250 WEST 57TH ST ASSOCIATES L.L.C. - FORM 10-K

250 WEST 57TH ST ASSOCIATES L.L.C. - FORM 10-K - March 28, 2013

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EX-24.1 - EX-24.1 - 250 WEST 57TH ST ASSOCIATES L.L.C.	d468236dex241.htm
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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 calendar year ended December 31, 2012

¨	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 0-2666

250 West 57th St. Associates L.L.C.

(Exact name of Registrant as specified in its charter)


A New York Limited Liability Company		13-6083380
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

One Grand Central Place

60 East 42nd Street

New York, New York 10165

(Address of principal executive offices)

(212) 687-8700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

$3,600,000 of Participations in LLC Member Interests

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 ¨

Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market 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.

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

PART I

Item 1. Business.

(a) General

Registrant is a New York limited liability company which was organized as a joint venture on May 25, 1953. On September 30, 1953, Registrant acquired fee title to the building known as 250 West 57th Street (the “Building”), formerly known as the Fisk Building, and the land thereunder located at 250-264 West 57th Street, New York, New York (collectively, the “Property”). On November 30, 2001, Registrant converted to a limited liability company under New York law and is now known as 250 West 57th St. Associates L.L.C. The conversion did not change any aspect of the assets and operations of Registrant other than to protect its Participants from any future liability to a third party. Registrant’s members (“Members”) are Peter L. Malkin and Anthony E. Malkin (collectively, the “Agents”), each of whom also acts as an agent for holders of participations (“Participations”) in their respective member interest in Registrant (the “Participants”).

Registrant does not operate the Property. Registrant leases the Property to Fisk Building Associates L.L.C. (the “Lessee”) under a long-term net operating lease dated May 1, 1954 (the “Lease”). In 1985, the Participants in Registrant consented to Registrant’s Agents granting Lessee four options to extend the Lease, in each case for an additional twenty-five year renewal period, the last expiring in 2103, all on the same terms as the original lease. The Agents intend to grant such options on behalf of Registrant, subject to Lessee’s compliance with such consents. Such options have been granted by the Agents and exercised by Lessee as to (a) the first renewal period from October 1, 2003 through September 30, 2028, and (b) the second renewal period from October 1, 2028 through September 30, 2053. The Participants in Registrant have consented to the granting of options to the Lessee to extend the lease for two additional 25-year renewal terms expiring in 2103.

Lessee is a New York limited liability company whose members consist of, among others, Anthony E. Malkin and entities for the benefit of members of Peter L. Malkin’s and Anthony E. Malkin’s family. In addition, both of the Agents hold senior positions at Malkin Holdings LLC (“Malkin Holdings” or the “Supervisor”), One Grand Central Place, 60 East 42nd Street, New York, New York, which provides supervisory and other services to Registrant and the Lessee. See Items 10, 11, 12 and 13 hereof for a description of the on-going services rendered by, and compensation paid to, Supervisor and for a discussion of certain relationships that may pose actual or potential conflicts of interest among Registrant, Lessee and certain of their respective affiliates.

As of December 31, 2012, the Building was approximately 86% occupied by approximately 164 tenants, a majority of whom are engaged in the practices of law, dentistry and accounting, and the businesses of publishing, insurance and entertainment. Registrant does not maintain a staff. See Item 2 hereof for additional information concerning the Building.

(b) Lease

Under the Lease, effective May 1, 1975, between Registrant and Lessee, basic annual rent (“Basic Rent”) was equal to mortgage principal and interest payments plus $28,000 for partial payment to Malkin Holdings for supervisory services. The lease modification dated November 17, 2000, and as further modified, between Registrant and Lessee provides that Basic Rent will be equal to the sum of $28,000 plus the installment payments for interest and amortization (not including any balloon payment due at maturity) currently payable on all mortgages. Basic Rent is payable in monthly installments on the first day of each calendar month in an amount equal to $2,333.33 plus the projected debt service due on the mortgages on the first day of the ensuing calendar month (with a reconciliation to be made as soon as practicable thereafter). Basic Rent shall be adjusted on a dollar-for-dollar basis by changes in the annual debt service on the mortgages.

Lessee is required to make a monthly payment to Registrant, as an advance against primary overage rent (“Primary Overage Rent”), of an amount equal to its operating profit for its previous lease year in the maximum amount of $752,000 per annum. Lessee currently advances $752,000 each year, which is recorded in revenues in monthly installments of $62,667 and permits Registrant to make regular monthly distributions at 20% per annum on the Participants’ remaining cash investment in Registrant (which remaining cash investment at December 31, 2012, was equal to the Participants’ original cash investment of $3,600,000) and to pay $1,667 monthly to Supervisor as an advance of the additional payment (the “Additional Payment”).

Lessee is also required to make an annual payment to Registrant of secondary overage rent (“Secondary Overage Rent”) subsequent to September 30 of the amount representing 50% of the excess of the net operating profit (as defined) of the Lessee for the lease year ending September 30 over the Primary Overage Rent of $752,000, less the amount representing interest earned and retained by Registrant on funds borrowed for the building improvement program described below. Registrant recognizes Secondary Overage Rent when earned from the Lessee, at the close of the lease year ending September 30 and records such amount in revenue in the three months ended September 30.

For the lease year ended September 30, 2012, Lessee reported net operating profit of $7,869,126 after deduction of Basic Rent. Lessee paid Primary Overage Rent of $752,000 for that lease year prior to September 30, 2012 and Secondary Overage Rent of $3,558,414 subsequent to September 30, 2012. The Secondary Overage Rent of $3,558,414 represents 50% of the excess of the Lessee’s net operating profit of $7,869,126 over $752,000, less $148 representing interest earned and retained by Registrant on funds borrowed for the improvement program. As a result, the Secondary Overage Rent paid by the Lessee subsequent to September 30, 2012 of $3,558,414 plus $148 of interest income was available for distribution by the Registrant to the Participants. After deducting $1,500,000 for (i) fees relating to a proposed consolidation of Registrant, other public and private entities supervised by the Supervisor and the Supervisor and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed real estate investment trust (collectively, the “Consolidation”) and the initial public offering of Class A common stock of Empire State Realty Trust, Inc. (the “IPO”), (ii) the increase in the supervisory fee to the Supervisor, (iii) accounting fees, (iv) general contingencies, (v) the Additional Payment to Supervisor of $205,556 (Item 11), and (vi) the annual New York State filing fees of $3,000, the balance of $1,850,006 was distributed by Registrant to the Participants on December 12, 2012.

For the lease year ended September 30, 2011, Lessee reported net operating profit of $9,452,901 after deduction of Basic Rent. Lessee paid Primary Overage Rent of $752,000 for that lease year prior to September 30, 2011 and Secondary Overage Rent of $4,350,339 subsequent to September 30, 2011. The Secondary Overage Rent of $4,350,339 represents 50% of the excess of the Lessee’s net operating profit of $9,452,901 over $752,000, less $111 representing interest earned and retained by Registrant on funds borrowed for the improvement program. As a result, the Secondary Overage Rent paid by the Lessee subsequent to September 30, 2011 of $4,350,339 plus $111 of interest income was available for distribution by the Registrant to the Participants. After deducting $1,500,000 for (i) fees relating to a proposed consolidation of Registrant, other public and private entities supervised by Malkin Holdings and Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed REIT, (ii) the increase in the supervisory fee to the Supervisor, (iii) accounting fees, (iv) general contingencies, (v) the Additional Payment to Supervisor of $284,745 (Item 11), and (vi) the annual New York State filing fees of $3,000, the balance of $2,562,705 was distributed by Registrant to the Participants on December 14, 2011.

As a result of its revenue recognition policy, rental income for the year ending December 31 includes Basic Rent and the advances of Primary Overage Rent received from October 1 to December 31, but does not include any portion of Secondary Overage Rent based on the Lessee’s operations during that period.

Real estate taxes incurred directly by the Lessee totaled approximately $4,400,949 and $4,156,415 for the years ended December 31, 2012 and 2011, respectively.

On December 29, 2004, the first mortgage (the “First Mortgage”) was placed on the Property in the amount of $30,500,000 with Prudential Insurance Company of America. At closing, $3,000,000 was drawn, and the remaining $27,500,000 was drawn during 2005. These draws paid off the pre-existing first mortgage of $15,500,000 with Emigrant Savings Bank on September 1, 2005 and were used to finance capital improvements as needed. The initial draw of $3,000,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 5.33% per annum until January 5, 2007. Commencing February 5, 2007, Registrant is required to make monthly payments of $184,213 applied to interest and principal calculated on a 25-year amortization schedule. The balance of the First Mortgage was $26,441,949 at December 31, 2012. The First Mortgage matures on January 5, 2015, when the principal balance will be $24,754,972. The First Mortgage may be prepaid at any time, in whole only, upon payment of a prepayment penalty based on a yield maintenance formula. There is no prepayment penalty if the First Mortgage is paid in full during the last 60 days of the term.

On May 25, 2006, a second mortgage (the “Second Mortgage”) was placed on the Property in the amount of $12,410,000 with the Prudential Insurance Company of America. At closing, $2,100,000 was drawn and the remaining $10,310,000 had been drawn as of March 5, 2009. The initial draw of $2,100,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 6.13% per annum until March 5, 2009. Commencing April 5, 2009, Registrant is required to make monthly payments of $80,947 applied to interest and principal calculated on a 25-year amortization schedule. The balance of the Second Mortgage was $11,524,070 at December 31, 2012. The Second Mortgage matures on January 5, 2015, when the principal balance will be $10,961,870. The Second Mortgage may be prepaid at any time, in whole only, upon payment of a prepayment penalty based on a yield maintenance formula. There is no prepayment penalty if the Second Mortgage is paid in full during the last 60 days of the term.

On October 15, 2009, Registrant closed on a $21,000,000 line of credit from Signature Bank secured by a mortgage on the Property, subordinate to the existing senior mortgage debt held by Prudential Insurance Company of America in the original amount of $42,910,000, to be used for capital improvements. At closing, $934,616 was drawn and an additional $5,000,000 and $9,000,000 used for improvements and tenanting costs was drawn on December 22, 2011 and November 7, 2012, respectively. The balance of the line of credit was $14,934,616 at December 31, 2012. The Signature Bank loan requires payments of interest only and is co-terminus with the existing senior mortgage debt. The $21,000,000 loan from Signature Bank was modified effective as of January 24, 2012 to provide for a reduction in the fluctuating rate of interest from a floor of 6.50% to 4.25% and to a reduction in the fixed rate to the greater of (i) 4.75% or (ii) 300 basis points in excess of the weekly average yield on U.S. Treasury Securities adjusted to a maturity date closest to the mortgage maturity date. The loan was also modified to allow borrower to elect prepayment without any prepayment fees if the fixed interest rate were the greater of (i) 5.00% or (ii) 300 basis points in excess of the weekly average yield on U .S. Treasury Securities adjusted to a maturity date closest to the mortgage maturity date.

The estimated fair value of Registrant’s mortgage debt based on available market information is approximately $55,478,595 as of December 31, 2012. The fair value of borrowings is estimated by discounting the future cash flows using current interest rate at which similar borrowings could be made by us.

In 1999, the Participants in Registrant and the members in Lessee consented to a building improvement program (the “Program”) estimated to cost approximately $12,200,000. In 2004, the Participants and the Lessee approved an increase in the program from $12,200,000 to approximately $31,400,000 under substantially the same conditions as had previously been approved. To induce the Lessee to approve the Program, Registrant’s Participants authorized a grant to the Lessee, upon completion of the Program, of the right to further extensions of the Lease beyond 2103, based on the net present benefit to Registrant of the improvements made. The Program for improvements was further increased in 2006 from $31,400,000 to up to $82,300,000, again on the basis that such increase would allow a further extension of the Lease based on the net present benefit to Registrant of the improvements made. The Participants in Registrant and the members in Lessee have approved increasing the financing from the total of $42,910,000 provided by the First and Second Mortgages to up to $63,900,000. As of December 31, 2012, Registrant had incurred or accrued costs related to the improvement program of $51,677,946 and estimated that costs upon completion will be approximately $82,300,000. The balance of the costs of the Program will be financed primarily by the additional borrowings available under the $21,000,000 previously approved loan that closed on October 15, 2009 and Lessee’s operating cash flow.

(d) Competition

Pursuant to tenant space leases at the Building, the average annual base rental payable to Lessee is approximately $47 per square foot (exclusive of electricity charges and escalation). The asking rates for new leases at the Building range from $42 to $54 per square foot. Secondary Overage Rent may be impacted by Lessee’s ability to negotiate higher average base rent.

(e) Tenant Leases

Lessee operates the Building free from any federal, state or local government restrictions involving rent control or other similar rent regulations that 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, or, if a new tenant, by then-existing trends in the rental market for office space.

(f) Proposed Consolidation

The Supervisor of the Registrant is in the process of soliciting consents of Participants in the Registrant and other public limited liability companies supervised by the Supervisor to a proposed Consolidation (as defined below) pursuant to a prospectus/consent solicitation statement included in a registration statement on Form S-4 declared effective by the Securities and Exchange Commission. In the proposed transaction (the “Consolidation”), (x) the property interests of the Registrant, such other public limited liability companies and certain private entities supervised by the Supervisor, and (y) the Supervisor and certain affiliated management companies would be contributed to the operating partnership of Empire State Realty Trust, Inc., a newly organized real estate investment trust.

Consents are required from Participants in the Registrant and such other public limited liability companies for them to contribute their interests in the Consolidation. Consents have been obtained from participants in the private entities and the Supervisor and certain affiliated companies and affiliates of the Supervisor for them to make such contributions. The consideration to be paid to the contributing companies and entities in the Consolidation will be allocated in accordance with exchange values determined based on appraisals by an independent third party.

Item 2. Property.

As stated in Item 1 hereof, Registrant owns the building known as 250 West 57th Street (the “Building”), formerly known as the Fisk Building, and the land thereunder located at 250-264 West 57th Street, New York, New York. Registrant’s fee title to the Property is encumbered by the First and Second Mortgages and the line of credit which, at December 31, 2012, had unpaid principal balances in the aggregate of $52,900,635. For a description of the terms of the mortgages, see Note 3 of the Notes to the Financial Statements.

The Building, erected in 1921 and containing 26 floors, occupies the entire block front on the south side of West 57th Street between Broadway and Eighth Avenue, New York, New York. The Building has ten passenger and three freight elevators and is equipped with a combination of central and individual window unit air-conditioning.

The Building is leased to Lessee under the Lease. See Item 1 hereof and Note 4 of the Notes to the Financial Statements for additional information concerning the Lease.

A majority of the Building’s tenants are engaged in the entertainment business, insurance business, publishing, and the practice of law, accounting and dentistry. In addition, there are several commercial tenants located on the street level of the Building, including a restaurant and several retail stores.

Item 3. Legal Proceedings.

The Property of Registrant was the subject of the following material litigation:

Malkin Holdings and Peter L. Malkin, a member in Registrant, were engaged in a proceeding with Lessee’s former managing agent, Helmsley-Spear, Inc., commenced in 1997, concerning the management, leasing, and supervision of the Property that is subject to the Lease to Lessee. In this connection, certain costs for legal and professional fees and other expenses were paid by Malkin Holdings and Mr. Malkin. Malkin Holdings and Mr. Malkin have represented that such costs will be recovered only to the extent that (a) a competent tribunal authorizes payment or (b) an investor voluntarily agrees that his or her proportionate share be paid. On behalf of himself and Malkin Holdings, Mr. Malkin has requested, or intends to request, such voluntary agreement from all investors, which may include renewing such request in the future for any investor who previously received such request and failed to confirm agreement at that time. Because any related payment has been, or will be, made only by consenting investors, Registrant has not provided for the expense and related liability with respect to such costs in these financial statements.

In March 2012, five putative class actions, or the Class Actions, were filed in New York State Supreme Court, New York County by Participants in Empire State Building Associates L.L.C. (“ESBA”) and several other entities supervised by the Supervisor (on March 1, 2012, March 7, 2012, March 12, 2012, March 14, 2012 and March 19, 2012). The plaintiffs assert claims against Malkin Holdings LLC, Malkin Properties, L.L.C., Malkin Properties of New York, L.L.C., Malkin Properties of Connecticut, Inc., Malkin Construction Corp., Anthony E. Malkin, Peter L. Malkin, the Helmsley estate, the operating partnership and the company for breach of fiduciary duty, unjust enrichment, and/or aiding and abetting breach of fiduciary duty. They allege, among other things, that the terms of the transaction and the process by which it was structured (including the valuation that was employed) are unfair to the participants, the consolidation provides excessive benefits to the Malkin Holdings group and the then-draft prospectus/consent solicitation filed with the SEC failed to make adequate disclosure to permit a fully informed decision about the proposed transaction. The complaints seek money damages and injunctive relief preventing the proposed transaction. The actions were consolidated and co-lead plaintiffs’ counsel were appointed by the New York State Supreme Court by order dated June 26, 2012. Furthermore, an underlying premise of the Class Actions, as noted in discussions among plaintiffs’ counsel and defendants’ counsel, was that the consolidation had been structured in such a manner that would cause the subject LLC participants immediately to incur substantial tax liabilities.

The parties entered into a Stipulation of Settlement dated September 28, 2012, resolving the Class Actions. The Stipulation of Settlement recites that the consolidation was approved by overwhelming consent of the participants in the private entities. The Stipulation of Settlement states that counsel for the plaintiff class satisfied themselves that they have received adequate access to relevant information, including the independent valuer’s valuation process and methodology, that the disclosures in the Registration Statement on Form S-4, as amended, are appropriate, that the transaction presents potential benefits, including the opportunity for liquidity and capital appreciation, that merit the participants’ serious consideration and that each of named class representatives intends to support the transaction as modified. The Stipulation of Settlement further states that counsel for the plaintiff class are satisfied that the claims regarding tax implications, enhanced disclosures, appraisals and exchange values of the properties that would be consolidated into the company, and the interests of the participants in the subject LLCs and the private entities, have been addressed adequately, and they have concluded that the settlement pursuant to the Stipulation of Settlement and opportunity to consider the proposed transaction on the basis of revised consent solicitations are fair, reasonable, adequate and in the best interests of the plaintiff class.

The defendants in the Stipulation of Settlement denied that they committed any violation of law or breached any of their duties and did not admit that they had any liability to the plaintiffs.

The terms of the settlement include, among other things (i) a payment of $55 million, with a minimum of 80% in cash and maximum of 20% in freely-tradable shares of common stock and/or freely-tradable operating partnership units (all of which will be paid by the Malkin Holdings group (provided that no member of the Malkin Holdings group that would become a direct or indirect subsidiary of the company in the consolidation will have any liability for such payment) and the Helmsley estate and certain participants in the private entities who agree to contribute) to be distributed, after reimbursement of plaintiffs’ counsel’s court-approved expenses and payment of plaintiffs’ counsel’s court-approved attorneys’ fees and, in the case of shares of common stock and/or operating partnership units, after the termination of specified lock-up periods, to participants in the subject LLCs and the private entities pursuant to a plan of allocation to be prepared by counsel for plaintiffs; (ii) defendants’ agreement that (a) the IPO will be on the basis of a firm commitment underwriting; (b) if, during the solicitation period, any of the three subject LLC’s percentage of total exchange value is lower than what is stated in the final prospectus/consent solicitation by 10% or more, such decrease will be promptly disclosed by defendants to investors in the subject LLCs; and (c) unless total gross proceeds of $600,000,000 are raised in the IPO, defendants will not proceed with the transaction without further approval of the subject LLCs; and (iii) defendants’ agreement to make additional disclosures in the prospectus/consent solicitation regarding certain matters (which are included therein). Defendants have also acknowledged the work of plaintiffs and their counsel was a material factor in defendants’ implementation of the change in the consolidation that, as originally proposed, would have required the exchange of participation interests for Class A common stock, which are taxable on receipt, and that now permits participants instead to elect to receive operating partnership units and Class B common stock, which permit tax deferral. Participants in the subject LLCs and private entities will not be required to bear any portion of the settlement payment. The payment in settlement of the Class Actions will be made by the Helmsley estate and the Malkin Holdings group (provided that no member of the Malkin Holdings group that would become a direct or indirect subsidiary of the company in the consolidation will have any liability for such payment) and certain participants in the private entities who agree to contribute. The company and the operating partnership will not bear any of the settlement payment.

The settlement further provides for the certification of a class of participants in the three subject LLCs and all of the private entities, other than defendants and other related persons and entities, and a release of any claims of the members of the class against defendants and related persons and entities, as well as underwriters and other advisors. The release in the settlement excludes certain claims, including but not limited to, claims arising from or related to any supplement to the Registration Statement on Form S-4 that is declared effective to which the plaintiffs’ counsel objects in writing, which objection will not be unreasonably made or delayed, so long as plaintiffs’ counsel has had adequate opportunity to review such supplement. Members of the putative class have the right to opt out of the monetary portion of the settlement, but not the portion providing for equitable relief. The settlement is subject to court approval. It is not effective until such court approval is final, including the resolution of any appeal. Defendants continue to deny any wrongdoing or liability in connection with the allegations in the Class Actions.

On January 18, 2013, the parties jointly moved for preliminary approval of such settlement, for permission to send notice of the settlement to the class, and for the scheduling of a final settlement hearing (collectively, “preliminary approval”).

On January 28, 2013, six participants in ESBA filed an objection to preliminary approval, and cross-moved to intervene in the action and for permission to file a separate complaint on behalf of ESBA participants. On February 21, 2013 the court denied the cross motion of such objecting participants, and the court denied permission for such objecting participants to file a separate complaint as part of the class action, other than permission to join the case by separate counsel solely for the purpose of supporting the allegation of the objecting participants that the buyout will deprive non-consenting participants in ESBA of “fair value” in violation of the New York Limited Liability Company Law. The court rejected the objecting participants’ assertion that preliminary approval be denied and granted preliminary approval of the settlement.

The court has scheduled a hearing on a motion for final approval of the settlement for May 2, 2013.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities.

Registrant was a joint venture pursuant to an agreement entered into among various individuals dated May 1, 1954. As of November 30, 2001, Registrant is a limited liability company.

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 member interests of the Members in Registrant (each, individually, a “Participation” and, collectively, “Participations”) and are not shares of common stock or their equivalent. The Participations represent each Participant’s fractional share in a Member’s undivided interest in Registrant and are divided approximately equally among the Members. Each unit of the Participations was originally offered 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 are neither 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 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 was advised of 35 transfers of Participations during 2012. In one instance, the indicated purchase price was equal to 5.6 times the face amount of the Participation transferred. In all other cases, no consideration was indicated.

(b) As of December 31, 2012, there were 640 holders of Participations of record.

(c) During the years ended December 31, 2012 and 2011, Registrant made regular monthly distributions of $83.33 for each $5,000 Participation ($1,000 per annum for each $5,000 Participation). On December 12, 2012 and December 14, 2011, Registrant made additional distributions for each $5,000 Participation of $2,569 and $3,559, respectively. Such distributions represented the balance of Secondary Overage Rent paid by Lessee subsequent to September 30, 2012 and 2011, in accordance with the terms of the Lease after deducting the required Additional Payment to Supervisor, professional fees, annual New York State filing fees and general contingencies. There are no restrictions on Registrant’s present or future ability to make distributions; however, the amount of such distributions depends on the ability of Lessee to make payments of Basic Rent, Primary Overage Rent and Secondary Overage Rent to Registrant in accordance with the terms of the Lease (see Item 1 hereof). Registrant expects to make distributions so long as it receives the payments provided for under the Lease. See Item 7 hereof.

Item 6. Selected Financial Data.

The following table presents selected financial data (inclusive of the correction discussed in Item 7) of the Registrant for each of the five years in the period ended December 31, 2012. This information is unaudited and has been derived from the audited financial statements included in this Annual Report on Form 10-K or from audited financial statements included in Annual Reports on Form 10-K previously filed by the Registrant. This data should be read together with the financial statements and the notes thereto included in this Annual Report on Form 10-K.


	Year ended December 31,
	2012		2011		2010		2009		2008
Basic annual rent income	$	3,534,344	$	3,288,666	$	3,271,513	$	3,168,449	$	2,730,283
Primary overage rent income		752,000		752,000		752,000		752,000		752,000
Secondary overage rent income		3,558,414		4,350,339		5,081,285		4,780,515		2,957,049
Interest and dividend income		1,530		917		772		6,329		80,760
Miscellaneous income		—		—		—		—		962

Total revenue	$	7,846,288	$	8,391,922	$	9,105,570	$	8,707,293	$	6,521,054

Net income	$	1,967,456	$	3,287,105	$	4,666,313	$	4,605,666	$	2,902,949

Earnings per $5,000 participation unit, based on 720 participation units outstanding during each year	$	2,733	$	4,807	$	6,481	$	6,397	$	4,032

Total assets	$	51,623,961	$	44,086,538	$	39,715,994	$	38,159,841	$	36,746,379

Long-term obligations	$	52,900,635	$	44,935,520	$	40,914,878	$	41,841,700	$	39,672,417

Distributions per $5,000 participation unit, based on 720 participation units outstanding during each year:
Income	$	2,733	$	4,559	$	6,411	$	6,397	$	4,032
Return of capital		836		—		—		412		760

Total distributions	$	3,569	$	4,559	$	6,411	$	6,809	$	4,792

Item 6a.

The following table presents the Registrant’s unaudited operating results (inclusive of the correction discussed in Item 7) for each of the eight fiscal quarters in the period ended December 31, 2012. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited financial statements included in this Annual Report on From 10-K. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have been included to present fairly the unaudited quarterly results. This data should be read together with the financial statements and the notes thereto of the Registrant included in this Annual Report on Form 10-K.


	Three Months Ended
	March 31, 2012			June 30, 2012			September 30, 2012		December 31, 2012
Statement of Income Data:
Basic annual rent income	$	866,236		$	866,237		$	866,936	$	934,935
Advance of primary overage rent income		188,000			188,000			188,000		188,000
Secondary overage rent income		—			—			3,558,414		—
Interest and dividend income		185			164			151		1,030

Total revenue		1,054,421			1,054,401			4,613,501		1,123,965

Interest on mortgages		683,934			680,400			677,516		741,884
Supervisory services		31,425			31,426			31,797		237,353
Depreciation of building and tenant improvements		400,510			438,025			451,047		537,428
Amortization of leasing commissions		54,281			56,786			75,083		70,281
Professional fees		53,774			49,229			188,824		212,589
Formation transaction expenses		14,346			24,491			56,738		37,537
Miscellaneous		3,000			14,168			8,366		16,594

Total expenses		1,241,270			1,294,525			1,489,371		1,853,666

Net income (loss)	$	(186,849	)	$	(240,124	)	$	3,124,130	$	(729,701	)

Earnings (loss) per $5,000 participation unit, based on 720 participation units outstanding during each period	$	(260	)	$	(334	)	$	4,339	$	(1,013	)


	Three Months Ended
	March 31, 2011			June 30, 2011			September 30, 2011		December 31, 2011
Statement of Income Data:
Basic annual rent income	$	817,667		$	817,836		$	818,005	$	835,158
Advance of primary overage rent income		188,000			188,000			188,000		188,000
Secondary overage rent income		—			—			4,350,339		—
Interest and dividend income		251			235			214		217

Total revenue		1,005,918			1,006,071			5,356,558		1,023,375

Interest on mortgages		649,023			645,848			642,626		656,342
Supervisory services		30,500			30,500			316,170		31,425
Depreciation of building and tenant improvements		365,504			367,610			379,159		389,941
Amortization of leasing commissions		50,694			46,043			46,247		48,654
Formation transaction expenses		12,829			26,999			41,589		92,818
Professional fees		29,833			30,850			72,395		91,833
Miscellaneous		3,150			—			—		6,235

Total expenses		1,141,533			1,147,850			1,498,186		1,317,248

Net income (loss)	$	(135,615	)	$	(141,779	)	$	3,858,372	$	(293,873	)

Earnings (loss) per $5,000 participation unit, based on 720 participation units outstanding during each period	$	(188	)	$	(197	)	$	5,359	$	(408	)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Forward-Looking Statements

Readers of this discussion are advised that the discussion should be read in conjunction with the financial statements of Registrant (including related notes thereto) appearing elsewhere in this Annual Report on Form 10-K. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Registrant’s current expectations regarding future results of operations, economic performance, financial condition and achievements of Registrant, and do not relate strictly to historical or current facts. Registrant has tried, wherever possible, to identify these forward-looking statements by using words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” or words of similar meaning.

Although Registrant believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those anticipated in the forward looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents and the availability of financing; adverse changes in Registrant’s real estate market, including, among other things, competition with other real estate owners, risks of real estate development and acquisitions; governmental actions and initiatives; and environmental/safety requirements.

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The Securities and Exchange Commission (“SEC”) issued disclosure guidance for “Critical Accounting Policies.” The SEC defines Critical Accounting guidance for Critical Accounting Policies as those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Registrant’s discussion and analysis of its financial condition and results of operations are based upon Registrant financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used and outlined in Note 2 to Registrant’s financial statements, which are presented elsewhere in this annual report on Form 10-K, have been applied consistently at December 31, 2012 and 2011, and for the years ended December 31, 2012 and 2011. Registrant believes that the following accounting policies or estimates require the application of management’s most difficult, subjective, or complex judgments:

Valuation of Long-Lived Assets: Registrant assesses the carrying amount of long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When Registrant determines that the carrying amount of long-lived assets is impaired, the measurement of any impairment is based on a discounted cash flow method.

Revenue Recognition: Basic rental income, as defined in the Lease, is equal to the sum of the mortgage charges plus a fixed amount. Registrant records basic rental income as earned ratably on a monthly basis. Primary Overage Rent represents the operating profit, as defined, of the Lessee for the previous lease year up to a specified maximum (currently $752,000 a year) and is recorded ratably over the 12-month period. Secondary Overage Rent is based on the net profits of the Lessee in each lease year, as defined, and is recorded by Registrant when earned at the close of the lease year ending September 30th and is recorded as revenue during the three months ended September 30th.

Financial Condition and Results of Operations

Registrant was organized solely for the purpose of owning the Property described in Item 2 hereof subject to a net operating lease of the Property held by Lessee. Registrant is required to pay, from Basic Rent under the Lease, the charges on the First and Second mortgages and the line of credit and amounts for supervisory services. Registrant is required to pay from Primary Overage Rent and Secondary Overage Rent the Additional Payment to Supervisor, other expenses and then to distribute the balance of such Overage Rent less any additions to reserves to the Participants. Pursuant to the Lease, Lessee has assumed responsibility for the condition, operation, repair, maintenance and management of the Property. Accordingly, Registrant need not maintain substantial reserves or otherwise maintain liquid assets to defray any operating expenses of the Property.

The basic supervisory services provided to Registrant by Supervisor include, but are not limited to, maintaining all of its entity and Participant records, performing physical inspections of the Building, providing or coordinating certain counsel services to Registrant, reviewing insurance coverage, conducting annual supervisory review meetings, receipt of monthly rent from Lessee, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, active review of financial statements submitted to Registrant by Lessee and financial statements audited by and tax information prepared by Registrant’s independent registered public accounting firm, and distribution of related materials to the Participants. Supervisor also prepares quarterly, annual and other periodic filings with the SEC and applicable state authorities.

Registrant pays Supervisor for other services at hourly rates.

Registrant’s results of operations are affected primarily by the amount of rent payable to it under the Lease. The amounts of Primary Overage Rent and Secondary Overage Rent are affected by the New York City economy and real estate rental market, which is difficult for management to forecast.

The following summarizes the material factors for the current year affecting Registrant’s results of operations:

(a)

Total revenues decreased by $545,634 for the year ended December 31, 2012, as compared with the year ended December 31, 2011. Such decrease was the net result of 1) a decrease of $791,924 in Secondary Overage Rent received by Registrant mainly attributable to an increase in Lessee’s operating expenses including improvements and tenanting costs, offset by 2) an increase in Basic Rent of $245,678 to cover an increase in debt service as a result of $5,000,000 drawn on December 22, 2011 and $9,000,000 drawn on November 7, 2012—to fund improvements and tenanting costs—on the Signature Bank line of credit that increased the loan balance, and 3) an increase in dividend income of $612. See Note 4 of the Notes to the Financial Statements.

(b)

Total expenses increased by $774,015 for the year ended December 31, 2012 as compared with the year ended December 31, 2011. Such increase was the net result of 1) a net increase in interest on the mortgages payable of $189,895, consisting of an increase of $266,694 due to the $14,000,000 aggregate increase of the Signature Bank line of credit (increase of $5,000,000 on December 22, 2011 and $9,000,000 on November 7, 2012), and a decrease of $76,799 on the Prudential First Mortgage and Second Mortgage attributable to a reduction in the loan balance due to principal amortization, 2) a net decrease in supervisory fees of $76,595, consisting of a cost of living increase of $2,594 in the basic supervisory fee and a decrease in the Additional Payment of $79,189 due to a decrease in the distribution of overage rent to Participants, 3) an increase of $324,797 in depreciation of building and tenanting improvements attributable to improvements placed in service in 2012 and a full year of depreciation on improvements placed in service in 2011, 4) an increase in amortization of leasing costs of $64,792 due to leasing costs incurred in 2012 and a full year amortization for costs incurred in 2011, 5) an increase in professional fees of $279,356 including (i) an increase in fees to Malkin Holdings and legal and accounting fees for services rendered in connection with the Consolidation and IPO, and (ii) an increase in consulting fees for the design and implementation of a new accounting system, 6) a decrease in formation transaction expenses of $41,123 attributable to a reduction in ancillary legal fees and valuation fees, and 7) an increase in miscellaneous expenses of $32,893 attributable to an increase in filing fees and to officers and directors insurance which commenced in 2012. For formation transaction expenses, our prior period financial results have been adjusted to reflect an immaterial correction. During fiscal year 2012, we determined that certain costs related to the structuring of the formation transaction that were previously included in deferred offering costs should have been expensed in the prior periods. The correction resulted immaterial changes to deferred costs and the formation transaction expenses in the periods incurred.

Subsequent Events

Subsequent events have been evaluated for potential recognition and disclosure.

Liquidity and Capital Resources

Registrant’s liquidity has not changed significantly at December 31, 2012, as compared to December 31, 2011. An additional $9,000,000 drawn on the Signature Bank loan November 7, 2012 was used for improvements and tenanting costs. Registrant may from time to time set aside cash for general contingencies. Recent adverse developments in economic, credit and investment markets over the last several years impaired general liquidity (although some improvement in such markets has arisen recently), and the developments may negatively impact Registrant and/or space tenants at the Building. Any such impact should be ameliorated by the fact that (a) each of Registrant and its Lessee has very low debt in relation to asset value, (b) the maturity of Registrant’s existing and planned debt will not occur within the next 24 months, and (c) the Building’s rental revenue is derived from a substantial number of tenants in diverse businesses with lease termination dates spread over numerous years.

Amortization payments due under the First Mortgage commenced February 5, 2007, calculated on a 25-year amortization schedule. Amortization payments under the Second Mortgage commenced April 5, 2009, calculated on a 25-year amortization schedule. The First and the Second Mortgages mature on January 5, 2015. The line of credit requires payment of interest only and also matures on January 5, 2015. Registrant does not maintain any reserve to cover the payment of such mortgage indebtedness at maturity. Therefore, repayment of mortgage debt will depend on Registrant’s ability to arrange a refinancing. Assuming that the Property continues to generate an annual net profit in future years comparable to that in past years, and assuming further that real estate capital and operating markets return to more stable patterns, consistent with long-term historical real estate trends in the geographic area in which the Property is located, Registrant anticipates that the value of the Property will be in excess of the amount of the senior mortgage debt and the line of credit balances at maturity.

Registrant anticipates that funds for short-term working capital requirements for the Property will be provided by cash on hand, approximately $6,000,000 available to be drawn on the line of credit from Signature Bank, and rental payments received from the Lessee. Long-term sources of working capital will be provided by rental payments received from the Lessee and/or external financing. However, as noted above, Registrant has no requirement to maintain substantial reserves to defray any operating expenses of the Property.

Fair Value Measurements

Fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Financial Accounting Standards Board guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).

The Registrant uses the following methods and assumptions in estimating fair value disclosures for financial instruments.

Cash and cash equivalents, due from Supervisor, a related party, accrued mortgage interest, accrued supervisory fees, a related party, payable to Lessee, a related party, due to Supervisor, a related party, and accrued expenses: The carrying amount of cash and cash equivalents, due from Supervisor, a related party, accrued mortgage interest, accrued supervisory fees, a related party, payable to Lessee, a related party, due to Supervisor, a related party, and accrued expenses reported in the Registrant’s Balance Sheets approximate fair value due to the short term maturity of these instruments.

Mortgages payable: The fair value of borrowings, as disclosed in Item 1(c), is estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made to us.

The methodologies used for valuing financial instruments have been categorized into three broad levels as follows:

Level 1—Quoted prices in active markets for identical instruments.

Level 2—Valuations based principally on other observable market parameters, including:

•

Quoted prices in active markets for similar instruments;

•

Quoted prices in less active or inactive markets for identical or similar instruments;

•

Other observable inputs (such as risk free interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates); and

•

Market corroborated inputs (derived principally from or corroborated by observable market data).

Level 3—Valuations based significantly on unobservable inputs.

•

Valuations based on third-party indications (broker quotes or counterparty quotes) which were, in turn, based significantly on unobservable inputs or were otherwise not supportable as Level 2 valuations.

•

Valuations based on internal models with significant unobservable inputs.

These levels form a hierarchy. The Registrant follows this hierarchy for our financial instruments measured at fair value on a recurring and nonrecurring basis and other required fair value disclosures. The classifications are based on the lowest level of input that is significant to the fair value measurement.

Fair Value of Financial Instruments

The following disclosures of estimated fair value were determined by management, using available market information and appropriate valuation methodologies as discussed in Fair Value Measurements. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The mortgages payable had an estimated fair value based on discounted cash flow models, based on Level 3 inputs, of approximately $55,478,595, compared to the book value of the related debt of $52,900,635 at December 31, 2012.

Disclosure about fair value of financial instruments is based on pertinent information available to us as of December 31, 2012. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Offering Costs and Formation Transaction Expenses

In connection with the Consolidation and IPO the Registrant has incurred or will incur incremental accounting fees, legal fees and other professional fees. Such costs will be deferred and recorded as a reduction of proceeds of the Consolidation and IPO, or expensed if the Consolidation and IPO is not consummated. Certain costs associated with the Consolidation and IPO not directly attributable to the solicitation of consents and the IPO, but rather related to structuring the formation transaction, are expensed as incurred.

Through December 31, 2012 the Registrant has incurred external offering costs of $1,752,344, of which the Registrant has incurred $962,325 and $636,883 for the years ended December 31, 2012 and 2011, respectively, and are reflected as deferred costs on the Balance Sheets. A total of $621,233 and $127,671 of these costs are in Due to Supervisor at December 31, 2012 and December 31, 2011, respectively. Additional offering costs for work done by employees of the Supervisor of $151,070 and $109,560 for the year ended December 31, 2012 and 2011, respectively, were incurred and advanced by the Supervisor and have or will be reimbursed to the Supervisor by the Registrant.

Correction of an Immaterial Error in the Financial Statements

The Registrant’s prior period financial results have been adjusted to reflect an immaterial correction which has no impact to the net change in cash reported on the statement of cash flows. During fiscal year 2012, the Registrant determined that certain costs related to the structuring of the formation transaction that were previously included in deferred offering costs should have been expensed in the periods incurred. The correction impacted the 2011 and 2010 periods and had accumulated to an amount of $213,500 as of December 31, 2011. Adhering to applicable guidance for accounting changes and error corrections, the Registrant concluded that the error was not material to any of its prior period financial statements. The correction resulted in immaterial changes to deferred costs and formation transaction expenses for the years ended December 31, 2011 and 2010. the Registrant applied the guidance for accounting changes and error corrections and revised its prior period financial statements presented.

The following tables present the effect this correction had on the Registrant prior period reported financial statements. Additionally, financial information included in the notes to the financial statements or elsewhere in this Form 10-K that is impacted by the adjustment have been revised, as applicable.


	As of December 31, 2011
	As reported			Adjustment			As adjusted
Deferred costs, net	$	1,003,519		$	(213,500	)	$	790,019
Members’ deficiency		(4,642,480	)		(213,500	)		(4,855,980	)

	For the year ended December 31, 2011
	As reported			Adjustment			As adjusted
Formation transaction expenses		—		$	174,235		$	174,235
Net income		3,461,340			(174,235	)		3,287,105
Net cash provided by operating activities		5,525,900			(174,235	)		5,351,665
Net cash (used) provided by financing activities		(73,180	)		174,235			101,055
Net change in cash and cash equivalents		811,872			—			811,872

Inflation

Inflationary trends in the economy do not directly affect Registrant’s operations since Registrant does not actively engage in the operation of the Property. Inflation may impact the operations of Lessee. Lessee is required to pay Basic Rent, regardless of the results of its operations. Inflation and other operating factors affect the amount of Primary and Secondary Overage Rent payable by Lessee, which is based on Lessee’s net operating profit.

Item 8. Financial Statements and Supplementary Data.

The financial statements of the Registrant as of December 31, 2012 and 2011, and for each of the two years in the period ended December 31, 2012, and the financial statements of the Lessee as of and for the year ended December 31, 2012, are included in this annual report immediately following Exhibit 101.PRE.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9a. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. The Supervisor, after evaluating the effectiveness of Registrant’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of December 31, 2012, the end of the period covered by this report, has concluded that as of that date Registrant’s disclosure controls and procedures were effective and designed to ensure that material information relating to Registrant would be made known to him by others within those entities on a timely basis.

(b) Changes in internal controls over financial reporting. There were no changes in Registrant’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal controls over financial reporting.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Registrant’s Supervisor is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934).

Registrant’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with U.S. generally accepted accounting principles. Registrant’s internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Registrant’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that Registrant’s receipts and expenditures are being made only in accordance with authorizations of management and members; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Registrant’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision of and with the participation of the Supervisor, an assessment was conducted of the effectiveness of Registrant’s internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Registrant’s Supervisor has concluded that, as of December 31, 2012, Registrant’s internal control over financial reporting was effective.

PART III

Item 10. Members and Executive Officers of Registrant.

Registrant has no members or officers or any other centralization of management. There is no specific term of office for any Agent in Registrant. The table below sets forth as to each individual who served as an Agent in Registrant as of December 31, 2012, the following: name, age, nature of any family relationship with any other Agent, 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 an Agent in Registrant:

Name

Age

Nature of Family

Relationship

Business

Experience

Principal Occupation

and Employment

Date
Individual
Became
an Agent

Peter L. Malkin

Father of Anthony E. Malkin

Real Estate Supervision

Chairman, Malkin Holdings LLC

1982

Anthony E. Malkin

Son of Peter L. Malkin

Real Estate Supervision and Management

President, Malkin Holdings LLC and Malkin Properties, L.L.C.

1998

As stated in Item 1 hereof, the two Members who are acting as Agents for Participants hold senior positions at Supervisor. See Items 11, 12 and 13 hereof for a description of the services rendered by, and the compensation paid to, Supervisor and for a discussion of certain relationships that may pose actual or potential conflicts of interest among Registrant, Lessee and certain of their respective affiliates.

The names of entities that 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 Agents are also either a director, member or general partner are as follows:

Peter L. Malkin is a member in 60 East 42nd St. Associates L.L.C. and Empire State Building Associates L.L.C.

Anthony E. Malkin is a member in 60 East 42nd St. Associates L.L.C. and Empire State Building Associates L.L.C.

Item 11. Executive Compensation.

As stated in Item 10 hereof, Registrant has no members or officers or any other centralization of management.

Registrant’s organizational documents do not provide for a board of members or officers. As described in this annual Report on Form 10-K, Registrant is a limited liability company that is supervised by Malkin Holdings. No remuneration was paid during the fiscal year ended December 31, 2012, by Registrant to any of the Agents as such.

Registrant pays Supervisor, a related party, fees and and disbursements for supervisory and other services it provides to Registrant. Beneficial interests in Registrant are held directly or indirectly by one or more persons at Malkin Holdings and/or their family members.

The basic fee had been payable at the rate of $3,333 per month, since the fiscal year ended September 30, 1980. The basic fee was increased, with the approval of the Agents, by an amount equal to the increase in the Consumer Price Index since such date, resulting in an increase in the basic fee to $102,000 per annum effective July 1, 2010 to be adjusted annually for any subsequent increase in the Consumer Price Index. The basic fee was adjusted to $107,190 effective July 1, 2012. The fee is payable (i) not less than $2,333 per month, (ii) an additional $1,000 per month out of Primary Overage Rent payment and (iii) the balance out of available reserves from Secondary Overage Rent. Any deficiency in the portion of the fee payable from Primary or Secondary Overage Rent shall be payable out of Secondary Overage Rent in the next year in which Secondary Overage Rent is sufficient. The Agents also approved payment by Registrant, effective July 1, 2010, of the expenses in connection with regular accounting services related to maintenance of Registrant’s books and records. Such expenses were previously paid by Supervisor.

Registrant pays Supervisor an Additional Payment equal to 10% of all distributions to Participants in any year in excess of the amount representing a return to them at the rate 15% per annum on their remaining cash investment in Registrant (which remaining cash investment at December 31, 2012, was equal to the Participants’ original cash investment of $3,600,000). For tax purposes, such Additional Payment is recognized as a profits interest, and the Supervisor is treated as a partner, all without modifying each Participant’s distributive share of reportable income and cash distributions. For the year ended December 31, 2012, the Additional Payment was $225,556.

In 2012, Supervisor earned $151,070 from Registrant and $150,234 from Lessee, included in professional fees, for special supervisory services at hourly rates in connection with the Consolidation and IPO, all representing Registrant’s and Lessee’s allocable portion of such fees to be paid directly and not borne indirectly through Secondary Overage Rent deductions.

Registrant also pays Supervisor for other services at hourly rates.

Accrued supervisory fees, to a related party, were $0 and $20,000 at December 31, 2012 and 2011, respectively. Due to Supervisor, a related party, was $621,233 and $153,445 at December 31, 2012 and 2011, respectively.

Distributions are paid from a cash account held by Supervisor. That account is included in the condensed Balance Sheets as “Due from Supervisor.” The funds of $60,000 at December 31, 2012 and 2011 were paid to Participants on January 1, 2013 and January 1, 2012, respectively.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

(a) Registrant has no voting securities. See Item 5 hereof. At December 31, 2012, no person owned of record or was known by Registrant to own beneficially more than 5% of the outstanding Participations.

(b) At December 31, 2012, the Members (see Item 10 hereof) did not beneficially own, directly or indirectly, any Participations in Registrant.

At such date, certain of the Agents held Participations as follows:

Anthony E. Malkin owned of record as co-trustee an aggregate of $11,667 of Participations. He disclaims any beneficial ownership of such Participations.

Entities for the benefit of members of Peter L. Malkin’s family owned of record and beneficially $167,500 of Participations. Mr. Malkin disclaims any beneficial ownership of such Participations, except that trusts related to such entities are required to complete scheduled payments to Mr. Malkin.

Peter L. Malkin owned of record as co-trustee an aggregate of $17,500 of Participations. He disclaims any beneficial ownership of such Participations.

Item 13. Certain Relationships and Related Transactions.

(a) As stated in Item 1 hereof, each Member acts as Agent for his respective group of Participants. As a consequence of both Agents holding senior positions at Supervisor (which supervises Registrant and Lessee), 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 the Members 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 Participants’ behalf. Such transactions, among others, include modifications and extensions of the Lease or the Mortgage Loans, or a sale or other disposition of the Property or substantially all of Registrant’s other assets.

Reference is made to Items 1 and 2 hereof for a description of the terms of the Lease between Registrant and Lessee. The respective interest, if any, of the Members in Registrant and in Lessee arises solely from ownership of Participations in Registrant and Member interests or participations in Lessee. The Members as such receive no extra or special benefit not shared on a pro rata basis with all other Participants in Registrant or members in Lessee. However, all the Members hold senior positions at Supervisor and, by reason of their interests in Supervisor, may receive income attributable to supervisory or other remuneration paid by Registrant to Supervisor. See Item 11 hereof for a description of the remuneration arrangements between Registrant and Supervisor relating to supervisory services provided by Supervisor.

Reference is also made to Items 1 and 10 hereof for a description of the relationship between Registrant and Supervisor. The respective interest of each Member in any remuneration paid or given by Registrant to Supervisor arises solely from such Member’s interest in Supervisor.

(b)

Reference is made to Paragraph (a) above.

(c)

Not applicable.

(d)

Not applicable.

Item 14. Principal Accountant Fees and Services.

The fees paid or accrued to Ernst & Young LLP for professional services for the years ended December 31, 2012 and 2011, respectively, were as follows:


	2012		2011
Fee Category
Audit Fees	$	113,400	$	108,000
Tax Fees		—		—
	$	113,400	$	108,000

Audit Fees. Consist of fees billed for professional services rendered for the audit of Registrant’s financial statements and review of the interim financial statements included in quarterly reports.

Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and preparation of tax returns.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT SERVICES

AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

Registrant has no audit committee as such. Registrant’s policy is to pre-approve all audit and permissible non-audit services performed by the independent public accountants. These services may include audit services, audit-related services, tax services and other services. For audit and tax services, the independent auditor provides an engagement letter in advance of the services provided, outlining the scope of the audit and related audit fees. If agreed to by Registrant, this engagement letter is formally accepted by the Supervisor.

The Supervisor submits from time-to-time to the Agents of Registrant for approval services that it recommends the Registrant engage the independent auditor to provide for the fiscal year. In addition, the Agents of Registrant pre-approve specific non-audit services that the independent auditor may provide from time-to-time during the year. All fee proposals for those non-audit services must be approved in advance in writing by a senior executive of the Supervisor. The Agents of Registrant are informed routinely as to the non-audit services actually provided by the independent auditor pursuant to this pre-approval process.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

The financial statements and the financial statement schedule of the Registrant and the financial statements of the Lessee required in this annual report are listed in the respective indexes to those financial statements included immediately following Exhibit 101.PRE.


	(3)			Exhibits: See Exhibit Index.

EXHIBIT INDEX


Number		Document

3.1		Registrant’s Joint Venture Agreement, dated May 25, 1953, which was filed as Exhibit No. 3(a) to Registrant’s Registration Statement on Form S-1 (the “Registration Statement”), is incorporated by reference as an exhibit hereto.

3.2		Amended Business Certificate of Registrant filed with the Clerk of New York County on July 24, 1998, reflecting a change in the Partners of Registrant, which was filed as Exhibit 3(b) to Registrant’s Amended Quarterly Report on 10-Q for the period ended September 30, 1998 (file number 000-2666), and is incorporated by reference as an exhibit hereto.

3.3		Registrant’s Memorandum of Agreement among Joint Venturers in 250 West 57th St. Associates, dated June 9, 1953, filed as Exhibit 1 to the Registration Statement, is incorporated by reference as an exhibit hereto.

3.4		Registrant’s Consent and Operating Agreement dated as of November 30, 2001, incorporated by reference to Exhibit 3 (d) to Registrant’s Form 10-K for the year ended December 31, 2002 (file number 000-2666).

3.5		Certificate of Conversion of general partnership to a limited liability company dated November 30, 2001, filed with the New York Secretary of State on December 5, 2001 incorporated by reference to Exhibit 3 (e) to Registrant’s Form 10-K for the year ended December 31, 2002 (file number 000-2666).

3.6		Second Amendment to Registrant’s Operating Agreement as of July 1, 2010, which was filed under Item 10(g) of Registrant’s Form 10-Q for the fiscal period ended June 30, 2010, and is incorporated by reference as an exhibit hereto.

3.7		Amendment Number one to the Limited Liability Company Agreement of Registrant, dated as of November 30, 2011, by and among Peter L. Malkin and Anthony E. Malkin incorporated by reference to Exhibit 3.1 to the Form 8-K filed on December 5, 2011.

4		Registrant’s form of Participation Agreement dated September 30, 1953, which was filed as Exhibit No. 4(a) to the Registration Statement, is incorporated by reference as an exhibit hereto.

10.1		Lease between Registrant and Fisk Building Associates LLC dated September 30, 1957, which was filed as Exhibit No. 2(d) to the Registration Statement, is incorporated by reference as an exhibit hereto.

EXHIBIT INDEX

(continued)


Number		Document

10.2		First Modification Agreement of Lease dated June 12, 1961, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.2 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.3		Second Modification Agreement of Lease dated June 10, 1965, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.3 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.4		Third Modification Agreement of Lease dated May 1, 1975, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.4 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.5		Fourth Lease Modification Agreement dated November 12, 1985, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.5 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.6		Fifth Lease Modification Agreement dated September 1, 1999, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.6 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.7		Sixth Lease Modification Agreement dated November 17, 2000, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.7 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.8		Seventh Lease Modification Agreement dated December 28, 2004, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.8 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.9		Eighth Lease Modification Agreement dated May 25, 2006, between Registrant and Fisk Building Associates L.L.C., filed as Exhibit 10.9 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.10		Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement dated September 1, 2005, between Registrant and The Prudential Insurance Company of America, filed as Exhibit 10.10 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.11		First Amendment to Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement dated May 25, 2006, between Registrant and The Prudential Insurance Company of America, filed as Exhibit 10.11 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.12		Amended, Restated and Consolidated Mortgage Note dated September 1, 2005, made by Registrant to the order of The Prudential Insurance Company of America, filed as Exhibit 10.12 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

EXHIBIT INDEX

(continued)


Number		Document

10.13		First Amendment to Amended, Restated and Consolidated Mortgage Note dated May 25, 2006, between Registrant and The Prudential Insurance Company of America, filed as Exhibit 10.13 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.14		Second Priority Mortgage and Security Agreement dated May 25, 2006 between Registrant and The Prudential Insurance Company of America, filed as Exhibit 10.14 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.15		Mortgage Note Secured by Second Priority Mortgage dated May 25, 2006, made by Registrant to the order of The Prudential Insurance Company of America, filed as Exhibit 10.15 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.16		Subordinate Mortgage dated October 15, 2009, among Registrant, Signature Bank and Fisk Building Associates L.L.C., filed as Exhibit 10.16 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.17		Subordinate Mortgage Note dated October 15, 2009, made by Registrant to the order of Signature Bank, filed as Exhibit 10.17 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

10.18		Modification of Subordinate Mortgage Note, dated January 24, 2012 between Registrant and Signature Bank, filed as Exhibit 10.18 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2011, is incorporated by reference as an exhibit hereto.

24.1		Power of Attorney dated March 6, 2013 between Members in Registrant and Mark Labell which is being filed as Exhibit 24.1 to Registrant’s 10-K for the year ended December 31, 2012.

31.1		Certification of Andrew Prentice, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Mark Labell, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Andrew Prentice, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Mark Labell, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EXHIBIT INDEX

(continued)


Number		Document

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Members in Registrant, pursuant to a Power of Attorney, dated March 6, 2013 (the “Power”) and is supervisor of the accounting functions.


250 West 57th St. Associates L.L.C. (Registrant)

By:		/s/ Mark Labell
		Mark Labell as Senior Vice President, Finance of Malkin Holdings LLC, Supervisor of 250 West 57^th St. Associates* and as Attorney-in-Fact on behalf of:

Peter L. Malkin, Member

Anthony E. Malkin, Member

Date: March 28, 2013

Registrant’s organizational documents do not provide for a Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company that is supervised by Malkin Holdings LLC. Accordingly, this Form 10-K is being signed by a senior executive and a senior member of the financial/accounting staff of Registrant’s Supervisor in such capacities.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

250 West 57th St. Associates L.L.C.

(a Limited Liability Company)

We have audited the accompanying balance sheets of 250 West 57th St. Associates L.L.C. (the “Company”) as of December 31, 2012 and 2011 and the related statements of income, members’ deficiency and cash flows for each of the two years in the period ended December 31, 2012. Our audits also included the financial statement schedule, Schedule III-Real Estate and Accumulated Depreciation for the years ended December 31, 2012 and 2011, also included in 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 schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 250 West 57th St. Associates L.L.C. at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP

New York, New York

March 28, 2013

250 WEST 57th ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

BALANCE SHEETS


	December 31,
	2012			2011
Assets
Real Estate at 250-264 West 57th Street, New York, N.Y. :
Building	$	4,940,682		$	4,940,682
Less: Accumulated depreciation		(4,940,682	)		(4,940,682	)

		—			—

Building improvements		44,256,841			41,215,430
Less: Accumulated depreciation		(7,423,289	)		(6,334,722	)

		36,833,552			34,880,708

Tenant improvements		6,733,105			2,702,193
Less: Accumulated depreciation		(1,287,226	)		(548,783	)

		5,445,879			2,153,410

Land		2,117,435			2,117,435

Total real estate, net		44,396,866			39,151,553

Cash and cash equivalents:
Cash in banks		936,593			402,600
Fidelity U.S. treasury income portfolio		2,384,006			1,922,424

Total cash and cash equivalents		3,320,599			2,325,024

Due from Supervisor, a related party		60,000			60,000

Other assets		45,956			—

Deferred costs		1,752,344			790,019

Leasing commissions, less accumulated amortization of $996,614 and $740,183 in 2012 and 2011, respectively		1,400,573			795,274

Mortgage refinancing costs, less accumulated amortization of $1,580,197 and $1,263,152 in 2012 and 2011, respectively		647,623			964,668

Total assets	$	51,623,961		$	44,086,538

Liabilities and members’ deficiency
Liabilities:
Mortgage payable	$	52,900,635		$	44,935,520
Accrued mortgage interest		230,972			201,523
Payable to Lessee, a related party		3,322,181			3,576,129
Accrued supervisory fees, a related party		—			20,000
Accrued expenses		7,470			55,901
Due to Supervisor, a related party		621,233			153,445

Total liabilities		57,082,491			48,942,518

Commitments and contingencies		—			—
Members’ deficiency		(5,458,530	)		(4,855,980	)

Total liabilities and members’ deficiency	$	51,623,961		$	44,086,538

See accompanying notes to financial statements.

250 WEST 57th ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

STATEMENTS OF INCOME


	Years Ended December 31
	2012		2011
Revenue:
Rent income, from a related party	$	7,844,758	$	8,391,005
Interest and dividend income		1,530		917

Total revenue		7,846,288		8,391,922

Expenses:
Interest on mortgages		2,783,734		2,593,839
Supervisory services, to a related party		332,001		408,596
Depreciation of building and tenant improvements		1,827,010		1,502,213
Amortization of leasing commissions		256,431		191,639
Professional fees		504,416		225,060
Formation transaction expenses		133,112		174,235
Miscellaneous		42,128		9,235

Total expenses		5,878,832		5,104,817

Net income	$	1,967,456	$	3,287,105

Earnings per $5,000 participation unit, based on 720 participation units outstanding during each year	$	2,733	$	4,565

See accompanying notes to financial statements.

250 WEST 57th ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

STATEMENT OF MEMBERS’ DEFICIENCY


	Members’ Deficiency January 1, 2012			Share of Net Income for Year		Distributions			Members’ Deficiency December 31, 2012
Year ended December 31, 2012:
Anthony E. Malkin Joint Venture #1	$	(485,598	)	$	196,746	$	(257,001	)	$	(545,853	)
Anthony E. Malkin Joint Venture #2		(485,598	)		196,746		(257,001	)		(545,853	)
Anthony E. Malkin Joint Venture #3		(485,596	)		196,746		(257,001	)		(545,851	)
Anthony E. Malkin Joint Venture #4		(485,597	)		196,746		(257,001	)		(545,852	)
Peter L. Malkin Joint Venture #1		(485,595	)		196,746		(257,001	)		(545,850	)
Peter L. Malkin Joint Venture #2		(485,596	)		196,746		(257,001	)		(545,851	)
Peter L. Malkin Joint Venture #3		(485,598	)		196,745		(257,000	)		(545,853	)
Peter L. Malkin Joint Venture #4		(485,600	)		196,745		(257,000	)		(545,855	)
Peter L. Malkin Joint Venture #5		(485,600	)		196,745		(257,000	)		(545,855	)
Peter L. Malkin Joint Venture #6		(485,602	)		196,745		(257,000	)		(545,857	)

TOTALS	$	(4,855,980	)	$	1,967,456	$	(2,570,006	)	$	(5,458,530	)


	Members’ Deficiency January 1, 2011			Share of Net Income for Year		Distributions			Members’ Deficiency December 31, 2011
Year ended December 31, 2011:
Anthony E. Malkin Joint Venture #1	$	(486,038	)	$	328,711	$	(328,271	)	$	(485,598	)
Anthony E. Malkin Joint Venture #2		(486,038	)		328,711		(328,271	)		(485,598	)
Anthony E. Malkin Joint Venture #3		(486,036	)		328,711		(328,271	)		(485,596	)
Anthony E. Malkin Joint Venture #4		(486,037	)		328,711		(328,271	)		(485,597	)
Peter L. Malkin Joint Venture #1		(486,036	)		328,711		(328,270	)		(485,595	)
Peter L. Malkin Joint Venture #2		(486,036	)		328,710		(328,270	)		(485,596	)
Peter L. Malkin Joint Venture #3		(486,038	)		328,710		(328,270	)		(485,598	)
Peter L. Malkin Joint Venture #4		(486,040	)		328,710		(328,270	)		(485,600	)
Peter L. Malkin Joint Venture #5		(486,040	)		328,710		(328,270	)		(485,600	)
Peter L. Malkin Joint Venture #6		(486,042	)		328,710		(328,270	)		(485,602	)

TOTALS	$	(4,860,381	)	$	3,287,105	$	(3,282,704	)	$	(4,855,980	)

See accompanying notes to financial statements.

250 WEST 57th ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

STATEMENTS OF CASH FLOWS


	Years Ended December 31
	2012			2011
Cash flows from operating activities:
Net income	$	1,967,456		$	3,287,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of building and tenant improvements		1,827,010			1,502,213
Amortization of leasing commissions		256,431			191,639
Amortization of mortgage refinancing costs		317,045			317,045
Leasing commissions paid		(861,730	)		—
Changes in operating assets and liabilities:
Change in other assets		(45,956	)		—
Change in accrued mortgage interest		29,449			12,642
Change in accrued supervisory fees, related party		(20,000	)		(11,000	)
Change in accrued expenses		(31,447	)		(101,424	)
Change in due to Supervisor		80,610			153,445

Net cash provided by operating activities		3,518,868			5,351,665

Cash flows from investing activities:
Purchase of building and tenant improvements		(7,343,255	)		(4,640,848	)

Net cash used in investing activities		(7,343,255	)		(4,640,848	)

Cash flows from financing activities:
Proceeds from mortgages payable		9,000,000			5,000,000
Repayment of mortgages payable		(1,034,885	)		(979,358	)
Change in deferred costs		(575,147	)		(636,883	)
Distributions to participants		(2,570,006	)		(3,282,704	)

Net cash provided by financing activities		4,819,962			101,055

Net increase in cash and cash equivalents		995,575			811,872
Cash and cash equivalents, beginning of year		2,325,024			1,513,152

Cash and cash equivalents, end of year	$	3,320,599		$	2,325,024

Supplemental disclosure of cash flow information-
Cash paid for interest	$	2,437,240		$	2,264,153

Non-cash investing and financing activities:
Purchases of buildings and tenant improvements included in Payable to Lessee, a related party	$	3,322,181		$	3,576,129

Deferred costs included in Due to Supervisor	$	422,031		$	34,853

See accompanying notes to financial statements.

250 WEST 57th ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

Business Activity

250 West 57th St. Associates L.L.C. (“Associates”) is a New York limited liability company owning commercial property at 250 West 57th Street, New York, N.Y. The property is leased (the “Lease”) to Fisk Building Associates L.L.C. (the “Lessee”).

Associates’ members are Peter L. Malkin and Anthony E. Malkin each of whom also acts as an agent for holders of participations in his respective member interest in Associates (“Participants”). In the Statements of Members’ Deficiency, each such agent’s representation is referred to as a joint venture (i.e., six Peter L. Malkin joint ventures and four Anthony E. Malkin joint ventures).

The Supervisor of Associates is in the process of soliciting consents of Participants in the Registrant and other public limited liability companies supervised by the Supervisor to a proposed Consolidation (as defined below) pursuant to a prospectus/consent solicitation statement included in a registration statement on Form S-4 declared effective by the Securities and Exchange Commission. In the proposed transaction (the “Consolidation”), (x) the property interests of the Registrant, such other public limited liability companies and certain private entities supervised by the Supervisor, and (y) the Supervisor and certain affiliated management companies would be contributed to the operating partnership of Empire State Realty Trust, Inc., a newly organized real estate investment trust.

Consents are required from Participants in Associates and such other public limited liability companies for them to contribute their interests in the Consolidation. Consents have been obtained from participants in the private entities and the Supervisor and certain affiliated companies and affiliates of the Supervisor for them to make such contributions. The consideration to be paid to the contributing companies and entities in the Consolidation will be allocated in accordance with exchange values determined based on appraisals by an independent third party.

Summary of Significant Accounting Policies

Cash and Cash Equivalents:

Cash and cash equivalents include investments in money market funds and all highly liquid debt instruments with an original maturity of three months or less when acquired.

Use of Estimates:

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

The real estate industry has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, and unemployment levels. Changes in these economic conditions could affect the assumptions used by management in preparing the accompanying financial statements.

Land, Building, Building and Tenant Improvements, and Depreciation:

Land, building, building and tenant improvements are stated at cost. Building improvements are depreciated on the straight-line basis over their estimated useful life of 39 years. The tenant improvements are being depreciated over the terms of the individual tenant leases or the estimated useful life if shorter.

In connection with the building improvement program, which began in 1999 (Note 11), costs totaling $51,677,946 and $44,605,623 have been incurred through December 31, 2012 and 2011, respectively, for building and tenant improvements ($7,072,323 for 2012 and $4,758,981 for 2011).

Mortgage Refinancing Costs, Leasing Commissions and Amortization:

Mortgage refinancing costs are amortized ratably over the respective terms of the mortgages to which they relate and are included in mortgage interest expense.

Leasing commissions (incurred in connection with the building improvements program) represent reimbursements to the Lessee for commissions incurred for new tenants. They are being amortized over the terms of the individual tenant leases.

Revenue Recognition:

Basic rental income, as defined in the Lease, is equal to the sum of the mortgage charges plus a fixed amount. Associates records basic rental income as earned ratably on a monthly basis. Primary overage rent represents the operating profit, as defined, of the Lessee for the previous lease year ending September 30 up to a specified maximum amount and is recorded ratably over the 12-month period. Secondary overage rent is based on the net profits of the Lessee in each lease year and is recorded by Associates when such amounts become realizable and earned.

Valuation of Long-Lived Assets:

Associates assesses the carrying amount of long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When Associates determines that the carrying amount of long-lived assets is impaired, the measurement of any impairment is based on a discounted cash flow method. No impairment loss has been recorded in the years ended December 31, 2012 and 2011.

Income Taxes:

Associates is organized as a limited liability company and is taxed as a partnership for income tax purposes. Accordingly, Associates is not subject to federal and state income taxes and makes no provision for income taxes in its financial statements. Associates’ taxable income or loss is reportable by its members.

Associates has determined that there are no material uncertain tax positions that require recognition or disclosure in its financial statements.

Taxable years ended December 31, 2009 through 2012 are subject to IRS and other jurisdictions tax examinations.

At December 31, 2012 and 2011, the reported amounts of Associates’ aggregate net assets exceeded their tax bases by approximately $3,322,972 and $1,854,000, respectively.

Offering Costs

In connection with the proposed consolidation of certain properties and an initial public offering of the consolidated group (the “IPO”), Associates has incurred or will incur incremental accounting fees, legal fees and other professional fees. Such costs will be deferred and recorded as a reduction of proceeds of the IPO, or expensed as incurred if the IPO is not consummated. Certain costs associated with the IPO not directly attributable to the solicitation of consents and the IPO, but rather related to structuring the consolidation transaction, are expensed as incurred.

Through December 31, 2012, Associates has incurred external offering costs of $1,752,344, of which Associates incurred $962,325 and $636,883 for the year ended December 31, 2012 and 2011, respectively, and were reflected as deferred costs on Associates Condensed Balance Sheets. A total of $621,233 and $127,671 of these costs were in Due to Supervisor at December 31, 2012 and December 31, 2011, respectively. Additional offering costs for work done by employees of the Supervisor of $151,070 and $109,560 for the year ended December 31, 2012 and 2011, respectively, were incurred and advanced by the Supervisor and have or will be reimbursed to the Supervisor by Associates.

Correction of an Immaterial Error in the Financial Statements

Associates’ prior period financial results have been adjusted to reflect an immaterial correction which has no impact to the net change in cash reported on the statement of cash flows. During fiscal year 2012, Associates determined that certain costs related to the structuring of the consolidation transaction that were previously included in deferred offering costs should have been expensed in the periods incurred. The correction impacted the 2011 and 2010 periods and had accumulated to an amount of $213,500 as of December 31, 2011. Adhering to applicable guidance for accounting changes and error corrections, Associates concluded that the error was not material to any of its prior period financial statements. The correction resulted in immaterial changes to deferred costs and formation transaction expenses for the years ended December 31, 2011 and 2010. Associates applied the guidance for accounting changes and error corrections and revised our prior period financial statements presented in this prospectus/consent solicitation.

The following tables present the effect this correction had on the combined financial statements as of and for the year ended December 31, 2011. Additionally, financial information included in the notes to the financial statements that is impacted by the adjustment have been revised, as applicable.


	As of December 31, 2011
	As reported			Adjustment			As adjusted
Deferred costs, net	$	1,003,519		$	(213,500	)	$	790,019
Owners’ equity (deficit)		(4,642,480	)		(213,50	)		(4,855,980	)

	For the year ended December 31, 2011
	As reported			Adjustment			As adjusted
Formation transaction expenses	$	—		$	174,235		$	174,235
Net income		3,461,340			(174,235	)		3,287,105
Net cash provided by operating activities		5,525,900			(174,235	)		5,351,665
Net cash used in financing activities		(73,180	)		174,235			101,055
Net change in cash and cash equivalents		811,872			—			811,872

New Accounting Pronouncements

During May 2011, the FASB issued ASU 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP. This ASU provides guidance setting forth additional requirements relating to disclosures about fair value. The guidance was effective for Associates beginning with the first interim period in 2012. In accordance with the guidance, Associates was required to disclose the level in the fair value hierarchy in which each fair value lies that is disclosed but not used to measure an asset or liability on the balance sheet. The guidance also clarifies that the fair value of a non-financial asset is based on its highest and best use and requires disclosure if a non-financial asset is being used in a manner that is not its highest and best use. The adoption of ASU 2011-04 on January 1, 2012 did not have a material impact on Associates financial condition or results of operations.

Reclassification

For purposes of comparison, certain items shown in the 2011 consolidated financial statements have been reclassified to conform with the presentation used for 2012.

Mortgages Payable

On December 29, 2004, a first Mortgage (the “First Mortgage”) was placed on the property in the amount of $30,500,000 with Prudential Insurance Company of America. At closing, $3,000,000 was drawn, and the remaining $27,500,000 was drawn during 2005. These draws paid off the pre-existing first mortgage of $15,500,000 with Emigrant Savings Bank on September 1, 2005 and were used to finance capital improvements as needed. The initial draw of $3,000,000 and all subsequent draws required constant equal monthly payments of interest only at the rate of 5.33% per annum till January 5, 2007. Commencing February 5, 2007, Associates is required to repay the full $30,500,000 in equal monthly payments of $184,213 applied to interest and principal calculated on a 25-year amortization schedule. The balance of the First Mortgage is $26,441,949 at December 31, 2012 and $27,220,488 at December 31, 2011. The First Mortgage matures on January 5, 2015, when the principal balance will be $24,754,972. The First Mortgage may be prepaid at any time, in whole only, upon payment of a prepayment penalty based on a yield maintenance formula. There is no prepayment penalty if the mortgage is paid in full during the last 60 days of the term.

On May 25, 2006, a second mortgage (the “Second Mortgage”) was placed on the property in the amount of $12,410,000 with Prudential Insurance Company of America. At closing, $2,100,000 was drawn and $10,310,000 had been drawn as of March 5, 2009. The initial draw of $2,100,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 6.13% per annum until March 5, 2009. Commencing April 5, 2009, Associates is required to make monthly payments of $80,947 applied to interest and principal calculated on a 25-year amortization schedule. The balance of the Second Mortgage is $11,524,070 at December 31, 2012 and $11,780,416 at December 31, 2011. The Second Mortgage matures on January 5, 2015, when the principal balance will be $10,961,870. The Second Mortgage may be prepaid at any time, in whole only, upon payment of a prepayment penalty based on a yield maintenance formula. There is no prepayment penalty if the Second Mortgage is paid in full during the last 60 days of the term.

On October 15, 2009, Associates closed on a $21,000,000 line of credit (the “Line of Credit”) from Signature Bank secured by a mortgage on the property, subordinate to the existing First Mortgage and Second Mortgage debt held by Prudential Insurance Company of America in the original amount of $42,910,000, and to be used for capital improvements. At closing, $934,616 was drawn and the balance of the line of credit is $14,934,616 at December 31, 2012 and $5,934,616 at December 31, 2011. The loan requires payments of interest only and is co-terminus with the existing senior mortgage debt. Interest on the loan is at a floating rate of prime plus 1.0% with a floor of 6.50% per annum unless Associates elects to fix the rate on the floating rate balance, in minimum increments of $5,000,000, for the then-remaining loan term. Associates has two options to fix the then-floating rate balance. Such fixed rate shall be (a) 300 basis points over the Treasury Bill rate with a floor of 6.50% per annum or (b) if Associates then chooses to eliminate any loan prepayment penalty, 325 basis points over the Treasury Bill rate with a floor of 6.75% per annum.

The following is a schedule of principal payments on the mortgages in each of the three years subsequent to December 31, 2012, and thereafter:


Year ending December 31,
2013	$	1,093,545
2014		1,155,574
2015		50,651,516

Total	$	52,900,635

The real estate and all sublease rents are pledged as collateral for the First and Second Mortgage and the Line of Credit.

The estimated fair value of Associates’ mortgage payable, based on the available market information, was approximately $55,478,595 and $47,991,102 at December 31, 2012 and 2011, respectively. The fair values of our mortgages payable are based on discounted cash flow models using currently available market rates assuming the loans are outstanding through maturity and considering the loan to value ratios.

Fair Value Measurements

The Registrant uses the following methods and assumptions in estimating fair value disclosures for financial instruments.

The methodologies used for valuing financial instruments have been categorized into three broad levels as follows:

Level 1—Quoted prices in active markets for identical instruments.

Level 2—Valuations based principally on other observable market parameters, including:

•

Quoted prices in active markets for similar instruments;

•

Quoted prices in less active or inactive markets for identical or similar instruments;

•

Other observable inputs (such as risk free interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates); and

•

Market corroborated inputs (derived principally from or corroborated by observable market data).

Level 3—Valuations based significantly on unobservable inputs.

•

Valuations based on internal models with significant unobservable inputs.

Fair Value of Financial Instruments

Related-Party Transactions—Rent Income

All rent income is received by Associates from the Lessee, a related party.

Associates does not operate the property (Note 1). Associates leases the property to Fisk Building Associates L.L.C. (the Lessee) under a long-term net operating lease dated May 1, 1954. In 1985, the Participants in Associates consented to the Associates’ Agents granting Lessee four options to extend the Lease, in each case for an additional 25-year renewal period, the last expiring in 2103, all on the same terms as the original lease. The Agents intend to grant such options on behalf of Associates, subject to Lessee’s compliance with such consents. Such options have been granted by the Agents and exercised by Lessee as to (a) the first renewal period from October 1, 2003 through September 30, 2028, and (b) the second renewal period from October 1, 2028 through September 30, 2053. The Participants in Associates have consented to the granting of options to the Lessee to extend the lease for two additional 25-year renewal terms expiring in 2103. Under the Lease, effective May 1, 1975, between Associates and Lessee, basic annual rent (“Basic Rent”) was equal to mortgage principal and interest payments plus $28,000 for partial payment to Malkin Holdings LLC for supervisory services. The lease modification dated November 17, 2000, and as further modified, between Associates and Lessee provides that Basic Rent will be equal to the sum of $28,000 plus the installment payments for interest and amortization (not including any balloon payment due at maturity) currently payable on all mortgages.

Lessee is required to make a monthly payment to Associates, as an advance against primary overage rent (“Primary Overage Rent”), of an amount equal to its operating profit for its previous lease year ending September 30 in the maximum amount of $752,000 per annum. Lessee currently advances $752,000 each year, which is recorded in revenues in monthly installments of $62,667 and permits Associates to make regular monthly distributions at 20% per annum on the Participants’ remaining original cash investment (which remaining cash investment at December 31, 2012, was equal to the participants’ original cash investment of $3,600,000) and to pay $1,667 monthly to Supervisor as an advance of the additional payment (the “Additional Payment”).

Lessee is also required to make an annual payment to Associates of secondary overage rent (“Secondary Overage Rent”) subsequent to September 30 of the amount representing 50% of the excess of the net operating profit of the Lessee for the lease year ending September 30 over the Primary Overage Rent of $752,000, less the amount representing interest earned and retained by Associates on funds borrowed for the building improvement program described in Note 8. Associates recognizes Secondary Overage Rent when earned from the Lessee, at the close of the lease year ending September 30. Since it is not practical to estimate Secondary Overage Rent for the lease year ending on September 30, which would be allocable to the first nine months of the lease year until the Lessee, pursuant to the Lease, renders to Associates a report on the operation of the property. Associates recognizes Secondary Overage Rent when it is realized and earned from the Lessee at the close of the lease year ending September 30.

Rent income was comprised as follows:


	Year ended December 31,
	2012		2011
Basic annual rent	$	3,534,344	$	3,288,666

Primary Overage rent		752,000		752,000
Secondary Overage rent		3,558,414		4,350,339

Total Overage rent		4,310,414		5,102,339

Rent income	$	7,844,758	$	8,391,005

Secondary Overage Rent represents 50% of the excess of the Lessee’s net operating profit of $7,869,124 and $9,452,901 in 2012 and 2011, respectively, over $752,000 in each year, less $148 and $111 in 2012 and 2011, respectively, of dividends earned and retained by Associates on funds borrowed for the improvement program.

As a result of Associates, revenue recognition policy, rental income for the years ending December 31 includes basic rent and the advances of Primary Overage Rent received from October 1 to December 31, but does not include any portion of Secondary Overage Rent based on the Lessee’s operations during that period.

The Lessee may surrender the Lease at the end of any month, upon 60 days prior written notice; the liability of the Lessee will end on the effective date of such surrender.

The following is a schedule of future minimum rental income (assuming that the Lessee does not surrender the Lease):


Year Ending December 31,
2013	$	3,860,000
2014		3,860,000
2015		28,000	*
2016		28,000	*
2017		28,000	*
Thereafter		996,000	*

	$	8,800,000

Associates intends to refinance the existing mortgages which mature on January 5, 2015. In accordance with the November 2000 Lease Modification Agreement and subsequent modifications, basic rent will increase to include the required debt service on the refinanced mortgages. The above table does not reflect the additional basic rent that will result after January 2015 from the refinanced debt.

Real estate taxes incurred directly by the Lessee for the years ended December 31, 2012 and 2011 totaled $4,400,949 and $4,156,415, respectively.

Related Party Transactions—Supervisory and Other Services

Supervisory and other services are provided to Associates by Malkin Holdings LLC (“Malkin Holdings” or the “Supervisor”), a related party. Beneficial interests in Associates and Lessee are held directly or indirectly by one or more persons at Malkin Holdings and/or their family members.

Associates pays Supervisor for supervisory services and disbursements. The basic fee had been payable at the rate of $3,333 per month, since the fiscal year ended September 30, 1980. The Agents approved an increase in such fee in an amount equal to the increase in the Consumer Price Index since such date, resulting in an increase in the basic fee to $102,000 per annum effective July 1, 2010, to be adjusted annually for any subsequent increase in the Consumer Price Index. The basic fee was adjusted to $107,190 effective July 1, 2012. Fees for supervisory services were $332,001 and $408,596 for 2012 and 2011, respectively. For the years ended December 31, 2012 and 2011, Malkin Holdings earned $151,070 and $109,560, respectively, included in professional fees, for special supervisory services at hourly rates in connection with a proposed consolidation of Associates, other public and private entities supervised by Malkin Holdings, and Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed REIT, all representing Associates’ allocable portion of such fees to be paid directly and not borne indirectly through additional rent deductions. Malkin Holdings receives an additional payment equal to 10% of all distributions received by the participants in Associates in excess of 15% per annum on the original cash investment of $3,600,000. For tax purposes, such additional payment is recognized as a profits interest and the Supervisor is treated as a partner, all without modifying each participant’s distributive share of reportable income and cash distributions. Distributions in respect of Malkin Holdings’ profits interest totaled $225,556 and $304,745 for 2012 and 2011, respectively.

Malkin Holdings also serves as supervisor for the Lessee, for which it receives a basic annual fee of $102,000 effective January 1, 2010, to be adjusted annually for any subsequent increase in the Consumer Price Index. For the years ended December 31, 2012 and 2011, Malkin Holdings received $163,786 and $87,776, respectively, from the Lessee in other service fees. Malkin Holdings receives a payment from Lessee in respect of its profits interest equal to 10% of distributions in excess of $100,000 a year. Distributions in respect of Malkin Holdings’ profits interest from the Lessee totaled $162,959 and $412,960 for the years ended December 31, 2012 and 2011, respectively.

Under separate agreements to which Lessee is not a party, certain of Lessee’s participants pay Malkin Holdings and members of Peter L. Malkin’s immediate family a percentage of distributions above an annual threshold. These third-party payments (which totaled $116,436 and $407,529 to Malkin Holdings and such Malkin family members in 2012 and 2011, respectively) do not impose any obligation upon Lessee or affect its assets and liabilities.

Number of Participants

There were 640 and 629 participants in the various joint ventures as of December 31, 2012 and 2011, respectively.

Determination of Distributions to Participants

Distributions to participants during each year represent mainly the excess of rent income received over the mortgage requirements and cash expenses.

Distributions and Amount of Income per $5,000 Participation Unit

Distributions and amount of income per $5,000 participation unit during the years ended December 31, 2012 and 2011, based on 720 participation units outstanding during each year, consisted of the following:


	Year ended December 31,
	2012		2011
Income	$	2,733	$	4,559
Return of capital		836		—

Total distributions	$	3,569	$	4,559

10.

Concentration of Credit Risk

Associates maintains cash and cash equivalents in two banks and a money market fund (Fidelity U.S. Treasury Income Portfolio). Beginning January 1, 2013, non-interest bearing transaction accounts are no longer insured separately from depositors’ other accounts at the same FDIC Insured Depository Institution (“IDI”). Instead, non-interest bearing transaction accounts are added to any of a depositor’s other accounts in the applicable ownership category, and the aggregate balance will be insured up to at least the standard maximum deposit insurance amount of $250,000, per depositor, at each separately chartered IDI. Distributions are paid from a cash account held by Malkin Holdings. That account is included on the accompanying balance sheet as “Due from Supervisor.” The funds ($60,000 at December 31, 2011 and 2010) were paid to the participants on January 1, 2012 and 2011, respectively.

11.

Contingencies

Malkin Holdings and Peter L. Malkin, a member in Associates, were engaged in a proceeding with Lessee’s former managing agent, Helmsley-Spear, Inc. that commenced in 1997 concerning the management, leasing, and supervision of the property that is subject to the Lease to Lessee. In this connection, certain costs for legal and professional fees and other expenses were paid by Malkin Holdings and Mr. Malkin. Malkin Holdings and Mr. Malkin have represented that such costs will be recovered only to the extent that (a) a competent tribunal authorizes payment or (b) an investor voluntarily agrees that his or her proportionate share be paid. On behalf of himself and Malkin Holdings, Mr. Malkin has requested, or intends to request, such voluntary agreement from all investors, which may include renewing such request in the future for any investor who previously received such request and failed to confirm agreement at that time. Because any related payment has been, or will be, made only by consenting investors, Associates has not provided for the expense and related liability with respect to such costs in these financial statements.

The defendants in the Stipulation of Settlement denied that they committed any violation of law or breached any of their duties and did not admit that they had any liability to the plaintiffs.

The court has scheduled a hearing on a motion for final approval of the settlement for May 2, 2013.

12.

Building Improvement Program and Agreement to Extend Lease

In 1999, the Participants of Associates and the members in Lessee consented to a building improvement program (the “Program”) estimated to cost approximately $12,200,000. In 2004, the Participants and the Lessee approved an increase in the Program from $12,200,000 to approximately $31,400,000 under substantially the same conditions as had previously been approved. To induce the Lessee to approve the Program, Associates’ Participants authorized a grant to the Lessee, upon completion of the Program, of the right to further extensions of the Lease beyond 2103, based on the net present benefit to Associates of the improvements made. The Program was further increased in 2006 from $31,400,000 to up to $82,300,000, again on the basis that such increase would allow a further extension of the Lease based on the net present benefit to Associates of the improvements made. The Participants in Associates and the members in Lessee have approved increasing the financing from the total of $42,910,000 provided by the First and Second Mortgages to up to $63,900,000. As of December 31, 2012, Associates had incurred or accrued costs related to the Program of $51,677,946 and estimates that costs upon completion will be approximately $82,300,000. The balance of the costs of the Program will be financed primarily by the additional borrowings available under the $21,000,000 previously approved loan that closed on October 15, 2009 and Lessee’s operating cash flow.

The Lessee is financing the Program and billing Associates for the costs incurred. The Program (1) grants the ownership of the improvements to Associates and acknowledges its intention to finance them through an increase in the mortgage (Note 3), and (4) allows for the increased mortgage charges to be paid by Associates from an equivalent increase in the basic rent paid by the Lessee to Associates. Since any Secondary Overage Rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Associates and the Lessee share the costs of the Program equally, assuming Secondary Overage Rent continues to be earned.

13.

Subsequent Events

Subsequent events have been evaluated for potential recognition and disclosure.

SCHEDULE III

250 WEST 57th ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

Real Estate and Accumulated Depreciation


Column		December 31, 2012		December 31, 2011
A	Description
	Office building and land located at 250-264 West 57th Street, New York, New York, known as the “Fisk Building”.
B	Encumbrances
	Prudential Insurance Company of America and Signature Bank at December 31	$	52,900,635	$	44,935,520

C	Initial cost to company
	Land	$	2,117,435	$	2,117,435

	Building	$	4,940,682	$	4,940,682

D	Cost capitalized subsequent to acquisition
	Building improvements (net of $249,791 written off in 2003)	$	50,989,946	$	44,605,623

	Carrying costs		None		None

E	Gross amount at which carried at close of period
	Land	$	2,117,435	$	2,117,435

	Building, building and tenant improvements	$	55,930,628	$	49,546,305

			(a)		(a)
	Total	$	58,048,063	$	51,663,740

F	Accumulated depreciation
			(b)		(b)
	(net of $249,791 written off in 2003)	$	13,651,197	$	12,512,188

G	Date of construction		1921		1921
H	Date acquired		September 30, 1953		September 30, 1953
I	Life on which depreciation in latest income statements is computed		39 years		39 years
(a)	Gross amount of real estate
	Balance at January 1	$	48,858,305	$	46,904,759
	Purchase of building improvements and building improvements in progress (expenditures advanced by Lessee, a related party, and recorded by the Company):		7,072,323		4,758,981
	Assets sold / written off		—		(2,805,435	)

	Balance at December 31		55,930,628	$	48,858,305

	The costs for federal income tax purposes are the same as for financial statement purposes.
(b)	Accumulated depreciation
	Balance at January 1	$	11,824,187	$	11,009,975
	Depreciation		1,827,010		1,502,213
	Assets sold / written off		—		(688,001	)

	Balance at December 31	$	13,651,197	$	11,824,187

FISK BUILDING ASSOCIATES L.L.C.

FINANCIAL STATEMENTS

Years Ended December 31, 2012 and 2011

FISK BUILDING ASSOCIATES L.L.C.

CONTENTS


Report of Independent Registered Public Accounting Firm			3

Financial Statements:

Balance Sheets			4

Statements of Income			5

Statements of Changes in Members’ Equity			6

Statements of Cash Flows			7

Notes to Financial Statements			8—22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Fisk Building Associates L.L.C.

(A Limited Liability Company)

We have audited the accompanying balance sheets of Fisk Building Associates L.L.C. (the “Company”) as of December 31, 2012 and 2011, and the related statements of income, changes in members’ equity and cash flows for each of the two years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fisk Building Associates L.L.C. at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York

March 28, 2013

FISK BUILDING ASSOCIATES L.L.C.

BALANCE SHEETS


December 31,	2012		2011
ASSETS
Property—at cost
Leasehold	$	100,000	$	100,000
Leasehold improvements		7,514,498		7,514,498
Subtenant improvements		3,934,333		4,676,212

		11,548,831		12,290,710
Less accumulated depreciation and amortization		3,737,156		3,836,485

Net Property		7,811,675		8,454,225
Other Assets:
Cash and cash equivalents		4,348,226		4,615,440
Restricted cash—tenants’ security deposits		2,047,227		1,931,803
Restricted cash—managing agent		1,302,205		1,068,592
Rent receivable—net of allowance for doubtful accounts of $69,000 and $527,000		385,064		337,791
Unbilled rent receivable—net		5,080,582		4,849,800
Due from Lessor		3,322,181		3,593,117
Due from Supervisor		55,556		55,556
Due from nonresident members		234		—
Prepaid expenses and other assets		2,392,030		2,204,151
Deferred charges and other deferred costs, net of accumulated amortization		3,947,685		3,039,008

Total Assets	$	30,692,665	$	30,149,483

LIABILITIES AND MEMBERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities	$	1,508,777	$	1,322,379
Accrued overage rent due Lessor		530,803		1,190,368
Tenants’ security deposits payable		2,047,227		1,931,803
Deferred income		787,164		655,846

Total Liabilities		4,873,971		5,100,396
Commitments and Contingencies		—		—
Members’ Equity		25,818,694		25,049,087

Total Liabilities and Members’ Equity	$	30,692,665	$	30,149,483

The accompanying notes are an integral part of these statements.

FISK BUILDING ASSOCIATES L.L.C.

STATEMENTS OF INCOME


Years Ended December 31,	2012			2011
Revenue:
Minimum rental revenue	$	20,511,042		$	20,120,689
Escalations and expense reimbursements		4,552,248			4,885,037
Other income		172,106			75,968

Total Revenue		25,235,396			25,081,694

Operating Expenses:
Basic rent expense		3,502,325			3,288,665
Primary overage rent		752,000			752,000
Secondary overage rent		2,898,849			4,483,827
Real estate taxes		4,400,949			4,156,415
Payroll and related costs		3,249,918			3,167,230
Repairs and maintenance		2,521,641			1,248,217
Electricity		1,607,131			1,620,873
Utilities		570,516			438,452
Management fee		273,152			284,334
Supervisory and other fees		269,690			516,887
Professional fees		919,914			606,002
Insurance		246,265			198,197
Advertising		372,726			242,466
Administrative		208,425			203,470
Depreciation		681,341			919,983
Amortization		494,171			436,763
Bad debts (recovery)		(202,514	)		607,194
Formation transaction expenses		132,986			156,813

Total Operating Expenses		22,899,485			23,327,788

Operating Income		2,335,911			1,753,906
Interest Income		363			2,703

Net Income	$	2,336,274		$	1,756,609

The accompanying notes are an integral part of these statements.

FISK BUILDING ASSOCIATES L.L.C.

STATEMENTS OF CHANGES IN MEMBERS’ EQUITY


Years Ended December 31,	2012			2011
Members’ Equity—beginning of year	$	25,049,087		$	27,109,143
Net Income		2,336,274			1,756,609
Distributions		(1,566,667	)		(3,816,665	)

Members’ Equity—end of year	$	25,818,694		$	25,049,087

The accompanying notes are an integral part of these statements.

FISK BUILDING ASSOCIATES L.L.C.

STATEMENTS OF CASH FLOWS


Years Ended December 31,	2012			2011
Cash Flows from Operating Activities:
Net income	$	2,336,274		$	1,756,609
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		681,341			919,983
Amortization		494,171			436,763
Bad debts—net		(202,514	)		607,194
Net change in operating assets and liabilities:
Rent receivable		(759	)		(439,433	)
Unbilled rent receivable		(74,782	)		619,853
Restricted cash—managing agent		(233,613	)		(758,162	)
Prepaid expenses and other assets		(188,110	)		(178,254	)
Deferred charges—leasing commissions		(464,900	)		(261,711	)
Accounts payable and accrued liabilities		107,955			339,781
Accrued overage rent due Lessor		(659,565	)		133,488
Deferred income		131,318			(58,261	)

Net Cash Provided by Operating Activities		1,926,816			3,117,850

Cash Flows from Investing Activities:
Property additions		(38,791	)		(859,045	)
Due from Lessor		270,936			(348,090	)
Restricted tenants’ escrow deposits—net		—			769,099

Net Cash Provided by (Used in) Investing Activities		232,145			(438,036	)

Cash Flows from Financing Activities:
Members’ distributions		(1,566,667	)		(3,816,665	)
Other deferred costs		(859,505	)		(257,732	)
Due from nonresident members—net		(3	)		—

Net Cash Used in Financing Activities		(2,426,175	)		(4,074,397	)

Net Decrease in Cash and Cash Equivalents		(267,214	)		(1,394,583	)
Cash and Cash Equivalents—beginning of year		4,615,440			6,010,023

Cash and Cash Equivalents—end of year	$	4,348,226		$	4,615,440

Non-Cash Financing Activities:
Other deferred costs included in accounts payable and accrued liabilities	$	545,628		$	430,130

The accompanying notes are an integral part of these statements.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Organization and Nature of Business

The Company was originally organized on May 1, 1954 as a general partnership in order to lease and sublease the 534,000 square foot office building situated at 250 West 57^th Street, New York, New York (the “Property” or “Fisk Building”). At December 31, 2012, the Property is approximately 88% occupied. On February 13, 2003, the Company converted from a general partnership to a New York limited liability company and is now known as Fisk Building Associates L.L.C. (the “Company”). Although limited liability companies are unincorporated associations, their members have limited personal liability for the obligations or debts of the entity similar to stockholders of a corporation.

The Company commenced operations on May 1, 1954 and is to continue until the earlier of the complete disposition of all of the Company’s assets, unless sooner terminated pursuant to the Operating Agreement or by law.

Summary of Significant Accounting Policies

Revenue recognition—Minimum rental revenue is recognized on a straight-line basis over the terms of the subleases. The excess of rents so recognized over amounts contractually due pursuant to the underlying subleases is included in unbilled rent receivable on the accompanying balance sheets. Subleases generally contain provisions under which tenants reimburse the Company for increases in the consumer price index, real estate taxes and other recoverable costs. Receivables for escalation and expense reimbursements are accrued in the period the related expenses are incurred. Rental payments received before they are recognized as income are recorded as deferred income.

The Company provides an estimated allowance for uncollectible rent receivable based upon an analysis of tenant receivables and historical bad debts, tenant concentrations, tenant credit worthiness, tenant security deposits (including letters of credit and sublease guarantees provided by the tenant), current economic trends and changes in tenant payment terms. Rent receivable is shown net of an estimated allowance for doubtful accounts of $69,000 and $527,000 at December 31, 2012 and 2011, respectively. Unbilled rent receivable is shown net of an estimated allowance for doubtful accounts of $157,000 and $313,000 at December 31, 2012 and 2011, respectively.

Bad debt expense is shown net of recoveries which for 2012 is a net recovery.

Cash and cash equivalents—The Company considers highly liquid investments with an original maturity date of three months or less when purchased to be cash equivalents. Cash equivalents consist of a money market mutual fund (Fidelity U.S. Treasury Income Portfolio).

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

At times the Company has demand and other deposits with a bank in excess of federally insured limits. The possibility of loss exists if the bank holding uninsured deposits were to fail.

Property—The Company reviews real estate assets for impairment whenever events or changes in circumstances indicate the carrying amount of assets to be held and used may not be recoverable. Impairment losses are recognized when the estimated undiscounted cash flows expected to be generated by those assets are less than the assets’ carrying amount. Impaired assets are recorded at their estimated fair value calculated based on the discounted cash flows expected to be generated by the asset. No impairment loss has been recorded in the years ended December 31, 2012 and 2011.

Depreciation and amortization—Depreciation is computed by the straight-line method over the estimated useful lives of forty years for the leasehold improvements. Subtenant improvements and leasing commissions are amortized by the straight-line method over the terms of the related tenant subleases.

Repairs and maintenance are charged to expense as incurred. Expenditures which increase the useful lives of the assets are capitalized. When property is replaced, retired or otherwise disposed of, the cost of such property and the accumulated depreciation thereon are deducted from the respective accounts and the related gain or loss, if any, is reflected in operations.

Sales tax—Sales tax collected by the Company from tenants for sub-metered electricity is presented in the financial statements on a gross basis and, accordingly, included in revenue and expenses.

Income taxes—The Company is not subject to federal, state and local income taxes and, accordingly, makes no provision for income taxes in its financial statements. The Company’s taxable income or loss is reportable by its members.

The Company follows the provisions pertaining to uncertain tax positions of Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) 740, Income Taxes, and has determined that there are no material uncertain tax positions that require recognition or disclosure in the financial statements.

Advertising—The Company expenses advertising costs as incurred.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Environmental costs—The Property contains asbestos. The asbestos is appropriately contained, in accordance with current environmental regulations. As certain demolition of the space occurs, environmental regulations are in place which specify the manner in which the asbestos must be handled and disposed. Because the obligation to remove the asbestos has an indeterminable settlement date, the Company is unable to reasonably estimate the fair value of this obligation. Asbestos abatement costs are charged to expense as incurred.

Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. The Company regards the allowance for uncollectible rent (including unbilled rent receivable) as being particularly sensitive. Further, when subtenants experience financial difficulties, uncertainties associated with assessing the recoverability of subtenant improvements and leasing commissions increase.

Other items subject to such estimates and assumptions include the determination of the useful life of real estate and other long-term assets as well as the valuation and impairment analysis of real property and other long-lived assets.

The real estate industry has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability and unemployment levels. Changes in these economic conditions could affect the assumptions used by management in preparing the accompanying financial statements.

New accounting pronouncements—In May 2011, the FASB issued ASU 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP. This ASU provides guidance setting forth additional requirements relating to disclosures about fair value. In accordance with the guidance, the Company requires additional disclosures, including: (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy. For non-public companies, ASU No. 2011-04 is effective for annual periods beginning on or after December 15, 2011. The adoption of this update on January 1, 2012 did not have a material impact on our financial statements.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

In September 2011, the FASB issued ASU 2011-9, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan. The ASU requires substantially more disclosures regarding the multiemployer plan the Company participates in, the nature of the Company’s commitment to the plan and other disclosures. The current recognition and measurement guidance is unchanged. For nonpublic companies this ASU is effective for annual periods for fiscal years ending after December 15, 2012. See Note 8.

Subsequent events—The Company has evaluated events and transactions for potential recognition or disclosure through March 28, 2013, the date the financial statements were available to be issued.

Members’ Equity

Profits, losses and distributions are allocated to the members pursuant to the Company’s Operating Agreement.

Deferred Charges

Deferred charges consist of the following as of December 31, 2012 and 2011:


	2012		2011
Leasing commissions	$	4,302,430	$	3,815,275
Other deferred costs		1,652,427		736,734

		5,954,857		4,552,009
Less accumulated amortization		2,007,172		1,513,001

Total	$	3,947,685	$	3,039,008

Prior period financial results have been adjusted to reflect an immaterial correction which has no impact to the net change in cash reported on the statement of cash flows. During fiscal year 2012, the Company determined that certain costs related to the structuring of the IPO (as defined in Note 5) that were previously included in other deferred costs should have been expensed in the periods incurred. The correction impacted the year ended December 31, 2011, the year ended December 31, 2010 and had accumulated to an amount of approximately $196,000 as of December 31, 2011. Adhering to applicable guidance for accounting changes and error corrections, the Company concluded that the error was not material to any of the prior period financial statements. The correction resulted in immaterial changes to other deferred costs and formation transaction expenses for the year ended December 31, 2011 and the year ended December 31, 2010. The Company applied the guidance for accounting changes and error corrections and revised the prior period financial statements presented.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The following tables present the effect this correction had on the financial statements as of December 31, 2011 and December 31, 2010. Additionally, financial information included in the notes to the financial statements that is impacted by the adjustment has been revised, as applicable.


	As of December 31, 2010
	As reported			Adjustment			As adjusted
Members’ equity	$	27,148,408		$	(39,265	)	$	27,109,143

	For the
	Twelve Months Ended December 31, 2011
	As reported			Adjustment			As adjusted
Formation transaction expenses	$	—		$	156,813		$	156,813
Net income		1,913,422			(156,813	)		1,756,609
Net cash provided by operating activities		3,274,663			(156,813	)		3,117,850
Net cash used in financing activities		(4,231,210	)		156,813			(4,074,397	)
Net increase in cash and cash equivalents		(1,394,583	)		—			(1,394,583	)
Deferred costs		3,235,086			(196,078	)		3,039,008
Members’ equity	$	25,245,165			($196,078	)	$	25,049,087

Related Party Transactions

The Company (the “Lessee”) entered into a lease agreement with 250 West 57^th St. Associates L.L.C. (the “Lessor”) which is currently set to expire on September 30, 2053. The participants in Lessor have consented to the granting of options to the Lessee to extend the lease for two additional 25 year renewal terms expiring in 2103, and the Agents of the Lessor intend to grant all of these options, based on the Lessee’s compliance with the terms of such consents. There is no change in the terms of the lease during the renewal periods. The Lessee may terminate the lease on 60 days prior written notice without any further liability.

The lease provides for an annual basic rent equal to the sum of the constant annual mortgage charges incurred on all mortgages by the Lessor (excluding any balloon principal payment due at maturity), plus $28,000.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The lease also provides for additional rent, as follows:

Primary overage rent equal to the first $752,000 of Lessee’s net operating income, as defined, in each lease year.

Secondary overage rent equal to 50% of the Lessee’s remaining net operating income, as defined, in each lease year.

The lease further provides for recoupment by the Lessee of advances in future lease years resulting from any overpayment of primary overage rent in any year.

In addition to the above, the Lessee is required to pay for all operating and maintenance expenses, real estate taxes, and necessary repairs and replacements, and keep the Property adequately insured against fire and accident.

Overage rent expense is recognized prior to the end of the lease year based on net operating income earned to date provided it is probable that the Company will generate net operating income for the lease year in such amount as to obligate the Company to pay overage rent. In the event it becomes probable that net operating income for the lease year will be insufficient to require the payment of overage rent, any previously recorded overage rent would be reversed into income. As of December 31, 2012 and 2011 the accrued secondary overage rent due Lessor was $530,803 and $1,190,368, respectively.

In 1999, the participants in Lessor and the members in Lessee consented to a building improvement program (the “Program”) estimated to cost approximately $12,200,000. In 2004, the Lessor and the Lessee approved an increase in the Program from $12,200,000 to approximately $31,400,000 under substantially the same conditions as had previously been approved. To induce the Lessee to approve the Program, the Lessor agreed to grant the Lessee, upon completion of the Program, the right to further extensions of the lease beyond 2103. In accord with the 2004 consent program, on December 29, 2004, Lessor obtained a new first mortgage of $30,500,000 (the “First Mortgage”), of which $15,500,000 was used to repay the then existing first mortgage. The balance was used to complete the then currently estimated costs for existing and additional improvements, including subtenant installation and leasing commissions. The Program was further increased in 2006 from $31,400,000 to up to $82,300,000. In 2006, the Lessor and Lessee approved increased refinancing of up to $63,900,000. On May 25, 2006, Lessor obtained a second mortgage of $12,410,000 (the “Second Mortgage”), which was used to finance capital improvements as needed. On October 15, 2009, Lessor closed on a $21,000,000 line of credit (the “Line of Credit”), of which $934,616 was drawn at closing. On December 22, 2011, the Lessor drew down an additional $5,000,000. On November 7, 2012, the Lessor drew down an additional $9,000,000, bringing the total amount advanced to date to $14,934,616. The Line of Credit is secured by a mortgage, which is subordinate to the First and Second Mortgages, which will be used to finance capital improvements as needed.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The Company is financing the Program and billing the Lessor for the costs incurred. The Program (1) grants the ownership of the improvements to the Lessor and acknowledges the Lessor’s intention to finance them through an increase in the fee mortgage, and (2) allows for the increased mortgage charges to be paid by the Lessor from an equivalent increase in the basic rent paid by the Company. Since any secondary overage rent will be decreased by one-half of that amount, the net effect is to have the Company and the Lessor share the costs of the Program equally, assuming the Company continues to be obligated to pay secondary overage rent.

The Lessor’s First Mortgage in the amount of $30,500,000 is scheduled to mature on January 5, 2015. The First Mortgage bears interest at 5.33% per annum, payable monthly in arrears. Commencing February 5, 2007, the First Mortgage requires equal monthly payments of $184,213 applied first to interest at 5.33% per annum, and then principal based on a 25-year amortization period. No prepayment fee shall be due if the loan is prepaid during the final 90 days prior to the maturity date.

The Lessor’s Second Mortgage in the amount of $12,410,000 is scheduled to mature on January 5, 2015. The Second Mortgage bears interest at 6.13% per annum, payable monthly in arrears. Commencing April 5, 2009, the Second Mortgage requires equal monthly payments of $80,947 applied first to interest at 6.13% per annum, and then principal based on a 25-year amortization period. No prepayment fee shall be due if the loan is prepaid during the final 90 days prior to the maturity date.

The Lessor’s Line of Credit in the amount of $21,000,000 is scheduled to mature on January 5, 2015. The Line of Credit bears interest at a floating rate of prime plus 1% with a floor of 6.5% per annum unless the Lessor elects to fix the rate (as defined) and requires payments of interest only. On January 24, 2012, the Lessor entered into a modification agreement on the Line of Credit. Effective January 24, 2012 the Line of Credit bears interest at a floating rate of prime plus 1% with a floor of 4.25% per annum. Should the Lessor elect to fix the interest rate, the modification allows the Lessor to elect prepayment without any prepayment fees (as defined).

In connection with the Mortgage loans, the Company has assigned all subleases and rents to the lenders as additional collateral.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The following is a schedule of future minimum rental payments as of December 31, 2012 (based on the current amount of the Lessor’s outstanding mortgage obligations including the additional advance drawn on November 7, 2012, and assuming the Company does not surrender the lease):


Years ending December 31,
2013	3,860,000
2014	3,860,000
2015	28,000	*
2016	28,000	*
2017	28,000
Thereafter	996,000	*

	$8,800,000

The Lessor intends to refinance the existing mortgages which mature on January 5, 2015. In accordance with the November 2000 Lease Modification Agreement and subsequent modifications, basic rent will increase to include the required debt service on the refinanced mortgages. The above table does not reflect the additional basic rent that will result after January 2015 from the refinanced debt.

As of December 31, 2012 and 2011, the Lessor had incurred costs related to the Program of approximately $51,700,000 and $44,600,000, respectively, and estimates that costs upon completion will be approximately $82,300,000. The Lessor has funded and capitalized leasing commissions totaling approximately $2,859,764 and $1,998,034 as of December 31, 2012 and 2011, respectively. The balance of the costs of the Program will be financed by the additional $21,000,000 previously approved loan that closed on October 15, 2009 and the Company’s operating cash flow.

Due from Lessor at each respective year-end represents leasehold improvement and leasing costs advanced by the Lessee to be reimbursed by Lessor from remaining refinancing proceeds when funds are required.

Supervisory and other services are provided to the Company by its Supervisor, Malkin Holdings LLC (“Malkin Holdings”), a related party. Beneficial interests in the Company are held directly or indirectly by one or more persons at Malkin Holdings and/or their family members.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Fees and payments to Malkin Holdings are as follows:


	Years Ended
	December 31,
	2012			2011
Basic supervisory fees	$	106,697		$	103,663
Offering costs for work done by employees of the Supervisor		150,234	*		100,287	*
Service fee on investment income		34			264
Profits interest		162,959			412,960

Total	$	419,924		$	617,174

Included in professional fees in the Statements of Income.

Malkin Holdings receives an additional payment from the Company equal to 10% of distributions in excess of $100,000 a year. For tax purposes such additional payment is treated as a profits interest and Malkin Holdings is treated as a member. Distributions in respect of Malkin Holdings’ profits interest totaled approximately $162,959 and $412,960 for the years ended December 31, 2012 and 2011. In addition, other fees and disbursements to Malkin Holdings were $13,518 and $111,470 for the years ended December 31, 2012 and 2011, respectively.

Distributions are paid from a cash account held by Malkin Holdings. That account is reflected on the balance sheets as “Due from Supervisor.”

For administration and investment of the Company’s supervisory account, Malkin Holdings has earned since 1978 a service fee of 10% of the account interest (an annual fee currently less than 0.1% of the account balance), which fee totaled $34 and $264 for the years ended December 31, 2012 and 2011, respectively.

Through December 31, 2012, the Company has incurred an aggregate of $2,435,240 (of which $1,380,334 and $858,496 is related to the years ended December 31, 2012 and 2011, respectively), of which $1,652,427 and $736,734 has been capitalized and included as other deferred costs at December 31, 2012 and 2011, respectively, of which $877,737 and $489,440 are included in accounts payable and accrued expenses at December 31, 2012 and 2011, respectively, to reimburse Malkin Holdings for third-party fees it had advanced in connection with a proposed consolidation of the Company, other public and private entities supervised by Malkin Holdings, Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed real estate investment trust (collectively the “Consolidation”) and the initial public offering of Class A common stock of Empire State Realty Trust, Inc. (the “IPO”). If the Consolidation and IPO are completed, the Company will be reimbursed for all such costs.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Malkin Holdings also serves as supervisor for the Lessor and receives from the Lessor a basic annual fee and a payment based on distributions to its investors. Beneficial interests in the Lessor are held directly or indirectly by one or more persons at Malkin Holdings and/or their family members.

Rental Income Under Operating
Subleases

Future minimum rentals to be received, assuming neither renewals nor extensions of subleases which may expire during the periods, on noncancelable operating subleases in effect at December 31, 2012 are as follows:


Years ending December 31,
2013	$	19,500,000
2014		17,000,000
2015		14,200,000
2016		11,800,000
2017		10,300,000
Thereafter		24,700,000

	$	97,500,000

Approximately 43% of future minimum rental income is due from three tenants in the retail and publishing industries. For the year ended December 31, 2012, these three tenants represent approximately 20% of rental income.

Management Fee

The Company has engaged Cushman & Wakefield, Inc. to lease and manage the Property. Pursuant to the management agreement, the management fee is equal to 1.125% of total collected proceeds per month with a minimum annual fee of $112,500 per annum (which is reduced by the service fee on interest income earned on tenants’ security deposits). For the years ended December 31, 2012 and 2011, the management fee totaled $273,152 and $284,334, respectively.

A portion of the Company’s cash is held in accounts in the custody of the managing agent. These amounts are included in the accompanying balance sheets as “Restricted cash—managing agent.”

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Multiemployer Pension Plan

The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in the multiemployer plan are different from a single-employer plan in the following aspects:

•

Assets contributed to the multiemployer defined plan by one employer may be used to provide benefits to employees of other participating employers.

•

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

•

If the Company chooses to stop participating in its multiemployer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company participates in various unions. The union which has significant employees and costs is as follows:

32BJ

The Company participates in the Building Service 32BJ, or Union, Pension Plan and Health Plan. The Pension Plan is a multi-employer, non-contributory defined benefit pension plan that was established under the terms of collective bargaining agreements between the Service Employees International Union, Local 32BJ, the Realty Advisory Board on Labor Relations, Inc. and certain other employees. This Pension Plan is administered by a joint board of trustees consisting of union trustees and employer trustees and operates under employer identification number 13-1879376. The Pension Plan year runs from July 1 to June 30. Employers contribute to the Pension Plan at a fixed rate on behalf of each covered employee. Separate actuarial information regarding such pension plans is not made available to the contributing employers by the union administrators or trustees, since the plans do not maintain separate records for each reporting unit. However, on September 28, 2011 and 2012, the actuary certified that for the plan years beginning July 1, 2011 and 2012, respectively, the Pension Plan was in critical status under the Pension Protection Act of 2006. The Pension Plan trustees adopted a rehabilitation plan consistent with this requirement. No surcharges have been paid to the Pension Plan as of December 31, 2012. For the years ended December 31, 2012, and 2011, the Pension Plan received contributions from employers totaling approximately $212,741,000, and $201,266,000, respectively.

The Health Plan was established under the terms of collective bargaining agreements between the Union, the Realty Advisory Board on Labor Relations, Inc. and certain other employers. The Health Plan provides health and other benefits to eligible participants employed in the building service industry who are covered under collective bargaining agreements, or other written agreements, with the Union. The Health Plan is administered by a Board of Trustees with equal representation by the employers and the Union and operates under employer identification number 13-2928869. The Health Plan receives contributions in accordance with collective bargaining agreements or participation agreements. Generally, these agreements provide that the employers contribute to the Health Plan at a fixed rate on behalf of each covered employee. For the years ended December 31, 2012, and 2011, the Health Plan received contributions from employers totaling approximately $893,329,000 and $843,205,000, respectively.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Terms of Collective Bargaining Agreements

The most recent collective bargaining agreement for Local 32BJ commenced from January 1, 2012 through December 31, 2015 (prior agreement was from January 1, 2008 through December 31, 2011).

Contributions

Contributions the Company made to the multiemployer plans for the years ended December 31, 2012 and 2011 are included in the table below:

Benefit Plan


	2012		2011
Pension plans (pension and annuity)*	$	168,000	$	156,000
Health plans**		362,000		332,000
Other***		22,000		16,000

Total plan contributions	$	552,000	$	504,000

Pension plans include $52,000 and $48,000 for the years ended 2012 and 2011, respectively, from multiemployer plans not discussed above.

Health plans include $52,000 and $49,000 for the years ended 2012 and 2011, respectively, from multiemployer plans not discussed above.

***

Other includes $14,000 and $11,000 for the years ended 2012 and 2011, respectively, from multiemployer plans not discussed above for union costs which were not itemized between pension and health plans.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Commitments and Contingencies

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The defendants in the Stipulation of Settlement denied that they committed any violation of law or breached any of their duties and did not admit that they had any liability to the plaintiffs.

FISK BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

On January 28, 2013, six participants in ESBA filed an objection to preliminary approval, and cross-moved to intervene in the action and for permission to file a separate complaint on behalf of ESBA participants. On February 21, 2013 the court denied the cross motion of such objecting participants, and the court denied permission for such objecting participants to file a separate complaint as part of the class action, other than permission to join the case by separate counsel solely for the purpose of supporting the allegation of the objecting participants that the buyout will deprive non-consenting participants in Empire State Building Associates L.L.C. of “fair value” in violation of the New York Limited Liability Company Law. The court rejected the objecting participants’ assertion that preliminary approval be denied and granted preliminary approval of the settlement.

The court has scheduled a hearing on a motion for final approval of the settlement for May 2, 2013.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company