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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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
[] 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 0-2673
NAVARRE-500 BUILDING ASSOCIATES
(Exact name of Registrant as specified in its charter)
A New York Partnership 13-6082674
(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:
None
Securities registered pursuant to Section 12(g) of the Act:
$3,190,000 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
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant: Not applicable, but see Items 5 and
10 of this report.
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 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. ___
An Exhibit Index is located on pages through of this Report.
Number of pages (including exhibits) in this filing: 31
PART I
Item 1. Business.
(a) General
Registrant, a partnership, was organized on March 21,
1958. Registrant owns the tenant's interest in the master
operating leasehold (the "Master Lease") of the buildings located
at 500 and 512 Seventh Avenue and 228 West 38th Street, New York,
New York (the "Property"). Registrant's partners are Peter L.
Malkin and Stanley Katzman (the "Partners"). The land underlying
the buildings is owned by an unaffiliated third party and is
leased to Registrant under a long-term ground lease (the "Lease").
The current term of the Lease as extended expires on May 1, 2024.
The Lease provides for one additional 21-year renewal option. If
this option is exercised, the Lease will expire on May 1, 2045.
The annual rent payable by Registrant under the Lease is $487,500
during the current and each renewal term.
Registrant does not operate the Property, but subleases
the Property to 500-512 Seventh Avenue Associates (the
"Sublessee") pursuant to a net operating sublease (the
"Sublease"). The current renewal term, as extended, of the
Sublease will expire on April 30, 2024. The Sublease provides for
one renewal option for a term co-extensive with the period
contained in the Lease. Peter L. Malkin, a partner in Registrant,
is also a partner in Sublessee. The Partners in Registrant are
also members of the law firm of Wien & Malkin LLP, counsel to
Registrant and to Sublessee (the "Counsel"). 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, Sublessee and certain of their
respective affiliates.
As of December 31, 1997, 500 Seventh Avenue was
approximately 34% occupied and 512 Seventh Avenue was
approximately 22% occupied by a total (for the two buildings) of
approximately 145 tenants who engage primarily in the sale of
women's apparel. Registrant does not maintain a full-time staff.
See Item 2 hereof for additional information concerning the
Property.
(b) The Sublease
Under the Sublease, Sublessee must pay (i) annual basic
rent of $1,167,500 during the current renewal term and each
additional renewal term (the "Basic Rent") and (ii) additional
rent to Registrant during the current term and each renewal term
equal to 50% of Sublessee's net operating profit in excess of
$620,000 for each lease year ending June 30 (the "Additional
Rent").
For the lease year ended June 30, 1997, Sublessee paid
Additional Rent of $914,282. After additional payment for
supervisory services of $81,828 to Counsel, the $832,454 balance
was distributed to the Participants on August 29, 1997.
Additional Rent income is recognized when earned from
the Sublessee, at the close of the lease year ending June 30.
Such income is not determinable until the Sublessee, pursuant to
the Sublease, renders to Registrant a certified report on the
Sublessee's operation of the Property. The Sublease requires that
this report be delivered to Registrant annually within 60 days
after the end of each such lease year. Accordingly, 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 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. See Note 3 of the Notes to the
Financial Statements filed under Item 8 hereof (the "Notes")
regarding Additional Rent payments by Sublessee for the fiscal
years ended December 31, 1997, 1996 and 1995.
(c) Competition
Pursuant to tenant space leases at the Property, the
average annual base rentals payable to Sublessee range from $10 to
$20 per square foot (exclusive of electricity charges and
escalation). Based on an average rental rate of $15 per square
foot, the rate is competitive with the average rental rates
charged by similar office buildings offering comparable space in
the immediate vicinity. Registrant has been advised that at one
neighboring office building, which has upgraded certain interior
improvements and is located at 485 Seventh Avenue (at 36th
Street), the approximate range of rental rates is from $18 to $25
per square foot. Two similar buildings of approximately the same
age as the buildings at the Property, and which are located across
the street from each other at 530 Seventh Avenue and 550 Seventh
Avenue (at 39th Street), offer space for approximately $20 to $30
per square foot. At 1407 Broadway and 1411 Broadway, the
approximate range of rental rates is from $30 to $40 per square
foot for space in buildings which offer more modern, upgraded
facilities than the buildings at the Property.
In the overall rental market for commercial space in
Manhattan, rents range from approximately $47 per square foot for
prime office space to approximately $25 per square foot in less
developed industrial and/or secondary commercial areas.
Accordingly, rents at the Property may be considered competitive
in the area, given the relative condition of surrounding buildings
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and the nature of the services and amenities offered by them as
compared to the Building.
(d) Tenant Leases
Sublessee operates the Property 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 is governed by the
provisions of the tenant's lease.
Item 2. Property.
As stated in Item 1 hereof, Registrant owns the master
leasehold upon the buildings located at 500 and 512 Seventh
Avenue, New York, New York. The building at 500 Seventh Avenue
contains 17 stories; the building at 512 Seventh Avenue contains
44 stories. The buildings together occupy the entire block front
on the west side of Seventh Avenue between 37th and 38th Streets
in New York City's Garment District. Pursuant to the Lease,
Registrant also holds a master leasehold interest in an adjacent
5-story building located at 228 West 38th Street. The two
principal buildings, erected in 1921 and 1931, respectively,
contain showroom, office and loft space.
Item 3. Legal Proceedings.
The Property of Registrant is the subject of the
following pending litigation:
Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et.
al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed
an action in the Supreme Court of the State of New York, against
Helmsley-Spear, Inc. and Leona Helmsley concerning various
partnerships which own, lease or operate buildings managed by
Helmsley-Spear, Inc., including Registrant's property. In their
complaint, plaintiffs sought the removal of Helmsley-Spear, Inc.
as managing and leasing agent for all of the buildings.
Plaintiffs also sought an order precluding Leona Helmsley from
exercising any partner management powers in the partnerships. In
August, 1997, the Supreme Court directed that the foregoing claims
proceed to arbitration. As a result, Mr. Malkin and Wien & Malkin
LLP filed an arbitration complaint against Helmsley-Spear, Inc.
and Mrs. Helmsley before the American Arbitration Association.
Helmsley-Spear, Inc. and Mrs. Helmsley served answers denying
liability and asserting various affirmative defenses and
counterclaims; and Mr. Malkin and Wien & Malkin LLP filed a reply
denying the counterclaims. By agreement dated December 16, 1997,
Mr. Malkin and Wien & Malkin LLP (each for their own account and
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not in any representative capacity) reached a settlement with
Mrs. Helmsley of the claims and counterclaims in the arbitration
and litigation between them. Mr. Malkin and Wien & Malkin LLP are
continuing their prosecution of claims in the arbitration for
relief against Helmsley-Spear, Inc., including its termination as
the leasing and managing agent for various entities and
properties, including the Registrant's Sublessee.
Item 4. Submission of Matters to a Vote of Participants.
During the fourth quarter of the fiscal year ended
December 31, 1997, Registrant did not submit any matter to the
vote or consent of the Participants.
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PART II
Item 5. Market for the Registrant's Common Equity and Related
Security Holder Matters.
Registrant is a partnership organized pursuant to a
partnership agreement dated March 21, 1958.
Registrant has not issued any common stock. The
securities registered by it under the Securities Exchange Act of
1934, as amended, consisted of participations in the partnership
interests of the Partners in Registrant (the "Participations") and
are not shares of common stock nor 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 offered originally at a purchase price of
$5,000; fractional units were also offered at proportionate
purchase prices. Registrant has not repurchased Participations in
the past and it is not likely to change its policy in the future.
(a) The Participations neither are traded on an
established securities market nor are readily tradable on a
secondary market or the substantial equivalent thereof. Based on
Registrant's transfer records, Participations are sold 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 was advised of 39 transfers of
Participations for the year ended December 31, 1997. In one
instance, the indicated purchase price was equal to 1.25 times the
face amount of the Participation transferred, i.e., $6,250, for a
$5,000 Participation. In all other cases, no consideration was
indicated.
(b) As of December 31, 1997, there were 608
Participants of record.
(c) Registrant does not pay dividends. During the
years ended December 31, 1997 and December 31, 1996, Registrant
made regular monthly distributions of $83.33 for each $5,000
Participation. On August 29, 1997 and August 31, 1996, Registrant
made additional distributions for each $5,000 Participation of
$1,300.71 and $1,521.45, respectively. Such distributions
represented Additional Rent paid by the Sublessee in accordance
with the terms of the Sublease less additional supervisory fees
paid. 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,
-5-
depends solely on Sublessee's ability to make payments of Basic
Rent and Additional Rent to Registrant. See Item 1 hereof.
Registrant expects to make distributions so long as it receives
the payments provided for under the Sublease. See Item 7 hereof.
-6-
Item 6.
NAVARRE-500 BUILDING ASSOCIATES
SELECTED FINANCIAL DATA
Year ended December 31,
1997 1996 1995 1994 1993
Basic rent income................. $1,167,500 $1,167,500 $1,167,500 $1,167,500 $1,167,500
Additional rent income............ 914,282 1,071,252 840,704 503,579 1,758,397
Total revenue.................. $2,081,782 $2,238,752 $2,008,204 $1,671,079 $2,925,897
Net income........................ $1,465,929 $1,607,202 $1,399,709 $1,079,855 $2,209,190
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during the
year............................. $ 2,291 $ 2,511 $ 2,187 $ 1,687 $ 3,452
Total assets...................... $ 225,143 $ 231,668 $ 238,193 $ 244,718 $ 267,684
Long-term obligations............. None None None None None
Distributions per $5,000
participation unit, based on
640 participation units
outstanding during the year:
Income.......................... $ 2,291 $ 2,511 $ 2,187 $ 1,687 $ 3,452
Return of capital............... 10 10 10 36 36
Total distributions............ $ 2,301 $ 2,521 $ 2,197 $ 1,723 $ 3,488
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation.
Registrant was organized solely for the purpose of
owning the master leasehold on the Property subject to a net
operating sublease of the Property held by Sublessee. Registrant
is required to pay from Basic Rent the annual rent under the Lease
and amounts for supervisory services. Registrant distributes the
balance of such Basic Rent to the Participants. Additional Rent
is distributed to the Participants after the Additional Payment to
Counsel. Pursuant to the Sublease, Sublessee has assumed sole
responsibility for the condition, operation, repair, maintenance
and management of the Property. Registrant need 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 Sublease.
The following summarizes the material factors affecting
Registrant's results of operations for the three preceding years:
(a) Total income decreased for the year ended December 31,
1997 as compared with the year ended December 31, 1996.
Such decrease is attributable to a decreased amount of
Additional Rent having been received by Registrant for
the lease year ended June 30, 1997. See Note 3 of the
Notes. Total income increased for the year ended
December 31, 1996 as compared with the year ended
December 31, 1995. Such increase is attributable to the
increased amount of Additional Rent having been received
by Registrant for the lease year ended June 30, 1996.
See Note 3 of the Notes.
(b) Total expenses decreased for the year ended December 31,
1997 as compared with the year ended December 31, 1996.
Such decrease resulted from a decrease in the additional
payment for supervisory services payable with respect to
a decreased amount of Additional Rent received by
Registrant in 1997. See Note 5 of the Notes. Total
expenses increased for the year ended December 31, 1996
as compared with the year ended December 31, 1995. Such
increase resulted from an increase in the additional
payment for supervisory services payable with respect to
an increased amount of Additional Rent received by
Registrant in 1996. See Note 5 of the Notes.
The amount of Additional Rent payable to Registrant is
affected by the cycles in the New York City economy, the ladies'
garment industry and the real estate rental market. It is
difficult for Registrant to forecast when these markets will
improve or deteriorate.
-8-
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the year ended December 31, 1997 as compared with
the year ended December 31, 1996.
Inflation
Inflationary trends in the economy do not directly
impact Registrant's operations, since as noted above, Registrant
does not actively engage in the operation of the Property.
Inflation may impact the operations of Sublessee. Sublessee is
required to pay Basic Rent, regardless of the results of its
operations. Inflation and other operating factors affect only the
amount of Additional Rent payable by Sublessee, which is based on
Sublessee'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, of Jacobs Evall &
Blumenfeld LLP immediately following, are being filed in response
to this item.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
-9-
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 Partner
as of December 31, 1997, 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
Peter L. Malkin 64 None Attorney-at-Law Senior Partner 1988
Wien & Malkin
LLP
Counselors-
at-Law
Stanley Katzman 65 None Attorney-at-Law Senior Partner 1996
Wien & Malkin
LLP
Counselors-
at-Law
Mr. Malkin and Mr. Katzman 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, Sublessee 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 joint venturer or
general partner are as follows:
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Peter L. Malkin is a joint venturer in 250 West 57th St.
Associates; and a general partner in Empire State
Building Associates, Garment Capitol Associates and
60 East 42nd St. Associates.
Stanley Katzman is a joint venturer in 250 West 57th St.
Associates; and a general partner in Empire State
Building Associates, Garment Capitol Associates and
60 East 42nd St. Associates.
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, 1997 by Registrant to any of the Partners as
such. Registrant pays Counsel, for supervisory services and
disbursements, fees of $40,000 per annum, plus 10% of all
distributions to Participants in any year in excess of the amount
representing 23% per annum on the Participants' remaining cash
investment in Registrant. At December 31, 1997, such remaining
cash investment (representing the Participant's original cash
investment) in Registrant was $3,200,000. Pursuant to the fee
arrangements described herein, Registrant paid Counsel $121,828
during the fiscal year ended December 31, 1997. The supervisory
services provided to Registrant by Counsel include legal,
administrative and financial services. The legal and
administrative services include acting as general counsel to
Registrant, maintaining all of its partnership and Participant
records, performing physical inspections of the Building,
reviewing insurance coverage and conducting annual partnership
meetings. Financial services include monthly receipt of rent from
Sublessee, payment of monthly rent to the fee owner, payment of
monthly and additional distributions to the Participants, payment
of all other disbursements, confirmation of the payment of real
estate taxes, review of financial statements submitted to
Registrant by Sublessee, review of financial statements audited by
and tax information prepared by Registrant's independent certified
public accountant, and distribution of such materials to the
Participants. Counsel also prepares quarterly, annual and other
periodic filings with the Securities and Exchange Commission and
applicable state authorities. As noted in Items 1 and 10 hereof,
the Partners in Registrant are also among the members of Counsel.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Registrant has no voting securities (see Item 5
hereof). At December 31, 1997, no person owned of record or was
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known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) At December 31, 1997, the Partners in Registrant
(see Item 10 hereof) beneficially owned, directly or indirectly,
the following Participations:
Name and
Address of Amount of
Beneficial Beneficial Percent
Title of Class Owners Ownership of Class
Participations in Peter L. Malkin $ 33,125 1.035
Partnership 21 Bobolink Lane
Interests Greenwich, CT 06830
At such date, certain of the Partners (or their
respective spouses) held additional Participations as follows:
Isabel W. Malkin, the wife of Peter L. Malkin, owned of
record and beneficially $5,000 of Participations. Mr. Malkin
disclaims any beneficial ownership of such Participations.
Peter L. Malkin, Trustee of Mattie Saunders 1983 Trust,
owned $7,500 of Participations. Mr. Malkin disclaims any
beneficial ownership of such Participations.
Stanley Katzman owned of record as trustee but not
beneficially $5,000 of Participations. Mr. Katzman disclaims any
beneficial ownership of such Participations.
(c) Not applicable.
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Items 1 and 10 hereof, Messrs. Peter
L. Malkin and Stanley Katzman are the Partners of Registrant and
also act as agent for the Participants in their respective
partnership interests. Mr. Malkin is also a partner in Sublessee.
As a consequence of Mr. Malkin being a partner in Sublessee and
both Mr. Malkin and Mr. Katzman being members of Counsel, certain
actual or potential conflicts of interest may arise with respect
to the management and administration of the business of
Registrant. However, under the respective participating
agreements pursuant to which Mr. Malkin and Mr. Katzman act as
agents for the Participants, certain transactions require the
prior consent from Participants owning a specified interest under
the Agreements in order for them to act on their behalf. Such
transactions include modifications and extensions of the Lease and
the Sublease or a sale or other disposition of the Property or
substantially all of Registrant's other assets.
-12-
See Item 1 for a description of the terms of the
Sublease. The interest of Mr. Malkin in the Sublease arises
solely from the ownership of his partnership interest in
Sublessee, and he receives no extra or special benefit not shared
on a pro rata basis with all other partners in Sublessee, except
that Mr. Malkin and Mr. Katzman, by reason of their respective
interests in Counsel, are entitled to receive their pro rata share
of any legal fees or other remuneration paid to Counsel for legal
services rendered to Registrant and Sublessee. See Item 11 hereof
for a description of the remuneration arrangements between
Registrant and Counsel relating to supervisory services provided
by Counsel.
See Items 1 and 10 hereof for a description of the
relationship between Registrant and Counsel, of which the Partners
in Registrant are among its members. The interest of each of Mr.
Malkin and Mr. Katzman in any remuneration paid or given by
Registrant to Counsel arises solely from such person's ownership
of an interest in Counsel. See Item 11 hereof for a description
of the remuneration arrangements between Registrant and Counsel
relating to supervisory services provided by Counsel.
(b) Reference is made to paragraph (a) above.
(c) Not applicable.
(d) Not applicable.
-13-
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 February 18, 1998.
Accountant's Report of Jacobs Evall & Blumenfeld LLP,
Certified Public Accountants, dated January 31, 1998.
Balance Sheets at December 31, 1997 and at December 31,
1996 (Exhibit A).
Statements of Income for the fiscal years ended
December 31, 1997, 1996 and 1995 (Exhibit B).
Statement of Partners' Capital for the fiscal year ended
December 31, 1997 (Exhibit C-1).
Statement of Partners' Capital for the fiscal year ended
December 31, 1996 (Exhibit C-2).
Statement of Partners' Capital for the fiscal year ended
December 31, 1995 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 1997, 1996 and 1995 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 1997, 1996 and 1995.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31,
1997 (Schedule III).
(3) Exhibits: See Exhibit Index.
(b) No report on Form 8-K was filed by Registrant
during the last quarter of the period covered by
this report.
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[LETTERHEARD OF
JACOBS EVALL & BLUMENFELD LLP
CERTIFIED PUBLIC ACCOUNTANTS]
February 18, 1998
Navarre-500 Building Associates
New York, N.Y.
We consent to the use of our independent accountants' report dated January
31, 1998 covering our audits of the accompanying financial statements of
Navarre-500 Building Associates in connection with and as part of your
December 31, 1997 annual report (Form 10-K) to the Securities and Exchange
Commission.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
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INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Navarre-500 Building Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of Navarre-500 Building
Associates as of December 31, 1997 and 1996, and the related statements of
income, partners' capital and cash flows for each of the three years in the
period ended December 31, 1997, 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 Navarre-500 Building
Associates as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997 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.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
New York, N. Y.
January 31, 1998
-16-
EXHIBIT A
NAVARRE-500 BUILDING ASSOCIATES
BALANCE SHEETS
A S S E T S
December 31,
1997 1996
Current Assets:
Cash in distribution account held by
Wien & Malkin LLP (Note 9)................... $ 53,333 $ 53,333
TOTAL CURRENT ASSETS................... 53,333 53,333
Real Estate (Note 2):
Leasehold on property situated at
500 and 512 Seventh Avenue, New York, NY...... 3,200,000 3,200,000
Less: Accumulated amortization............... 3,028,190 3,021,665
171,810 178,335
TOTAL ASSETS.......................... $ 225,143 $ 231,668
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities............................... - -
Partners' Capital (Exhibit C).................... $ 225,143 $ 231,668
TOTAL LIABILITIES AND PARTNERS' CAPITAL. $ 225,143 $ 231,668
See accompanying notes to financial statements.
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EXHIBIT B
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF INCOME
Year ended December 31,
1997 1996 1995
Revenues:
Rent income, from a related party (Note 3).$2,081,782 $2,238,752 $2,008,204
Expenses:
Leasehold rent (Note 4).................... 487,500 487,500 487,500
Supervisory services, to a related party
(Note 5) ................................ 121,828 137,525 114,470
Amortization of leasehold (Note 2)......... 6,525 6,525 6,525
615,853 631,550 608,495
NET INCOME, CARRIED TO
PARTNERS' CAPITAL (NOTE 8)........$1,465,929 $1,607,202 $1,399,709
Earnings per $5,000 participation
unit, based on 640 participation
units outstanding during each year..........$ 2,291 $ 2,511 $ 2,187
See accompanying notes to financial statements.
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EXHIBIT C-1
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
Peter L. Stanley
Malkin Katzman
Total Group Group
Partners' capital, January 1, 1997............. $ 231,668 $ 115,834 $ 115,834
Share of net income............................ 1,465,929 732,965 732,964
1,697,597 848,799 848,798
Distributions.................................. 1,472,454 736,227 736,227
PARTNERS' CAPITAL, DECEMBER 31, 1997.. $ 225,143 $ 112,572 $ 112,571
See accompanying notes to financial statements.
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EXHIBIT C-2
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1996
Stanley
Katzman
Group
(formerly
Peter L. C. Michael
Malkin Spero
Total Group Group)
Partners' capital, January 1, 1996............. $ 238,193 $ 119,097 $ 119,096
Share of net income............................ 1,607,202 803,601 803,601
1,845,395 922,698 922,697
Distributions.................................. 1,613,727 806,864 806,863
PARTNERS' CAPITAL, DECEMBER 31, 1996.. $ 231,668 $ 115,834 $ 115,834
See accompanying notes to financial statements.
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EXHIBIT C-3
NAVARRE-500 BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1995
C. Michael
Spero
Group
(formerly
Peter L. Alvin
Malkin Silverman
Total Group Group)
Partners' capital, January 1, 1995.............. $ 244,718 $ 122,359 $ 122,359
Share of net income............................. 1,399,709 699,855 699,854
1,644,427 822,214 822,213
Distributions................................... 1,406,234 703,117 703,117
PARTNERS' CAPITAL, DECEMBER 31, 1995.. $ 238,193 $ 119,097 $ 119,096
See accompanying notes to financial statements.
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EXHIBIT D
NAVARRE-500 BUILDING ASSOCIATES
STATEMENTS OF CASH FLOWS
Year ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net income.................................. $ 1,465,929 $ 1,607,202 $ 1,399,709
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of leasehold................ 6,525 6,525 6,525
Net cash provided by operating
activities......................... 1,472,454 1,613,727 1,406,234
Cash flows from financing activities:
Cash distributions.......................... (1,472,454) (1,613,727) (1,406,234)
Net cash used in financing
activities......................... (1,472,454) (1,613,727) (1,406,234)
Net change in cash.................. - - -
Cash, beginning of year....................... 53,333 53,333 53,333
CASH, END OF YEAR................... $ 53,333 $ 53,333 $ 53,333
See accompanying notes to financial statements.
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NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Navarre-500 Building Associates ("Associates") is a general partnership
which holds the tenant's position in the master leasehold of property
situated at 500 and 512 Seventh Avenue, New York, New York. Associates'
building is located in the heart of New York City's "Garment District"
and its tenants are almost exclusively in the garment business.
Associates subleases the property to 500-512 Seventh Avenue Associates.
2. Summary of Significant Accounting Policies
Real Estate and Amortization of Leasehold:
Real estate, consisting of leasehold, is stated at cost. In 1978,
Associates exercised its first renewal option on the lease. Amortization
of the leasehold was being computed by the straight-line method over the
estimated useful life of 25 years, 4 months, from January 1, 1978 to May 1,
2003. The second renewal option for a period of 21 years through May 1,
2024, was exercised in October 1995 (see Note 4) and the estimated life
of the leasehold was revised as of January 1, 1995 to 29 years and 4 months
until May 1, 2024. The effect of this change was to increase net income
in 1995 by $16,441, or $26 per $5,000 participation unit based on 640
participation units outstanding during the year.
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. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1997, 1996 and 1995
represents the annual basic rent of $1,167,500, under an operating
sublease, as modified, with 500-512 Seventh Avenue Associates (the
"Sublessee"), plus payments of additional rent. Additional rent is
payable in an amount equal to 50% of the Sublessee's defined net
income from operations for lease years ending June 30th.
For the years ended December 31, 1997, 1996 and 1995, additional
rent of $914,282, $1,071,252 and $840,704 was earned for the lease years
ended June 30, 1997, 1996 and 1995, respectively.
No additional rent is accrued by Associates for the period between the
end of the Sublessee's lease year ending June 30th and the end of
Associates' fiscal year ending December 31st.
-23-
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. Related Party Transactions - Rent Income (continued)
In 1995, the Sublessee exercised its renewal option for the second
renewal term commencing May 1, 2003 and ending April 30, 2024. Renewal
privileges for one additional term of 21 years may extend the sublease
to April 30, 2045 at an annual basic rent of $1,167,500 during the
renewal period.
A partner in Associates is also a partner in the Sublessee.
4. Leasehold Rent
Leasehold rent paid during the years ended December 31, 1997, 1996
and 1995 consists of the annual net rent of $487,500 under an operating
leasehold, as modified, with GSL Enterprises, Inc. In 1995, Associates
exercised its option to renew the lease for the second renewal period
from May 2, 2003 to May 1, 2024. A renewal option is available for one
additional term of 21 years extending the leasehold to May 1, 2045;
during the renewal periods the rent payable remains at $487,500 per
year.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular
accounting services) during the years ended December 31, 1997, 1996
and 1995, totaling $121,828, $137,525 and $114,470, respectively, were
paid to the firm of Wien & Malkin LLP. Some members in that firm are
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 of Associates each year.
6. Number of Participants
There were approximately 600 participants in the two participating groups
at December 31, 1997, 1996 and 1995.
7. Determination of Distributions to Participants
Distributions to participants during each year represent the excess of
rent income received over the cash expenses.
-24-
NAVARRE-500 BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years 1997,
1996 and 1995, based on 640 participation units outstanding during
each year, consisted of the following:
Year ended December 31,
1997 1996 1995
Income.......................... $2,291 $2,511 $2,187
Return of capital............... 10 10 10
TOTAL DISTRIBUTIONS......... $2,301 $2,521 $2,197
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.
9. Concentration of Credit Risk
Associates maintains cash balances in a bank, and in a distribution
account held by Wien & Malkin LLP which is not insured. The funds
held in the distribution account were paid to the participants on
January 1, 1998.
-25-
NAVARRE-500 BUILDING 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.
-26-
SCHEDULE III
NAVARRE-500 BUILDING ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1997
Column
A Description Leasehold on property situated at
500 and 512 Seventh Avenue,
New York, New York.
B Encumbrances........................................... None
C Initial cost to company
Leasehold............................................ $3,200,000
D Costs capitalized subsequent to acquisition............ None
E Gross amount at which carried at
close of period
Leasehold........................................... $3,200,000(a)
F Accumulated amortization............................... $3,028,190(b)
G Date of construction 1921
H Date acquired July 1, 1958
I Life on which leasehold amortization in
latest income statements is computed 29 years, 4 months
(a) There have been no changes in the carrying values of real estate
for the years ended December 31, 1997, December 31, 1996 and
December 31, 1995. The costs for federal income tax purposes are
the same as for financial statement
purposes.
(b) Accumulated amortization
Balance at January 1, 1995 $3,008,615
Amortization:
F/Y/E 12/31/95 $6,525
12/31/96 6,525
12/31/97 6,525 19,575
Balance at December 31, 1997 $3,028,190
-27-
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
August 6, 1996 (the "Power").
NAVARRE-500 BUILDING ASSOCIATES (Registrant)
By:/s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 15, 1998
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 the Registrant
and as a Partner in Registrant on the date indicated.
By:/s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 15, 1998
______________________
* Mr. Katzman supervises accounting functions for Registrant.
-28-
EXHIBIT INDEX
Number Document Page*
3(a) Partnership Agreement, dated
March 21, 1958, which was filed as
Exhibit No. 1 to Registrant's Form
S-1 Registration Statement, as
amended (the "Registration
Statement") by letter dated April 3,
1958 and assigned File No. 2-14019,
is incorporated by reference as an
exhibit hereto.
3(b) Amended Business Certificate of
Registrant filed with the Clerk of
New York County on June 10, 1996
reflecting a change in Partners
which was filed as Exhibit 3(b) to
Registrant's Annual Report on 10-K
for the fiscal year ended December
31, 1996 and is incorporated herein
by reference.
4 Form of Participating Agreement,
which was filed as Exhibit No. 4 to
Registrant's Registration Statement
by letter dated April 3, 1958 and
assigned File No. 2-14019, is
incorporated by reference as an
exhibit hereto.
10(a) Deed from Garment Center Capitol
Inc. to The Prudential Insurance
Company of America ("Prudential")
dated May 1, 1957, filed by letter
dated March 31, 1981 (Commission
File No. 0-2673) as Exhibit No.
10(a) to Registrant's Form 10-K for
the fiscal year ended December 31,
1980, is incorporated by reference
as an exhibit hereto.
______________________
* Page references are based on a sequential numbering system.
-29-
Number Document Page*
10(b) Purchase Agreement between Navarre-
500 Building Associates and 500-512
Seventh Avenue Associates, dated
March 25, 1958, which was filed as
Exhibit No. 2 to Registrant's
Registration Statement by letter
dated April 3, 1958 and assigned
File No. 2-14019, is incorporated by
reference as an exhibit hereto.
10(c) Net Lease, dated May 1, 1957, between
Prudential and 500-512, Inc., which
was filed as Exhibit No. 3 to
Registrant's Registration Statement
by letter dated April 3, 1958 and
assigned File No. 2-14019, is
incorporated by reference as an
exhibit hereto.
10(d) Assignment of Net Lease from 500-512,
Inc. to 500-512 Seventh Avenue
Associates, dated May 1, 1957, which
was filed as Exhibit No. 3(a) to
Registrant's Registration Statement
by letter dated April 3, 1958 and
assigned File No. 2-14019, is
incorporated by reference as an
exhibit hereto.
13(a) Letter to Participants, dated
February 5, 1998 and accompanying
financial reports for the fiscal
year ended December 31, 1997. 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.
-30-
Number Document Page*
13(b) Letter to Participants, dated
August 29, 1997 and accompanying
financial reports for the lease
years ended June 30, 1997 and June
30, 1996. 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.
24 Power of Attorney dated August 6, 1996
between Peter L. Malkin and Stanley
Katzman as Partners in Registrant
and Stanley Katzman and Richard
Shapiro, was filed as Exhibit 24 to
Registrants 10-Q dated September 30,
1996 and is incorporated herein by
reference.
27 Financial Data Schedule of Registrant
for the fiscal year ended December 31, 1997.
______________________
* Page references are based on a sequential numbering system.
-31-