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
For the fiscal year ended December 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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 I.R.S. Employer
of incorporation or organization Identification No.
Attn: Andre Anderson
3 World Financial Center, 29th Floor,
New York, New York 10285
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
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 RELP Corporation (formerly known as
Mendik Corporation), a New York 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
impact of the significant downturn in the commercial office real estate market
in the Greater New York metropolitan area which occurred during the late 1980s
and early 1990s. The attainment of such objectives in the future will depend
on many factors, including a continued 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
downsized their operations, which had an adverse impact on the demand for
commercial office space. 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
sharply curtailed their lending and investment activities. In addition,
pressure from regulatory agencies further eroded lending institutions'
abilities to invest in real estate or finance real estate projects. This 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.
In recent years, however, 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
improved significantly, largely as a result of improving economic conditions.
The improvement in the city's economy is evidenced by the fact that between
1994 and 1996, an average of approximately 39,000 net private sector jobs were
added in the New York metropolitan area each year, representing an annual
growth rate of 1.2% to 1.4%. Tenants generating strong demand for Midtown
office space include those in advertising, printing and publishing, financial
services, legal services and communications industries. Other factors have
also been positive in New York City's revitalization, including a streamlining
of local government, a reduction in various taxes, a sharp reduction in crime
and the emergence of various public/private ventures (e.g. Business Improvement
Districts), which provide additional services in certain areas, including the
general vicinity around the Penn Station area, where the Partnership's
Manhattan properties are located. As a result of the increase in demand for
office space, the Class A Midtown Manhattan commercial office market has
experienced positive absorption of previously vacant office space for five
consecutive years, which has led to a significant reduction in vacancy rates.
This decline in vacancy rates has been reinforced by the relative lack of new
additions of office space since 1992, with no significant new supply expected
to be added until 1999.
Despite a spate of corporate downsizings during 1996, the Westchester County
commercial office market also continued to exhibit signs of improvement, as
evidenced by an overall increase in leasing activity during the year. Several
of the leases signed were with companies that were previously located in more
urban markets, such as Stamford, Connecticut and New York City.
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.
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 fair market value as of September 1, 1987 was
$165,000,000. The appraised value of the Property as of December 31, 1996 was
$110,000,000, compared to an appraised value of $95,000,000 as of December 31,
1995. 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, 1996, before the Partnership's share of first
mortgage debt, was $65,670,000, compared to appraised values of $56,715,000 as
of December 31, 1995 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 947,000 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 1996, the Two Park Company
expended approximately $50.5 million on capitalized renovations, including
tenant improvement construction, which were 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, 1997, 1996 and
1995, were 98%, 97% and 94%, respectively. During 1997, 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 Class A office space in the Murray Hill section of Midtown
Manhattan, where the Park Avenue Property is located, totalled 16.5% at
December 31, 1996, compared to 17.1% at December 31, 1995.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 287,000 square feet (approximately 30% of the total
leasable area in the Property) under leases expiring on September 30, 2010 (see
Note 2), and Smith Barney, 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. Smith Barney has vacated its space, and, as a result,
the Partnership has commenced efforts to re-lease such space and recently
entered into a lease for 20,000 square feet with a subtenant of Smith Barney,
which lease will take effect upon the expiration of the Smith Barney lease.
Smith Barney continues to remain current on its rental payments to the
Partnership in accordance with the terms of its existing lease. The base
rental income under the leases with The Times Mirror Company Inc. and Smith
Barney represented approximately 25% and 12%, respectively, of the
Partnership's consolidated rental income in 1996.
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,
1996 was $4,000,000 compared to an appraised value of $2,700,000 at December
31, 1995.
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 Property is also one block from Madison Square Garden
and across the street from the General Post Office. It is anticipated that the
potential conversion of the General Post Office into an Amtrak train terminal
may lead to renewed interest in the area. 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. The Partnership must give notice to renew the ground
lease for an additional term of 21 years not later than two years (December 31,
1997) prior to the expiration of the current term of the ground lease which is
scheduled to expire on December 31, 1999.
Renovations. During the period from 1987 through 1996, the Partnership
expended approximately $11.5 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 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 $1.75 million 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
RELP 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 repayment from the net proceeds from the
sale of any of the Properties, after repayment of all debt secured by the
Property sold. In addition, Mendik Realty agreed to defer its leasing
commission with respect to the long-term lease with the City of New York and
any further leasing commissions associated with additional leasing activity at
the Property. Reference is made to Note 8 to the Consolidated Financial
Statements for additional information regarding the deferral of leasing
commissions.
Leasing. On February 17, 1993, the Partnership signed a long-term lease with
the City of New York effective August 1, 1992 for approximately 300,000 square
feet or approximately 48% of the Property's leasable area. The term of the
lease was originally scheduled to expire on February 28, 2001. During the
first quarter of 1997, the Partnership reached an agreement with the City of
New York to amend and extend its existing lease at the Property for a term of
fifteen years. In accordance with the terms of the lease amendment, the City
will have the right to terminate its lease in whole or in part at any time
after the fifth anniversary of the lease amendment, with a cancellation fee
equal to the then unamortized brokerage commissions and architectural fees paid
in connection with the lease amendment. Also in connection with the lease
amendment, the ground lessor has agreed to fund up to $100,000 in costs
associated with tenant improvement work that will be completed on the space
occupied by the City. The base rental income under the lease with the City,
which represented approximately 76% of the Property's consolidated rental
income in 1996, will increase over the term of the lease amendment.
During the first quarter of 1997, the Partnership also entered into a long-term
lease with Information Builders Inc. for approximately 30,000 square feet,
including 5,000 square feet of basement space, of the available leaseable space
at the Property. The lease, which is scheduled to commence on October 1, 1997,
is currently being held in escrow pending confirmation of receipt by the tenant
of economic benefits to be provided by the City of New York.
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 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 operating cash flow from the
Property without requiring a significant current investment in tenant
improvements. The Property's occupancy rates as of February 28, 1997, 1996 and
1995, were 92%, 90% and 65%, respectively. 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 25.2% at December 31, 1996, compared to 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, 1996 was $16,700,000, compared to $15,200,000 at December 31, 1995.
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 2001.
Renovations. During the period from 1986 through 1996, the Partnership
expended approximately $11.7 million on capitalized renovations, including
tenant improvement construction, funded from cash flow, Partnership reserves,
and borrowings.
Financing. During the third quarter of 1996, the Partnership finalized an
agreement with the lender of the $6.5 million non- recourse credit facility
secured by a first leasehold mortgage on the Partnership's leasehold interest
in the Saxon Woods Corporate Center (the "Saxon Woods Line of Credit") for a
one-year extension of the mortgage, which now matures in September 1997. The
extension was completed in order to enable the Partnership to continue its
leasing efforts and better position the Property for sale in the future. During
the fourth quarter of 1996, the Partnership drew down the remaining $1.3
million available under the credit facility to fund costs incurred in
connection with the 28,000 square foot Allstate Insurance Company lease
executed in August 1996, as well as other capital improvements completed at the
Property. As discussed in Item 7, the Partnership will attempt to complete a
sale of the Property prior to the line of credit debt maturity in September
1997. However, there can be no assurances that such efforts will be
successful. Reference is also made to Note 6 of the Consolidated Financial
Statements for additional information regarding the Saxon Woods Line of Credit.
Leasing. The Property's occupancy rates as of February 28, 1997, 1996 and 1995
were 97%, 81% and 80%, respectively. The vacancy rate in Westchester County,
where the Saxon Woods Corporate Center is located, was 16.9% as of December 31,
1996, as compared to a vacancy rate of 17.6% at December 31, 1995. During
1996, utilizing funds available under the Saxon Woods Line of Credit,
Partnership reserves and cash flow, the Partnership entered into leasing
transactions covering approximately 37,000 square feet at the Property
including lease extensions and expansions by existing tenants. In addition to
the leasing activity at the Property last year, the Partnership signed a lease
amendment during the first quarter of 1997 with Commodity Quotations, pursuant
to which the tenant will extend its lease for approximately 24,000 square feet
for approximately five years. Commodity Quotations will also expand the amount
of its leased space by approximately 3,300 square feet. In connection with the
amendment to the tenant's existing lease, the tenant will no longer have the
option of terminating the lease prior to its expiration.
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 Investor Limited
Partners 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 Investor Limited Partners 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 Investor Limited Partners 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 Investor Limited Partners 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.
On January 14, 1997, two individual Investor Limited Partners commenced a
purported class action suit against NYRES1, Mendik RELP Corporation, B&B Park
Avenue, L.P. and Bernard Mendik in the Supreme Court of the State of New York
County of New York, on behalf of all persons holding limited partnership
interests in the Partnership. The complaint alleges that for reasons which
include purported conflicts of interest, the defendants breached their
fiduciary duty to the Investor Limited Partners and the General Partners of the
Partnership also breached their contractual duty to the Investor Limited
Partners. The plaintiffs further allege that the proposed transfer of the 40%
interest in Two Park Company (the interest not owned by the Partnership) will
result in a burden on the operation and management of Two Park Avenue because
the purchaser of the 40% interest will have no fiduciary duty to the
Partnership yet all decisions regarding any proposed sale or refinancing of Two
Park Avenue will require its consent, with the result that, among other things,
the transfer will prevent the Partnership from negotiating for the sale of Two
Park Avenue at better terms than a sale on only the Partnership's approximate
60% interest. The complaint also alleges, among other things, that the
transfer of the 40% interest violates the Partnership's rights of first refusal
to purchase the interest being transferred and fails to provide the Investor
Limited Partners in the Partnership a comparable transfer opportunity.
Shortly after the filing of the complaint, another Investor Limited Partner
represented by the same attorneys filed an essentially identical complaint in
the same court. Among other things, both complaints claim that the purported
class has and will continue to suffer unspecified damages, and seek a
declaration that the suits are properly class actions, an accounting and
certain injunctive relief including an injunction enjoining the transfer of the
40% interest and a judgment requiring either the liquidation of the Partnership
and the appointment of a receiver or an auction of Two Park Avenue. The time
for defendants to respond to the complaints and to certain discovery requests
has not yet expired. In the interim, plaintiff's counsel have requested an
agreement to consolidate the two actions and have stated that they may seek to
amend the complaints in unspecified ways, as well as to file a motion seeking a
preliminary injunction. The defendants intend vigorously to defend against
such action.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, 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, 1996, there were 19,563 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, 1996
and 1995, no distributions were paid to the partners.
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.
<TABLE>
<CAPTION>
At or for the Years Ended December 31,
1996 1995 1994 1993 1992
(Dollars in thousands, except for per Unit data) (1)
<S> <C> <C> <C> <C> <C>
Total income (2) $ 36,549 $ 33,549 $ 39,571 (8) $ 34,616 $ 34,437
Loss before
extraordinary item (47,092) (5)(6) (4,635) (6,174) (8)(9) (11,407) (9) (52,416) (9)
Extraordinary item -- 16,248 -- -- --
Net income (loss) (3) (47,092) (5)(6) 11,613 (6,174) (8)(9) (11,407) (9) (52,416) (9)
Total assets (2) 146,458 213,013 220,468 237,798 247,773
Total mortgages and
notes payable (2) 73,730 72,275 95,161 107,043 105,655
Net cash provided by
operating activities (2) 4,348 15,247 4,279 1,275 1,824
Net income (loss)
per Unit (3)(4) (117.97) (5)(6) 24.43 (7) (15.47) (8)(9) (28.58) (9) (131.31) (9)
Cash distributions
per Unit (4) -- -- -- -- --
Net asset value
per Unit (3)(4) $ 101 (10) $ 99 (10) $ 82 (10) $ 99 (10) $ 121 (10)
</TABLE>
(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 an unrealized loss on property held for disposition of $5,411,536
at December 31, 1996. See Item 7.
(6) Includes a write-down on the carrying value of the Partnership's Properties
in the amount of $59,491,089 at December 31, 1996. See Item 7.
(7) 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.
(8) Includes a $5,564,391 gain on transfer in lieu of foreclosure resulting
from the transfer of the Stamford Property on December 29, 1994.
(9) 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.
(10)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 net 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, 1996, the amount distributable to an average Class A unit
would be approximately $73.74 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 $141.42 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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
During the year ended December 31, 1996, 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 Park
Avenue Property, the Partnership's leasehold interest in the Saxon Woods
Corporate Center and the Partnership's leasehold interest in the 34th Street
Property, (ii) Partnership reserves, (iii) the deferral of property management
fees and leasing commissions with respect to certain of the Properties by
Mendik Realty, an affiliate of Mendik RELP Corporation, (iv) proceeds from the
Saxon Woods Line of Credit, and (v) the deferral of interest payments on the
NYRES1 Loan. Because certain Properties may be sold and the Saxon Woods Line
of Credit has been fully drawn down, it is expected that funds from certain of
these sources may be reduced or unavailable in the future.
Park Avenue Property - As of December 31, 1996, the Park Avenue Property was
approximately 98% leased. 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
1996 were approximately $3.8 million over and above a reserve for real estate
taxes. However, it is expected that leases signed over the past couple of
years will increase the Property's cash flow, which cash flow will be available
to re-establish reserves. The Property's cash flow in 1997 is expected to
remain stable.
The Park Avenue Property is subject to nonrecourse financing totalling $65
million in principal which is scheduled to mature in December 1998, however,
the lender has the right to accelerate the maturity upon six- months notice. In
order to address the risk of such acceleration, the Partnership reached an
agreement in principle with a new lender in the first quarter of 1997 to
replace the existing mortgage financing. Under the terms of the agreement with
the new lender, the mortgage will mature three years from the closing of the
loan, and interest on the mortgage will accrue at a floating rate (LIBOR plus
150 basis points) which should reduce the Partnership's debt service costs
(assuming short-term LIBOR rates remain stable). Additionally, there will be
no prepayment penalty (other than in connection with breakage costs of any
LIBOR contracts) in the event the Partnership attempts to pay the full amount
due under the mortgage prior to maturity, which would provide the Partnership
with flexibility in connection with the Partnership's plan to eventually sell
its 60% interest in the building within the next 12 to 24 months.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 287,000 square feet (30% of the total leaseable area
in the Property) under leases which expire on September 30, 2010, and Smith
Barney, which leases 99,839 square feet (11% of the total leaseable area in the
Property) under a lease expiring May 30, 1998. During 1996, Smith Barney
vacated its space, and, as a result, the Partnership has commenced efforts to
re-lease such space and recently entered into a lease for 20,000 square feet
with a subtenant of Smith Barney, which lease will take effect upon the
expiration of the Smith Barney lease. Smith Barney continues to remain current
on its rental payments to the Partnership in accordance with the terms of the
existing lease.
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the Park Avenue Property and related
accounts based upon estimated undiscounted cash flows expected to result from
the Property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the Property for long-term investment and,
therefore, management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. In light of the continued improvements in the Midtown
Manhattan commercial real estate market during the past year, management
anticipates positioning the Property for sale over the next 12 to 24 months,
and concluded that the sum of the undiscounted future cash flow estimated to be
generated by the Property over this shorter holding period is less than its
carrying value. As a result, the Partnership recorded a write-down, before
consideration of the minority interest's share of the write-down, of
approximately $54,700,000 to reduce the Property's carrying value to its
estimated fair value of $110,000,000. The determination of fair market value
of the Property as of that date was based upon the most recent appraisal of the
Property.
Saxon Woods Corporate Center - During 1996, the Partnership executed leases for
approximately 37,000 square feet. As a result of the significant leasing
progress made during 1996, the occupancy at the Property increased from 81% at
December 31, 1995 to 97% as of December 31, 1996. The largest of the leases
was signed with Allstate Insurance Company in August 1996 for 28,000 square
feet, or approximately 12% of the Property's net leaseable area. In addition
to the leasing activity at the Property last year, the Partnership signed a
lease amendment during the first quarter of 1997 with Commodity Quotations,
pursuant to which the tenant will extend its lease for approximately 24,000
square feet for approximately five years. Commodity Quotations will also
expand the amount of its leased space by approximately 3,300 square feet. In
connection with the amendment to the tenant's existing lease, the tenant will
no longer have the option of terminating the lease prior to its expiration. The
Partnership expects that cash flow from the Saxon Woods Corporate Center will
cover operating expenses and debt service obligations in 1997.
During the third quarter of 1996, the Partnership finalized an agreement with
the lender of the $6.5 million Saxon Woods Line of Credit for a one-year
extension of the mortgage indebtedness, which is now scheduled to mature in
September 1997. The extension was completed in order to enable the Partnership
to continue its leasing efforts and better position the Property for sale in
the future.
In light of the Property's increased occupancy level and appraised value, in
concert with strengthening demand for commercial office space in Westchester
County, the Partnership believes that the Property is now positioned for a
potential sale. The Partnership expects to sell the Property prior to the
maturity of the Saxon Woods Line of Credit in September 1997, however, there
can be no assurances that such efforts will be successful. During the fourth
quarter of 1996, the Partnership drew down the remaining $1.3 million available
under the line of credit to fund costs incurred in connection with the Allstate
lease mentioned above as well as other capital improvements recently completed
at the Property.
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the Property and related accounts
based upon estimated undiscounted cash flows expected to result from the
Property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the Property for long-term investment and
therefore management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. In light of continued improvements in the Westchester
County commercial real estate market during the past year, as well as
substantial leasing activity at the Property, the Partnership anticipates
selling the Property prior to the maturity of the Saxon Woods Line of Credit in
September 1997. As a result of the Partnership's intention to pursue a sale of
the Property during 1997 and in accordance with FAS 121, the Partnership has
classified the Property on the Partnership's balance sheet as property held for
disposition as of December 31, 1996. In addition, the carrying value of the
Property was reduced as of December 31, 1996 from the prior carrying value of
approximately $21,600,000 to $16,200,000. The write-down of the Property's
carrying value was based on management's assessment of the estimated fair
market value of the Property as of December 31, 1996. The determination of
fair market value of the Property as of that date was based upon the most
recent appraisal of the Property, less estimated costs to sell.
34th Street Property - As of December 31, 1996, the 34th Street Property was
approximately 92% leased. The largest tenant in the Property is the City of
New York Human Resources Administration (the "City") occupying approximately
48% of the total leaseable area under a lease which was originally scheduled to
expire in February 2001. During the first quarter of 1997, the Partnership
reached an agreement with the City of New York to amend and extend its existing
lease at the Property for a term of fifteen years. In accordance with the
terms of the lease amendment, the City will have the right to terminate its
lease in whole or in part at any time after the fifth anniversary of the lease
amendment, with a cancellation fee equal to the then unamortized brokerage
commissions and architectural fees paid in connection with the lease amendment.
Also in connection with the lease amendment, the ground lessor has agreed to
fund up to $100,000 in costs associated with tenant improvement work that will
be completed on the space occupied by the City. The terms of the amended lease
call for the City to make annual base rental payments of approximately $5.4
million for the first five years of the amended lease, approximately $5.9
million for years six through ten of the amended lease, and approximately $6.5
million for years eleven through fifteen of the amended lease. In addition,
the City is required to pay its proportionate share of increases in real estate
taxes and operating expenses over a predetermined base year amount.
During the first quarter of 1997, the Partnership also entered into a long-term
lease with Information Builders Inc. for approximately 30,000 square feet,
including 5,000 square feet of basement space, of the available leaseable space
at the Property. The lease, which is scheduled to commence on October 1, 1997,
is currently being held in escrow pending confirmation of receipt by the tenant
of economic benefits to be provided by the City of New York.
The 34th Street Property is no longer encumbered by a mortgage obligation. The
previous mortgage was paid off in June 1995 for a discounted amount of $1.75
million, or approximately 10% of the Property's outstanding debt balance of
approximately $18 million, including principal and accrued interest. Funding
for the payoff was provided by an affiliate of NYRES 1. The NYRES 1 Loan bears
interest at the prime rate less one and one-quarter percent and matures upon
the earlier of December 31, 2025 or the termination of the Partnership. Accrued
interest and principal are payable on a current basis to the extent there is
net cash flow available from the Property. The loan is an unsecured obligation
of the Partnership. In connection with the loan, Mendik Realty agreed to
continue to defer its management fees and leasing commissions with respect to
the Property. At present, the Property is generating sufficient cash flow to
meet operating expenses.
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, 1996, Mendik
Realty had deferred approximately $1,708,744 in leasing commissions and
management fees, including accrued interest, with respect to the 34th Street
Property.
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the 34th Street Property and related
accounts based upon estimated undiscounted cash flows expected to result from
the Property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the Property for long-term investment and,
therefore, management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. Management currently anticipates holding the Property
for the next 12 to 24 months and concluded that the sum of the undiscounted
future cash flow estimated to be generated by the Property over this shorter
holding period is less than its carrying value. As a result, the Partnership
recorded a write-down of approximately $4,700,000 to reduce the Property's
carrying value to its estimated fair value of $4,000,000, which represents the
Property's appraised value as of December 31, 1996.
Operating Cash Reserves and Other Assets
The Partnership's consolidated cash totalled $4,727,720 at December 31, 1996,
largely unchanged from $4,673,561 at December 31, 1995. During the year ended
December 31, 1996, approximately $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 1996, 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 a lease
restructuring at the Park Avenue Property in November 1995.
The Partnership's restricted cash balance at December 31, 1996 decreased by
$104,966 to $960,489 at December 31, 1996 from $1,065,455 at December 31, 1995.
The decrease is primarily attributable to a scheduled reduction in two tenants'
security deposit and the eviction of a tenant at the Park Avenue Property in
May 1996. The security deposit for the evicted tenant was applied to its
outstanding rent receivable balance.
The Partnership's U.S. Treasuries and Agencies balance totalled $2,121,910 at
December 31, 1996, compared to $2,458,794 at December 31, 1995. The $336,884
decrease is attributable to the redemption of certain of the Partnership's
investments during 1996 to fund capital improvements at the Park Avenue
Property.
Rent and other receivables totalled $1,192,114 for the year ended December 31,
1996, compared to $938,101 for the year ended December 31, 1995. The $254,013
increase is primarily attributable to the timing of rental payments made by
certain tenants at the 34th Street Property.
Deferred rent receivable totalled $10,453,202 at December 31, 1996 compared to
$9,597,899 at December 31, 1995. The $855,303 increase is primarily
attributable to the addition of several new tenants at the 34th Street Property
in the fourth quarter of 1995 with free rent periods, and the modification of
the lease with The Times Mirror Company Inc. at the Park Avenue Property in the
fourth quarter of 1995, as discussed further in Note 2 to the Consolidated
Financial Statements.
Other assets decreased from $10,818,003 at December 31, 1995 to $7,994,965 at
December 31, 1996. The $2,823,038 decrease is primarily attributable to a
reduction in deferred leasing commissions due to the reclassification of the
Saxon Woods Corporate Center as property held for disposition and the
write-downs of the Partnership's Properties, as discussed above, and a
reduction in mortgage costs.
Short- and Long-Term Liabilities
Deferred income decreased from $7,530,747 at December 31, 1995 to $6,550,650 at
December 31, 1996. The $980,097 decrease is primarily attributable to the
amortization of The Times Mirror Company Inc.'s prepaid rent in connection with
the modification of its lease in the fourth quarter of 1995.
Due to affiliates increased from $2,630,348 at December 31, 1995 to $2,907,737
at December 31, 1996. The $277,389 increase is primarily attributable to the
continued deferral of the payment of management fees with respect to the 34th
Street Property and leasing commissions owed by the Partnership to Mendik
Realty.
Results of Operations
1996 vs. 1995
For the year ended December 31, 1996, the Partnership generated net cash from
operating activities of $4,347,586, compared to $15,247,357 for the year ended
December 31, 1995. The higher balance in the 1995 period 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 a net loss of $47,091,683 for the year ended
December 31, 1996, compared to net income of $11,613,040 for the year ended
December 31, 1995. The net loss for the year ended December 31, 1996 includes
the recognition of a write-down in connection with the reduction in the
carrying value of the Properties in December 1996, net of B & B Park Avenue
L.P.'s (See Item 13) minority interest share in the write-down expense of the
Park Avenue Property, in the amount of $39,545,219. The net loss for the year
ended December 31, 1996 also includes the recognition of an unrealized loss on
property held for disposition in the amount of $5,411,536. Such amount
reflects the reduction in the carrying value of the Saxon Woods Corporate
Center as of December 31, 1996. Net income for the year ended December 31,
1995 includes the recognition of a $16,247,734 extraordinary gain on the
retirement of the 34th Street Line of Credit in June 1995. No such gain was
recognized by the Partnership during 1996. Excluding these items, the
Partnership generated a loss before writedown of real estate investments and
unrealized loss on property held for disposition in the amount of $2,134,928
for the year ended December 31, 1996, compared to a loss before extraordinary
item of $4,634,694 for the year ended December 31, 1995. The lower loss in
1996 is primarily attributable to an increase in rental income and a decrease
in interest expense, partially offset by an increase in depreciation and
amortization expense.
Rental income for the year ended December 31, 1996 totalled $36,301,921,
compared to $33,334,516 for the year ended December 31, 1995. The increase is
due primarily to significant leasing activity at the 34th Street Property
during the fourth quarter of 1995, and to new and renewal/amended leases
executed at the Park Avenue Property during 1995.
Property operating expenses totalled $20,118,066 for the year ended December
31, 1996, largely unchanged from $19,938,170 for the year ended December 31,
1995.
Depreciation and amortization expense for the year ended December 31, 1996
totalled $11,257,102, compared to $10,199,677 for the year ended December 31,
1995. The $1,057,425 increase is primarily due to increased amortization of
leasing commissions related to The Times Mirror Company Inc.'s lease at the
Park Avenue Property.
Interest expense for the year ended December 31, 1996 totalled $7,225,953,
compared to $8,796,859 for the year ended December 31, 1995. The $1,570,906
decrease is due primarily to: (i) the $10 million paydown of the outstanding
principal balance of the mortgages secured by the Park Avenue Property in the
fourth quarter of 1995, and (ii) the June 1995 discounted payoff of the 34
Street Property mortgage.
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 was 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 was 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 was primarily attributable to decreases in
property operating expenses, depreciation and amortization, and interest
expense.
Rental income for the year ended December 31, 1995 totalled $33,334,516,
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
$19,938,170 compared to $21,097,441 for the year ended December 31, 1994. The
decrease was 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.
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 RELP 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 RELP Corporation
Mendik RELP Corporation was incorporated under the laws of the State of New
York on November 13, 1985. On January 16, 1997, the Mendik General Partner
changed its name from Mendik Corporation to Mendik RELP Corporation to avoid
confusion with the names of other Mendik entities.
All of the capital stock of Mendik RELP 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 RELP Corporation $2.5 million in the form
of a demand promissory note, which represents the only substantial asset of
Mendik RELP Corporation. Mr. Mendik has a net worth in excess of such amount.
Mendik RELP Corporation maintains its principal office at 330 Madison Avenue,
New York, New York 10017.
The executive officers and sole director of Mendik RELP Corporation (none of
whom has a family relationship with another) are:
Name Age Office
Bernard H. Mendik 67 Chairman and Director
David R. Greenbaum 45 President
Christopher G. Bonk 42 Senior Vice President, Treasurer
and Chief Financial Officer
Michael M. Downey 55 Senior Vice President
David L. Sims 50 Senior Vice President
Kevin R. Wang 39 Senior Vice President
John J. Silberstein 36 Senior Vice President and
Secretary
All officers and directors of Mendik RELP Corporation, except for John J.
Silberstein, have been officers or directors of the corporation since its
incorporation in November 1985. All officers of Mendik RELP 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 49 Director, President and
Chief Financial Officer
Lawrence M. Ostow 29 Vice President
Kenneth L. Zakin has been an officer of NYRES1 since 1989. 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 was a director of Lexington Corporate Properties, Inc.
from 1993 to 1996. 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.
Lawrence M. Ostow is a 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 31, 1997, 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 31, 1997, 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
RELP Corporation received net cash from operations with respect to the year
ended December 31, 1996. For the 1996 fiscal year, $224,829 of the
Partnership's net income was allocated to each of NYRES1 and Mendik RELP
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 the 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, 1996,
there was a liability of approximately $1,389,953 to Mendik Realty as a result
of leasing commissions earned in 1996 and prior periods from the 34th Street
Property, Park Avenue Property and Saxon Woods Corporate Center. During 1996,
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 1997.
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. ("B&B"), 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. On December 13, 1996,
FW/Mendik REIT LLC, an affiliate of Mendik RELP Corporation, entered into a
contract with the partners that own substantially all of the interest in B&B to
acquire their interest in B&B. The contract contemplates closing on or before
April 15, 1997.
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
1996, Mendik Realty earned management fees from the Partnership totalling
$791,864, of which $278,783 has been deferred, and was reimbursed $487,796 for
the cost of on-site building management salaries.
Mendik Realty has deferred certain management fees and leasing commissions
payable to it by the Partnership in connection with the 34th Street Property
totalling $1,708,744 as of December 31, 1996. Such amount includes interest on
the unpaid management fees. During 1997, 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 Maintenance Service LLC ("BMS"), an affiliate of Mendik RELP
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 RELP
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 1996, GMSC and BMS
received from the Partnership $4,532,486 for such services.
See Note 8 of the Notes to the Consolidated Financial Statements for additional
information concerning amounts paid or accrued to the General Partners and
their affiliates during the years ended December 31, 1996, 1995 and 1994 and
all balances unpaid at December 31, 1996.
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, 1996 and 1995 F-2
Consolidated Statements of Partners' Capital (Deficit) for
the years ended December 31, 1996, 1995 and 1994 F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-4
Notes to the Consolidated Financial Statements F-5
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
1996.
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 RELP 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 RELP 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).
(y) Promissory Note and Loan Agreement Modification and Extension
Agreement between Mendik Real Estate Limited Partnership and FGH
Realty Credit Corp. dated as of September 9, 1996 (included as
Exhibit 10(y) to the Partnership's Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference thereto).
(z) Leasehold Mortgage Modification and Extension Agreement between
Mendik Real Estate Limited Partnership and FGH Realty Credit Corp.
dated as of September 9, 1996 (included as Exhibit 10(z) to the
Partnership's Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference thereto).
27. Financial Data Schedule.
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 RELP Corporation
General Partner
Date: March 31, 1997 BY: /s/David R. Greenbaum
Name: David R. Greenbaum
Title: President
BY: NY Real Estate Services 1 Inc.
General Partner
Date: March 31, 1997 BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director, 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.
NY REAL ESTATE SERVICES 1 INC.
A General Partner
Date: March 31, 1997 BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director, 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 RELP CORPORATION
A General Partner
Date: March 31, 1997 BY: /s/Bernard H. Mendik
Name: Bernard H. Mendik
Title: Chairman and Director
Date: March 31, 1997 BY: /s/David R. Greenbaum
Name: David R. Greenbaum
Title: President
Date: March 31, 1997 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 (a New York limited partnership) and consolidated venture
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 the 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, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 14, 1997
Consolidated Balance Sheets At December 31, At December 31,
1996 1995
Assets
Real estate investments:
Land $ 17,528,163 $ 27,137,084
Building and improvements 85,279,508 214,497,059
102,807,671 241,634,143
Less accumulated depreciation -- (58,172,619)
102,807,671 183,461,524
Property held for disposition 16,200,000 --
Cash and cash equivalents 4,727,720 4,673,561
Restricted cash 960,489 1,065,455
U.S. Treasuries and Agencies 2,121,910 2,458,794
Rent and other receivables
net of allowance for doubtful accounts
of $118,611 in 1996 and $150,880 in 1995 1,192,114 938,101
Deferred rent receivable 10,453,202 9,597,899
Other assets, net of accumulated
amortization of $6,577,521 in 1996
and $6,513,970 in 1995 7,994,965 10,818,003
Total Assets $146,458,071 $213,013,337
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 1,859,961 $ 1,836,543
Deferred income 6,550,650 7,530,747
Due to affiliates 2,907,737 2,630,348
Security deposits payable 960,489 1,065,455
Accrued interest payable 799,315 621,854
Mortgages payable 71,500,000 70,044,524
Notes payable to affiliates 2,230,000 2,230,000
Total Liabilities 86,808,152 85,959,471
Minority interest 20,075,882 40,388,146
Partners' Capital (Deficit):
General Partners (470,917) --
Limited Partners
(395,169 units outstanding) 40,044,954 86,665,720
Total Partners' Capital 39,574,037 86,665,720
Total Liabilities and Partners' Capital $146,458,071 $213,013,337
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
Special
Limited General Limited
Partners Partners Partner Total
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
Net loss (46,620,766) (470,917) -- (47,091,683)
Balance at December 31, 1996 $40,044,954 $(470,917) $ -- $39,574,037
Consolidated Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental $36,301,921 $33,334,516 $33,708,412
Gain on transfer in lieu of foreclosure -- -- 5,564,391
Interest 247,094 214,049 298,457
Total Income 36,549,015 33,548,565 39,571,260
Expenses
Property operating 20,118,066 19,938,170 21,097,441
Depreciation and amortization 11,257,102 10,199,677 10,706,220
Interest 7,225,953 8,796,859 10,977,325
General and administrative 449,216 395,434 364,286
Loss on property held for disposition 5,411,536 -- 4,010,962
Loss on write-down of real estate
investments 59,491,089 -- --
Total Expenses 103,952,962 39,330,140 47,156,234
Loss before minority interest
and extraordinary item (67,403,947) (5,781,575) (7,584,974)
Minority interest share of loss in
consolidated venture 20,312,264 1,146,881 1,411,347
Loss before extraordinary item (47,091,683) (4,634,694) (6,173,627)
Extraordinary Item
Gain on retirement of debt -- 16,247,734 --
Net Income (Loss) $(47,091,683) $11,613,040 $ (6,173,627)
Net Income (Loss) Allocated:
To the General Partners $ (470,917) $ 1,487,096 $ (61,736)
To the Special Limited Partner -- 471,998 --
To the Limited Partners (46,620,766) 9,653,946 (6,111,891)
$(47,091,683) $11,613,040 $ (6,173,627)
Per limited partnership unit
(395,169 outstanding):
Net loss before extraordinary item $(117.97) $(11.61) $(15.47)
Net Income (Loss) $(117.97) $24.43 $(15.47)
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Income (loss) $(47,091,683) $11,613,040 $(6,173,627)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Loss on write-down of real
estate investments 59,491,089 -- --
Depreciation and amortization 11,257,102 10,199,677 10,706,220
Gain on transfer in lieu of foreclosure -- -- (5,564,391)
Gain on retirement of debt -- (16,247,734) --
Minority interest share of loss
in consolidated venture (20,312,264) (1,146,881) (1,411,347)
Provision for losses on rents
and other receivables -- -- 426,994
Loss on property held for disposition 5,411,536 -- 4,010,962
Net premium (discount) amortization -
U.S. Treasuries and Agencies (25,350) 50,092 (32,175)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash 104,966 1,045,662 279,617
Rent and other receivables (254,013) (164,073) (440,311)
Deferred rent receivable (2,750,852) 4,911,038 (344,889)
Other assets (872,529) (3,856,650) (1,866,041)
Accounts payable and accrued expenses 19,797 21,014 901,352
Deferred income (980,097) 7,396,633 51,793
Due to affiliates 277,389 894,286 891,665
Security deposits payable (104,966) (103,135) 160,717
Accrued interest payable 177,461 634,388 2,682,521
Net cash provided by operating activities 4,347,586 15,247,357 4,279,060
Cash Flows From Investing Activities
Additions to real estate (6,391,539) (5,619,234) (6,787,315)
Accounts payable - real estate assets 280,402 (1,156,444) 338,317
Acquisition of U.S. Treasuries
and Agencies (3,021,038) (3,574,183) (4,659,415)
Redemption of U.S. Treasuries and
Agencies 3,383,272 4,074,449 4,565,357
Net cash used for investing activities (5,748,903) (6,275,412) (6,543,056)
Cash Flows From Financing Activities
Proceeds from mortgage and notes payable 1,455,476 2,113,688 138,159
Payments of principal on mortgage and
notes payable -- (11,750,000) --
Net cash provided by (used for)
financing activities 1,455,476 (9,636,312) 138,159
Net increase (decrease) in cash and
cash equivalents 54,159 (664,367) (2,125,837)
Cash and cash equivalents, beginning
of period 4,673,561 5,337,928 7,463,765
Cash and cash equivalents, end of
period $ 4,727,720 $ 4,673,561 $ 5,337,928
Supplemental Disclosure of Cash Flow Information
Cash paid during the period
for interest $ 7,048,492 $ 8,015,003 $ 8,294,804
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
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." On January 16, 1997, Mendik Corporation, a general partner, was
renamed Mendik RELP Corporation.
2. Liquidity
During the twelve months ended December 31, 1996, 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
property located at Two Park Avenue, New York, New York (the "Park Avenue
Property"), the Partnership's leasehold interest in 550/600 Mamaroneck Avenue,
Harrison, New York (the "Saxon Woods Corporate Center") and the Partnership's
leasehold interest in the property located at 330 West 34th Street, New York,
New York (the "34th Street Property"), (ii) Partnership reserves, (iii) the
deferral of property management fees and leasing commissions with respect to
certain of the properties by Mendik Realty Company, Inc., an affiliate of
Mendik RELP Corporation ("Mendik Realty"), (iv) proceeds from the non-recourse
line of credit secured by a first leasehold mortgage on the Partnership's
leasehold interest in the Saxon Woods Corporate Center (the "Saxon Woods Line
of Credit"), and (v) the deferral of interest payments on the NYRES1 Loan (see
the section captioned "The 34th Street Property" in Note 6 - Mortgage and Notes
Payable for a further description of the NYRES1 Loan). Because certain
properties may be sold and the Saxon Woods Line of Credit has been fully drawn
down, it is expected that funds from certain of these sources may be reduced or
unavailable in the future.
Park Avenue Property - 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 leases signed in recent years, the
Partnership utilized or committed to utilize substantially all of the joint
venture's cash reserves which were approximately $3.8 million at December 31,
1996.
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 24,000 square
feet, bringing its total leased space to approximately 287,000 square feet or
approximately 30% of the Property. As part of the lease amendment, The Times
Mirror Company prepaid 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 Park Avenue Property is subject to
nonrecourse financing totalling $65 million in principal which is scheduled to
mature in December 1998, however, the lender has the right to accelerate the
maturity upon six-months notice. In order to address the risk of such
acceleration, the Partnership reached an agreement in principle with a new
lender in the first quarter of 1997 to replace the existing mortgage financing.
Under the terms of the agreement with the new lender, the mortgage will mature
three years from the closing of the loan, and interest on the mortgage will
accrue at a floating rate (LIBOR plus 150 basis points) which should reduce the
Partnership's debt service costs (assuming short-term LIBOR rates remain
stable). Additionally, there will be no prepayment penalty (other than in
connection with breakage costs of any LIBOR contracts) in the event the
Partnership attempts to pay the full amount due under the mortgage prior to
maturity, which would provide the Partnership with flexibility in connection
with the Partnership's plan to eventually sell its 60% interest in the building
within the next 12 to 24 months.
The property was 98% and 97% leased at December 31, 1996 and 1995,
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. The Partnership must
give notice to renew the ground lease for an additional term of 21 years not
later than two years (December 31, 1997) prior to the expiration of the current
terms of the ground lease, which is scheduled to expire on December 31, 1999.
In 1993, the Partnership signed a long-term lease with the City of New York for
approximately 48% of the Property's total leasable space in the 34th Street
Property. The term of the lease was originally scheduled to expire on February
28, 2001. During the first quarter of 1997, the Partnership reached an
agreement with the City of New York to amend and extend its existing lease at
the Property for a term of fifteen years. In accordance with the terms of the
lease amendment, the City will have the right to terminate its lease in whole
or in part at any time after the fifth anniversary of the lease amendment, with
a cancellation fee equal to the then unamortized brokerage commissions and
architectural fees paid in connection with the lease amendment. Also in
connection with the lease amendment, the ground lessor has agreed to fund up to
$100,000 in costs associated with tenant improvement work that will be
completed on the space occupied by the City. The terms of the amended lease
call for the City to make annual base rental payments of approximately $5.4
million for the first five years of the amended lease, approximately $5.9
million for years six through ten of the amended lease, and approximately $6.5
million for years eleven through fifteen of the amended lease. In addition,
the City is required to pay its proportionate share of increases in real estate
taxes and operating expenses over a predetermined base year amount.
In May 1995, the Partnership successfully negotiated an agreement with the
First National Bank of Chicago ("FNBC") to reduce the amount needed to pay off
the 34th Street Line of Credit for $1.75 million, compared to the outstanding
debt balance of approximately $18 million, including accrued interest. 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
$1.75 million 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.
The NYRES 1 Loan bears interest at the prime rate less one and one-quarter
percent and matures upon the earlier of December 31, 2025 or the termination of
the Partnership. Accrued interest and principal are payable on a current basis
to the extent there is net cash flow available from the Property. The loan is
an unsecured obligation of the Partnership.
In order to improve the 34th Street Property's cash flow, beginning in January
1992, Mendik Realty voluntarily agreed to defer its management fees of
approximately $170,000 a year that would otherwise have been payable with
respect to the 34th Street Property. In addition, Mendik Realty agreed to
defer its leasing commission with respect to the signing of the long-term lease
with the City of New York and any further leasing commissions associated with
additional leasing activity at the Property. Through December 31, 1996, Mendik
Realty has deferred approximately $1,708,744 in leasing commissions and
management fees with respect to the 34th Street Property. 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 repayment 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.
The property was 92% and 90% occupied at December 31, 1996 and 1995,
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 1997. The Saxon Woods Line of Credit is in the amount of up to
$6.5 million, Section 13(d) (xviii) of the Partnership Agreement 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"). With the
signing of a new lease in August 1996 for approximately 23% of available space
at the 600 Mamaroneck building, an updated independent appraisal of the
property was completed during the second quarter of 1996, at which time the
appraised value of the property increased from $15.2 million at year-end 1995
to $16.6 million. With the increase in the appraised value, the Partnership
may draw down the full amount of the credit facility without exceeding the
Borrowing Limitation. As of December 31, 1996, the Partnership had borrowed
the full $6.5 million available under the Saxon Woods Line of Credit. The
Partnership expects that cash flow from the Saxon Woods Corporate Center will
cover operating expenses and current debt service obligations.
The indebtedness secured by the Saxon Woods Corporate Center was scheduled to
mature in September 1996. During the third quarter of 1996, the Partnership
finalized an agreement with the lender for a one-year extension of the maturity
of the mortgage, which is now scheduled to mature in September 1997. The
extension was completed in order to enable the Partnership to continue its
leasing efforts and better position the Property for sale in the future.
The property was 97% and 81% occupied at December 31, 1996 and 1995,
respectively.
Stamford Property - 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.
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 requires that assets held for
sale or disposal be carried at the lower of carrying amount or fair value less
cost to sell and prohibits depreciation from being recorded during the periods
which the asset is being held for sale or disposal. The Partnership adopted
FAS 121 in the fourth quarter of 1995.
Real Estate Investments -- Prior to December 31, 1996, real estate investments
which consist of buildings, were recorded at cost, less accumulated
depreciation. Cost included the initial purchase price of the properties plus
closing costs, acquisition and legal fees, and capital improvements.
Depreciation of the buildings was computed using the straight-line method over
an estimated useful life of 20 to 35 years. Depreciation of personal property
was computed using the straight-line method over an estimated useful life
ranging from 5 to 10 years. Tenant improvements were amortized using the
straight-line method over the respective lease terms.
At December 31, 1996 and 1995, the Partnership completed a review of
recoverability of the carrying amount of each property and related accounts
based upon an estimate of undiscounted cash flows expected to result from each
property's use and eventual disposition. Based upon the reviews completed at
December 31, 1996, the Partnership wrote down the value of its real estate
investments and related assets in accordance with FAS 121 (See Note 5).
Property Held for Disposition -- The general partners intend to pursue a sale
of the Saxon Woods property prior to the scheduled maturity of the Saxon Woods
Line of Credit indebtedness in September 1997. As a result, the Partnership is
accounting for the property as held for disposition. The property was recorded
at its estimated fair value less costs to sell at December 31, 1996. The fair
value was obtained from an appraisal report prepared by an independent
appraiser. (See Note 5).
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 mortgage notes 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. Management's review of recoverability of the carrying
amounts of real estate investments and related accounts is one such estimate.
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 1995 and 1994 amounts have been reclassified to
conform with the financial statement presentation used in 1996.
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 refinancings 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 RELP 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.
If, upon dissolution of the Partnership, the general partners have a negative
capital account, they shall contribute capital equal to the amount of the
deficit. In no event, however, shall the required capital contribution exceed
1.01% of the total capital contributed by the limited partners less all prior
contributions by the general partners.
5. Real Estate Investments
The major tenants described below represented 47% of the Partnership's rental
income in 1996. 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 947,000 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 40% interest in Two Park Company is currently owned by
B & B Park Avenue L.P., of which Mendik RELP 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. Pursuant to the partnership
agreement of Two Park Company, each partner has the right to implement
"buy-sell" provisions. If either one of the partners in Two Park Company
exercises its buy-sell rights, then the other partner could be compelled either
to sell its interest in the partnership to such other partner, for the purchase
price set forth in the partnership agreement of Two Park Company. In addition,
under the partnership agreement of Two Park Company, if either partner receives
a bona fide offer to purchase its interest in Two Park Company (which such
partner is willing to accept), such partner must give the other partner a right
of first refusal to purchase its partnership interest on the same terms and
conditions as the bona fide offer. On December 13, 1996, FW/Mendik REIT LLC,
an affiliate of Mendik RELP Corporation, entered into a contract with the
partners that own substantially all of the interest in B & B Park Avenue L.P.
to acquire their interest in B & B Park Avenue L.P. The contract contemplates
closing on or before April 15, 1997. (See Note 9).
At December 31, 1996, the property's fair value was appraised at $110,000,000,
and the appraised value of the property net of the minority interest was
$65,670,000. At December 31, 1995, the appraised fair value of the property
was appraised at $95,000,000, and the appraised value of the property net of
the minority interest was $56,715,000.
Major tenants at Two Park Avenue are Times Mirror Magazines, Inc. which leases
approximately 287,000 square feet (30% of total leasable area in the property)
under leases which expire on September 30, 2010 and Smith Barney which leases
99,839 square feet (11% of total leasable area in the property) under a lease
expiring May 30, 1998. Smith Barney assumed the lease for this space from its
affiliate, National Benefit Life Insurance Company, in December 1995. Smith
Barney has since vacated its space, and, as a result, the Partnership has
commenced efforts to re-lease such space and recently entered into a lease for
20,000 square feet with a subtenant of Smith Barney, which lease will take
effect upon the expiration of the Smith Barney lease. Smith Barney continues to
remain current on its rental payments to the Partnership in accordance with the
terms of its existing lease. Times Mirror Company and Smith Barney represented
25% and 12%, respectively, of the property's total rental income in 1996.
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the Park Avenue Property and related
accounts based upon estimated undiscounted cash flows expected to result from
the property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the property for long-term investment and,
therefore, management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. In light of the continued improvements in the Midtown
Manhattan commercial real estate market during the past year, management
anticipates positioning the property for sale over the next 12 to 24 months,
and concluded that the sum of the undiscounted future cash flow estimated to be
generated by the property over this shorter holding period is less than its
carrying value. As a result, the Partnership recorded a write-down, before
consideration of the minority interest's share of the write-down, of
approximately $54,700,000 to reduce the property's carrying value to its
estimated fair value of $110,000,000. The fair value was obtained from an
appraisal report prepared by an independent appraiser.
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
Partnership must give notice to renew the ground lease for an additional term
of 21 years not later than two years (December 31, 1997) prior to the
expiration of the current term of the ground lease, which is scheduled to
expire on December 31, 1999, provided that the lessor has given the Partnership
a written notice as more fully disclosed in the lease agreement. The
property's fair value was appraised at $4,000,000 at December 31, 1996. The
property's appraised fair value at December 31, 1995 was $2,700,000.
Major tenants at the 34th Street property are the City of New York and Props
for Today. The City of New York which leases 300,000 square feet (48% of the
total leasable area in the property) under a lease expiring February 28, 2001.
During the first quarter of 1997, the Partnership reached an agreement with the
City of New York to amend and extend its existing lease at the Property for a
term of fifteen years. In accordance with the terms of the lease amendment,
the City will have the right to terminate its lease in whole or in part at any
time after the fifth anniversary of the lease amendment, with a cancellation
fee equal to the then unamortized brokerage commissions and architectural fees
paid in connection with the lease amendment. Also in connection with the lease
amendment, the ground lessor has agreed to fund up to $100,000 in costs
associated with tenant improvement work that will be completed on the space
occupied by the City. Props for Today leases 95,118 square feet (15% of the
total leasable area) under a lease expiring December 31, 2006. The City and
Props for Today represented approximately 76% and 11%, respectively, of the
property's total revenue in 1996.
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the 34th Street Property and related
accounts based upon estimated undiscounted cash flows expected to result from
the property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the property for long-term investment and,
therefore, management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. Management currently anticipates holding the property
for the next 12 to 24 months and concluded that the sum of the undiscounted
future cash flow estimated to be generated by the property over this shorter
holding period is less than its carrying value. As a result, the Partnership
recorded a write- down of approximately $4,700,000 to reduce the property's
carrying value to its estimated fair value of $4,000,000, which represents the
property's appraised value as of December 31, 1996. The fair value was
obtained from an appraisal report prepared by an independent appraiser.
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
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 2001. The property's fair value was
appraised at $16,700,000 at December 31, 1996, compared to $15,200,000 at
December 31, 1995.
Major tenants at the Saxon Woods Corporate Center are Commodity Quotations
which leases 24,540 square feet (10% of the total leasable area) under leases
expiring October 31, 2001 and October 31, 1998. Icon Capital Corp. leases
29,040 square feet (12% of the total leasable area) under a lease expiring
November 30, 2004. Commodity Quotations and Icon Capital Corp represented
approximately 13% and 14%, respectively, of the property's rental income in
1996. The Partnership signed a lease amendment during the first quarter of
1997 with Commodity Quotations, pursuant to which the tenant will extend its
lease for approximately 24,000 square feet for approximately five years.
Commodity Quotations will also expand the amount of its leased space by
approximately 3,300 square feet. In connection with the amendment to the
tenant's existing lease, the tenant will no longer have the option of
terminating the lease prior to its expiration.
In light of the property's increased occupancy level and appraised value during
1996, in concert with strengthening demand for commercial office space in
Westchester County, the Partnership believes that the Property is now
positioned for a potential sale. The Partnership expects to sell the Property
prior to the maturity of the $6.5 million line of credit in September 1997,
however, there can be no assurances that such efforts will be successful.
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the property and related accounts
based upon estimated undiscounted cash flows expected to result from the
property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the property for long-term investment and
therefore management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. As a result of the Partnership's intention to pursue
a sale of the property during 1997 and in accordance with FAS 121, the
Partnership has reclassified the property on the Partnership's balance sheet as
property held for disposition. The carrying value of the property was reduced
as of December 31, 1996 from the prior carrying value of approximately
$21,600,000 to $16,200,000. The write-down of the property's carrying value
was based on management's assessment of the estimated fair market value of the
property as of December 31, 1996. The determination of fair market value of
the property as of that date was based upon the most recent appraisal of the
property, less estimated costs to sell.
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 Park Avenue Property -- On September 18, 1987, the Partnership acquired its
interest in the Park Avenue Property by contributing $61,868,264 in cash, and
assuming its share of the $60 million loan secured by a first mortgage on the
property. 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. 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 of the mortgages has the right to accelerate the maturity of the
mortgages (collectively, the "Park Avenue Loans") prior to the December 1998
maturity date upon six-months notice. In order to address the risk of such
acceleration, the Partnership reached an agreement in principle with a new
lender in the first quarter of 1997 to replace the existing mortgage financing.
Under the terms of the agreement with the new lender, the mortgage will mature
three years from the closing of the loan, and interest on the mortgage will
accrue at a floating rate (LIBOR plus 150 basis points) which should reduce the
Partnership's debt service costs (assuming short-term LIBOR rates remain
stable). Additionally, there will be no prepayment penalty (other than in
connection with breakage costs of any LIBOR contracts) in the event the
Partnership attempts to pay the full amount due under the mortgage prior to
maturity, which would provide the Partnership with flexibility in connection
with the Partnership's plan to eventually sell its 60% interest in the building
within the next 12 to 24 months.
The 34th Street Property -- The Partnership had 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") with FNBC. 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. 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 and the
decline in the appraised value of the 34th Street Property, the Partnership was
prevented from borrowing any additional funds.
In May 1995, the Partnership successfully negotiated an agreement with the 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 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 and the Partnership
retained its interest in the property.
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 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 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 had 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. During the third quarter of 1996, the
Partnership finalized an agreement with the lender for a one-year extension of
the maturity of the mortgage, which is now scheduled to mature in September
1997. The average interest rate for 1996 was 8.1%. 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 provided the Partnership with a source of funds to pay for those
improvements necessary to lease additional space at the property.
As a result of the property's increased occupancy level due to significant
leasing activity during the year, an updated independent appraisal of the
property was completed during the second quarter of 1996, at which time the
appraised value of the property increased from $15.2 million at year-end 1995
to $16.6 million. With the increase in the appraised value, the Partnership
was able to draw down the full amount of the credit facility without exceeding
the Borrowing Limitation. As of December 31, 1996, the Partnership had
borrowed the full $6.5 million available under the Saxon Woods Line of Credit.
As discussed above, the Partnership finalized an agreement with the lender of
the Saxon Woods Line of Credit during the third quarter of 1996 for a one-year
extension of the mortgage indebtedness, which is currently scheduled to mature
in September 1997. The extension was completed in order to enable the
Partnership to continue with its leasing efforts and better position the
property for sale in the future.
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, 1996 and 1995 are summarized as follows:
1996 1995
Secured by Park Avenue Property, bearing
interest at a blended rate of 10.05% in
1996 and 10.02% in 1995 $65,000,000 $65,000,000
Secured by Saxon Wood Corporate Center,
bearing interest at a blended rate of
8.32% in 1996 and 8.87% in 1995 6,500,000 5,044,524
---------------------------
$71,500,000 $70,044,524
Notes payable at December 31, 1996 and 1995 are summarized as follows:
1996 1995
Note payable to an affiliate of NYRES1,
unsecured, bearing interest at prime rate
less 1.25% $1,750,000 $1,750,000
Note payable to NYRES1, unsecured, bearing
interest at prime rate less 1.25% 330,000 330,000
Note payable to Mendik RELP Corporation, unsecured,
bearing interest at prime rate less 1.25% 150,000 150,000
--------------------------
$2,230,000 $2,230,000
The following summarizes the scheduled maturities of the Partnership's
mortgages and notes payable:
Year Amount
1997 $ 71,500,000
1998 --
Thereafter 2,230,000
------------
$ 73,730,000
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 cancelable by
their terms) as of December 31, 1996 are as follows:
Year Amount
1997 $ 25,900,278
1998 24,153,012
1999 21,257,606
2000 20,037,588
2001 20,418,093
Thereafter 124,813,951
-------------
$ 236,580,528
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, 1996, 1995, and 1994,
these amounts were $2,793,437, $2,712,976 and $3,282,904, 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 were on deposit with an affiliate of a
general partner. As of December 31, 1996, no cash and cash equivalents were on
deposit with an affiliate of a general partner or the Partnership.
The following is a summary of the amounts paid or accrued to the general
partners and their affiliates during the years ended December 31, 1996, 1995
and 1994 and all balances unpaid at December 31, 1996:
Due To/(From) Affiliates
at December 31, Paid or Accrued
1996 1996 1995 1994
- -----------------------------------------------------------------------------
Management fees and building
personnel salaries (A) $1,549,450 $1,279,660 $1,171,005 $1,289,698
Leasing commissions (B) 1,389,953 170,981 347,488 555,147
Cleaning and related
services (C)(D) (31,666) 4,106,631 4,127,071 4,072,233
Security (E) -- 425,855 366,322 378,806
- -----------------------------------------------------------------------------
$2,907,737 $5,983,127 $6,011,886 $6,295,884
(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 have remained
under the payroll of Mendik Realty, for the years ended December 31, 1996,
1995 and 1994 totalled $487,796, $438,616 and $515,998, respectively.
Management fees paid or payable to Mendik Realty totalled $791,864,
$732,389 and $773,700 for the years ended December 31, 1996, 1995 and 1994,
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, 1996, there were unpaid
commissions, on a consolidated basis, of approximately $1,389,953 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 LLC ("BMS"), an affiliate of Mendik
Corporation, performs cleaning and related services at the properties. Such
cleaning and related services are provided by BMS at its cost plus an
allocable share of overhead expenses. Cleaning and related services
payable to BMS totalled $3,185,018, $3,230,148 and $3,278,621 for the years
ended December 31, 1996, 1995 and 1994, respectively. The salaries and
benefits for the property engineering staff were $778,884, $759,415 and
$687,948 in 1996, 1995 and 1994, respectively. These amounts are included
in the table.
(D) BMS provides metal and marble cleaning services to the Partnership at its
cost plus an allocable share of overhead expenses, which were $142,729,
$137,508 and $105,664 in 1996, 1995 and 1994, respectively. These amounts
are included in the table.
(E) Effective January 1, 1993, Guard Management Service Corporation, an
affiliate of Mendik Corporation, began providing security services to the
Partnership at its cost plus an allocable share of overhead expenses, which
in 1996, 1995 and 1994 totalled $425,855, $366,322 and $378,806,
respectively. These amounts are included in the table.
9. Litigation
On February 6, 1996, a purported class action, Sword v. Lehman Brothers
Holdings, Inc., was commenced on behalf of, among others, all limited partners
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 limited partners 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 limited partners in the Court of
Chancery for New Castle County, Delaware, against NYRES1, Lehman Brothers Inc.
and others. The complaint alleges, among other things, that the limited
partners 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 Partnership was not
named, but the defendants intend to defend the action vigorously.
On January 14, 1997, two individual limited partners commenced a purported
class action suit against NYRES1, Mendik RELP Corporation, B&B Park Avenue,
L.P. and Bernard Mendik in the Supreme Court of the State of New York County of
New York, on behalf of all persons holding limited partnership interests in the
Partnership. The complaint alleges that for reasons which include purported
conflicts of interest, the defendants breached their fiduciary duty to the
limited partners and the general partners of the Partnership also breached
their contractual duty to the limited partners. The plaintiffs further allege
that the proposed transfer of the 40% interest in Two Park Company (the
interest not owned by the Partnership) will result in a burden on the operation
and management of Two Park Avenue because the purchaser of the 40% interest
will have no fiduciary duty to the Partnership yet all decisions regarding any
proposed sale or refinancing of Two Park Avenue will require its consent, with
the result that, among other things, the transfer will prevent the Partnership
from negotiating for the sale of Two Park Avenue at better terms than a sale on
only the Partnership's approximate 60% interest. The complaint also alleges,
among other things, that the transfer of the 40% interest violates the
Partnership's rights of first refusal to purchase the interest being
transferred and fails to provide limited partners in the Partnership a
comparable transfer opportunity.
Shortly after the filing of the complaint, another limited partner represented
by the same attorneys filed an essentially identical complaint in the same
court. Among other things, both complaints claim that the purported class has
and will continue to suffer unspecified damages, and seek a declaration that
the suits are properly class actions, an accounting and certain injunctive
relief including an injunction enjoining the transfer of the 40% interest and a
judgment requiring either the liquidation of the Partnership and the
appointment of a receiver or an auction of Two Park Avenue. The time for
defendants to respond to the complaints and to certain discovery requests has
not yet expired. In the interim, plaintiff's counsel have requested an
agreement to consolidate the two actions and have stated that they may seek to
amend the complaints in unspecified ways, as well as to file a motion seeking a
preliminary injunction. The defendants intend vigorously to defend against
such action.
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) follows:
Year ended December 31,
1996 1995 1994
Financial statement consolidated
net income (loss) $(47,091,683) $11,613,040 $(6,173,627)
Financial statement write
down of real estate 42,988,230 -- 4,010,962
Tax basis depreciation over
financial statement depreciation (72,357) (355,352) (1,115,277)
Tax basis rental income over (under)
financial statement rental income (819,983) (89,674) 132,615
Tax loss on foreclosure over financial
statement gain on foreclosure -- -- (20,933,471)
Tax basis recognition of net income of
consolidated venture under financial
statement recognition of loss of
consolidated venture 1,033,441 7,986,697 272,346
Other -- (95,214) (65,300)
- -------------------------------------------------------------------------
Federal income tax basis net
income (loss) $(3,962,352) $19,059,497 $(23,871,752)
Reconciliation of financial statement partners' capital to federal income tax
basis partners' capital:
Years ended December 31,
1996 1995 1994
Financial statement basis partners'
capital $ 39,574,037 $ 86,665,720 $ 75,052,680
Current year financial statement net
income (loss) over (under) Federal
income tax basis net income (loss) 43,129,331 7,446,457 (17,698,122)
Cumulative financial statement net
income (loss) over cumulative Federal
income tax basis net income (loss) 48,826,522 41,380,065 59,078,187
- ------------------------------------------------------------------------------
Federal income tax basis partners'
capital $131,529,890 $135,492,242 $116,432,745
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.
<TABLE>
<CAPTION>
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
<S> <C> <C> <C> <C>
Consolidated
Venture:
500/600 330 West Two Park
Description: Mamaroneck Ave 34th Street Avenue Total
- -----------------------------------------------------------------------------------------------------
Location Harrison, NY New York, NY New York, NY na
Construction date 1969-1972 1925 1930 na
Acquisition date 09-04-86 04-23-87 09-18-87 na
Life on which depreciation
in latest income
statements is computed 25 yrs 20 yrs 35 yrs na
Encumbrances $ 6,500,000 $ -- $ 65,000,000 $ 71,500,000
Initial cost to Partnership:
Land $ -- $ -- $ 27,140,745 $ 27,140,745
Buildings
and improvements 21,282,805 35,611,400 130,411,744 187,305,949
Costs capitalized
subsequent to acquisition:
Land -- -- (3,661) (3,661)
Buildings
and improvements 11,474,228 11,443,884 49,978,436 72,896,548
Accumulated depreciation (13,508,629) (752,338) (52,853,232) (67,114,199)
Write-down adjustment:
Land -- -- (9,608,921) (9,608,921)
Buildings
and improvements (19,248,404) (43,401,058) (45,159,328) (107,808,790)
Gross amount at which
carried at close of period:
Land -- -- 17,528,163 17,528,163
Buildings and
improvements -- 2,901,888 82,377,620 85,279,508
$ -- $ 2,901,888 $ 99,905,783 $102,807,671
</TABLE>
For Federal income tax purposes, the basis of land, building and improvements
wholly owned by the Partnership at December 31, 1996 and 1995 is $78,441,638
and $77,051,988, respectively.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $241,634,143 $236,172,782 $227,392,238
Additions 6,391,539 5,619,234 6,235,648
Deletions (660,870) (157,873) (3,155,104)
Write down adjustment (144,557,141) -- --
End of year $102,807,671 $241,634,143 $230,472,782
Properties held for
disposition (Note 1) 16,200,000 -- 5,700,000
Total $119,007,671 $241,634,143 $236,172,782
Accumulated depreciation:
Beginning of year $ 58,172,619 $ 49,536,517 $ 44,575,753
Depreciation expense 9,602,450 8,793,975 8,115,868
Deletions (660,870) (157,873) (3,155,104)
Write down adjustment (67,114,199) -- --
End of year $ -- $ 58,172,619 $ 49,536,517
Note (1): As of December 31, 1996, the Partnership has accounted for the Saxon
Woods Property as held for disposition.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 4,727,720
<SECURITIES> 000
<RECEIVABLES> 11,763,927
<ALLOWANCES> 118,611
<INVENTORY> 000
<CURRENT-ASSETS> 5,919,834
<PP&E> 102,807,671
<DEPRECIATION> 0
<TOTAL-ASSETS> 146,458,071
<CURRENT-LIABILITIES> 74,159,276
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 39,574,037
<TOTAL-LIABILITY-AND-EQUITY> 146,458,071
<SALES> 36,301,921
<TOTAL-REVENUES> 36,549,015
<CGS> 000
<TOTAL-COSTS> 20,118,066
<OTHER-EXPENSES> 76,608,943
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 7,225,953
<INCOME-PRETAX> (47,091,683)
<INCOME-TAX> 000
<INCOME-CONTINUING> (47,091,683)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (47,091,683)
<EPS-PRIMARY> (117.97)
<EPS-DILUTED> (117.97)
</TABLE>
