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, 1997
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 of I.R.S. Employer
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 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 and interest of 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") (collectively, the "Properties"). The
remaining 40% interest in Two Park Company is currently owned by B&B Park
Avenue L.P., of which, Mendik RELP is the general partner. On April 15, 1997,
FW/Mendik REIT LLC, an affiliate of Mendik RELP Corporation, acquired
substantially all of the interest in B&B Park Avenue L.P. Following this sale,
FW/Mendik LLC conveyed its interest in B&B Park Avenue L.P. to an affiliate of
Vornado Realty Trust ("Vornado"), a real estate investment trust whose shares
of stock are traded on the New York Stock Exchange. The conveyance to the
affiliate of Vornado was in connection with the consolidation of Vornado and
Mendik Management Company, Inc. and certain of its affiliates, which
consolidation was also consummated on April 15, 1997. In connection with this
transaction, Mendik Management Company Inc. ("Mendik Management") assumed all
property management and leasing responsibilities at the Properties, which were
formerly performed by Mendik Realty Company, Inc. ("Mendik Realty"). On
December 29, 1994, the Partnership transferred title to the Stamford Property
to the mortgage holder in lieu of foreclosure. See Notes 2 and 5 to the
Consolidated Financial Statements under Item 8 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 under Item 8 for a further description of the Properties.
The Partnership does not intend to acquire any additional properties.
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 had 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.
Overview- Real Estate Market
The Midtown Manhattan commercial real estate market continued to improve during
1997, largely as a result of improving economic conditions. The improvement in
the city's economy is evidenced by the fact that in 1997, more than 50,000 net
private sector jobs were added in the New York metropolitan area, up from an
average of 39,000 for each of the prior three years. 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 Penn Station, where the
Partnership's 330 West 34th Street property is 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
supply expected to be added until 1999. According to Cushman and Wakefield,
Inc. ("Cushman"), a national real estate firm, the Class A vacancy rate in
Midtown Manhattan was 8.2% in the fourth quarter of 1997, a decrease from 10.0%
in the fourth quarter of 1996.
Property Sales
With the improvement in the real estate markets in which the Properties are
located, as well as the high occupancy rates of each of the Properties, the
General Partners believe that it is an opportune time to sell its interest in
each of the Properties. Accordingly, the General Partners are currently
negotiating a potential sale of the Properties (see Item 3). While the General
Partners believe the negotiations will result in an eventual sale, there can be
no assurance that the Properties will be sold, that certain prices will be
achieved or that the Properties will be sold in the near term. If all the
Properties are sold, the Partnership will be liquidated and the sale proceeds
will be distributed according to the terms of the Partnership Agreement.
As a result of the Partnership's decision to pursue negotiations for a
potential sale of all the Properties, they are classified on the Partnership's
consolidated balance sheet as "Properties held for disposition, " at December
31, 1997.
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 of transactions with
affiliates, see Item 13 and Note 8 to the Consolidated Financial Statements
under Item 8.
Item 2. Properties
Park Avenue Property
Valuation. Two Park Company, the joint venture in which the Partnership owns
an approximate 60% general partnership 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, 1997 was $123,000,000, compared to an appraised value of
$110,000,000 as of December 31, 1996. 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, 1997, before the
Partnership's share of first mortgage debt, was $73,431,000, compared to
appraised values of $65,670,000 as of December 31, 1996 and $98,505,000 as of
September 1, 1987.
Due to the Partnership's efforts to market the Park Avenue Property for sale,
the property was reclassified as "Property held for disposition," effective
September 30, 1997, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
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 1997, the Two Park Company
expended approximately $51.2 million on capitalized renovations, including
tenant improvement construction, which were funded from cash flow, Property and
Partnership reserves, and borrowings.
Financing. For information regarding the recently refinanced mortgage secured
by the Park Avenue Property which aggregates $65 million, reference is made to
Item 7 and Note 6 to the Consolidated Financial Statements under Item 8.
Leasing. The Property's occupancy as of December 31, 1997 and 1996, was 97%
and 98%, respectively. During 1998, the Partnership will continue to market
the Property's available space to commercial office tenants. Based upon data
provided by Cushman, the overall vacancy rate for Class A office space in the
Murray Hill section of Midtown Manhattan, where the Park Avenue Property is
located, totaled 15.6% for fourth quarter 1997 compared to 16.5% for fourth
quarter 1996.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 292,000 square feet (approximately 31% of the total
leaseable area in the Property) under leases expiring on September 30, 2010,
and Smith Barney, Inc. Smith Barney, Inc. leases approximately 100,000 square
feet (approximately 11% of the total leaseable 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 entered into another lease agreement with a
subtenant of Smith Barney for 20,000 square feet. Smith Barney continues to
remain current on its rental payments to the Partnership in accordance with the
terms of its existing lease. In addition, the Partnership recently executed a
lease agreement with United Way, effective June 1, 1998. United Way will
occupy the bulk of the space (60,572 square feet) that was previously occupied
by Smith Barney, Inc. at rental rates higher than the Smith Barney lease.
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,
1997, based on two separate appraisal techniques which differ in their
treatment of the ground lease valuation, ranged from approximately $7,600,000
to $11,000,000 compared to an appraised value of $4,000,000 at December 31,
1996.
Due to the Partnership's efforts to market the 34th Street Property for sale,
the Property was reclassified as "Property held for disposition," effective
September 30, 1997, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
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 Partnership has the option to
renew the ground lease 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 greater of (i) $2.75 million or (ii) the base rent for
any consecutive 12-month period during the then-preceding renewal term. The
Partnership was required to 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. In the fourth quarter of 1997, the Partnership
gave notice to the ground lessor of its intention to renew the lease and was
subsequently granted an extension on the ground lease, under the same terms,
until December 31, 2020.
Renovations. During the period from 1987 through 1997, the Partnership
expended approximately $11.6 million on capitalized renovations, including
tenant improvement construction, funded from cash flow, Partnership reserves,
and borrowings.
Financing. 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 NYRES1. The
NYRES1 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 further supplement the Property's cash flow, beginning in January
1992, Mendik Realty, an affiliate of Mendik RELP Corporation and former
property manager, agreed to defer its management fees that would otherwise have
been payable with respect to the 34th Street Property, although it had no
obligation to do so. Effective April 15, 1997, property management
responsibilities were assumed by Mendik Management (see Item 1). The
Partnership's outstanding obligation to pay the management fees to Mendik
Management 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 Management 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. For additional information regarding the deferral of
leasing commissions, reference is made to Note 8 to the Consolidated Financial
Statements under Item 8.
Leasing. 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 approximately 300,000 square feet for a term of approximately
ten years from the previous scheduled expiration date of February 28, 2001. 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 (March 21, 2002) of the signing 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.
Substantially all of the property's cash flow will be used over the next
several years to fund the costs associated with the City's lease amendment,
including the third party brokerage commission, as well as costs associated
with leases that were previously entered into.
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. The tenant began paying rent
under the new lease on October 1, 1997.
During the second quarter of 1997, the Partnership entered into a long term
lease with B&H Foto and Electronics Corporation encompassing 5,550 square feet
of basement space and 4,000 square feet of parking space. The tenant began
paying rent on August 1, 1997.
The Property's occupancy rates as of December 31, 1997, 1996 and 1995, were
100%, 92% and 90%, 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 18.5% at December 31, 1997, compared to 25.2% at December 31,
1996.
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, 1997, was $20,500,000, compared to $16,700,000 at December 31, 1996.
Due to the Partnership's plan to market the Saxon Woods Corporate Center for
sale, the Property was reclassified as "Property held for disposition",
effective December 31, 1996, in accordance with the provisions of Statement of
Financial Accounting Standards No. 121.
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 1997, the Partnership
expended approximately $12.3 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 financing
secured by a first leasehold mortgage on the Property to extend the maturity
date of the Partnership's mortgage indebtedness to September 1997.
Subsequently, three three-month extensions were obtained to facilitate a sale
of the Property, with a maturity date of June 26, 1998. For additional
information regarding the Saxon Woods Line of Credit, reference is made to Note
6 of the Consolidated Financial Statements under Item 8.
Leasing. The Property's occupancy rates as of December 31, 1997, 1996 and 1995
were 99%, 97% and 81%, respectively. The vacancy rate in Westchester County,
where the Saxon Woods Corporate Center is located, was 14.6% as of December 31,
1997, as compared to a vacancy rate of 16.9% at December 31, 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.
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
"Defendants"). The complaint alleged 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 alleged, inter alia, claims of fraud,
negligent misrepresentation and breach of fiduciary duty (the "Action"). On or
about March 21, 1996, the Defendants removed the Action to United States
District Court for the District of Maryland. On or about April 19, 1996, the
plaintiffs filed a motion to have the Action remanded back to state court. As
of that date, no discovery or other proceedings in the Action had commenced.
After the parties had entered into successive stipulations extending the time
for the Defendants to respond to plaintiffs motion to remand and/or respond to
the complaint, the Court stayed and administratively closed the case by order
dated June 6, 1997.
On October 18, 1996, a purported first consolidated and amended class action
complaint was filed in the Court of Chancery of the State of Delaware and for
New Castle County on behalf of all persons who purchased units in the
Partnership, among other investments. The complaint names NYRES1, Lehman
Brothers Inc. and others (the "Defendants"). This case consolidates previous
actions against the Defendants. The Partnership was not named as a defendant.
The complaint alleges, among other things, that the Unitholders were induced to
purchase Units based upon misrepresentation and/or omitted statements in the
sales materials used in connection with the offering of Units in the
Partnership. The complaint purports to assert a claim for breach of fiduciary
duty by the Defendants based on the foregoing.
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, and seek 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 parties to the litigation are presently
negotiating a potential settlement of the action that would result in the sale
of the Park Avenue Property, the 34th Street Property and Saxon Woods Corporate
Center, and in the liquidation and dissolution of the Partnership. There can
be no assurance that such a settlement can be achieved. If there is no
settlement and the actions proceed, the defendants intend to vigorously defend
the actions.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1997, 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, 1997, there were 19,363 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, 1997
and 1996, 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 included
under Item 8 and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," also included elsewhere herein.
At or for the Years Ended December 31,
1997 1996 1995 1994 1993
(Dollars in
thousands,
except for per
Unit data)(1)
Total
income (2) $ 36,434 $ 36,549 $ 33,549 $ 39,571(8) $ 34,616
Income (loss)
before
extraordinary
item 5,113(6) (47,092)(5)(6) (4,635) (6,174)(8)(9)(11,407)(9)
Extraordinary
item _ _ 16,248 _ _
Net income
(loss)(3) 5,113(6) (47,092)(5)(6) 11,613(7) (6,174)(8)(9)(11,407)(9)
Total
assets (2) 152,141 146,458 213,013 220,468 237,798
Total
mortgages
and notes
payable (2) 73,730 73,730 72,275 95,161 107,043
Net cash
provided by
operating
activities (2) 7,628 4,348 15,247 4,279 1,275
Net income
(loss) per
Unit (3)(4) 12.81(6) (117.97)(5)(6) 24.43(7) (15.47)(8)(9) (28.58)(9)
Cash
distributions
per Unit (4) _ _ _ _ _
Net asset
value per
Unit (3)(4)(10) $146-$155(11) $101 $99 $82 $99
Notes:
(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 in 1996 of the carrying value of the Partnership's
Properties in the amount of $59,491,089 at December 31, 1996. In 1997,
includes a recovery of the valuation allowance on the Saxon Woods property
of $2,920,968. 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 and $4,240,608 at December 31, 1994 and 1993, respectively.
(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, 1997, the amount distributable to an
average Class A unit would range from approximately $102.00 to $108.00 per
unit (range depending on the appraised value used for the 34th Street
Property), with earlier issued units receiving less and later issued
units receiving more, and the amount distributable to a Class B unit would
range from approximately $212.00 to $224.00 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.
(11) $146.00 per Unit assumes a $7.6 million appraisal value for the 34th
Street Property, $155 per Unit assumes an $11.0 million appraisal value
for the 34th Street property.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
During the year-ended December 31, 1997, the Partnership funded operating
costs, the cost of tenant improvements, leasing commissions, and building
capital improvements from the following: (i) cash flow generated by the
property located at Two Park Avenue (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 Management, an affiliate of Mendik RELP Corporation, and
(iv) the deferral of interest payments on the NYRES1 Loan. Because certain of
the properties may be sold, it is expected that funds from certain of these
sources may be reduced or unavailable in the future.
With the improvement in the real estate markets in which the Properties are
located, as well as the high occupancy rates of each of the Properties, the
General Partners believe that it is an opportune time to sell its interest in
the Properties. Accordingly, the General Partners are currently negotiating a
potential sale of the Properties. While the General Partners believe the
negotiations will result in an eventual sale, there can be no assurance that
all the Properties will be sold, that certain prices will be achieved or that
the Properties will be sold in the near-term. If all the Properties are sold,
the Partnership will be liquidated and the sale proceeds will be distributed
according to the terms of the Partnership Agreement.
As a result of the Partnership's decision to pursue negotiations for a
potential sale of the Properties, they are classified on the Partnership's
consolidated balance sheet as "Properties held for disposition, "at December
31, 1997.
Park Avenue Property - As of December 31, 1997, the Park Avenue Property was
approximately 97% leased. The costs of leasing space at the property are being
funded with existing property cash flow and reserves maintained by Two Park
Company, the partnership that owns the Park Avenue Property. Pursuant to the
new Park Avenue mortgage loan, as discussed below, as of December 31, 1997, the
Partnership had placed approximately $6.0 million in a reserve account to fund
the costs of future leasing commissions and tenant improvements.
The Park Avenue Property was subject to nonrecourse financing totaling $65
million in principal which was scheduled to mature in December 1998, however,
the lender had the right to accelerate the maturity upon six-months notice. In
order to address the risk of such acceleration, Two Park Company refinanced the
existing loan, which refinancing closed in April 1997. Under the new mortgage,
which matures on March 1, 2000, interest is payable at a floating rate (LIBOR
plus 150 basis points), which should reduce 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
contract), in the event Two Park Company repays the full amount due under the
mortgage prior to maturity. This should provide the Partnership with
flexibility in connection with its plan to sell its 60% interest in Two Park
Company.
The remaining 40% interest in the Park Avenue Property is owned by B & B Park
Avenue L.P. ("B&B"), of which Mendik RELP Corporation was a general partner. On
December 13, 1996, FW/Mendik REIT LLC, an affiliate of Mendik RELP Corporation,
entered into a contract with the partners that owned substantially all of the
interest in B&B to acquire their interest in B&B. The closing under the
contract took place on April 15, 1997. Following the closing, FW/Mendik REIT
LLC conveyed its interest in B&B to an affiliate of Vornado Realty Trust
("Vornado"), a real estate investment trust whose shares of stock are traded on
the New York Stock Exchange. The conveyance to the affiliate of Vornado was in
connection with the consolidation of Vornado and Mendik Management Company Inc.
and certain of its affiliates, which consolidation was also consummated on
April 15, 1997. In connection with this transaction, Mendik Management assumed
all property management and leasing responsibilities at the Properties, which
were formerly performed by Mendik Realty.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 292,000 square feet (approximately 31% of the total
leaseable area in the Property) under leases expiring on September 30, 2010,
and Smith Barney, Inc. Smith Barney, Inc. leases approximately 100,000 square
feet (approximately 11% of the total leaseable 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 entered into another lease agreement with a
subtenant of Smith Barney for 20,000 square feet. Smith Barney continues to
remain current on its rental payments to the Partnership in accordance with the
terms of its existing lease. In addition, the Partnership recently executed a
lease agreement with United Way, effective June 1, 1998. United Way will
occupy the bulk of the space (60,572 square feet) that was previously occupied
by Smith Barney, Inc. at rental rates higher than the Smith Barney lease.
Saxon Woods Corporate Center - The Saxon Woods Corporate Center consists of two
office buildings, which had a combined leased rate of approximately 99% as of
December 31, 1997. The Partnership signed a lease amendment during the first
quarter of 1997 with Commodity Quotations, pursuant to which the tenant agreed
not to exercise its cancellation option and also extended its lease at the
property for approximately 24,000 square feet. Commodity Quotations also
expanded the amount of its leased space by approximately 3,300 square feet for
a five-year term through September 30, 2002, coterminous with the lease for
24,000 square feet.
During the third quarter of 1996, the Partnership obtained a one-year extension
of the mortgage indebtedness to September 1997. Subsequently, three,
three-month extensions were obtained to facilitate a sale of the Property, with
a maturity date of June 26, 1998.
34th Street Property - As of December 31, 1997, the 34th Street Property was
100% leased. The largest tenant in the property is the City of New York Human
Resources Administration (the "City") occupying approximately 47% 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
approximately 300,000 square feet for a term of approximately ten years from
the previous scheduled expiration date of February 28, 2001. 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
(March 21, 2002) of the signing 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. Substantially all of the
property's cash flow will be used over the next several years to fund the costs
associated with the City's lease amendment, including the third party brokerage
commission, as well as costs associated with leases that were previously
entered into.
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 tenant began paying rent under the new lease on October
1, 1997.
During the second quarter of 1997, the Partnership executed a long- term lease
with B&H Foto and Electronics Corporation encompassing 5,550 square feet of
basement space and 4,000 square feet of parking space. The tenant began paying
rent on August 1, 1997.
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 NYRES1. The NYRES1 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 Management agreed to
continue to defer its management fees and leasing commissions with respect to
the property.
Operating Cash Reserves and Other Assets
The Partnership's cash and cash equivalents were $4,786,697 at December 31,
1997, largely unchanged from $4,727,720 at December 31, 1996. Restricted cash
was $7,041,844 at December 31, 1997, compared to $960,489 at December 31, 1996.
The increase is primarily attributable to the transfer of funds from U.S.
Treasuries to a money market reserve account. Pursuant to the new Park Avenue
mortgage loan, as of December 31, 1997, the Partnership had placed
approximately 6.0 million in a reserve account to fund the cost of future
leasing commissions and tenant improvements.
Rent and other receivables totaled $903,270 at December 31, 1997, compared to
$1,192,114 at December 31, 1996. The decrease is primarily due to the timing of
rental payments made by certain tenants at the Properties.
At December 31, 1997, U.S. Treasuries and Agencies were zero compared to
$2,121,910 at December 31, 1996. The majority of U.S. Treasuries and Agencies
funds were used to fund the $2 million reserve for the cost of future leasing
at the Park Avenue Property.
Short- and Long-term Liabilities
Accounts payable and accrued expenses were $1,572,939 at December 31, 1997,
compared to $1,859,961 at December 31, 1996. The decrease is primarily
attributable to the payment of leasing commissions and administrative costs in
the first quarter of 1997 that had been accrued in previous years.
Accrued interest payable was $727,944 at December 31, 1997 compared to $799,315
at December 31, 1996. The decrease is primarily the result of the refinancing
of the Park Avenue Property's mortgage note in April 1997.
Results of Operations
1997 vs. 1996
For the year ended December 31, 1997, the Partnership generated net cash from
operating activities of $7,627,599, compared to $4,347,586 for the year ended
December 31, 1996. The higher balance in the 1997 period is primarily
attributable to lower interest expense. The Partnership generated net income
of $5,113,351 for the year ended December 31, 1997, compared to a net loss of
$47,091,683 for the year ended December 31, 1996. In 1996 the Partnership
recorded write-downs in the value of its real estate totalling $64,902,625.
Rental income for the year ended December 31, 1997 totalled $36,189,134,
compared to $36,301,921 for the year ended December 31, 1996.
Property operating expenses totalled $20,827,352 for the year ended December
31, 1997, compared to $20,118,066 for the year ended December 31, 1996. The
increase is due to higher cleaning and utility expenses at Two Park Avenue and
Saxon Woods properties.
Depreciation and amortization expense for the year ended December 31, 1997
totalled $5,246,432, compared to $11,257,102 for the year ended December 31,
1996. The $6,010,670 decrease is primarily due to the reclassification of the
Saxon Woods Property as "Property held for disposition" effective December 31,
1996, and the reclassification of Two Park Avenue and 34th Street as
"Properties held for disposition" effective September 30, 1997. The
Partnership ceased depreciation of the respective properties on the dates they
were reclassified to held for disposition in accordance with FAS 121.
Interest expense for the year ended December 31, 1997 totalled $6,162,361,
compared to $7,225,953 for the year ended December 31, 1996. The $1,063,592
decrease was due primarily to the refinancing of the Park Avenue Property
mortgage indebtedness in April 1997, which decreased the interest rate on the
outstanding principal balances.
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 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 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 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 a provision for valuation
allowance on property held for disposition (Saxon Woods) in the amount of
$5,411,536 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 a
provision for valuation allowance 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 was 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 was
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 was 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 was 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.
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 68 Chairman and Director
David R. Greenbaum 46 President
Christopher G. Bonk 43 Senior Vice President, Treasurer
and Chief Financial Officer
Michael M. Downey 56 Senior Vice President
David L. Sims 51 Senior Vice President
Kevin R. Wang 40 Senior Vice President
All officers and directors of Mendik RELP Corporation 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
Management. Prior to April 15, 1997 all officer of Mendik RELP Corporation
held the same position in Mendik Realty, which transferred its property
management and leasing responsibilities to Mendik Management on that date (see
Item 1).
Bernard H. Mendik has been an owner/manager and developer of office and
commercial properties since 1957. Mr. Mendik was named Chairman of Mendik
Management in 1990. Prior to his appointment as Chairman, Mr. Mendik had
served as President of Mendik Management since 1978.
David R. Greenbaum was appointed President of Mendik Management in 1990. Prior
to his appointment as President, Mr. Greenbaum had served as Executive Vice
President of Mendik Management since 1982.
Christopher G. Bonk has been with Mendik Management since 1981, most recently
as Senior Vice President, Treasurer and Chief Financial Officer.
Michael M. Downey has been with Mendik Management since 1978, most recently as
Senior Vice President of Operations.
David L. Sims has been with Mendik Management since 1984, most recently as
Senior Vice President of Leasing.
Kevin R. Wang has been with Mendik Management since 1985, most recently as
Senior Vice President of Leasing.
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
Mark Marcucci 35 President and Director
Moshe Braver 44 Vice President, Chief Financial
Officer, Director
Lawrence M. Ostow 29 Vice President
Mark Marcucci, 35, is a Senior Vice President of Lehman Brothers Inc. in its
Diversified Asset Group. Since joining Lehman Brothers in 1988, Mr. Marcucci's
responsibilities have been concentrated in the restructuring, asset management,
leasing, financing, refinancing and disposition of commercial office and
residential real estate. Prior to joining Lehman Brothers, Mr. Marcucci was
employed in a corporate lending capacity at Republic National Bank of New York.
Mr. Marcucci received a B.B.A. in Finance from Hofstra University and a Master
of Science in Real Estate from New York University. In addition, Mr. Marcucci
holds both Series 7 and Series 63 securities licenses.
Moshe Braver, 44, is currently a Managing Director of Lehman Brothers and has
held such position since October 1985. During this time, he has held positions
with the Business Analysis Group, International and Capital Markets
Administration and currently, with the Diversified Asset Group. Mr. Braver
joined Shearson Lehman Brothers in August 1983 as Senior Vice President. Prior
to joining Shearson, Mr. Braver was employed by the accounting firm of Coopers
& Lybrand from January 1975 through August 1983 as an Audit Manager. He
received a Bachelor of Business Administration degree from Bernard Baruch
College in January 1975 and is a Certified Public Accountant.
Lawrence M. Ostow, 29, 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 earned an M.B.A. from
the Stern School of Business in 1997 and 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.
The General Partners are entitled to varying percentages of Net Cash Flow
distributed in any fiscal year and to varying percentages of the Net Proceeds
of capital transactions. See Note 4 "The Partnership Agreement" of the Notes
to the Consolidated Financial Statements, included in the Partnership's Annual
Report to Unitholders for the year ended December 31, 1997, which is filed as
an exhibit under Item 14.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 31, 1998, 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, 1998, 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 525 (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) 1,919 (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 Management. Does not
include 40 Units owned by Mr. Mendik's wife, as to which he disclaims
beneficial ownership.
(2) Includes 325 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, 1997. For the 1997 fiscal year, $51,134 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 Management 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,
1997, there was a liability of approximately $1,037,195 to Mendik Management as
a result of leasing commissions earned in 1997 and prior periods from the 34th
Street Property, Park Avenue Property and Saxon Woods Corporate Center. During
1997, Mendik Management 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 1998.
B&B Park Avenue L.P. ("B&B"), a limited partnership of which Mendik RELP
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 owned substantially all of the interest in
B&B to acquire their interest in B&B. The closing under the contract took
place on April 15, 1997. Following the closing, FW/Mendik REIT LLC conveyed
its interest in B&B to an affiliate of Vornado Realty Trust ("Vornado"), a real
estate investment trust whose shares of stock are traded on the New York Stock
Exchange. The conveyance to the affiliate of Vornado was in connection with
the consolidation of Vornado and Mendik Management Company Inc. and certain of
its affiliates, which consolidation was also consummated on April 15, 1997.
Mendik Management receives fees for the management of the Partnership's
Properties and is reimbursed for the cost of on-site building management staff.
During 1997, Mendik Management earned management fees from the Partnership
totalling $960,780, of which $211,198 has been deferred, and was reimbursed
$498,232 for the cost of on-site building management salaries.
Mendik Management has deferred certain management fees and leasing commissions
payable to it by the Partnership in connection with the 34th Street Property
totalling $2,113,880 as of December 31, 1997. Such amount includes interest on
the unpaid management fees. During 1998, Mendik Management 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 1997, GMSC and BMS
received from the Partnership $5,049,788 for such services.
During 1997, certain expenses incurred by the NYRES1 general partner, its
affiliates, and an unaffiliated third party service provider in servicing the
Partnership, which were voluntarily absorbed by affiliates of the NYRES1
general partner in prior periods, were reimbursable to the NYRES1 general
partner and its affiliates.
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, 1997, 1996 and 1995 and
all balances unpaid at December 31, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(1) Financial Statements and Schedules Page
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Partners' Capital (Deficit) for
the years ended December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-4
Notes to the Consolidated Financial Statements F-5
(a)(2) Financial Statement Schedule
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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fourth quarter of 1997.
(c) Exhibits
Subject to Rule 12b-32 of the Securities Exchange Act of 1934 regarding
incorporation by reference, listed below are the exhibits which are filed as
part of this report:
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 Management 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 Management, 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
Management, 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).
(aa) Copy of Ground Lease extension dated October 21, 1997 relating to the
34th Street property
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: April 13, 1998 BY: s/Bernard H. Mendik/
Name: Bernard H. Mendik
Title: Chairman and Director
BY: NY Real Estate Services 1 Inc.
General Partner
Date: April 13, 1998 BY: s/Mark Marcucci/
Name: Mark Marcucci
Title: President and Director
Date: April 13, 1998 BY: s/Moshe Braver/
Name: Moshe Braver
Title: Vice President, Chief
Financial Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capabilities and on the dates indicated.
NY REAL ESTATE SERVICES 1 INC.
A General Partner
Date: April 13, 1998 BY: s/Mark Marcucci/
Name: Mark Marcucci
Title: President and Director
Date: April 13, 1998 BY: s/Moshe Braver/
Name: Moshe Braver
Title: Vice President, Chief
Financial Officer
and Director
Date: April 13, 1998 BY: s/Lawrence M. Ostow/
Name: Lawrence M. Ostow
Title: Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capabilities and on the dates indicated.
MENDIK RELP CORPORATION
A General Partner
Date: April 13, 1998 BY: s/Bernard H. Mendik/
Name: Bernard H. Mendik
Title: Chairman and Director
Date: April 13, 1998 BY: s/David R. Greenbaum/
Name: David R. Greenbaum
Title: President
Date: April 13, 1998 BY: s/Christopher G. Bonk/
Name: Christopher G. Bonk
Title: Senior Vice President,
Treasurer and Chief
Financial Officer
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,
1997 and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997, 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 20, 1998
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
-----------------------------------------------------------------------------
Assets
Real estate investments:
Land $ _ $17,528,163
Building and improvements _ 85,279,508
------------------------------
_ 102,807,671
Properties held for disposition 119,791,043 16,200,000
Cash and cash equivalents 4,786,697 4,727,720
Restricted cash 7,041,844 960,489
U.S. Treasuries and Agencies _ 2,121,910
Rent and other receivables
net of allowance for doubtful accounts of
$118,611 in 1997 and 1996 903,270 1,192,114
Deferred rent receivable 11,191,096 10,453,202
Other assets, net of accumulated amortization
of $4,941,591 in 1997 and $6,577,521 in 1996 8,426,941 7,994,965
-----------------------------------------------------------------------------
Total Assets $152,140,891 $146,458,071
-----------------------------------------------------------------------------
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $1,572,939 $1,859,961
Deferred income 5,904,654 6,550,650
Due to affiliates 2,956,140 2,907,737
Security deposits payable 1,116,249 960,489
Accrued interest payable 727,944 799,315
Mortgages payable 71,500,000 71,500,000
Notes payable to affiliates 2,230,000 2,230,000
------------------------------
Total Liabilities 86,007,926 86,808,152
------------------------------
Minority interest 21,445,577 20,075,882
------------------------------
Partners' Capital (Deficit):
General Partners (419,783) (470,917)
Limited Partners (395,169 units outstanding) 45,107,171 40,044,954
------------------------------
Total Partners' Capital 44,687,388 39,574,037
-----------------------------------------------------------------------------
Total Liabilities and Partners' Capital $152,140,891 $146,458,071
-----------------------------------------------------------------------------
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Income
Rental $36,189,134 $36,301,921 $33,334,516
Interest 245,160 247,094 214,049
---------------------------------------
Total Income 36,434,294 36,549,015 33,548,565
- -------------------------------------------------------------------------------
Expenses
Property operating 20,827,352 20,118,066 19,938,170
Depreciation and amortization 5,246,432 11,257,102 10,199,677
Interest 6,162,361 7,225,953 8,796,859
General and administrative 636,071 449,216 395,434
(Recovery of) provision for valuation
allowance on property held for
disposition (2,920,968) 5,411,536 _
Loss on write-down of real estate
investments _ 59,491,089 _
--------------------------------------
Total Expenses 29,951,248 103,952,962 39,330,140
- -------------------------------------------------------------------------------
Income (loss) before minority interest
and extraordinary item 6,483,046 (67,403,947) (5,781,575)
Minority interest share of (income)
loss in consolidated venture (1,369,695) 20,312,264 1,146,881
--------------------------------------
Income (loss) before
extraordinary item 5,113,351 (47,091,683) (4,634,694)
- -------------------------------------------------------------------------------
Extraordinary Item
Gain on retirement of debt _ _ 16,247,734
- -------------------------------------------------------------------------------
Net Income (Loss) $5,113,351 $(47,091,683) $11,613,040
- -------------------------------------------------------------------------------
Net Income (Loss) Allocated:
To the General Partners $ 51,134 $ (470,917) $ 1,487,096
To the Special Limited Partner _ _ 471,998
To the Limited Partners 5,062,217 (46,620,766) 9,653,946
- -------------------------------------------------------------------------------
$5,113,351 $(47,091,683) $11,613,040
- -------------------------------------------------------------------------------
Per limited partnership unit
(395,169 outstanding):
Net income (Loss) before
extraordinary item $12.81 $(117.97) $(11.61)
-------------------------------------
Net Income (Loss) $12.81 $(117.97) $ 24.43
- -------------------------------------------------------------------------------
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
Special
Limited General Limited
Partners Partners Partner Total
- -------------------------------------------------------------------------------
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
Net income 5,062,217 51,134 _ 5,113,351
- -------------------------------------------------------------------------------
Balance at December 31, 1997 $45,107,171 $ (419,783) $ _ $44,687,388
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net Income (loss) $5,113,351 $(47,091,683) $11,613,040
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 3,913,361 9,602,450 8,793,974
Amortization 1,333,071 1,654,652 1,405,703
Gain on retirement of debt _ _ (16,247,734)
Minority interest share of income
(loss) in consolidated venture 1,369,695 (20,312,264) (1,146,881)
(Recovery of) provision for valuation
allowance on property held for
disposition (2,920,968) 5,411,536 _
Net premium (discount) amortization -
U.S. Treasuries and Agencies 53,777 (25,350) 50,092
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash (155,760) 104,966 1,045,662
Rent and other receivables 288,844 (254,013) (164,073)
Deferred rent receivable (737,894) (2,750,852) 4,911,038
Other assets (1,199,438) (872,529) (3,856,650)
Accounts payable and accrued expenses 1,082,764 19,797 21,014
Deferred income (645,996) (980,097) 7,396,633
Due to affiliates 48,403 277,389 894,286
Security deposits payable 155,760 (104,966) (103,135)
Accrued interest payable (71,371) 177,461 634,388
--------------------------------------
Net cash provided by operating
activities 7,627,599 4,347,586 15,247,357
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities
Restricted cash - replacement reserve (5,925,595) _ _
Additions to real estate (1,775,765) (6,391,539) (5,619,234)
Accounts payable - real estate assets (1,369,786) 280,402 (1,156,444)
Acquisition of U.S. Treasuries
and Agencies (492,602) (3,021,038) (3,574,183)
Redemption of U.S. Treasuries
and Agencies 2,560,735 3,383,272 4,074,449
--------------------------------------
Net cash used for investing activities (7,003,013) (5,748,903) (6,275,412)
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from mortgage and
notes payable 65,000,000 1,455,476 2,113,688
Payments of principal on mortgage
and notes payable (65,000,000) _ (11,750,000)
Mortgage refinancing costs (565,609) _ _
--------------------------------------
Net cash provided by (used for)
financing activities (565,609) 1,455,476 (9,636,312)
------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 58,977 54,159 (664,367)
Cash and cash equivalents, beginning
of period 4,727,720 4,673,561 5,337,928
--------------------------------------
Cash and cash equivalents, end
of period $4,786,697 $4,727,720 $4,673,561
- -------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the period
for interest $6,233,732 $7,048,492 $8,015,003
- -------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
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 RELP 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, 1997, the Partnership funded
operating costs, the cost of tenant improvements, leasing commissions, and
building capital improvements from the following 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 Management
Company Inc., an affiliate of Mendik RELP Corporation ("Mendik Management"),
and (iv) 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, 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 Two Park
Company, the joint venture that owns the Park Avenue Property. Pursuant to the
new Park Avenue mortgage loan, as discussed below, as of December 31, 1997, the
Partnership had placed approximately $6.0 million in a reserve account to fund
the costs of future leasing commissions and tenant improvements.
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. The Park Avenue Property was subject to nonrecourse financing
totaling $65 million which was scheduled to mature in December 1998, however,
the lender had the right to accelerate the maturity upon six- months notice. In
order to address the risk of such acceleration, Two Park Company refinanced the
existing loan in April 1997. Under the new mortgage, which matures on March 1,
2000, interest is payable at a floating rate (LIBOR plus 150 basis points),
which should reduce 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 contract), in the event Two Park
Company repays the full amount due under the mortgage prior to maturity.
The Partnership owns an approximate 60% general partnership interest in Two
Park Company. The remaining 40% interest in Two Park Company is owned by B & B
Park Avenue L.P. ("B&B"), of which Mendik RELP Corporation was a general
partner. On December 13, 1996, FW/Mendik REIT LLC, an affiliate of Mendik RELP
Corporation, entered into a contract with the partners that owned substantially
all of the interest in B&B to acquire their interest in B&B. The closing under
the contract took place on April 15, 1997. Following the closing, FW/Mendik
REIT LLC conveyed its interest in B&B to an affiliate of Vornado Realty Trust
("Vornado"), a real estate investment trust whose shares of stock are traded on
the New York Stock Exchange. The conveyance to the affiliate of Vornado was in
connection with the consolidation of Vornado and Mendik Management Company Inc.
and certain of its affiliates, which consolidation was also consummated on
April 15, 1997.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 292,000 square feet (approximately 31% of the total
leaseable area in the Property) under leases expiring on September 30, 2010,
and Smith Barney, Inc. Smith Barney, Inc. leases approximately 100,000 square
feet (approximately 11% of the total leaseable 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 entered into another lease agreement with a
subtenant of Smith Barney for 20,000 square feet. Smith Barney continues to
remain current on its rental payments to the Partnership in accordance with the
terms of its existing lease. In addition, the Partnership recently executed a
lease agreement with United Way, effective June 1, 1998. United Way will
occupy the bulk of the space (60,572 square feet) that was previously occupied
by Smith Barney, Inc. at rental rates higher than the Smith Barney lease.
The property was 97% and 98% occupied at December 31, 1997 and 1996,
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 greater of (i) $2.75 million or (ii) the base rent for any consecutive
12-month period during the then- preceding renewal term. The Partnership was
required to 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 was scheduled to expire on
December 31, 1999. In the fourth quarter of 1997, the Partnership gave notice
to the ground lessor of its intention to renew the lease and was subsequently
granted an extension on the ground lease, under the same terms, until December
31, 2020.
In 1993, the Partnership signed a long-term lease with the City of New York for
approximately 47% of the Property's total leasable space in the 34th Street
Property. The 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 approximately 10 years from the previous scheduled
expiration date of February 28, 2001. 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. No cash flow payments have been
made on the loan as of December 31, 1997.
In order to improve the 34th Street Property's cash flow, beginning in January
1992, Mendik Management voluntarily agreed to defer its management fees that
would otherwise have been payable with respect to the 34th Street Property. In
addition, Mendik Management 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, 1997, Mendik Management has deferred
approximately $2,111,719 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 Management 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.
The property was 100% and 92% occupied at December 31, 1997 and 1996,
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 1998. 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
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.
The indebtedness secured by the Saxon Woods Corporate Center was scheduled to
mature in September 1996. During the third quarter of 1996, the Partnership
obtained a one-year extension of the mortgage indebtedness to September 1997.
Subsequently, three, three-month extensions were obtained to facilitate a sale
of the property, with a maturity date of June 26, 1998.
The property was 99% and 97% occupied at December 31, 1997 and 1996,
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. 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. Income is 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.
Impairment of Long-Lived Assets - 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"), requires the Partnership to
assess its real estate investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by
a comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate.
Real Estate Investments - Prior to September 30, 1997, real estate investments
which consist of buildings, were recorded at cost, less accumulated
depreciation and impairment writedowns. 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, 1997 and 1996, the Partnership completed reviews 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.
Property Held for Disposition - The Saxon Woods property, Two Park Avenue
property, and 330 West 34th Street property were reclassified as "properties
held for disposition" following the decision to pursue negotiations for a
potential sale of these properties. The properties are recorded at the lower
of amortized cost or their estimated fair value less costs to sell at December
31, 1997. Based upon the reviews completed at December 31, 1997, the
Partnership recovered part of the provision for valuation allowance on the
property held for disposition (Saxon Woods) at December 31, 1996. (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 a reserve to fund the cost of
certain future leasing activity pursuant to the new mortgage loan on the Two
Park Avenue property and tenant security deposits.
Marketable Securities - Marketable securities, which consisted of United States
Treasury securities and Agencies, were carried at amortized cost, which
approximated 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.
Rental Income - 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 judgment 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 income 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.
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 at each of the properties below represented 45% of
the Partnership's rental income in 1997.
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 was 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 Two Park Company 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 closing under the contract took place
on April 15, 1997. Following the closing, FW/Mendik REIT LLC conveyed its
interest in B&B Park Avenue L.P. to an affiliate of Vornado Realty Trust
("Vornado"), a real estate investment trust whose shares of stock are traded on
the New York Stock Exchange. The conveyance to the affiliate of Vornado was in
connection with the consolidation of Vornado and Mendik Management Company Inc.
and certain of its affiliates, which consolidation was also consummated on
April 15, 1997. At December 31, 1997, the appraised fair value of the property
was $123,000,000, and the appraised value of the property net of the minority
interest was $73,431,000. 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.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 292,000 square feet (approximately 31% of the total
leaseable area in the Property) under leases expiring on September 30, 2010,
and Smith Barney, Inc. Smith Barney, Inc. leases approximately 100,000 square
feet (approximately 11% of the total leaseable 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 entered into another lease agreement with a
subtenant of Smith Barney for 20,000 square feet. Smith Barney continues to
remain current on its rental payments to the Partnership in accordance with the
terms of its existing lease. In addition, the Partnership recently executed a
lease agreement with United Way, effective June 1, 1998. United Way will
occupy the bulk of the space (60,572 square feet) that was previously occupied
by Smith Barney, Inc. at rental rates higher than the Smith Barney lease. Times
Mirror Company and Smith Barney represented 23% and 12%, respectively, of the
property's total rental income in 1997.
At December 31, 1997 and 1996, 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 1996, management anticipated
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 was less than its carrying value.
As a result, the Partnership recorded a write-down in 1996, before
consideration of the minority interest's share of the write-down, of
approximately $54,800,000 to reduce the property's carrying value to its 1996
estimated fair value of $110,000,000. The fair value was obtained from an
appraisal report prepared by an independent appraiser.
Due to the Partnership's intention to market the Park Avenue Property for sale,
the Property was reclassified as "Property held for disposition," effective
September 30, 1997, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
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 greater of (i) $2.75 million or (ii) the base rent for
any consecutive 12-month period during the then-preceding renewal term. The
Partnership was required to 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. In the fourth quarter of 1997, the Partnership
gave notice to the ground lessor of its intention to renew the lease and was
subsequently granted an extension on the ground lease, under the same terms,
until December 31, 2020. The property's appraised value at December 31, 1997,
based on two separate appraisal techniques which differ in their treatment of
the ground lease valuation, ranged from approximately $7,600,000 to
$11,000,000. The property's value was appraised at $4,000,000 at December 31,
1996.
Major tenants at the 34th Street property are the City of New York and Props
for Today. The City of New York which leases approximately 300,000 square feet
(47% of the total leasable area in the property). The term of the lease was
originally schaeduled 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 10 years from
the previous scheduled expiration date. 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 77% and 7%,
respectively, of the property's total rental income in 1997.
At December 31, 1997 and 1996, 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. In 1996, management anticipated holding the property
for 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
was 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 value of $4,000,000, which represents the property's appraised
value as of December 31, 1996. The value was obtained from an appraisal report
prepared by an independent appraiser.
Due to the Partnership' s intention to market the 34th Street Property for
sale, the Property was reclassified as "Property held for disposition,"
effective September 30, 1997, in accordance with the provisions of Statement of
Financial Accounting Standards No. 121.
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 value was
appraised at $20,500,000 at December 31, 1997, compared to $16,700,000 at
December 31, 1996.
Major tenants at the Saxon Woods Corporate Center are: Commodity Quotations
which leases 27,915 square feet (approximately 12% of the total leasable area)
under leases expiring September 30, 2002; Icon Capital Corp., which leases
29,040 square feet (13% of the total leasable area) under a lease expiring
November 30, 2004; and AllState, which leases approximately 29,000 square feet
(13% of the total leasable area), under a lease expiring February 28, 2007.
Commodity Quotations, Icon Capital Corp. and AllState represented approximately
29%, 13% and 22% of the property's rental income in 1997.
At December 31, 1997 and 1996, 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 reclassified the property on the Partnership's balance sheet as
property held for disposition at December 31, 1996. 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 valuation allowance 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 independent appraisal of the
property, less estimated costs to sell. As of December 31, 1997, the
Partnership recorded a recovery of the provision for valuation allowance to
increase the carrying value of the property held for disposition to
$20,000,000, the property's appraised value less estimated costs to sell at
December 31, 1997.
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.
Intererst was 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 was due and payable.
The $65 million Park Avenue Property mortgage was scheduled to mature in
December 1998, however, the lender had the right to accelerate the maturity
upon six-months notice. In order to address the risk of such acceleration, Two
Park Company refinanced the existing mortgage loan in April 1997. Under the
new mortgage, which matures on March 1, 2000, interest is payable at a floating
rate (LIBOR plus 150 basis points). Additionally, there is no prepayment
penalty (other than in connection with breakage costs of any LIBOR contract),
in the event Two Park Company repays the full amount due under the mortgage
loan prior to maturity.
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. No cash flow payments have been made on the NYRES1 Loan
as of December 31, 1997. The NYRES1 Loan matures upon the earlier of December
31, 2025 or the termination of the Partnership. In connection with the NYRES1
Loan, Mendik Management 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 a first
leasehold mortgage on 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 at the rate of 2.5% per annum in excess of
LIBOR. During the third quarter of 1996, the Partnership obtained from the
lender a one-year extension of the maturity of the mortgage to September 1997.
Subsequently, three, three-month extensions were obtained to facilitate a sale
of the property, with a maturity date of June 26, 1998. 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.
Mortgages notes payable at December 31, 1997 and 1996 are summarized as
follows:
1997 1996
- -------------------------------------------------------------------------------
Secured by Park Avenue Property, bearing interest at a
blended rate of 8.16% in 1997 and 10.05% in 1996 $65,000,000 $65,000,000
Secured by Saxon Wood Corporate Center, bearing interest
at a blended rate of 8.72% in 1997 and 8.32% in 1996 6,500,000 6,500,000
-----------------------
$71,500,000 $71,500,000
- -------------------------------------------------------------------------------
Notes payable at December 31, 1997 and 1996 are summarized as follows:
1997 1996
- -------------------------------------------------------------------------------
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
------------------------------------------------------
1998 $ 6,500,000
1999 _
2000 65,000,000
2001 _
2002 _
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, 1997 are as follows:
Year Amount
-------------------------------------------------------
1998 $ 31,021,617
1999 30,294,162
2000 28,943,169
2001 29,206,989
2002 22,799,591
Thereafter 123,840,565
-------------------------------------------------------
$266,106,093
------------
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, 1997, 1996, and 1995,
these amounts were $2,790,259, $2,793,437, and $2,712,976, 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 were on deposit with an affiliate of a general partner during a
portion of 1996 and all of 1995. As of December 31, 1996 and throughout 1997,
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, 1997, 1996
and 1995 and all balances unpaid at December 31, 1997:
Due To/(From) Affiliates
at December 31, Paid or Accrued
1997 1997 1996 1995
- -------------------------------------------------------------------------------
Management fees and building
personnel salaries (A) $1,841,153 $1,459,012 $1,279,660 $1,171,005
Leasing commissions (B) 1,037,195 310,557 170,981 347,488
Cleaning and related
services (C)(D) _ 4,660,182 4,106,631 4,127,071
Security (E) _ 389,606 425,855 366,322
Administrative salaries
and expenses (F) 77,792 206,431 _ _
- -------------------------------------------------------------------------------
$2,956,140 $7,025,788 $5,983,127 $6,011,886
----------------------------------------------
(A) Mendik Management 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 Management, for the years ended December 31,
1997, 1996 and 1995 totalled $498,232, $487,796, and $438,616,
respectively. Management fees paid or payable to Mendik Management
totalled $960,780, $791,864, and $732,389 for the years ended December 31,
1997, 1996 and 1995, 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 Management 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, 1997, there
were unpaid commissions with accrued interest, on a consolidated basis, of
approximately $1,037,195 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 $3,625,689, $3,185,018, and $3,230,148 for the
years ended December 31, 1997, 1996 and 1995, respectively. The salaries
and benefits for the property engineering staff were $847,191, $778,884,
and $759,415 in 1997, 1996 and 1995, 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 $187,302,
$142,729, and $137,508 in 1997, 1996 and 1995, respectively. These
amounts are included in the table.
(E) Guard Management Service Corporation, an affiliate of Mendik Corporation,
provides security services to the Partnership at its cost plus an
allocable share of overhead expenses, which in 1997, 1996 and 1995
totalled $389,606, $425,855, and $366,322, respectively. These amounts
are included in the table.
(F) Commencing January 1, 1997, NYRES1, a general partner, was reimbursed for
certain administrative salaries and expenses which were voluntarily
absorbed by affiliates of the NYRES1 general partner in prior periods,
were reimbursable to the NYRES1 general partner and its affiliate
9. Litigation
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
"Defendants"). The complaint alleged 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 alleged, inter alia, claims of fraud,
negligent misrepresentation and breach of fiduciary duty (the "Action"). On or
about March 21, 1996, the Defendants removed the Action to United States
District Court for the District of Maryland. On or about April 19, 1996, the
plaintiffs filed a motion to have the Action remanded back to state court. As
of that date, no discovery or other proceedings in the Action had commenced.
After the parties had entered into successive stipulations extending the time
for the Defendants to respond to plaintiffs motion to remand and/or respond to
the complaint, the Court stayed and administratively closed the case by order
dated June 6, 1997.
On October 18, 1996, a purported first consolidated and amended class action
complaint was filed in the Court of Chancery of the State of Delaware and for
New Castle County on behalf of all persons who purchased units in the
Partnership, among other investments. The complaint names NYRES1, Lehman
Brothers Inc. and others (the "Defendants"). This case consolidates previous
actions against the Defendants. The Partnership was not named as a defendant.
The complaint alleges, among other things, that the Unitholders were induced to
purchase Units based upon misrepresentation and/or omitted statements in the
sales materials used in connection with the offering of Units in the
Partnership. The complaint purports to assert a claim for breach of fiduciary
duty by the Defendants based on the foregoing.
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 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 parties to the litigation are presently
negotiating a potential settlement of the action that would result in the sale
of the Park Avenue Property, the 34th Street Property and Saxon Woods Corporate
Center and in the liquidation and dissolution of the Partnership. There can be
no assurance that such a settlement can be achieved. If there is no settlement
and the actions proceed, the defendants intend to vigorously defend the
actions.
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:
Years ended December 31,
1997 1996 1995
----------------------------------------------------------------------------
Financial statement consolidated
net income (loss) $5,113,351 $(47,091,683) $11,613,040
Financial statement adjustments to
real estate (2,920,968) 42,988,230 _
Tax basis depreciation over
financial statement depreciation (1,830,341) (72,357) (355,352)
Tax basis rental income over (under)
financial statement rental income 2,055,349 (819,983) (89,674)
Tax basis recognition of net income
(loss) of consolidated venture
(under) over financial statement
recognition of income (loss) of
consolidated venture (2,568,478) 1,033,441 7,986,697
Other _ _ (95,214)
----------------------------------------------------------------------------
Federal income tax basis net
income (loss) $(151,087) $(3,962,352) $19,059,497
----------------------------------------------------------------------------
Reconciliation of financial statement partners' capital to federal income tax
basis partners' capital:
As of December 31,
1997 1996 1995
----------------------------------------------------------------------------
Financial statement basis partners'
capital $44,687,388 $39,574,037 $86,665,720
Current year financial statement net
income (loss) over (under) Federal
income tax basis net income (loss) (5,264,438) 43,129,331 7,446,457
Cumulative financial statement net
income (loss) over cumulative Federal
income tax basis net income (loss) 91,955,853 48,826,522 41,380,065
----------------------------------------------------------------------------
Federal income tax basis
partners' capital $131,378,803 $131,529,890 135,492,242
----------------------------------------------------------------------------
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.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
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
adjustments:
Land _ _ (9,608,921) (9,608,921)
Buildings
and improvements (3,048,404) (43,401,058) (45,159,328) (91,608,790)
----------------------------------------------------
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
----------------------------------------------------
Adjusted Basis of real
estate or Property
held for disposition
at 12/31/96 $16,200,000 $2,901,888 $99,905,783 $119,007,671
1997 Improvements 879,032 165,446 731,287 1,775,765
1997 Fixed Asset Deletions _ _ (71,238) (71,238)
Recovery of valuation
allowance 2,920,968 _ _ 2,920,968
Accumulated depreciation _ (726,519) (3,115,604) (3,842,123)
----------------------------------------------------
Property held for
disposition at 12/31/97 $20,000,000 $2,340,815 $97,450,228 $119,791,043
- -------------------------------------------------------------------------------
For Federal income tax purposes, the basis of land, building and improvements
wholly owned by the Partnership at December 31, 1997, 1996 and 1995 is
$80,159,059, $80,159,059 and $77,051,988, respectively.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995 follows:
1997 1996 1995
Real estate investments:
Beginning of year
$102,807,671 $241,634,143 $236,172,782
Additions 896,733 6,391,539 5,619,234
Deletions (71,238) (660,870) (157,873)
Write down adjustment _ (128,357,141) _
Accumulated depreciation (3,842,123) _ _
Reclass to held for disposition (99,791,043) (16,200,000) _
-------------------------------------------
End of year $ _ $102,807,671 $241,634,143
-------------------------------------------
Properties held for disposition (1) $ 16,200,000 $ _ $ _
Additions 879,032 _ _
Recovery of provision for
valuation allowance 2,920,968 _ _
Reclass to held for disposition 99,791,043 16,200,000 _
-------------------------------------------
Total $119,791,043 $ 16,200,000 $ _
-------------------------------------------
Accumulated depreciation:
Beginning of year $ _ $ 58,172,619 $ 49,536,517
Depreciation expense 3,913,361 9,602,450 8,793,975
Deletions (71,238) (660,870) (157,873)
Write down adjustment (3,842,123) (67,114,199) _
-------------------------------------------
End of year $ _ $ _ $ 58,172,619
- -------------------------------------------------------------------------------
(1): As of December 31, 1996, the Partnership accounted for the Saxon Woods
Property as held for disposition. Additionally, as of September 30, 1997, the
Partnership accounted for the Park Avenue Property and the 330 West 34th Street
Property as held for disposition.
MENDIK REAL ESTATE LIMITED PARTNERSHIP
c/o Mendik Management Company Inc.
330 Madison Avenue
New York, NY 10017
CERTIFIED MAIL/RETURN RECEIPT REQUESTED
330 West 34th Street Associates
c/o Haymes Real Estate Corp.
5 Penn Place, 16th Floor
New York, NY 10001
October 26, 1997
Gentlemen:
Reference is made to the second restatement of lease agreement of
the captioned premises, dated December 1, 1986, between you, as
lessor, and M/H 34th Street Associates predecessor-in-interest to
Mendik Real Estate Limited Partnership), as lessee (the "Ground
Lease"). Pursuant to Section 3.03 of the Ground Lease, the
undersigned hereby exercises its right to extend the initial term
of the Ground Lease for a period of twenty-one (21) years,
commencing January 1, 2000, and expiring on December 31, 2020.
Kindly acknowledge your receipt of this renewal notice by signing
the enclosed copy hereof in the space indicated below and
returning the same to the undersigned c/o Mendik Management
Company Inc. at the address hereinabove provided.
Very truly yours,
MENDIK REAL ESTATE LIMITED PARTNERSHIP
By: Mendik RELP Corporation
General Partner
By: s/David R. Greenbaum/
David R. Greenbaum
President
By: N.Y. Real Estate Services 1, Inc.
General Partner
By: s/Mark Marcucci
Mark Marcucci
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 4,786,697
<SECURITIES> 000
<RECEIVABLES> 12,212,977
<ALLOWANCES> 118,611
<INVENTORY> 000
<CURRENT-ASSETS> 12,731,811
<PP&E> 119,791,043
<DEPRECIATION> 000
<TOTAL-ASSETS> 152,140,891
<CURRENT-LIABILITIES> 80,103,272
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 44,687,388
<TOTAL-LIABILITY-AND-EQUITY> 152,140,891
<SALES> 36,189,134
<TOTAL-REVENUES> 36,434,294
<CGS> 000
<TOTAL-COSTS> 20,827,352
<OTHER-EXPENSES> 5,882,503
<LOSS-PROVISION> (2,920,968)
<INTEREST-EXPENSE> 6,162,361
<INCOME-PRETAX> 5,113,351
<INCOME-TAX> 000
<INCOME-CONTINUING> 5,113,351
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 5,113,351
<EPS-PRIMARY> 12.81
<EPS-DILUTED> 12.81
</TABLE>
