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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF l934
For the transition period from _____________ to _________________
Commission file number 0-768
GARMENT CAPITOL ASSOCIATES
(Exact name of registrant as specified in its charter)
New York 13-6083208
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-8700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered pursuant to section 12(g) of the Act:
$10,470,000 of Participations in Partnership Interests
(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 such shorter period that the registrant was required to file
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
An Exhibit Index is located on pages 37, 38 and 39 of this Report.
Number of Pages (including exhibits) in this filing:
PART I
Item 1. Business.
(a) General
Registrant, a partnership, was organized on January 10,
1957. On May 1, 1957, Registrant acquired fee title to the
Garment Capitol Building (the "Building") and the land thereunder,
located at 498 Seventh Avenue, New York, New York (the
"Property"). Registrant's partners are Stanley Katzman, John L.
Loehr and Peter L. Malkin (individually, a "Partner" and,
collectively, the "Partners"), each of whom also acts as agent for
holders of participations in their respective partnership
interests in Registrant (each holder of a participation,
individually, a "Participant" and, collectively, the
"Participants"). As described below, the Property has been sold
and a distribution from sale proceeds has been made to the
Participants.
Registrant does not operate the Property. Registrant
leased the Property to 498 Seventh Avenue Associates (the
"Original Lessee") under a net operating lease (the "Lease") which
commenced as of May 1, 1957 and currently expires on April 30,
2007. The Lease provides for one 25-year renewal option which has
not been exercised and which, if exercised, will extend the Lease
to April 30, 2032.
In 1994 and 1995 the Original Lessee made capital calls
on its partners in the aggregate amount of $1,300,000 to defray
certain operating expenses and improvement costs at the Property.
Despite these new capital infusions, however, the Original Lessee
concluded that to return the Property to profitability would
require a very large additional capital investment, estimated by
the Original Lessee to be as high as $16,000,000. Therefore, on
December 29, 1995, in accordance with the terms of the Lease, the
Original Lessee assigned the Lease to 4987 Corporation (the "New
Lessee"), thereby effectively terminating the liability of the
Original Lessee and its partners under the Lease. The shares in
the New Lessee are owned by the partners in the Original Lessee
except that a substantial portion of the shares originally owned
by Peter L. Malkin is held for the benefit of members of his
family but he retains voting control.
The New Lessee has paid basic rent under the Lease
through March 27, 1997, the date of the sale of the Property, as
hereinafter described. Registrant applied these rents to cover
(1) its monthly mortgage payments to the Apple Bank for Savings
("Apple Bank") on Registrants' fee mortgage on the Property (the
"Mortgage Loan"), (2) its monthly fee for supervisory services and
(3) its distributions to the Participants in Registrant. The New
Lessee did not pay the New York City real estate taxes and
Business Improvement District ("BID") assessments in the amounts
of $936,180.00 and $29,695.14, respectively, and certain other
minor assessments and charges aggregating less than $1,500, all of
which were due on January 1, 1996 or shortly thereafter. The New
Lessee also failed to pay the New York City real estate taxes and
BID assessments in the amounts of $1,053,254.50 and $28,529.26,
respectively, which were due on July 1, 1996 and $740,845.50 and
$28,529.26, respectively, which were due on January 1, 1997. As a
result, although payment of the January 1, 1996 and July 1, 1996
and January 1, 1997 real estate taxes and BID assessments has been
made as described below, the New Lessee was in default of the
Lease as of January 1, 1996.
The New Lessee requested that Registrant forbear from
exercising its rights and remedies under the Lease, including
termination of the Lease, by reason of the failure to pay the
January 1, 1996 and July 1, 1996 real estate taxes and BID
assessments, while Registrant solicited the consent of the
Participants to a sale of the Property. On July 26, 1996, the
Partners mailed to the Participants a STATEMENT ISSUED BY THE
AGENTS IN CONNECTION WITH THE SOLICITATION OF CONSENTS OF THE
PARTICIPANTS (the "Statement") requesting their authorization for
a sale of the Property and forbearance in favor of the New Lessee.
The details of the Partners' proposal are provided in the
Definitive Proxy Statement which was filed with the Securities and
Exchange Commission as Schedule 14-A on July 25, 1996, and is
incorporated herein by reference. If Registrant did forbear, the
New Lessee agreed to cooperate fully with Registrant in connection
with the sale of the Property and to continue to perform its other
obligations under the Lease, including payment of basic rent, to
enable Registrant to continue its monthly distributions to the
Participants, pay its supervisory fee and pay its monthly mortgage
obligation. The continuation of the Lease was also to serve to
insulate Registrant from third party liabilities attendant on
property operations. Because the consent solicitation program
included the continuation of the Lease with the New Lessee,
Registrant did not send a notice of default under the Lease based
on the failure of the New Lessee to pay the January 1, 1996 and
July 1, 1996 real estate taxes and BID assessments.
Although the failure to pay the January 1, 1996, July 1,
1996 and January 1, 1997 real estate taxes and BID assessments
also constitutes a breach of Registrant's obligations under the
Mortgage Loan, Apple Bank had agreed to forbear from exercising
its rights and remedies during the period of the solicitation of
consents through a sale of the Property based on arrangements
consummated in March 1996 between the shareholders of the New
Lessee (or designees on their behalf) and Apple Bank to fund the
January 1, 1996 real estate taxes and BID assessments and certain
future real estate taxes and BID assessments on the Property
(together with the January 1, 1996 real estate taxes, the "Real
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Estate Taxes") through protective advances under the Mortgage
Loan. The shareholders of the New Lessee (or designees on their
behalf) have personally borrowed from Apple Bank (a) on April 2,
1996, the sum of $1,012,274.18, equal to the January 1, 1996 real
estate taxes and BID assessments and interest thereon to the date
of the borrowing, and certain other minor city charges and
interest aggregating less than $1,500 and (b) on June 28, 1996,
the sum of $1,081,783.76 equal to the July 1, 1996 real estate
taxes and BID assessment and (c) on December 31, 1996, the sum of
$769,374.76 equal to the January 1, 1997 real estate taxes and BID
assessment. The April 2, 1996 borrowing was used to fund a
protective advance by Apple Bank to pay the January 1, 1996 real
estate taxes and BID assessments, interest thereon and such minor
charges, through the purchase of a subordinate participating
interest in the Mortgage Loan in such amount. The June 28, 1996
and December 31, 1996 borrowings were used to fund protective
advances by Apple Bank to pay, respectively, the July 1, 1996 and
January 1, 1997 Real Estate Taxes and BID assessments through the
purchase of additional subordinate participating interests in the
Mortgage Loan in such amounts. Interest and principal required to
be paid on the protective advances and on any future protective
advances have been paid by the New Lessee.
Registrant received the consent of the Participants for
the sale and forbearance program and for the liquidation of
Registrant, as described in the Statement. See Items 10, 11 12
and 13 hereof for a description of the ongoing services rendered
by, and compensation paid to, Counsel and for a discussion of
certain relationships which may pose actual or potential conflicts
of interest among Registrant, Original Lessee, New Lessee and
certain of their respective affiliates.
Registrant, together with the New Lessee, entered into a
contract with George Comfort & Sons, Inc., as Agent, and Tirrem
Management Company, Inc., collectively as Purchasers, to sell the
Property to the Purchasers for $42,000,000, subject to adjustments
(the "Contract of Sale"). The sale closed as of March 27, 1997.
After priority allocation for certain payments, as more
particularly described in the Statement, net sale proceeds of
$34,885,810 were allocated between Registrant and the New Lessee
pursuant to the formula described in the Statement, as approved by
the Participants. From its share of the proceeds, Registrant has
made an initial distribution of $27,000,000 to the Participants,
and each holder of an original $10,000 Participation, as reduced
to $5,000, received an initial distribution of sale proceeds of
$25,714, which includes a return of the Participant's remaining
original capital investment.
The balance of sale proceeds allocated to Registrant,
$951,518 (subject to adjustment), continues to be held by Counsel
in a money market fund as a reserve against contingencies and to
cover winding up, liquidation and final accounting costs. If the
full amount of this balance were distributed to Participants, each
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holder of an original $10,000 unit (as reduced to $5,000) would
receive $906.21. It cannot be determined now what costs will be
incurred and what contingencies may arise. The final distribution
will likely occur before December 31, 1997.
Sale proceeds allocated to New Lessee, in the
approximate amount of $6,934,292, are being held by Counsel
pursuant to agreement with counsel for plaintiff in the Koppel
litigation (as hereinafter defined). See Item 3 hereto. It is
not now clear whether, as a result of the litigation described in
Item 3 any sale proceeds now allocated to the New Lessee will be
reallocated.
As of December 31, 1996, the occupancy rate at the
Building was approximately 60%. The Building had approximately
104 tenants who principally engage in the sale of ladies' apparel.
Registrant did not maintain a full-time staff. See Item 2 hereof
for additional information concerning the Property.
(b) The Lease
Under the Lease, the New Lessee was to pay (i) annual
basic rent of $1,090,000 (the "Basic Rent") to Registrant and (ii)
additional rent equal to 50% of New Lessee's net operating profit
in excess of $200,000 for each Lease year (the "Additional Rent").
See Note 4 of Notes to Financial Statements filed under Item 8
hereof (the "Notes"). The New Lessee was in default of the Lease
as of January 1, 1996 (see item 1(a)).
Additional Rent income is recognized when earned from
the New Lessee, at the close of the lease year ending April 30.
Such income, if any, is not determinable until the New Lessee,
pursuant to the Lease, renders to Registrant a certified report on
the operation of the Property. The Lease requires that this
report be delivered to Registrant annually within 60 days after
the end of each such lease year. All Additional Rent income and
certain supervisory service expense can only be determined after
the receipt of such report. The Lease does not provide for the
New Lessee to render interim reports to Registrant, so no
Additional Rent income is reflected for the period between the end
of the Lease year and the end of Registrant's fiscal year. There
was no additional rent for the fiscal years ended December 31,
1996, December 31, 1995 and December 31, 1994. See Note 4 of
Notes.
As of the closing of the sale of the Property, the
interests of both the lessee and lessor under the Lease were
assigned to the purchaser of the Property, as requested by the
purchaser pursuant to the Contract of Sale.
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(c) The First Mortgage Loan
On March 23, 1995, Registrant entered into a
Modification and Extension Agreement (the "Modification"), as of
December 1, 1992, with Apple Bank concerning the Mortgage Loan,
which was originally made on November 30, 1987 in the principal
amount of $3,485,000. The Mortgage Loan was secured by a first
mortgage on the Property.
The principal terms of the Modification were as follows:
Date: As of December 1, 1992.
Amount as of the
effective date of
the Modification: $3,376,340.61.
Term: Five years, maturing on December 1, 1997.
Interest Rates: 10.0% per annum from December 1, 1992
through October 31, 1993;
10.50% per annum from November 1, 1993
through November 30, 1994; and
10.60% per annum from December 1, 1994
through December 1, 1997.
Monthly
Payments: $36,282.33 from January 1, 1993 through
November 1, 1993;
$37,276.35 from December 1, 1993 through
December 1, 1994; and
$37,465.52 from January 1, 1995 through
December 1, 1997.
Prepayment
Privilege: The Mortgage Loan was prepayable at any time
in whole only, without penalty, on 60 days'
prior written notice.
The following provisions from the Mortgage Loan before
the Modification continued to be applicable during the extended
term:
Liability: No Partner had personal liability for the
obligation under the Mortgage Loan to pay
principal and interest;
Due on Sale: Upon a sale or further encumbrance of the
Property without Apple Bank's consent, the
Mortgage Loan would have become immediately
due and payable; and
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Lease: No modification or cancellation of the Lease
was permitted without Apple Bank's consent.
The Mortgage Loan was repaid in full in connection with
the sale of the Property.
The total amount paid to Apple Bank in respect of the
Mortgage Loan was $5,809,686. This amount consisted of the
following elements: (a) principal - $2,886,125 (b) accrued
interest on the principal balance to the date of sale - $22,945;
(c) prepayment charges to expiration of 60 day notice period (as
reduced based on discussions between Apple Bank and Counsel
- $14,419; (d) real estate tax advances - $2,863,433 (of which
amount $333,181 was paid by the New Lessee from its share of sale
proceeds, as contemplated by the statement; and (e) accrued
interest on the real estate tax advances - $22,764 (paid by the
New Lessee).
(d) Competition
Tenant space leases at the Property were offered at an
average annual base rental of approximately $18 per square foot
(exclusive of electricity charges and escalation). Space tenants
provide their own cleaning. The average asking rental rate and
other financial terms for space leases at the Property appear to
be competitive with the average rental rates charged by similar
buildings currently offering comparable space in the immediate
vicinity.
Based on market information believed to be accurate, the
Partners offer the following information regarding nearby
properties: A neighboring office building located at 485 Seventh
Avenue (at 36th Street), which offers small showrooms and has
upgraded interior features, is offering tenant space at rental
rates between $18 and $25 per square foot. Two similar buildings
approximately the same age as the Property, which are located
across 39th Street from each other at 530 Seventh Avenue and 550
Seventh Avenue and have traditionally been the headquarters for
manufacturers of higher price women's apparel, currently offer
tenant space at rental rates between the mid $20s to high $30s per
square foot. At 1407 Broadway and 1411 Broadway, buildings which
offer more modern, upgraded amenities than the Property, current
rental rates are in the high $30s per square foot.
In the overall rental market for commercial space in
Manhattan, rents range from approximately $50 per square foot for
prime office space to approximately $12 per square foot in less
developed industrial and/or secondary commercial areas. Accord-
ingly, rents at the Building may be considered competitive in the
area, given the relative condition of surrounding buildings and
the nature of services, amenities and office space offered by them
as compared to the Building.
-6-
(e) Tenant Leases
The New Lessee operated the Building free from any
federal, state or local government restrictions involving rent
control or other similar rent regulations which may be imposed
upon residential real estate in Manhattan. Any increase or
decrease in the amount of rent payable by a tenant was governed by
the provisions of the tenant's lease.
Item 2. Property.
Registrant owned the Building located at 498 Seventh
Avenue, New York, New York, known as the "Garment Capitol
Building," and the land thereunder. See Item 1 hereof.
Registrant's fee title to the Property was encumbered by the
Mortgage Loan with an unpaid balance of $5,785,947 at December 31,
1996, consisting of a principal balance of $2,922,687 and
protective advances for real estate taxes of $2,863,260. For a
description of the terms of the Modification of the Mortgage Loan,
see Item 1 hereof and Note 3 of the Notes. The Building, erected
in 1921 and containing 24 floors, stands on the southwest corner
of Seventh Avenue and 37th Street in New York City's Garment
District. The Building contains office, showroom and loft space.
The Building is equipped with individual air-conditioning units
and has 11 passenger elevators and 10 freight elevators. The
Building was leased to the New Lessee under the Lease, the initial
term of which expired on April 30, 1982 and which contained two
25-year renewal options, the first of which was exercised on
January 7, 1981. See Item 1 hereof for additional information
concerning the Lease. The Property was sold on March 27, 1997
pursuant to the Contract of Sale. See Item 1.
Item 3. Legal Proceedings.
On October 4, 1996, the alleged holder of three
participation interests in Registrant brought suit in the U.S.
District Court for the Southern District of New York against New
Lessee, Original Lessee, Registrant's Partners, and Counsel.
Registrant is a nominal defendant. The suit claims that
defendants violated the anti-fraud provisions of the federal
securities laws and committed breaches of fiduciary duty and fraud
in relation to the Partners' solicitation of consents of the
Participants, as described in the Statement, for the sale and
forbearance program and for the liquidation of Registrant, as
described in the Statement. The suit is styled as a class action,
but the plaintiff has not applied for class certification to date.
The suit seeks to enjoin the allocation of sale proceeds to New
Lessee approved by the Participants, money damages and related
relief. Defendants have responded to the complaint with a motion
seeking dismissal of the action in its entirety. That motion is
now pending. The complaint does not seek any relief against
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Registrant, and, accordingly, Registrant's litigation counsel is
of the opinion that no loss or other unfavorable outcome of the
action against Registrant is anticipated. In accordance with the
Statement, sale proceeds were allocated to repay the Fee Mortgagee
the protective advances as well as all other sums then outstanding
on the Fee Mortgage. Pursuant to an agreement between counsel for
the plaintiff in the 1996 proceeding and counsel for the defendants,
net sale proceeds allocated to the New Lessee in accordance with
the formula set forth in the Statement will not be distributed to
the New Lessee, except upon 30 days' notice to counsel for the
plaintiff. Such allocated proceeds are currently being held by
Counsel.
On March 13, 1997, the alleged holder of a fractional
participation interest in Registrant brought suit in the U.S.
District Court for the Southern District of New York against New
Lessee, Original Lessee, Registrant's Partners and Counsel.
Registrant is a nominal defendant. The suit is essentially
similar to the legal action described in the preceding paragraph,
alleging that defendants violated the Federal proxy rules,
committed breaches of fiduciary duty and fraud in relation to the
Partners' solicitation of consents of the Participants, as
described in the Statement, for the sale and forbearance program
and for liquidation of Registrant, as described in the Statement.
The suit seeks to enjoin the allocation of sale proceeds to New
Lessee approved by the Participants, money damages and related
relief. Defendants' response to the complaint is due on or about
April 25, 1997. Defendants currently intend to move to dismiss
this complaint as well. The complaint does not seek any relief
against Registrant, and, accordingly, Registrant's litigation
counsel is of the opinion that no loss or other unfavorable
outcome of the action against Registrant is anticipated.
Item 4. Submission of Matters to a Vote of Participants.
On July 26, 1996, the consent of Participants was sought
to the sale and forbearance program, and, following a sale, to the
liquidation of Associates, as described in the Statement. The
consent of Participants was received by the Partners, and the
Property was sold on March 27, 1997. See Item 1(a).
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PART II
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters.
Registrant is a partnership organized pursuant to a
partnership agreement dated January 10, 1957.
Registrant has not issued any common stock. The
securities registered by it under the Securities Exchange Act of
1934, as amended, consist of participations in the partnership
interests of the Partners in Registrant (the "Participations") and
are not shares of common stock or their equivalent. The
Participations represent each Participant's fractional share in a
Partner's undivided interest in Registrant and are divided
approximately equally among the Partners. A full unit of the
Participations was originally offered at a purchase price of
$10,000; fractional units were also offered at proportionate
purchase prices. In November 1957, one-half of the original
purchase price was returned to the Participants from the proceeds
of a first mortgage on the Property leaving a remaining unreturned
cash investment of $5,000 (a "$5,000 Participation"). On March
31, 1997 a distribution of sale proceeds from sale of the Property
was made to the Participants. Each holder of a $5,000
Participation received $25,714, which included a return of
remaining original capital. Additional funds of Registrant have
been retained by Counsel in a money market account as a reserve
against contingencies and to cover various costs associated with
liquidating Registrant. Registrant has not repurchased Participa-
tions in the past and is not likely to change its policy in the
future.
(a) The Participations are not traded on an established
securities market, nor are they readily tradable on a secondary
market or the substantial equivalent thereof. Based on
Registrant's transfer records, Participations are sold by the
holders thereof from time to time in privately negotiated
transactions and, in many instances, Registrant is not aware of
the prices at which such transactions occur. Registrant has been
advised that there were 47 transfers of Participations for the
year ended December 31, 1996. In only one instance was
consideration indicated for the transfer. In this instance, the
purchase price was equal to 1.33 times the remaining unreturned
cash investment of the Participation, i.e., $6,650 for a $5,000
Participation. In all other cases, no consideration was
indicated.
(b) As of December 31, 1996, there were 909 holders of
Participations of record.
(c) Registrant does not pay dividends. During the year
ended December 31, 1996, Registrant made regular monthly
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distributions of $47.45 for each $5,000 Participation. Because no
Additional Rent was paid by the Original Lessee for the lease year
ended April 30, 1996, no additional distribution was made to
Participants in 1996. For each $5,000 Participation during the
year ended December 31, 1995, Registrant made monthly
distributions of $48.58. There was no Additional Rent earned for
the Lease year ended April 30, 1995. See Item 1 hereof. There
are no restrictions on Registrant's present or future ability to
make distributions; however, the amount of such distributions,
particularly distributions of Additional Rent, depends solely on
the New Lessee's payments of Basic Rent and Additional Rent to
Registrant. See Item 1 hereof and Note 9 of the Notes.
By reason of the sale of the Property, the Lease has
expired and the Registrant will be liquidated. There will be no
additional regular monthly distributions following the
distribution on April 1, 1997 in respect of March, 1997 rent under
the Lease. An additional, one-time distribution following the
winding up and liquidation of Registrant is likely, but the amount
of it cannot now be determined.
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Item 6.
GARMENT CAPITOL ASSOCIATES
SELECTED FINANCIAL DATA
Year ended December 31,
1996 1995 1994 1993 1992
Basic rent income................ $1,090,000 $1,090,000 $1,090,000 $1,090,000 $1,090,000
Additional rent income........... - - - 1,010,196 1,986,498
Interest income.................. 140,266 - - - -
Dividend income.................. 43 3,027 7,994 1,683 -
Total revenue................. $1,230,309 $1,093,027 $1,097,994 $2,101,879 $3,076,498
Net income....................... $ 693,299 $ 693,538 $ 691,708 $1,634,085 $2,480,001
Earnings per $5,000 participation
unit, based on 1,050 participa-
tion units outstanding during the
year............................ $ 660 $ 661 $ 659 $ 1,556 $ 2,362
Total assets..................... $5,496,454 $2,642,224 $2,865,967 $2,786,398 $2,619,338
Long-term obligations............ $ - $2,912,936 $ - $ - $ -
Distributions per $5,000 par-
ticipation unit, based on 1,050
participation units outstanding
during the year:
Income........................ $ 569 $ 583 $ 583 $ 1,342 $ 2,360
Return of capital............. - - - - -
Total distributions........... $ 569 $ 583 $ 583 $ 1,342 $ 2,360
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Registrant was organized solely for the purposes of
acquiring the Property subject to the Lease. Registrant was
required to pay from Basic Rent the mortgage charges and
supervisory services and to distribute the balance of such Basic
Rent to the Participants. Pursuant to the Lease, the holder of
the leasehold interest thereunder had sole responsibility for the
condition, operation, repair, maintenance and management of the
Property. Registrant did not maintain substantial reserves or
otherwise maintain liquid assets to defray any operating expenses
of the Property.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Lease.
The following summarizes the material factors affecting
Registrant's results of operations for the three preceding years:
(a) Total income increased for the year ended December 31,
1996 as compared with the year ended December 31, 1995.
Such increase is attributable to interest income earned
for the year 1995. Total income decreased for the year
ended December 31, 1995 as compared with the year ended
December 31, 1994. Such decrease is attributable to the
reduction in dividend income earned for the year 1995.
(b) Total expenses increased for the year ended December 31,
1996 as compared with the year ended December 31, 1995.
Such increase was attributable to an increase in
interest expense on the Mortgage Loan. See Notes 2(c)
and 3. Total expenses decreased for the year ended
December 31, 1995 as compared with the year ended
December 31, 1994. Such decrease was the net result of
(i) a decrease in interest expense on the Mortgage Loan
and (ii) an increase in the amortization of mortgage
refinancing costs. See Notes 2(c), 3, 4 and 5 of the
Notes.
Registrant is aware of the following events. The
Original Lessee operated the Property at a substantial loss during
the years ended December 31, 1995 and December 31, 1994. In 1994
and 1995, the Original Lessee made capital calls on its partners
in the aggregate amount of $1,300,000 to defray certain operating
expenses and improvement costs at the Property.
The downturn and changes in methods of operations in the
garment industry have had a major impact on the Property and its
operations and profitability. Registrant has been advised that
the loss of tenants at the Property and the related reduction in
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rent received are primarily due to insolvencies affecting tenants
in the garment business and reduced demand for space.
The New Lessee had the right to abandon or assign its
interest in the Lease (see Item 1 above).
As a result of the Sale, Registrant has made a
distribution to the Participants of a substantial portion of the
sales proceeds allocated to Registrant and will hold an additional
sum, at interest, as a contingency and to pay various accounting
and other fees relating to the liquidation and winding up of
Registrant. The balance of this amount will also be distributed
once a final accounting is completed and an appropriate
contingency period has expired. At the closing of the sale
pursuant to the Contract of Sale, the interests of Registrant, as
lessor, and the New Lessee, as lessee, under the Lease were
assigned to the purchaser and the Lease was terminated. There
will be no additional regular monthly distributions following the
distribution on April 1, 1997 in respect of March, 1997 rent under
the Lease. See Item 1.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the year ended December 31, 1996 as compared with
the year ended December 31, 1995.
Inflation
Inflationary trends in the economy do not directly
affect Registrant's operations, since as noted above, Registrant
did not actively engage in the operation of the Property.
Inflation may have affected the operations of the New Lessee. The
New Lessee was required to pay Basic Rent, regardless of the
results of its operations. Inflation and other operating factors
affected only the amount of Additional Rent payable by the New
Lessee, which was based on the New Lessee's net operating profit.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the accompanying
report by, and the consent to the use thereof, prepared by Jacobs
Evall & Blumenfeld LLP immediately following, are being filed in
response to this item.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Registrant has no directors or officers or any other
centralization of management. There is no specific term of office
for any Partner. The table below sets forth as to each individual
who is serving as a Partner the following: name, age, nature of
any family relationship with any other Partner, business
experience during the past five years and principal occupation and
employment during such period, including the name and principal
business of any corporation or any organization in which such
occupation and employment was carried on and the date such
individual became a Partner:
Principal Date
Nature of Occupation Individual
Family Business and became
Name Age Relationship Experience Employment Partner
Stanley Katzman 64 None Attorney-at-Law Senior Partner 1996
Wien & Malkin
LLP,
Counsellors-
at-Law
John L. Loehr 60 None Attorney-at-Law Senior Partner 1996
Wien & Malkin
LLP,
Counsellors-
at-Law
Peter L. Malkin 63 None Attorney-at-Law Senior Partner 1983
Wien & Malkin
LLP,
Counsellors-
at-Law
As stated above, the Partners are also members of
Counsel. See Items 11, 12 and 13 hereof for a description of the
services rendered by, and the compensation paid to, Counsel and
for a discussion of certain relationships which may pose actual or
potential conflicts of interest among Registrant, Original Lessee,
New Lessee and certain of their respective affiliates.
The names of entities which have a class of securities
registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or are subject to the requirements of Section 15(d) of
that Act, and in which the Partners are either a director, joint
venturer or general partner are as follows:
-14-
Stanley Katzman is a joint venturer in 250 West 57th St.
Associates and Navarre-500 Building Associates; and a
general partner in Empire State Building Associates and
60 East 42nd St. Associates; and
John L. Loehr is a general partner in Empire State
Building Associates and 60 East 42nd St. Associates; and
Peter L. Malkin is a joint venturer in 250 West 57th St.
Associates and Navarre-500 Building Associates; and a
general partner in Empire State Building Associates and
60 East 42nd St. Associates.
Counsel will be responsible to oversee liquidation of
Registrant.
Item 11. Executive Compensation
As stated in Item 10 hereof, Registrant has no directors
or officers or any other centralization of management.
No remuneration was paid during the current fiscal year
ended December 31, 1996 by Registrant to any of the Partners as
such. Registrant's supervisory fee arrangement with Counsel
provides for (i) the basic payment of $42,500 per annum; (ii) an
additional payment of the first $37,500 of Additional Rent paid by
the lessee under the Lease in any lease year; and (iii) the
payment of 10% of all distributions to Participants in any year
from Basic Rent and Additional Rent in excess of the amount
representing a return at the rate of 18% per annum on their
remaining cash investment in any year. At December 31, 1996, such
remaining cash investment was $5,250,000. Pursuant to such fee
arrangements described herein, Registrant paid Counsel $42,500
during the fiscal year ended December 31, 1996. The supervisory
services provided by Counsel include the preparation of reports
and related documentation required by the Securities and Exchange
Commission, the monitoring of all areas of federal and local
securities law compliance, the preparation of certain financial
reports, as well as the supervision of accounting and other
documents related to the administration of Registrant's business.
Out of its fees, Counsel pays all disbursements and costs of
regular accounting services. As noted in Items 1 and 10 of this
report, the Partners are also members of Counsel.
Counsel will not receive a Supervisory Fee based on sale
proceeds allocated to Registrant but has been paid for its legal
services in connection with the Statement and in connection with
the sale. Counsel has also been paid legal fees by the New Lessee
for various work in 1996 and 1997.
-15-
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
(a) Registrant has no voting securities (see Item 5
hereof). At December 31, 1996, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) The Partners (see Item 10 hereof) beneficially own,
directly or indirectly, the following Participations:
Name & Address Amount of
of Beneficial Beneficial Percent
Title of Class Owners Ownership of Class
Participations Stanley Katzman $ 2,500 .0476%
in Partnership 30 East 62nd Street
Interests New York, NY 10021
John L. Loehr $ 5,000 .0952%
286 Alpine Circle
River Vale, NJ 07675
Peter L. Malkin $42,500 .8095%
21 Bobolink Lane
Greenwich, CT 06830
At December 31, 1996, certain of the Partners (or their
respective spouses) held additional Participations as follows:
Peter L. Malkin owned of record as trustee, but not
beneficially, a $5,000 Participation. Mr. Malkin
disclaims any beneficial ownership in such
Participation.
Isabel Malkin, the wife of Peter Malkin, owned of record
and beneficially, $21,250 of Participations. Mr. Malkin
disclaims any beneficial ownership of such
Participations.
Agency Holdings Associates, an affiliate of Counsel,
owns a $5,000 Participation.
(c) Not applicable.
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Item 1 hereof, Peter L. Malkin,
Stanley Katzman and John L. Loehr are the three Partners in
Registrant and also act as agents for the Participants in their
-16-
respective partnership interests. Mr. and Mrs. Malkin are also
among the partners in the Original Lessee and shareholders in the
New Lessee. Because one of the three Partners and his wife are
partners in the Original Lessee and shareholders in the New Lessee
and all three Partners are members of Counsel (which represents
Registrant and Original Lessee), certain actual or potential
conflicts of interest may arise with respect to the management and
administration of the business of Registrant. Conflicts may also
exist in connection with the sale of the Property. Under the
respective Participating Agreements pursuant to which the Partners
act as agents for the Participants, certain transactions require
the prior consent from Participants owning a specified interest
under the agreements in order for the Agents to act on their
behalf. Such transactions include modifications and extensions of
the Lease or the Mortgage Loan, or a sale or other disposition of
the Property or substantially all of Registrant's other assets.
As noted in Item 1(a) above, the sale of the Property, as part of
the Sale and Forbearance Program described in the Statement, has
been approved by the Participants and the closing of the sale has
been consummated.
Reference is made to Items 1 and 2 hereof for a
description of the terms of the Lease between Registrant and the
New Lessee. The respective interests of Messrs. Katzman, Loehr
and Malkin, if any, in Registrant arise solely from the ownership
of their respective participations in Registrant. The respective
interests of Mr. and Mrs. Malkin in Original Lessee and New Lessee
arise solely from the ownership of their respective partnership
interests in Original Lessee and shares in New Lessee. The
Partners (and Mrs. Malkin) receive no extra or special benefit not
shared on a pro rata basis with all other Participants in
Registrant or partners in Original Lessee and shareholders in New
Lessee. However, each of the Partners, by reason of his
respective interest in Counsel, is entitled to receive his share
of any legal fees or other remuneration paid to Counsel for
professional services rendered to Registrant and Original Lessee.
See Item 11 hereof for a description of the renumeration
arrangements between Registrant and Counsel relating to
supervisory services provided by Counsel. Counsel has also been
paid fees for legal services rendered to the New Lessee in
connection with certain of its operations during 1996 and 1997.
Reference is also made to Items 1 and 10 hereof for a
description of the relationship between Registrant and Counsel, of
which the Partners are among the members. The respective
interests of the Partners in any remuneration paid or given by
Registrant or New Lessee to Counsel arise solely from the
ownership of their respective partnership interests in Counsel.
See Item 11 hereof for a description of the remuneration
arrangements between Registrant and Counsel.
-17-
(b) Reference is made to Paragraph (a) above.
(c) Not applicable.
(d) Not applicable.
-18-
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K.
(a)(1) Financial Statements:
Consent of Jacobs Evall & Blumenfeld LLP, Certified
Public Accountants, dated April 10, 1997.
Accountant's Report of Jacobs Evall & Blumenfeld LLP,
Certified Public Accountants, dated April 10, 1997.
Balance Sheets at December 31, 1996 and at December 31,
1995 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 1996, 1995 and 1994 (Exhibit B).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1996 (Exhibit C-1).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1995 (Exhibit C-2).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1994 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 1996, 1995 and 1994 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 1996, 1995 and 1994.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31,
1996 (Schedule III).
(3) Exhibits: See Exhibit Index.
-19-
[LETTERHEAD OF
JACOBS EVALL & BLUMENFELD LLP
CERTIFIED PUBLIC ACCOUNTANTS]
April 10, 1997
Garment Capitol Associates
New York, N.Y.
We consent to the use of our independent accountants' report dated April 10,
1997, covering our audits of the accompanying financial statements of Garment
Capitol Associates in connection with and as part of your December 31, 1996
annual report (Form 10-K) to the Securities and Exchange Commission.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
-20-
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Garment Capitol Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of Garment Capitol Associates
(the "Company") as of December 31, 1996 and 1995, and the related statements
of income, partners' capital deficit and cash flows for each of the three
years in the period ended December 31, 1996, and the supporting financial
statement schedule as contained in Item 14(a)(2) of this Form 10-K. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Garment Capitol Associates as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles, and the related
financial statement schedule, when considered in relation to the basic
financial statements, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 11b to the financial statements, Associates concluded a
sale of its real estate on March 27, 1997 and discontinued its operations.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
New York, N. Y.
April 10, 1997
-21-
EXHIBIT A
GARMENT CAPITOL ASSOCIATES
BALANCE SHEETS
A S S E T S
December 31,
1996 1995
Current Assets:
Cash and cash equivalents (Note 10):
Morgan Guaranty Trust Company of New York $ 65,298 $ 37,547
Distribution account held by
Wien, Malkin & Bettex LLP............... 49,826 49,826
Fidelity U.S. Treasury Income
Portfolio............................... 868 826
115,992 88,199
Due from lessee (Note 11).................. 2,854,624 -
TOTAL CURRENT ASSETS............... 2,970,616 88,199
Real Estate (Notes 2b, 3 and 11):
Land....................................... 2,500,000 2,500,000
Building................................... $8,000,000 $8,000,000
Less: Accumulated depreciation.......... 8,000,000 - 8,000,000 -
Other Assets:
Mortgage refinancing costs, less
accumulated amortization of $81,212
in 1996 and $53,025 in 1995 (Note 2c)..... 25,838 54,025
TOTAL ASSETS....................... $5,496,454 $2,642,224
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
Current Liabilities:
Principal payments of first
mortgage payable within one
year (Notes 3 and 11)..................... $5,785,947 $ 133,052
Accrued interest payable................... 45,790 26,906
TOTAL CURRENT LIABILITIES.......... 5,831,737 159,958
Long-term Liabilities:
Bonds, mortgages and similar debt:
First mortgage payable (Notes 3 and 11).. $ - $3,045,988
Less: Current installments shown above.. - - 133,052 2,912,936
TOTAL LIABILITIES.................. 5,831,737 3,072,894
Partners' capital deficit (Exhibit C)........ (335,283) (430,670)
TOTAL LIABILITIES AND PARTNERS'
CAPITAL DEFICIT................... $5,496,454 $2,642,224
See accompanying notes to financial statements.
-22-
EXHIBIT B
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF INCOME
Year ended December 31,
1996 1995 1994
Revenues:
Rent income, from a related
party (Notes 4 and 11)................... $1,090,000 $1,090,000 $1,090,000
Interest income........................... 140,266 - -
Dividend income........................... 43 3,027 7,994
1,230,309 1,093,027 1,097,994
Expenses:
Interest on mortgage (Note 3)............. 466,323 328,802 348,479
Supervisory services, to a
related party (Note 5)................... 42,500 42,500 42,500
Amortization of mortgage
refinancing costs (Note 2c).............. 28,187 28,187 15,307
537,010 399,489 406,286
NET INCOME, CARRIED TO PARTNERS'
CAPITAL DEFICIT (NOTE 8)......... $ 693,299 $ 693,538 $ 691,708
Earnings per $5,000 participation
unit, based on 1,050 participation
units outstanding during each year......... $ 660 $ 661 $ 659
See accompanying notes to financial statements.
-23-
EXHIBIT C-3
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1994
Partners' Partners'
capital deficit Share of capital deficit
January 1, 1994 net income Distributions December 31, 1994
Donald A. Bettex Group...... $(197,231) $ 230,570 $ 204,038 $(170,699)
Peter L. Malkin Group....... (197,231) 230,569 204,037 (170,699)
Alvin Silverman Group....... (197,230) 230,569 204,037 (170,698)
$(591,692) $ 691,708 $ 612,112 $(512,096)
See accompanying notes to financial statements.
-24-
EXHIBIT C-1
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1996
Partners' Partners'
capital deficit Share of capital deficit
January 1, 1996 net income Distributions December 31, 1996
John L. Loehr Group (formerly
Donald A. Bettex Group)...... $(143,557) $ 231,100 $ 199,304 $(111,761)
Peter L. Malkin Group......... (143,557) 231,100 199,304 (111,761)
Stanley Katzman Group
(formerly Martin D. Newman
Group)...................... (143,556) 231,099 199,304 (111,761)
$(430,670) $ 693,299 $ 597,912 $(335,283)
See accompanying notes to financial statement
-25-
EXHIBIT C-2
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1995
Partners' Partners'
capital deficit Share of capital deficit
January 1, 1995 net income Distributions December 31, 1995
Donald A. Bettex Group........ $(170,699) $231,179 $ 204,037 $(143,557)
Peter L. Malkin Group......... (170,699) 231,179 204,037 (143,557)
Martin D. Newman Group
(formerly Alvin
Silverman Group)............ (170,698) 231,180 204,038 (143,556)
$(512,096) $693,538 $ 612,112 $(430,670)
See accompanying notes to financial statements.
-26-
EXHIBIT D
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF CASH FLOWS
Year ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net income...................................... $ 693,299 $ 693,538 $ 691,708
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of mortgage refinancing
costs (Note 2c)............................. 28,187 28,187 15,307
Changes in operating liabilities:
Accrued interest payable................... 18,884 (38,465) 32,091
Rent received in advance................... - - -
Mortgage refinancing costs paid............ - (37,568) (25,493)
Net cash provided by
operating activities................ 740,370 645,692 713,613
Cash flows from investing activities:
Advances to lessee, net (Note 11)............... (2,854,624) - -
Net cash used in investing
activities.......................... (2,854,624) - -
Cash flows from financing activities:
Cash distributions.............................. (597,912) (612,112) (612,112)
Principal payments on first mortgage payable.... (123,473) (266,704) (32,118)
Proceeds from issuance of long-term
debt re: protective advances (Note 11)......... 2,863,432 - -
Net cash provided by (used in)
financing activities................ 2,142,047 (878,816) (644,230)
Net increase (decrease) in cash
and cash equivalents................ 27,793 (233,124) 69,383
Cash and cash equivalents, beginning of year...... 88,199 321,323 251,940
CASH AND CASH EQUIVALENTS,
END OF YEAR......................... $ 115,992 $ 88,199 $ 321,323
Supplemental disclosures of cash flow information:
1996 1995 1994
Cash paid for:
Interest...................................... $ 447,439 $ 367,267 $ 316,388
See accompanying notes to financial statements.
-27-
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Garment Capitol Associates ("Associates") is a general partnership which
owns commercial property situated at 498 Seventh Avenue, New York, New York
(the "Property"). Through December 28, 1995 the Property was net leased to
498 Seventh Avenue Associates (the "Original Lessee"). Effective December
29, 1995 the operating lease was assigned to 4987 Corporation (the "New
Lessee") (see Note 4). See Note 11b regarding subsequent events concerning
Associates' sale of the Property on March 27, 1997 and its discontinuance
of operations.
2. Summary of Significant Accounting Policies
a. Cash and Cash Equivalents:
Cash and cash equivalents include investments in money market funds and
all highly liquid debt instruments purchased with a maturity of three
months or less.
b. Real Estate and Depreciation of Building:
Real estate, consisting of land and building, is stated at cost. The
building is fully depreciated. Depreciation of the building had been
provided on the straight-line method based on a thirty-year life (3-1/3%
per annum).
c. Mortgage Refinancing Costs and Amortization:
Mortgage refinancing costs totaling $107,050 have been incurred in
connection with the December 1, 1992 refinancing of the first mortgage
payable (see Note 3), and are being charged to income ratably over the
five year term of the first mortgage. Such costs include payments of
$49,564 to the firm of Wien, Malkin & Bettex LLP, a related party. See
Note 5.
d. Use of Estimates:
In preparing financial statements in conformity with generally accepted
accounting principles, management often makes estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. First Mortgage Payable
On November 30, 1987, a first mortgage was placed on the Property with
Apple Bank for Savings in the amount of $3,485,000. Annual mortgage
charges were $348,500, payable in equal monthly installments, applied first
to interest at the rate of 9-1/2% per annum and the balance to principal.
The mortgage was scheduled to mature on December 1, 1992 with a balance of
-28-
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. First Mortgage Payable (continued)
$3,376,341 but was extended until June 16, 1993, when the bank issued a
commitment to extend and modify the mortgage for a five year period from
December 1, 1992 through December 1, 1997. The closing, which had been
delayed, occurred on March 23, 1995. The terms of the extended mortgage
include provision for constant monthly payments totaling $447,316 per
annum, including interest at the rate of 10 1/2% per annum from November 1,
1993 through November 30, 1994, and constant payments totaling $449,586 per
annum, including interest at the rate of 10.6% per annum from December 1,
1994 through maturity. The constant payments are based on a fifteen year
amortization schedule. Payments of principal and interest made subsequent
to the original maturity date (December 1, 1992) were reapplied according to
these new repayment terms and, at the closing, a retroactive payment of
$218,081 was made to bring the payments current with the new mortgage
schedule. The balance of the mortgage at December 31, 1996 was scheduled to
be $2,912,936. However, protective advances by the Fee Mortgagee in 1996 (see
Note 11a) have increased the mortgage payable balance to $5,785,947. Interest
only on the increased mortgage amounts are also payable monthly at the rate of
10.6% per annum through maturity. In accordance with the Solicitation,
interest required to be paid on the protective advances is payable by the New
Lessee so long as the lease continues in effect; interest is being paid
currently, while the principal of the protective advances is collectible from
the proceeds of the sale of the Property (see Note 11b).
Principal payments required to be made on long-term debt are as follows:
Through December 1, 1997............................ $5,785,947
$5,785,947
The Property is pledged as collateral for the first mortgage.
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1996, 1995 and 1994 represents
twelve equal monthly installments of an annual net rent of $1,090,000 (the
"Basic Rent") under a net operating lease dated May 1, 1957 (the "Operating
Lease") with the Original Lessee, plus, where applicable, payments of
additional rent as provided under certain conditions with respect to the
lessee's defined net income from operations for lease years ending April
30th.
For the years ended December 31, 1996, 1995 and 1994, no additional rent
was earned from the Original Lessee or the New Lessee for its lease years
ended April 30, 1996, 1995 and 1994.
No additional rent is accrued by Associates for the period between the end
of the lessee's lease year and the end of Associates' fiscal year.
The current term of the Operating Lease expires on April 30, 2007. The
Operating Lease includes a renewal option to extend the term to April 30,
2032. Pursuant to the Operating Lease, the lessee has the right to
-29-
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income (continued)
surrender its leasehold interest at any time, upon 60 days' prior written
notice, without further liability after the date of surrender. The lessee
also has the right to assign the Operating Lease, without Associates' consent,
so long as the assignee assumes, in writing, all of the obligations of the
Operating Lease. The Original Lessee exercised such assignment right on
December 29, 1995, and the New Lessee assumed all lessee obligations under the
Operating Lease as of that date; such assignment effectively terminated the
liability of the Original Lessee and its remaining partners under the
Operating Lease. The shares in the New Lessee are owned by the partners in
the Original Lessee. See Note 11.
A partner in Associates is also a partner in the Original Lessee.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular
accounting services) for the years ended December 31, 1996, 1995 and 1994,
totaling $42,500 in each year were paid to the firm of Wien, Malkin &
Bettex LLP. Some members of that firm are also partners in Associates.
Fees for supervisory services are paid pursuant to an agreement, which
amount is based on a rate of return of investment achieved by the participants
in Associates each year.
6. Number of Participants
There were approximately 900 participants in the participating groups at
December 31, 1996, 1995 and 1994.
7. Determination of Distributions to Participants
Distributions to participants represent mainly the excess of rent income
received over the mortgage requirements, as anticipated, and expenses paid.
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years 1996, 1995 and
1994, based on 1,050 participation units outstanding during each year,
totaled $569, $583 and $583, respectively. All such distributions
consisted of income only. See Note 11.
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes are
paid by the participants in their individual capacities.
-30-
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
9. Economic Dependency on Operations of Building
Associates' building is located in the heart of New York City's "Garment
District", and its tenants are almost exclusively in the garment business.
The Property, as well as other buildings in the district, has suffered
significant vacancies in recent years. As a result, the Original Lessee
and/or the New Lessee has experienced continuous decreases in its revenue
stream, causing its net income from operations, as defined in the Operating
Lease for each of the three years in the period ended December 31, 1996, to
fall below the amount necessary to require payment of any additional rent
for such year (Note 4). For the lease years ended April 30, 1996 and 1995
the lessees reported a net loss (unaudited) of $1,862,412 and $2,222,031,
respectively. See Note 11.
10. Concentration of Credit Risk
Associates maintains cash balances in a bank, money market fund (Fidelity
U.S. Treasury Income Portfolio), and a distribution account held by Wien,
Malkin & Bettex LLP. The bank balance is insured by the Federal Deposit
Insurance Corporation up to $100,000, and at December 31, 1996 was
completely insured. The cash in the money market fund and the distribution
account held by Wien, Malkin & Bettex LLP is not insured. The funds held
in the distribution account were paid to the participants on January 1,
1997.
11. Events Regarding Default by New Lessee of the Operating Lease, Breach of
Associates' Obligations Under the Fee Mortgage, and Subsequent Events
Concerning the Sale of the Property
a. Default By New Lessee of Operating Lease and Breach of Associates'
Obligations Under Fee Mortgage:
Since January 1, 1996, the New Lessee has paid Basic Rent under the
Operating Lease. Associates in turn has continued to pay (1) the monthly
mortgage payments to Apple Bank for Savings (the "Fee Mortgagee") on
Associates' fee mortgage on the Property (the "Fee Mortgage"); (2) its
monthly fee for supervisory services; and (3) monthly distributions to
the participants in Associates.
However, since January 1, 1996, the New Lessee has failed to pay the New
York City real estate and Business Improvement District ("BID")
assessments, which were due on January 1, 1996 (collectively, the
"1/1/96 Real Estate Taxes"). As a result, the New Lessee is in default
of the Operating Lease as of that date.
The New Lessee requested that Associates forbear from exercising its
rights and remedies under the Operating Lease, including termination of
the Operating Lease, by reason of the failure to pay the 1/1/96 Real
Estate Taxes, while management of Associates solicited the consent of
its participants to a sale of the Property (the "Solicitation"). In
connection with Associates' forbearance, the New Lessee agreed to
-31-
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
11. Events Regarding Default by New Lessee of the Operating Lease, Breach of
Associates' Obligations Under the Fee Mortgage, and Subsequent Events
Concerning the Sale of the Property (continued)
a. Default By New Lessee of Operating Lease and Breach of Associates'
Obligations Under Fee Mortgage (continued):
cooperate fully with Associates in connection with the sale of the
Property and to continue to perform its other obligations under the
Operating Lease, including payment of the Basic Rent, to enable
Associates to continue its monthly distributions to the participants,
pay its supervisory fee and pay its monthly mortgage obligation.
The failure to pay the 1/1/96 Real Estate Taxes also constituted a
breach of Associates' obligations under the Fee Mortgage. The
shareholders of the New Lessee (or designees on their behalf) have
borrowed from the Fee Mortgagee a sum equal to the 1/1/96 Real Estate
Taxes and interest thereon to the date of the borrowing and further sums
equal to the subsequent semi-annual installments of the New York City
real estate taxes and BID assessments (together with the 1/1/96 Real
Estate Taxes, the "Real Estate Taxes") which have since become due.
These sums were used to fund protective advances by the Fee Mortgagee to
pay the Real Estate Taxes and interest thereon through the purchase of
subordinate participating interests in the Fee Mortgage in such amounts.
As a result, the Fee Mortgagee has agreed to forbear from exercising
rights and remedies under the Fee Mortgage based on Associates' failure
to pay (or cause to be paid by the New Lessee) the Real Estate Taxes.
On July 26, 1996 management completed its Solicitation, in which it
expressed its belief that the Property could not be operated on a
profitable basis without significant capital improvements; it also
opined that the program to sell the Property would permit Associates to
liquidate its investment in an orderly fashion and avoid the necessity
of raising additional capital from the participants and others to
support and renovate the Property while avoiding litigation costs and
the risk of loss of the Property through a Fee Mortgage foreclosure.
b. Subsequent Events:
On January 29, 1997, Associates, having received authorization from its
participants to sell the Property, entered into a contract of sale of
the Property at a selling price of $42,000,000. Such sale was concluded
on March 27, 1997, at which time the first mortgage was paid in full and
Associates discontinued operations. In accordance with the Solicitation,
the proceeds of sale are to be allocated between Associates and the New
Lessee. On March 31, 1997, a distribution of $27,000,000 ($25,714 per
$5,000 participation unit) was made to the participants out of the
proceeds of sale. However, the New Lessee's share of such proceeds, which
according to the Solicitation amounts to approximately $6,900,000, is
being held by Wien & Malkin LLP, a related party and counsel to Associates
("Counsel"), in connection with litigation referred to in Note 12.
Associates' receivable from the New Lessee was satisfied on March 29, 1997
by the payment of the protective advances from proceeds of the sale of the
property in accordance with the Solicitation.
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GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
12. Litigation
On October 4, 1996, the alleged holder of three participation interests in
Associates brought suit in the U.S. District Court for the Southern
District of New York against the New Lessee, the Original Lessee, the
partners of Associates, and Counsel. Associates is a nominal defendant.
The suit claims that defendants violated the anti-fraud provisions of the
federal securities laws and committed breaches of fiduciary duty and fraud in
relation to the Solicitation (Note 11a). The suit is styled as a class
action, but the plaintiff has not applied for class certification to date.
The suit seeks to enjoin the allocation of sale proceeds to the New Lessee
approved by the participants, money damages and related relief. Defendants
have responded to the complaint with a motion seeking dismissal of the action
in its entirety. That motion is now pending. A similar suit was filed by
another alleged holder of a fractional interest in Associates on March 13,
1997. Defendants currently intend to move to dismiss this complaint as well.
The complaints do not seek any relief against Associates, and, accordingly,
Associates' litigation counsel is of the opinion that no loss or other
unfavorable outcome of the action against Associates is anticipated. No
provision has been made in the accompanying financial statements for any
adjustments that might result from the outcome of the litigation. In
accordance with the Solicitation, sale proceeds were allocated to repay the
Fee Mortgagee the protective advances as well as all other sums then
outstanding on the Fee Mortgage. Pursuant to an agreement between counsel for
the plaintiff in the 1996 proceeding and counsel for the defendants, net sale
proceeds allocated to the New Lessee in accordance with the formula set forth
in the Solicitation will not be distributed to the New Lessee, except upon 30
days' notice to counsel for the plaintiff. Such allocated proceeds are
currently being held by Counsel.
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GARMENT CAPITOL ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the present
instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
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SCHEDULE III
GARMENT CAPITOL ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1996
Column
A Description Office building and land located at
498 Seventh Avenue, New York, N. Y.
B Encumbrances - Apple Bank for Savings
Balance at December 31, 1996................................. $ 5,785,947
C Initial cost to company
Land......................................................... $ 2,500,000
Building..................................................... $ 8,000,000
D Cost capitalized subsequent to acquisition..................... None
E Gross amount at which carried at
close of period
Land........................................................ $ 2,500,000
Building.................................................... 8,000,000
Total....................................................... $10,500,000(a)
F Accumulated depreciation....................................... $ 8,000,000(b)
G Date of construction 1921
H Date acquired May 1, 1957
I Life on which depreciation in latest
income statements is computed Not applicable
(a) There have been no changes in the carrying values of real estate for
the years ended December 31, 1996, December 31, 1995 and December 31,
1994. The costs for federal income tax purposes are the same as for
financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 1994 $8,000,000
Depreciation:
F/Y/E 12/31/94 None
12/31/95 None
12/31/96 None None
Balance at December 31, 1996 $8,000,000
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to a Power of Attorney, dated
April 10, 1996 (the "Power").
GARMENT CAPITOL ASSOCIATES (Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 17, 1997
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the undersigned as
Attorney-in-Fact for each of the Partners in Registrant, pursuant
to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 17, 1997
______________________
* Mr. Katzman supervises accounting functions for Registrant.
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Exhibit Index
Number Document Page*
2 (a) Proxy Statement issued by Agents in
connection with the solicitation of
consents of the Participants, which
was filed by Registrant on July 25,
1996 on Schedule 14-A and is
incorporated herein by reference.
2 (c) Contract of Sale, among Registrant
and New Lessee, as Seller, and
George Comfort & Sons, Inc., as
Agent, and Tirrem Management
Company, Inc., as Purchasers, but
excluding exhibits, which are
available for inspection at the
offices of Counsel.
3 (a) Registrant's Partnership Agree-
ment, dated January 10, 1957, which
was filed as Exhibit No. 1 to
Registrant's Registration Statement
on Form S-1 as amended (the
"Registration Statement") effective
February 13, 1957 and assigned File
No. 2-13034, is incorporated by
reference as an exhibit hereto.
3 (b) Amended Business Certificate of
Registrant effective as of January
1, 1996, reflecting a change in the
partners of Registrant, which was
filed as Exhibit 3(b) to
Registrant's Annual Report on Form
10-K for the year ended December 31,
1995 and is incorporated by
reference as an exhibit hereto.
4 Registrant's form of Participation
Agreement, which was filed as
Exhibit No. 5 to the Registration
Statement effective February 13,
1957 and assigned File No. 2-13034,
is incorporated by reference as an
exhibit hereto.
______________________
* Page references are based on a sequential numbering system.
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Number Document Page*
10 (a) Contract between Lawrence A. Wien
("Wien") and Garment Center Capitol
Inc. for the purchase of the
property 498 Seventh Avenue and
certain other property, dated
January 7, 1957, which was filed as
Exhibit No. 2 to the Registration
Statement effective February 13,
1957 and assigned File No. 2-1304,
is hereby incorporated by reference
as an exhibit hereto.
10 (b) Assignment by Wien to Registrant of
his rights under the contract
assignment, dated January 11, 1957,
insofar as they pertain to 498
Seventh Avenue and agreement of
assignment, dated January 11, 1957,
which was filed as Exhibit No. 3 to
the Registration Statement effective
February 13, 1957 and assigned File
No. 2-13034, is hereby incorporated
by reference as an exhibit hereto.
10 (c) Modification and Extension
Agreement, dated as of December 1,
1992, between Apple Savings Bank and
Garment Capitol Associates, which
was filed as Exhibit 10(c) to
Registrant's Annual Report on Form
10K for the year ended 1994, is
incorporated herein by reference.
13 Letter to Participants dated August
8, 1996 and accompanying financial
reports for the lease years ended
April 30, 1996 and April 30, 1995.
The foregoing material shall not be
deemed to be "filed" with the
Commission or otherwise subject to
the liabilities of Section 18 of the
Securities Exchange Act of 1934.
______________________
* Page references are based on a sequential numbering system.
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Number Document Page*
24 Power of Attorney dated April 10,
1996, between Stanley Katzman, Peter
L. Malkin, and John L. Loehr as
Partners of Registrant and Stanley
Katzman and Richard A. Shapiro,
attached as Exhibit 24 to
Registrant's Annual Report on Form
10-K for the year ended December 31,
1995 and is incorporated by
reference as an exhibit hereto.
27 Financial Data Schedule of Registrant
for fiscal year ended December 31,
1995.
______________________
* Page references are based on a sequential numbering system.
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