,111,117 at December 31,
1994. Prior to the payoff of the 34th Street Line of Credit, the Partnership
was required to deposit all receipts from the 34th Street Property into a
lockbox at FNBC. As a result of the successful buy out of the 34th Street Line
of Credit, funds maintained in the lockbox totalling approximately $943,000,
and reflected under restricted cash, were released to the Partnership and were
used to pay real estate taxes.
Other Unliquidated Assets
Deferred rent receivable totalled $9,597,899 at December 31, 1995 compared to
$14,508,937 at December 31, 1994. The $4,911,038 decrease is primarily
attributable to the restructuring of the Times Mirror Magazine and Newsday
leases at the Two Park Avenue Property in the fourth quarter of 1995. The
Times Mirror Company Inc., the parent company of Times Mirror Magazines Inc.
and Newsday Inc., assumed the leases and extended the term for six and one
quarter years through September 30, 2010. As part of the lease amendment, The
Times Mirror Company pre-paid a portion of the rents due through the original
lease expiration of June 30, 2004 and effectively reduced their rental rate per
square foot over the remaining lease term.
Other assets increased from $8,090,275 at December 31, 1994 to $10,541,223 at
December 31, 1995. The increase is primarily attributable to additional
unamortized leasing commissions in connection with leasing activity at the
Partnership's Properties during 1995.
Short- and Long-Term Liabilities
Accounts payable and accrued expenses decreased by $1,107,940 from $2,647,703
at December 31, 1994 to $1,539,763 at December 31, 1995. The decrease is
primarily attributable to the payments of tenant and building improvements and
other property operating expenses primarily related to the Park Avenue
Property.
Deferred income increased from $134,114 at December 31, 1994 to $7,530,747 at
December 31, 1995. The increase is primarily attributable to the execution of
the amended lease with The Times Mirror Company, Inc. in the fourth quarter of
1995.
Due to affiliates increased from $1,783,552 at December 31, 1994 to $2,650,348
at December 31, 1995. The $866,796 increase is primarily attributable to the
continued deferral by Mendik Realty of management fees with respect to the 34th
Street Property and cleaning and related service costs owed to an affiliate of
Mendik Realty.
Accrued interest payable totalled $621,854 at December 31, 1995 as compared to
$2,985,200 at December 31, 1994. The decrease is primarily attributable to the
June 1995 discounted payoff of the 34th Street Line of Credit as discussed
above.
Mortgages payable decreased from $94,680,836 at December 31, 1994 to
$70,044,524 at December 31, 1995. The $24,636,312 decrease is primarily
attributable to the $10 million paydown of the Two Park Avenue loans with funds
received from the prepayment of rent by The Times Mirror Company as discussed
above and the June 1995 discounted payoff of the 34th Street Line of Credit.
Notes payable to affiliates increased from $480,000 at December 31, 1994 to
$2,230,000 at December 31, 1995. The increase is primarily attributable to the
NYRES1 Loan to the Partnership in connection with the payoff of the 34th Street
Line of Credit in June 1995.
Results of Operations
1995 vs. 1994
For the year ended December 31, 1995, the Partnership generated net cash from
operating activities of $15,247,357 compared to $4,279,060 for the year ended
December 31, 1994. The increase is primarily attributable to the prepayment of
rent by The Times Mirror Company Inc. in connection with the lease
restructuring at the Park Avenue Property in November 1995. The Partnership
generated net income of $11,613,040 for the year ended December 31, 1995
compared to a net loss of $6,173,627 for the year ended December 31, 1994. The
change from net loss to net income is primarily attributable to a $16,247,734
extraordinary gain recognized on the retirement of the 34th Street Line of
Credit. Without the gain, the Partnership generated a loss before
extraordinary item of $4,634,694 for the year ended December 31, 1995. The
lower operating loss in 1995 is primarily attributable to decreases in property
operating expenses, depreciation and amortization, and interest expense.
Rental income for the year ended December 31, 1995 totalled $33,420,387,
largely unchanged from $33,708,412 for the year ended December 31, 1994. While
the transfer of the Stamford Property in December 1994 was the primary reason
for the slight decrease in rental income during 1995, this was largely offset
by increased rental income at Two Park Avenue and Saxon Woods Corporate Center
as a result of new and renewal leases executed at these Properties during the
prior year.
Property operating expenses for the year ended December 31, 1995 totalled
$20,024,041 compared to $21,097,441 for the year ended December 31, 1994. The
decrease is primarily attributable to the transfer of the Stamford Property to
the lender in December 1994 in lieu of foreclosure. The transfer of the
Stamford Property was also the primary reason for the $2,180,466 and $506,543
decreases in interest expense and depreciation and amortization, respectively,
during 1995 as compared to 1994.
1994 vs. 1993
For the year ended December 31, 1994, the Partnership generated net cash from
operating activities of $4,279,060 as compared to $1,275,101 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 transfer
in lieu of 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 slightly
decreased 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 the
lender. 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 previous 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.
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 66 Chairman and Director
David R. Greenbaum 44 President
Christopher G. Bonk 41 Senior Vice President, Treasurer
and Chief Financial Officer
Michael M. Downey 54 Senior Vice President
David L. Sims 49 Senior Vice President
Kevin R. Wang 38 Senior Vice President
John J. Silberstein 35 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, Treasurer and Chief Financial Officer.
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 48 Director and President
Mark Sawicki 33 Vice President and Chief
Financial Officer
Lawrence M. Ostow 28 Vice President
Kenneth L. Zakin has been an officer of NYRES1 since 1989. Mark Sawicki has
been an officer of NYRES1 since October 1990. Lawrence M. Ostow has been an
officer of NYRES1 since September 1995.
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 a member of the Real Estate Lender's Association and 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.
Lawrence M. Ostow is an Assistant Vice President of Lehman Brothers and is
responsible for the management of commercial real estate in the Diversified
Asset Group. Mr. Ostow joined Lehman Brothers in September 1992. Prior to
that, Mr. Ostow was a Senior Consultant with Arthur Andersen & Co. in the Real
Estate Services Group, beginning in July 1990. Mr. Ostow is a candidate for an
M.B.A. from the Stern School of Business in 1997 and earned a B.A. degree in
Economics from the University of Michigan in 1990.
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 29, 1996, 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 29, 1996, 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, 1995. For the 1995 fiscal year, $743,548 of the Partnership's net
income 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, 1995,
there was a liability of approximately $1,218,972 to Mendik Realty as a result
of leasing commissions earned in 1995 and prior periods from the 34th Street
Property, Park Avenue Property and Saxon Woods Corporate Center. During 1995,
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 1996.
First Data Investor 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.
Both First Data Investor Services Group and Service Data Corporation are
unaffiliated companies.
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
1995, Mendik Realty earned management fees including deferred fees of $732,389
from the Partnership and was reimbursed $438,616 for the cost of on-site
building management salaries.
During 1995, Mendik Realty deferred certain management fees payable to it by
the Partnership in connection with the 34th Street Property. During 1996,
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 1995, GMSC and BMSC earned from
the Partnership $4,493,393 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, 1995, 1994 and 1993 and
all balances unpaid at December 31, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) 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, 1995 and 1994 F-2
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Partners' Capital (Deficit) for
the years ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-5
Notes to the Consolidated Financial Statements F-6
Schedule III - Real Estate and Accumulated Depreciation F-19
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.
(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
1995.
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).
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: April 12, 1996 BY: /s/David R. Greenbaum
Name: David R. Greenbaum
Title: President
BY: NY Real Estate Services 1 Inc.
General Partner
Date: April 12, 1996 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: April 12, 1996 BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Date: April 12, 1996 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: April 12, 1996 BY: /s/Bernard H. Mendik
Name: Bernard H. Mendik
Title: Chairman and Director
Date: April 12, 1996 BY: /s/David R. Greenbaum
Name: David R. Greenbaum
Title: President
Date: April 12, 1996 BY: /s/Christopher G. Bonk
Name: Christopher G. Bonk
Title: Senior Vice President, Chief
Financial Officer 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995 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
March 21, 1996
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate investments:
Land $ 27,137,084 $ 27,137,084
Buildings and improvements 214,497,059 209,035,698
241,634,143 236,172,782
Less-accumulated depreciation (58,172,619) (49,536,517)
183,461,524 186,636,265
Cash and cash equivalents 4,673,561 5,337,928
Restricted cash 1,065,455 2,111,117
U.S. Treasuries and Agencies 2,458,794 3,009,152
Rents and other receivables (net
of allowance for doubtful accounts of
$150,880 in 1995 and $618,832 in 1994) 938,101 774,028
Deferred rent receivable 9,597,899 14,508,937
Other assets, net of accumulated
amortization of $6,513,970 in 1995
and $5,038,398 in 1994 10,541,223 8,090,275
Total Assets $212,736,557 $220,467,702
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 1,539,763 $ 2,647,703
Deferred income 7,530,747 134,114
Due to affiliates 2,650,348 1,783,552
Security deposits payable 1,065,455 1,168,590
Accrued interest payable 621,854 2,985,200
Mortgages payable 70,044,524 94,680,836
Notes payable to affiliates 2,230,000 480,000
Total Liabilities 85,682,691 103,879,995
Minority interest 40,388,146 41,535,027
Partners' Capital (Deficit):
General Partners --- (1,487,096)
Special Limited Partner --- (471,998)
Limited Partners (395,169 units outstanding) 86,665,720 77,011,774
Total Partners' Capital 86,665,720 75,052,680
Total Liabilities and Partners' Capital $212,736,557 $220,467,702
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rent $33,420,387 $33,708,412 $ 34,333,599
Gain on transfer
in lieu of foreclosure --- 5,564,391 ---
Interest 214,049 298,457 282,740
Total Income 33,634,436 39,571,260 34,616,339
Expenses
Property operating 20,024,041 21,097,441 22,408,960
Depreciation and amortization 10,199,677 10,706,220 10,498,610
Interest 8,796,859 10,977,325 10,194,343
General and administrative 395,434 364,286 472,146
Unrealized losses on
property held for disposition --- 4,010,962 4,240,608
Total Expenses 39,416,011 47,156,234 47,814,667
Loss before minority interest
and extraordinary item (5,781,575) (7,584,974) (13,198,328)
Minority interest in loss of
consolidated venture 1,146,881 1,411,347 1,791,780
Loss before extraordinary item (4,634,694) (6,173,627) (11,406,548)
Extraordinary Item
Gain on retirement of debt 16,247,734 --- ---
Net Income (Loss) $11,613,040 $(6,173,627) $(11,406,548)
Net Income (Loss) Allocated:
To the General Partners $ 1,487,096 $ (61,736) $ (114,065)
To the Limited Partners 9,653,946 (6,111,891) (11,292,483)
To the Special Limited Partner 471,998 --- ---
$11,613,040 $(6,173,627) $(11,406,548)
Per limited partnership
unit (395,169) outstanding:
Net loss before extraordinary item $(11.61) $(15.47) $(28.58)
Net Income (Loss) $ 24.43 $(15.47) $(28.58)
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Special
Limited General Limited
Partners Partners Partner Total
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
Net Income 9,653,946 1,487,096 471,998 11,613,040
Balance at
December 31, 1995 $86,665,720 $ --- $ --- $ 86,665,720
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net income (loss) $11,613,040 $(6,173,627) $(11,406,548)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,199,677 10,706,220 10,498,610
Gain on transfer in lieu of foreclosure --- (5,564,391) ---
Gain on retirement of debt (16,247,734) --- ---
Minority interest in loss of
consolidated venture (1,146,881) (1,411,347) (1,791,780)
Provision for losses on rents
and receivables --- 426,994 ---
Unrealized loss on properties
held for disposition --- 4,010,962 4,240,608
Net premium (discount) amortization -
U.S. Treasuries and Agencies 50,092 (32,175) (99,651)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash 1,045,662 279,617 (475,920)
Rents and other receivables (164,073) (440,311) 1,010,411
Deferred rent receivable 4,911,038 (344,889) (729,445)
Other assets (3,856,650) (1,866,041) (1,806,549)
Accounts payable and accrued expenses 48,504 879,384 (594,809)
Deferred income 7,396,633 51,793 30,832
Due to affiliates 866,796 913,633 843,132
Accrued interest payable 634,388 2,682,521 1,040,181
Security deposits payable (103,135) 160,717 440,238
Deferred interest payable --- --- 75,791
Net cash provided by
operating activities 15,247,357 4,279,060 1,275,101
Cash Flows from Investing Activities:
Additions to real estate investments (5,619,234) (6,787,315) (2,845,613)
Accounts payable - real estate assets (1,156,444) 338,317 ---
Acquisition of U.S. Treasuries
and Agencies (3,574,183) (4,659,415) (5,744,971)
Redemption of U.S. Treasuries
and Agencies 4,074,449 4,565,357 5,780,013
Net cash used for investing activities (6,275,412) (6,543,056) (2,810,571)
Cash Flows from Financing Activities:
Payments of principal on
mortgage notes payable (11,750,000) --- ---
Proceeds from mortgage
and notes payable 2,113,688 138,159 1,388,175
Net cash provided by (used for)
financing activities (9,636,312) 138,159 1,388,175
Net decrease in cash
and cash equivalents (664,367) (2,125,837) (147,295)
Cash and cash equivalents
at beginning of year 5,337,928 7,463,765 7,611,060
Cash and cash equivalents
at end of year $ 4,673,561 $ 5,337,928 $ 7,463,765
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 8,015,003 $ 8,294,804 $ 9,154,162
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
On June 26, 1995 the Partnership completed the payoff of the nonrecourse first
mortgage secured by the Partnership's leasehold interest in the 34th Street
property for $1.75 million. As of that date, there was $15 million of
principal outstanding and accrued interest of $2,997,734. To complete the
discounted payoff the Partnership received a loan from an affiliate of NY
Real Estate Services 1 Inc., in the amount of $1.75 million.
On December 29, 1994, the Partnership transferred title to the 1351 Washington
Boulevard property to the mortgage holder, in lieu of foreclosure. The
transfer resulted in full satisfaction of the property's debt.
Supplemental Disclosure of Non-Cash Operating Activities:
During the year ended December 31, 1995, the Partnership wrote-off $227,741 of
fully amortized assets.
Notes to the Consolidated Financial Statements
December 31, 1995, 1994, and 1993
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 February 25, 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 in 1996. 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 joint venture's cash reserves which at year-end 1995
were approximately $3.5 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.
During the fourth quarter of 1995, the Partnership was successful in
negotiating a six and one quarter year lease extension from June 30, 2004
through September 30, 2010 on substantially an "as is" basis with Times Mirror
Magazines Inc. and its affiliate, Newsday Inc. As part of the extension, The
Times Mirror Company Inc., the parent company of Times Mirror Magazines Inc.
and Newsday Inc., took over the leases, which total approximately 263,000
square feet. The Times Mirror Company Inc., whose financial condition is more
secure than those of its subsidiaries, also leased an additional 9,000 square
feet, bringing its total leased space to approximately 272,000 square feet or
approximately 29% of the Property. As part of the lease amendment, The Times
Mirror Company pre-paid a portion of the rents due through the original lease
expiration of June 30, 2004. The lease prepayment was used by the Partnership
to prepay, without penalty, $10 million of the outstanding balance of the loans
secured by the Property, reducing the principal balance of the loans to $65
million. Such prepayment was made in November 1995.
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 loans. The indebtedness secured by the Park
Avenue Property currently matures in December 1998, or December 1996 at the
option of the lender, (See Note 6 for further information). The lender has, to
date, given neither formal notice nor any indication that it will or intends to
accelerate the maturity date of the loans. If the maturity of the loans is
accelerated, the Partnership will explore other options, including either a
refinancing with a new lender or a possible sale of the property. However, no
assurances can be given that the Partnership would be able to refinance or sell
the property on terms acceptable to the Partnership.
The property was 97% and 92% leased at December 31, 1995 and 1994,
respectively.
The 34th Street Property - 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 provides for annual lease
payments of $2.25 million through December 31, 1999. The ground lease may be
renewed in 1999 and thereafter 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.
In 1993, the Partnership signed a long-term lease with the City of New York for
approximately 47% 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 provided the City gives the Partnership one year's prior notice and to
reimburse 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 Company, Inc. ("Mendik Realty"), an affiliate of Mendik
Corporation, 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. Through December 31, 1995, Mendik Realty has
deferred approximately $1,367,413 in leasing commissions and management fees
with respect to the 34th Street Property.
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
suspending its interest payments to FNBC beginning in September 1992. 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 allowed 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.
In May 1995, the Partnership successfully negotiated an agreement with FNBC to
reduce the amount needed to pay off the nonrecourse first mortgage secured by
the Partnership's leasehold interest in the 34th Street Property (the "34th
Street Line of Credit") to $1.75 million compared to the property's outstanding
debt balance of approximately $18 million, including accrued interest.
Concurrently, an agreement was entered into with an affiliate of NY Real Estate
Services 1 Inc. to lend the Partnership the $1.75 million needed to complete
the payoff of the 34th Street Line of Credit prior to June 30, 1995 (the
"NYRES1 Loan"). FNBC's agreement to accept only $1.75 million in full
satisfaction of the 34th Street Line of Credit effectively meant that
substantially all of the outstanding principal balance of the loan was forgiven
by FNBC. On June 26, 1995, the Partnership completed the payoff of the 34th
Street Line of Credit. As a result, the Partnership will be able to retain its
interest in the property and will have the opportunity to benefit from any
improvement in the market.
The NYRES1 Loan bears interest at the prime rate less one and one-quarter
percent. Payments of accrued interest and principal will be payable on a
current basis to the extent there is net cash flow available from the 34th
Street property. To the extent that interest has not been paid on a current
basis from the property's cash flow, any net proceeds realized from the
conveyance or refinancing of the 34th Street Property or any of the
Partnership's other properties will be used to pay accrued interest and
principal on the loan. The NYRES1 Loan matures upon the earlier of December
31, 2025 or the termination of the Partnership and is not secured by a mortgage
on the property, but remains an unsecured obligation of the Partnership. In
connection with the NYRES1 Loan, Mendik Realty agreed to continue to defer its
management fees and leasing commissions associated with any additional leasing
activity that would otherwise have been payable with respect to the property.
The property was 90% and 65% occupied at December 31, 1995 and 1994,
respectively.
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 1996. 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 $6,080,000 based upon the most
recent appraisal of the Saxon Woods Corporate Center which as of December 31,
1995 was $15,200,000. 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, 1995, the Partnership had borrowed
$5,044,524 under the Saxon Woods Line of Credit.
The indebtedness secured by the Saxon Woods Corporate Center currently matures
in September 1996. The Partnership has commenced discussions with the lender in
an effort to extend the maturity date of the mortgage. In the event an
agreement with the lender cannot be reached, the Partnership will pursue other
options, including a refinancing with a new lender or a possible sale of the
Property. However, there can be no assurance that such efforts would be
successful.
The property was 81% and 78% occupied at December 31, 1995 and 1994,
respectively.
Stamford Property - The Partnership restructured the nonrecourse loan secured
by the Stamford Property 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. However, the Stamford real estate
market continued to deteriorate resulting in a further erosion of market lease
rates. During 1994 two leases totaling 77,800 square feet expired and,
although the Partnership was able to negotiate a new lease for 46,600 square
feet with one of the tenants, it was at a significantly reduced rental rate. As
a result, 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. 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 the lender in lieu of
foreclosure. The transfer resulted in the loss of the Partnership's investment
in the property; 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.
3. Summary of Significant Accounting Policies
Basis of Accounting. The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred.
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% general partnership 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 20 to 35 years.
Depreciation of personal property is computed using the straight-line method
over an estimated useful life ranging from 5 to 10 years. Tenant improvements
are amortized using the straight-line method over the respective lease terms.
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 accounted 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. Now that the
Partnership has replaced the first mortgage debt on the property with the NYRES
1 Loan, management intends to hold the property and has again accounted for it
as a real estate investment.
Accounting for Impairment. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995.
The Partnership completed a review of recoverability of the carrying amount of
each property based upon an estimate of undiscounted cash flows expected to
result from each property's use and eventual disposition. Based on current
estimates, the adoption of FAS 121 had no impact on the financial statements.
However, if long-term financing cannot be arranged for the Two Park and Saxon
Woods properties and the 34th Street Property ground lease is not extended, it
is reasonably possible that a change in the Partnership's assessment of
recoverability could occur.
Cash Equivalents. Cash equivalents consist of short-term, highly liquid
investments which have maturities of three months or less from the date of
issuance. The carrying amount approximates fair value because of the short
maturity of these instruments.
Restricted Cash. Restricted cash consists of security deposits.
Marketable Securities. Marketable securities, which consist of United States
Treasury securities and Agencies, are carried at amortized cost, which
approximates market.
Concentration of Credit Risk. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
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 Costs. Leasing costs are capitalized and amortized using the straight
line-method over the respective lease terms.
Mortgage Costs. Mortgage costs are capitalized and amortized over the term of
the mortgages payable.
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgement regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. In addition, FAS 107 allows a
wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
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.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Income (Loss) Per Limited Partnership Unit. Net income (loss) per limited
partnership unit is based upon the limited partnership units outstanding during
the year and the net income (loss) allocated to the limited partners in
accordance with the terms of the Partnership Agreement.
Reclassification. Certain 1994 and 1993 amounts have been reclassified to
conform with the financial statement presentation used in 1995.
4. The Partnership Agreement
Taxable income for any fiscal year shall be generally allocated in
substantially the same manner as net cash from operations then 85% to the
limited partners, 14% to the special limited partner and 1% to the general
partners, except that depreciation allocated to the limited partners will be
allocated solely to the Class A units. 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 Times Mirror Lease Prepayment and the gain on retirement of the 34th Street
Property debt have been treated as capital transactions for purposes of
allocation under the Partnership Agreement. Accordingly, only the Class A
limited partners, the special limited partner and the general partners have
received an allocation of income; Class B limited partners received no
allocation from these transactions.
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 50% of the Partnership's rental
income in 1995. See Note 2 for leasing activity.
The Park Avenue Property. In 1987, the Partnership indirectly acquired from an
affiliate an approximate 60% general partnership 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 948,000 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., of which Mendik Corporation is a general partner. The sole
stockholder of the other general partner is also the lender of the mortgages
secured by the Park Avenue Property. At December 31, 1995, the property was
appraised at $95,000,000, and the appraised value of the property net of the
minority interest was $56,715,000. 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. The reduction in the appraised value from
December 31, 1994 to December 31, 1995 is primarily due to the lease prepayment
received from a tenant in the amount of $13,839,000. (See Notes 2 and 6).
Major tenants at Two Park Avenue are Times Mirror Magazines, Inc. and its
affiliate Newsday, Inc. both of whom assigned their leases to Times Mirror
Company Inc. as of October 1, 1995. The Times Mirror Company Inc. leases
271,850 square feet (29% of total leasable area in the property) under a new
lease which expires on September 30, 2010 and National Benefit Life Insurance
Company which leases 99,839 square feet (11% of total leasable area in the
property) under a lease expiring May 30, 1998. National Benefit Life Insurance
Company has notified the Partnership that it will vacate its space once the
current lease expires. Times Mirror Company and National Benefit Life
Insurance Company represented 29% and 13%, respectively, of the property's
total rental income in 1995.
The 34th Street Property. In 1987, the Partnership acquired the leasehold
interest in the 34th Street Property, an eighteen-story structure containing
approximately 637,000 net rentable square feet (based on current standards of
measurement) from an affiliate of the Partnership. The building was purchased
from 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 $2,700,000 at December 31, 1995. The appraised value
at December 31, 1994 was $5,700,000.
The major tenant at the 34th Street property is the City of New York which
leases 300,000 square feet (47% 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. To date, the Partnership
has not received any indication that the City intends to terminate any portion
of the lease. However, the City has retained a real estate brokerage firm to
evaluate its space needs at various locations in New York City, including the
34th Street Property. The Partnership has had preliminary discussions with the
brokerage firm in connection with a long-term lease extension of the City's
lease. The City represented approximately 90% of the property's total revenue
in 1995.
The Saxon Woods Corporate Center. In 1986, the Partnership acquired the
leasehold interest in Saxon Woods Corporate Center, two office buildings
located in Harrison, New York containing an aggregate of approximately 232,000
net rentable square feet (based on current standards of measurement) from an
affiliate of the Partnership. The building was purchased from the affiliate
for the purpose of facilitating the acquisition by 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 $15,200,000 at December 31, 1995, compared to
$15,000,000 at December 31, 1994.
Major tenants at the Saxon Woods Corporate Center are Commodity Quotations
which leases 24,540 square feet (11% 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 (13% of
the total leasable area) under a lease expiring November 30, 2004. Commodity
Quotations and Icon Capital Corp represented approximately 13% and 14%,
respectively, of the property's rental income in 1995.
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.
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 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 was
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 would have been due and
payable. In November 1995, the Partnership prepaid, without penalty, the
$10,000,000 second mortgage from proceeds received from the lease extension
with The Times Mirror Company Inc. 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 mortgages
(collectively the "Park Avenue Loans") to a date not earlier than December 19,
1996 upon at least 180 days prior notice (June 19, 1996).
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 both loans
to make a non-recourse first mortgage loan in the principal amount of
$65,000,000.
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
was scheduled to mature on May 31, 1997 and provided the Partnership with the
flexibility to draw funds at 110 basis points over the London Interbank offered
rate ("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 was prevented from borrowing any additional
funds.
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. 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 allowed 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 was permitted to make interest payments
to FNBC, based upon the Corporate Base Rate or the prime rate beginning March
19, 1993, only to the extent of available cash flow from the 34th Street
Property. No interest payments were made by the Partnership during the
forbearance periods.
In May 1995, the Partnership successfully negotiated an agreement with the
FNBC, the property's lender, to reduce the amount needed to pay off the
nonrecourse first mortgage secured by the Partnership's leasehold interest in
the 34th Street Property (the "34th Street Line of Credit") to $1.75 million
compared to the property's outstanding debt balance of approximately $18
million, including accrued interest. Concurrently, an agreement was entered
into with an affiliate of NYRES1 to lend the Partnership the $1.75 million
unsecured loan needed to complete the payoff of the 34th Street Line of Credit
prior to June 30, 1995 (the "NYRES1 Loan"). FNBC's agreement to accept only
$1.75 million in full satisfaction of the 34th Street Line of Credit
effectively meant that substantially all of the outstanding principal balance
of the loan was forgiven by FNBC. On June 26, 1995, the Partnership completed
the payoff of the 34th Street Line of Credit. As a result of the payoff, the
Partnership retained its interest in the property and will have the opportunity
to benefit from any improvement in the market.
The NYRES1 Loan bears interest at the prime rate less one and one-quarter
percent. Payments of accrued interest and principal will be payable on a
current basis to the extent there is net cash flow available from the 34th
Street property. To the extent that interest has not been paid on a current
basis from the property's cash flow, any net proceeds realized from the
conveyance or refinancing of the 34th Street Property or any of the
Partnership's other properties will be used to pay accrued interest and
principal on the loan. The NYRES1 Loan matures upon the earlier of December
31, 2025 or the termination of the Partnership. In connection with the NYRES1
Loan, Mendik Realty Company, Inc., an affiliate of Mendik Corporation, agreed
to continue to defer its management fees and leasing commissions associated
with any additional leasing activity that would otherwise have been payable
with respect to 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 LIBOR. The average
interest rate for 1995 was 8.4375% at December 31, 1995. 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
$6,080,000 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. As of December 31, 1995, the Partnership had
borrowed $5,044,524 under the Saxon Woods line of credit. 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 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.
The Partnership failed to make full payment of debt service due commencing
February 10, 1994 with respect to the Stamford Loan as discussed in Note 2. 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.
Pursuant to a loan modification agreement on the Stamford Property, Mendik
Corporation and NYRES1 agreed to lend the Partnership $50,000 and $110,000,
respectively, in each of calendar years 1991, 1992 and 1993. 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 properties, after repayment of all debt secured by the
property sold.
Mortgages payable at December 31, 1995 and 1994 are summarized as follows:
1995 1994
Secured by Park Avenue Property, bearing
interest at a blended rate of 10.02% in 1995
and 10.159% in 1994 $65,000,000 $75,000,000
Secured by 34th Street Property, bearing
interest at a blended rate of 7.245% in 1994. --- 15,000,000
Secured by Saxon Wood Corporate Center,
bearing interest at a blended rate of 8.87%
in 1995 and 7.139% in 1994 5,044,524 4,680,836
$70,044,524 $94,680,836
Notes payable at December 31, 1995 and 1994 are summarized as follows:
1995 1994
Note payable to an affiliate of NYRES1,
unsecured, bearing interest at prime rate
less 1.25% 1,750,000 ---
Note payable to NYRES1, unsecured, bearing
interest at prime rate less 1.25% 330,000 330,000
Note payable to Mendik Corporation, unsecured,
bearing interest at prime rate less 1.25% 150,000 150,000
$2,230,000 $480,000
The following summarizes the scheduled maturities of the Partnership's
mortgages and notes payable:
Year Amount
1996 $5,044,524
1997 ---
1998 65,000,000
Thereafter 2,230,000
$72,274,524
In November 1995, the Partnership prepaid, without penalty, $10,000,000 of the
outstanding mortgages on the Two Park Avenue property from proceeds received
from the lease extension with Times Mirror Magazines Inc. and its affiliate,
Newsday, Inc. The remaining mortgages mature on December 19, 1998 and require
monthly payments of interest only, with the entire principal due at maturity.
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 $70,044,524.
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar average maturities, the fair value of long-term
debt approximates carrying value.
7. Rental Income Under Operating Leases
Based upon the leases currently in effect, future minimum rental payments from
operating leases of the Partnership's properties (which are not cancellable by
their terms) as of December 31, 1995 are as follows:
Year Amount
1996 $ 24,711,418
1997 25,356,634
1998 23,368,812
1999 20,417,722
2000 19,222,107
Thereafter 133,515,351
$246,592,044
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, 1995, 1994, and 1993,
these amounts were $2,712,976, $3,282,904, and $3,524,411, respectively, which
amounts are included in rental income.
8. Transactions With General Partners and Affiliates
Certain cash and cash equivalents reflected on the Partnership's consolidated
balance sheets at December 31, 1995 and 1994 were on deposit with an affiliate
of a general partner.
The following is a summary of the amounts paid or accrued to the general
partners and their affiliates during the years ended December 31, 1995, 1994
and 1993 and all balances unpaid at December 31, 1995:
Due To/(From) Affiliates
at December 31, ------Paid or Accrued-----
1995 1995 1994 1993
Management fees and
building personnel
salaries (A) $1,244,725 $1,171,005 $1,289,698 $1,227,744
Leasing commissions (B) 1,218,972 347,488 555,147 770,710
Cleaning and related
services (C)(D) 166,651 4,127,071 4,072,233 4,166,977
Administrative salaries
and expenses (E) 20,000 73,163 86,021 65,254
Security (F) --- 366,322 378,806 414,219
Out of pocket
expenses (G) --- --- --- 981
$2,650,348 $6,085,049 $6,381,905 $6,645,885
(A) Mendik Realty 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, 1995, 1994 and 1993
totalled $438,616, $515,998 and $527,019, respectively. Management fees paid
or payable to Mendik Realty totalled $732,389, $773,700 and $700,725 for the
years ended December 31, 1995, 1994 and 1993, respectively. These amounts are
included in the table. Certain management fees included in the above amounts
are being deferred as discussed in Note 6.
(B) 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, 1995, there were unpaid commissions, on a consolidated
basis, of approximately $1,218,972 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.
(C) 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 $3,230,148, $3,278,621 and $3,500,062 for the years ended
December 31, 1995, 1994 and 1993, respectively. The salaries and benefits for
these employees were $759,415, $687,948 and $584,942 in 1995, 1994 and 1993,
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.
(D) BMSC provides metal and marble cleaning services to the Partnership at its
cost plus an allocable share of overhead expenses, which were $137,508,
$105,664 and $81,973 in 1995, 1994 and 1993, respectively. These amounts are
included in the table.
(E) 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.
(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
1995, 1994 and 1993 totalled $366,322, $378,806 and $414,219, respectively.
These amounts are included in the table. Security services paid to unaffiliated
third parties for the year ended December 31, 1993 were $61,609. This amount
is not included in the table.
(G) First Data Investor 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.
9. Litigation
On February 6, 1996, a purported class action, Sword v. Lehman Brothers
Holdings, Inc., was commenced on behalf of, among others, all Unitholders in
the Circuit Court for Baltimore, Maryland against the Partnership, Lehman
Brothers Holdings, Inc., E.F. Hutton & Company, Inc. and others. The complaint
alleges that the Unitholders were induced to purchase Units based upon
misrepresentations and/or omitted statements in the sales materials used in
connection with the offering of Units in the Partnership. The complaint
alleges, inter alia, claims of fraud, negligent misrepresentation and breach of
fiduciary duty. The defendants intend to defend the action vigorously.
On March 7, 1996, a purported class action, Ressner v. Lehman Brothers Inc.,
was commenced on behalf of, among others, all Unitholders in the Court of
Chancery for New Castle County, Delaware, against the NYRES1 general partner of
the Partnership, Lehman Brothers Inc. and others. The complaint alleges, among
other things, that the Unitholders were induced to purchase Units based upon
misrepresentation and/or omitted statements in the sales materials used in
connection with the offering of Units in the Partnership. The complaint
purports to assert a claim for breach of fiduciary duty based on the foregoing.
The defendants intend to defend the action vigorously.
10. Reconciliation of Consolidated Financial Statement Net Income (Loss) and
Partners' Capital to Federal Income Tax Basis Net Income (Loss) and
Partners' Capital
Reconciliation of consolidated financial statement net income (loss) to
federal income tax basis net income (loss):
Year ended December 31,
1995 1994 1993
Financial statement
consolidated net income (loss) $11,613,040 ($6,173,627) ($11,406,548)
Financial statement write
down of real estate --- 4,010,962 4,240,608
Tax basis depreciation over
financial statement depreciation (355,352) (1,115,277) (971,960)
Tax basis rental income over (under)
financial statement rental income (89,674) 132,615 (612,639)
Tax loss on foreclosure over
financial statement gain on
foreclosure --- (20,933,471) ---
Tax basis recognition of net income
(loss) of consolidated venture (over)
under financial statement recognition
of loss of consolidated venture 7,986,697 272,346 (677,456)
Other (95,214) (65,300) (4,648)
Federal income tax basis net
income (loss) $19,059,497 ($23,871,752) ($9,432,643)
Reconciliation of financial statement partners' capital to federal income tax
basis partners' capital:
Year ended December 31,
1995 1994 1993
Financial statement basis
partners' capital $ 86,665,720 $ 75,052,680 $81,226,307
Current year financial statement
net income (loss) over (under)
Federal income tax basis net
income (loss) 7,446,457 (17,698,122) 1,973,905
Cumulative financial statement net
income (loss) over cumulative
Federal income tax basis net
income (loss) 41,380,065 59,078,187 57,104,282
Federal income tax basis
partners' capital $135,492,242 $116,432,745 $140,304,494
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, 1995
Initial Cost to Partnership
Buildings and
Description Encumbrances Land Improvements
Commercial Properties:
Partnership owned:
500/600 Mamaroneck Ave.
Harrison, NY $ 5,044,524 $ --- $ 21,282,805
330 West 34th Street
New York, NY --- --- 35,611,400
Consolidated Venture:
Two Park Avenue
New York, NY 65,000,000 27,140,745 130,411,744
$ 70,044,524 $ 27,140,745 $187,305,949
MENDIK REAL ESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent to Acquisition
Buildings and Write-down
Description Land Improvements Adjustment
Commercial Properties:
Partnership owned:
500/600 Mamaroneck Ave.
Harrison, NY $ --- $ 10,175,492 $ ---
330 West 34th Street
New York, NY --- 10,286,057 (39,974,769)
Consolidated Venture:
Two Park Avenue
New York, NY (3,661) 46,704,330 ---
$ (3,661) $ 67,165,879 $(39,974,769)
MENDIK REAL ESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
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 $ --- $ 31,458,297 $ 31,458,297 $ 11,638,738
330 West 34th Street
New York, NY --- 5,922,688 5,922,688 286,193
Consolidated Venture:
Two Park Avenue
New York, NY 27,137,084 177,116,074 204,253,158 46,247,688
$27,137,084 $214,497,059 $241,634,143 $ 58,172,619
MENDIK REAL ESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
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
330 West 34th Street
New York, NY 1925 04/23/87 20 years
Consolidated Venture:
Two Park Avenue
New York, NY 1930 09/18/87 35 years
For Federal income tax purposes, the basis of land, building and improvements
wholly owned by the partnership at December 31, 1995 and 1994 is $77,051,988
and $77,192,928, respectively.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate investments: 1995 1994 1993
Beginning of year $236,172,782 $227,392,238 $227,087,155
Additions 5,619,234 6,235,648 1,491,115
Deletions (157,873) (3,155,104) (1,186,032)
End of year $241,634,143 $230,472,782 $227,392,238
Properties held
for disposition (Note 1) --- 5,700,000 ---
Total $241,634,143 $236,172,782 $227,392,238
Accumulated Depreciation:
Beginning of year $ 49,536,517 $ 44,575,753 $ 37,519,673
Depreciation expense 8,793,975 8,115,868 8,242,112
Less Retirements (157,873) (3,155,104) (1,186,032)
End of year $ 58,172,619 $ 49,536,517 $ 44,575,753
MENDIK REAL ESTATE LIMITED PARTNERSHIP
and Consolidated Venture
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Note 1: At December 31, 1994, the Partnership accounted for the 330 West 34th
Street Property as held for disposition. In 1995, as a result of the
partnership's replacement of the first mortgage debt on that property, the
Partnership has again accounted for the property as a real estate investment.
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,673,561
<SECURITIES> 000
<RECEIVABLES> 10,686,880
<ALLOWANCES> 150,880
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<OTHER-SE> 86,665,720
<TOTAL-LIABILITY-AND-EQUITY> 212,736,557
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