UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or
240.14a-12
Commission File No. 0-2670
60 East 42nd Street Associates
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than Registrant)
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60 EAST 42ND STREET ASSOCIATES
c/o Wien & Malkin LLP
60 East 42nd Street - 26th Floor
New York, New York 10165-0015
Telephone: 212-687-8700
Telecopier: 212-986-7679
May ___, 1999
To Participants in 60 East 42nd Street Associates ("Associates"):
On behalf of the Agents for the Participants, I am seeking
your consent to a program to complete and finance improvements
and grant lease extensions at the Lincoln Building (the
"Building").
1. Introduction.
After review with the Lessee, Wien & Malkin LLP supervisory
staff, and on-site Building personnel, I believe the proposed
improvements are necessary to maintain the Building, its
competitive market position, and Associates' long-term investment
return. The Lessee intends to proceed with the program: Were
the Lessee to proceed and pay the cost out of cash flow, overage
rent and extra distributions to Participants would be
substantially reduced and might be eliminated for several years.
The current operating lease extends to 2008 and is renewable
to 2033. The Lessee has indicated that the costs of the program,
which extends beyond the Lessee's responsibility under the lease,
cannot be justified within the current lease term. It therefore
has requested lease extensions before it will move forward with
key performance-enhancing Building improvement components of its
comprehensively planned, bid, and priced program.
Therefore, I recommend that Associates cooperate by
refinancing the mortgage to facilitate the improvement program
and reduce the impact of the program upon distributions to
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Participants and by extending the lease to incentivize the Lessee
to complete this program and undertake future discretionary
investment in the Building.
The program is more fully described in the enclosed
Statement by the Agents in the Solicitation of Participant
Consents.
2. Background.
Associates has owned the Building since 1958 subject to a
long-term net lease to Lincoln Building Associates (the
"Lessee"), which pays basic rent, from which mortgage debt
service and basic supervisory fees are paid, and overage rent
based on operating profit, from which monthly and extra
distributions to Participants are paid. Total distributions for
1998 were equal to 34.5% of the original cash investment.
The area of Manhattan surrounding the Building continues to
improve. The sanitation, security, and capital improvements by
the Grand Central Partnership Business Improvement District, New
York City's enhanced image as a place to do business, and the
recent $200,000,000 renovation and restoration of Grand Central
Terminal have been catalysts for transforming the area into the
most sought-after office and retail district in New York City.
There is great potential to be captured in attracting quality
tenants at higher rents by upgrading the Building and its systems
and providing greater amenities.
To protect and exploit the Building's economic prospects in
an improved market, the Lessee has prepared a Building upgrade
and amenity enhancement program that has been fully designed,
engineered, and bid by third party expert consultants.
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3. Improvement Program.
The improvements proposed to be completed after December 31,
1998, are shown in Exhibit A to the enclosed Statement and are
estimated to cost approximately $22,500,000 over five years.
Included in the budget are: (a) $4,000,000 for replacement
of all Building windows, (b) $4,200,000 for public corridor and
elevator lobby upgrades, (c) $3,200,000 for new public bathrooms,
(d) $2,700,000 for elevator system modernization, (e) $625,000
for elevator cab replacement, (f) $385,000 for new concierge desk
and new card key and security system, (g) $1,550,000 for roof and
parapet replacement and repair, (h) $2,350,000 for water riser
replacement, (i) $750,000 for facade restoration, (j) $1,000,000
for new marketing center, new conference center, and law library
upgrades, and (k) $100,000 for lobby retail upgrades. The
balance will be available for contingencies discovered in the
field and improvement of tenant spaces.
4. Financing.
The $22,500,000 estimated cost of the improvements over
approximately five years will be funded through a combination of
a fee mortgage increase (from the current $12,000,000) and
operating cash flow. Associates will own the improvements paid
from mortgage proceeds and will receive tax benefits from
depreciation. The increased mortgage charges will be paid by
Associates from an equivalent increase in the basic rent paid by
the Lessee. Basic rent and cash payments for improvements will
be deducted in computing overage rent, so that the improvement
costs should be borne equally by Associates and the Lessee but
spread over many years thus stabilizing distributions to
Participants.
As part of this program, the Agents will be authorized to
extend or refinance the increased mortgage, from time to time as
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they deem appropriate for the benefit of Associates, for the
amount of its then existing balance plus refinancing costs.
5. Basic Rent.
Currently, basic rent is $1,087,842 a year, to be adjusted
to reflect any increase or decrease in debt service on the
existing mortgage balance. The basic rent payable by the Lessee
to Associates will increase to cover debt service on the
increased mortgage.
Assuming no enhancement in bottom line performance from
higher rental rates, higher occupancy, and lower credit loss from
all these improvements, an initial increase in the mortgage from
$12,000,000 to $34,000,000 with interest at 7.5% on the
additional $22,000,000 and with 25 year amortization, the basic
annual rent increase will be $1,950,937, and overage rent will
decrease by one-half of that amount. For an original $10,000
Participant who received $3,450 in distributions for 1998, this
mortgage increase would reduce distributions by less than $1,260
a year. However, this reduction may be offset by increased
rental income paid by office and store tenants. The maximum
mortgage contemplated by the program will be $35,000,000 but will
depend upon funding available from cash flow.
6. Solicitation and Program Expenses.
The expenses for the consent solicitation, lease amendment,
refinancing, transfer and recording taxes, legal fees, and
related costs will be funded from the mortgage increase and
repaid by the Lessee's increased basic rent. Wien & Malkin LLP
will represent Associates and the Lessee in this program, and it
and its affiliates will be indemnified with the Agents by
Associates and the Lessee against any claim or expense arising in
connection with the program.
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7. Lease Extension.
In order to induce the Lessee to undertake improvements
beyond what it can recoup over the remaining term of its existing
lease, Associates' Agents will be authorized to give additional
lease extension rights to the Lessee beyond the current 2033
expiration date for such consideration and upon such terms as the
Agents may then deem appropriate for the benefit of Associates.
The term of each extension will reflect the net present benefit
to Associates from projected increases in basic rent, overage
rent and value which arise from Associates' improvement
contributions, all as determined by a recognized independent
expert. Accordingly, the Agents will authorize extending the
lease for 50 years, to 2083, when the Lessee has completed the
program.
8. Conclusion.
Certain improvements by the Lessee are already in progress
or have been previewed to tenants, brokers, and prospective
tenants and have been welcomed enthusiastically. Combined with a
rededicated staff and new marketing initiatives (including a
newsletter and website), enthusiasm amongst Building tenants and
new interest in the Building by brokers and prospective tenants
provide early validation that the contemplated expenditures will
preserve and enhance the Building's operating results in an
improved market while the related financing will stabilize the
Participants' returns.
Enclosed are (a) the Statement with financial reports
detailing the program and (b) a colored Consent Form. Each
Participant should review the Statement before signing and
returning the colored Consent Form.
The consent of all Participants is required to authorize the
program. Upon receipt of consent from 90% in interest of an
Agent's group, the Participating Agreement permits that Agent to
purchase for $100 the interest of any Participant who withholds
consent 10 days after notice of 90% consent. Each Agent
presently intends to purchase the interest of any non-consenting
Participant in his group once the 90% threshold is achieved.
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By signing and returning the enclosed Consent Form, you
authorize the Agents and any partner or senior director at Wien &
Malkin LLP designated by me to conclude on behalf of Associates
the necessary agreements to effect this financing, improvement,
and lease extension program.
9. Recommendation.
I strongly urge your consent. The Lessee has demonstrated
that the improvements are necessary to meet the Building's
physical and marketing requirements. If the financing of the
improvements is not allowed, whatever improvements the Lessee
pursues will reduce or end distributions from overage rent
payments for several years. If the right to grant lease
extensions is not approved, the Lessee's full comprehensively
planned, bid, and priced program will not be implemented, but
overage rent and distributions will be reduced.
Financing of the improvements as proposed will also improve
the tax shelter for Participants.
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Please sign and return the enclosed Consent Form as soon as
possible. If you have any question, please call any of my
partners at Wien & Malkin LLP, Alvin Silverman, Stanley Katzman,
or Thomas N. Keltner, Jr.
Very truly yours,
Peter L. Malkin
THE AGENTS RECOMMEND YOUR CONSENT. PLEASE SIGN, DATE AND
IMMEDIATELY RETURN THE ENCLOSED COLORED COPY OF THE CONSENT. A
SIGNED CONSENT FORM WHICH IS RETURNED WITHOUT AN INDICATED CHOICE
WILL CONSTITUTE A BINDING AFFIRMATIVE CONSENT. ONCE GIVEN,
CONSENT MAY NOT BE REVOKED.
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