FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

[ ]  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 0-827 

EMPIRE STATE BUILDING ASSOCIATES L.L.C. 

(Exact name of registrant as specified in its charter)

New York 13-6084254

State or other jurisdiction of (I.R.S. Employer

incorporation or organization Identification No.)

60 East 42nd Street, New York, New York 10165

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (212) 687-8700

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

None

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

$33,000,000 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 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.

Large Accelerated Filer [ ]  Accelerated Filer [ ]  Non-Accelerated Filer [X ]  

Smaller Reporting Company [ ]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I

 

Item 1. Business.

(a) General

Registrant was originally organized on July 11, 1961 as a general partnership. On October 1, 2001, Registrant converted from a general partnership to a limited liability company under New York law and is now known as Empire State Building Associates L.L.C. The conversion did not change any aspect of the assets and operations of Registrant other than to protect its investors from any future liability to a third party.  Through April 16, 2002, Registrant owned the tenant's interest in a master operating leasehold (the "Master Lease") of the Empire State Building (the "Building"), located at 350 Fifth Avenue, New York, New York. On April 17, 2002, Registrant acquired, through a wholly-owned limited liability company (Empire State Land Associates L.L.C.), the fee title to the Building, and the land thereunder (the "Land") (together, the "Real Estate"or "Property"), at a price of $57,500,000, and obtained a $60,500,000 first mortgage with North Fork Bank (the "Mortgage") to finance the acquisition and certain related costs. 

Registrant does not operate the Building. It subleases the Building to Empire State Building Company L.L.C. (the "Sublessee") pursuant to a net operating sublease (the "Sublease") which expires on January 4, 2013 and contains three 21-year renewal options.

Registrant's members ("Members") are Peter L. Malkin, Anthony E. Malkin and Thomas N. Keltner, Jr. (collectively, the "Agents"), each of whom also acts as an agent for holders of participations in his respective member interest in Registrant (the "Participants"). 

Sublessee is a New York limited liability company in which Peter L. Malkin is a member and entities for Peter L. Malkin's family members are beneficial owners.  All of the members in Registrant hold senior positions at Wien & Malkin LLC ("Wien & Malkin" or the "Supervisor"), 60 East 42nd Street, New York, New York, which provides supervisory and other services to Registrant and to Sublessee. See Items 10, 11, 12 and 13 hereof for a description of the ongoing services rendered by, and compensation paid to, Supervisor and for a discussion of certain relationships which may pose potential conflicts of interest among Registrant, Sublessee and certain of their respective affiliates.

As of December 31, 2007, the Building was 79% occupied by approximately 451 tenants who engage in various businesses, including the Boy Scouts, the YMCA, the practice of law and accounting, ladies' and men's apparel, and ladies' and men's shoes.  Registrant does not maintain a full-time staff.  See Item 2 hereof for additional information concerning the Real Estate.

(b) The Lease and Sublease

The annual rent payable by Registrant to its subsidiary under the Master Lease is $1,970,000 from January 5, 1992 through January 5, 2013 and $1,723,750 annually during the term of each renewal period thereafter.

Sublessee is required to pay annual basic rent ("Basic Rent") equal to $6,018,750 from January 1, 1992 through January 4, 2013, and $5,895,625 from January 5, 2013 through the expiration of all renewal terms. See Item 2. Sublessee is also required to pay Registrant additional rent of 50% of Sublessee's net operating profit, as defined in the Sublease, in excess of $1,000,000 for each lease year ending December 31 ("Additional Rent").  

Additional Rent income is recognized when earned from the Sublessee, at the close of the year ending December 31; such income is not determinable until the Sublessee, pursuant to the Sublease, provides the Registrant with an audit report from a certified public accountant on the Sublessee's operation of the Real Estate.  The Sublease requires that this report be delivered to Registrant annually within 60 days after the end of each such fiscal year.  Accordingly, all Additional Rent income and the additional payment to Supervisor are reflected in the fourth quarter of each year.  The Sublease does not provide for the Sublessee to render interim reports to Registrant.  See Note 3 of Notes to the Consolidated Financial Statements filed under Item 8 hereof (the "Notes") regarding Additional Rent payments by Sublessee for the fiscal years ended December 31, 2007, 2006 and 2005. There was Additional Rent of $17,025,749 for the year ended December 31, 2007.

Real estate taxes paid directly by the Sublessee totaled approximately $22,151,850 for the year ended December 31, 2007.

(c) Competition

Pursuant to tenant space leases at the Building, the average annual base rental payable to Sublessee is approximately $35 per square foot (exclusive of electricity charges and escalation). The asking rents for the building range from $42 to $52 per square foot.

(d) Tenant Leases

Sublessee operates the Building free from any federal, state or local government restrictions involving rent control or other similar rent regulations which may be imposed upon residential real estate in Manhattan.  Any increase or decrease in the amount of rent payable by a tenant is governed by the provisions of the tenant's lease.

 

Item 2. Property.

On April 17, 2002, Registrant acquired, through a wholly owned limited liability company (Empire State Land Associates L.L.C.), the fee title to the Building, and the land thereunder, at a price of $57,500,000, and obtained a $60,500,000 first mortgage with North Fork Bank to finance the acquisition and certain related costs. The Building, erected in 1931 and containing 102 stories, a concourse and a lower lobby, occupies the entire blockfront from 33rd Street to 34th Street on Fifth Avenue.  The Building has 72 passenger elevators and 4 freight elevators and is equipped with air conditioning and individual air handling units.  The Building is subleased to Sublessee under the Sublease which expires on January 4, 2013 and contains three 21-year renewal options.  See Item 1 hereof for a description of the terms of the Lease and Sublease.

The Real Estate is carried in the financial statements at its historical cost of $60,484,389, consisting of $57,500,000 for the purchase price paid to the seller, $752,022 for acquisition costs, and $2,232,367 representing the unamortized balance of the cost of the Master Lease on the date the Real Estate was acquired. The cost of the Land was estimated to be 35.63% of the total cost of the Real Estate, and the Building, 64.37%. Under the terms of the contract of sale, the deed contains language to avoid the merger of the fee estate and the leasehold, although on a consolidated financial statement basis the Registrant incurred no leasehold rent expense after acquiring the Real Estate.

The mortgage is scheduled to mature on May 1, 2012 and requires monthly payments of interest only at 6.5% per annum. The mortgage may be prepaid at any time after 24 months with the payment of a premium equal to the greater of (a) 1% of the amount prepaid and (b) an amount calculated pursuant to a prepayment formula designed to preserve the bank's yield to maturity. The Mortgage is secured by a lien on the Real Estate and Registrant's leasehold estate under the Master Lease of the Real Estate.

Restricted cash at December 31, 2007 includes an interest-bearing account held at North Fork Bank pursuant to the terms of the Mortgage, to be used monthly to satisfy a portion ($166,167) of Registrant's mortgage interest obligation. On March 27, 2008, Registrant deposited an additional $2,000,000 into this restricted account under the same conditions and will continue to do so annually hereafter.

The Building is being depreciated on a straight-line basis over its estimated useful life of 39 years. Mortgage financing costs, totaling $1,796,287, are being amortized ratably over the life of the Mortgage.

Item 3. Legal Proceedings.

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

Wien & Malkin LLC and Peter L. Malkin, a member in Registrant, were engaged in a proceeding with Sublessee's former managing agent, Helmsley-Spear, Inc. commenced in 1997, concerning the management, leasing and supervision of the property that is subject to the Sublease to Sublessee.  In this connection, certain costs for legal and professional fees and other expenses have been paid and incurred by Wien & Malkin and Mr. Malkin.  Wien & Malkin 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.  Accordingly, Registrant's allocable share of such costs is as yet undetermined, and Registrant has not provided for the expense and related liability with respect to such costs in its consolidated financial statements. As a result of the August 29, 2006 settlement agreement which included termination of this proceeding, Registrant will not recognize any gains or losses from this proceeding other than the possible charges for the aforementioned fees and expenses.

The August 29, 2006 settlement agreement terminated Helmsley-Spear, Inc. as managing and leasing agent at the property as of August 30, 2006.  CB Richard Ellis was  engaged as the new leasing agent, and Sublessee self-manages the property. The $1,834,000 portion of the contract settlement payment funded from Sublessee's reserves was deducted as an expense in computing additional rent for 2006, so that Registrant has effectively borne one-half of Sublessee's contract settlement payment expense, or $917,000.

Item 4. Submission of Matters to a Vote of Participants.

No matters were submitted to the Participants during the period covered by this report.

 

PART II

Item 5. Market for Registrant's Common Equity and Related Security Holder Matters.

Registrant was originally organized as a general partnership pursuant to a partnership agreement dated as of July 11, 1961. On October 1, 2001, Registrant converted from a general partnership to a limited liability company under New York law.

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 Members' interests in Registrant (the "Participations") and are not shares of common stock nor 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.  A full unit of the Participations was offered originally at a purchase price of $10,000; fractional 

units were also offered at proportionate purchase prices.  Registrant has not repurchased Participations in the past and is not likely to change that policy in the future.

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. During the past year    there were 195 transfers. In one instance, the indicated purchase price was    equal to 6.5 times the face amount of the Participation transferred, i.e.,    $65,000 for a $10,000 Participation. In two instances, the indicated    purchase price was equal to 5.5 times the face amount of the Participation    transferred. In one instance, the indicated purchase price was equal to 5.25    times the face amount of the Participation transferred. In fifteen    instances, the indicated purchase price was equal to 5 times the face amount    of the Participation transferred. In eight instances, the indicated purchase    price was equal to 4 times the face amount of the Participation transferred.    In three instances, the indicated purchase price was equal to 3.97 times the    face amount of the Participation transferred. In two instances, the    indicated purchase price was equal to 3.4 times the face amount of the    Participation transferred. In five instances, the indicated purchase price    was equal to 3.3 times the face amount of the Participation transferred. In    six instances, the indicated purchase price was equal to 3 times the face    amount of the Participation transferred. In one instance, the indicated    purchase price was equal to 2.73 times the face amount of the Participation    transferred. In thirteen instances, the indicated purchase price was equal    to 2.5 times the face amount of the Participation transferred. In seven    instances, the indicated purchase price was equal to 2.25 times the face    amount of the Participation transferred. In four instances, the indicated    purchase price was equal to 2 times the face amount of the Participation    transferred. In one instance, the indicated purchase price was equal to 1.5    times the face amount of the Participation transferred. In all other cases,    no consideration was indicated.    
 
Tender offers for Participations have been commenced by unrelated third parties during 2006 and early 2007 all of which have expired at the date of this filing, in each case at prices ranging from $40,000 to $50,000 for an original $10,000 Participation. A small number of Participation(s) aggregating less than 0.1% of total Participations were reportedly tendered.
- As of December 31, 2007, there were 2,762 holders    of Participations of record.           Registrant does not pay dividends. During the year    ended December 31, 2007, Registrant made regular monthly distributions of    $98.21 for each $10,000 Participation. There was Additional Rent of    $17,025,749 for the year ended December 31, 2007 which enabled Registrant to    make an additional distribution for each $10,000 Participation of $4,052 on    March 6, 2008. See Item 1 hereof. There are no restrictions on Registrant's    present or future ability to make distributions; however, the amount of such    distributions, particularly distributions of Additional Rent, depends solely    on Sublessee's ability to make payments of Basic Rent and Additional Rent to    Registrant. See Item 1 hereof. Registrant expects to make monthly    distributions in the future so long as it receives the payments provided    under the Sublease. See Item 7 hereof.          EMPIRE STATE BUILDING ASSOCIATESL.L.C.  (A Limited Liability Company) 
SELECTED FINANCIAL DATA
  (Unaudited) 
Item 6.
  The following table presents selectedfinancial data of the Registrant for each of the five years in the period endedDecember 31, 2007. This information is unaudited and has been derived from theaudited consolidated financial statements included in this Annual Report on Form10-K or from audited consolidated financial statements included in AnnualReports on Form 10-K previously filed by the Registrant. This data should beread together with the consolidated financial statements and the notes theretoincluded in this Annual Report on Form 10-K.   
Year ended December 31
 
2007

2006

2005

2004

2003

Basic rent income

$6,018,750

$6,018,750

$6,018,750

$6,018,750

$6,018,750

Additional rent income

17,025,749

18,791,329

16,324,979

9,469,543

6,802,295

Dividend and interest income

418,234

339,334

158,209

61,322

70,481

Miscellaneous

-

978

-

-

-
 
Total revenues

$23,462,733

$25,150,391

$22,501,938

$15,549,615

$12,891,526

Net income

$17,068,579

$18,813,909

$16,308,881

$ 9,761,227

$7,247,765

Earnings per $10,000

participation unit,

based on 3,300 

participation units

outstanding during the year

 

 

 

 

$5,172

 

 

 

 

$5,701

 

 

 

 

$4,942

 

 

 

 

$2,958

 

 

 

 

$2,196

Total assets

$79,886,241

$81,491,531

$80,063,503

$73,446,834

$72,185,694

Long-term obligations

$60,500,000

$60,500,000

$60,500,000

 

$60,500,000

$60,500,000

Distributions per $10,000

participation unit, based on

3,300 participation units 

outstanding during the year:
 
Income

$5,172

$5,298

$3,318

$2,524

$2,196
 
Return of capital

596

-0-

-0-

-0-

2,394
 
Total distributions

$5,768

$5,298

$3,318

$2,524

$4,590

 

[SELECTED FINANCIAL DATA]

Item 6.

The following table presents theRegistrant's unaudited operating results for each of the eight fiscal quartersin the period ended December 31, 2007. The information for each of thesequarters is unaudited and has been prepared on the same basis as the auditedconsolidated financial statements included in this Annual Report on Form 10-K.In the opinion of management, all necessary adjustments, which consist only ofnormal and recurring accruals, have been included to present fairly theunaudited quarterly results. This data should be read together with theconsolidated financial statements and the notes thereto of the Registrantincluded in this Annual Report on Form 10-K.

 
 
Three MonthsEnded

March 31,

June 30,

September 30,

December 31,

Consolidated Income Data:

2007

2007

2007

2007
    
Basic rent income

$1,504,687

$1,504,688

$1,504,688

$1,504,687

Additional rent income

-

-

-

17,025,749

Dividend and interest income

207,132

80,992

71,394

58,716

Total revenues

1,711,819

1,585,680

1,576,082

18,589,152
     
Interest on mortgage

983,125

994,049

1,004,972

1,004,972

Supervisory services

39,854

39,854

39,854

893,294

Depreciation of building 

249,566

249,565

249,564

249,567

Amortization of mortgage financing    costs

44,907

44,907

44,907

44,908

Professional fees and miscellaneous

98,747 

980

4,252

112,310

Total expenses

1,416,199

1,329,355

1,343,549

2,305,051

Net income

$295,620

$256,325

$232,533

$16,284,101
     
Earnings per $10,000 participation unit, based on      3,300 participation units outstanding during each period

 

 

$90

 

 

$78

 

 

$70

 

 

$4,934
     
 

 

 

 

 

 

 

 

 

EMPIRE STATE BUILDING ASSOCIATESL.L.C.

(A Limited Liability Company)

QUARTERLY RESULTS OF OPERATIONS

(Unaudited)

 

 

 

Item 6a.

 
 
Three Months  Ended

March 31,

June 30,

September 30,

December 31,

Consolidated Income Data:

2006

2006

2006

2006

Basic rent income

$1,504,687

$1,504,688

$1,504,687

$1,504,687

Additional rent income

-

-

-

18,791,329

Dividend and interest income

143,681

64,465

64,433

66,755

Miscellaneous income

-

-

978

-

Total revenues

1,648,368

1,569,153

1,570,098

20,362,771
     
Interest on mortgage

983,125

994,049

1,004,973

1,004,971

Supervisory services

39,854

39,854

39,855

1,006,494

Depreciation of building 

249,566

249,566

249,565

249,565

Amortization of mortgage financing    costs

44,907

44,907

44,907

44,908

Professional fees and miscellaneous

615 

(81)

44,605

275

Total expenses

1,318,067

1,328,295

1,383,905

2,306,213

Net income

$330,301

$240,858

$186,193

$18,056,558

Earnings per $10,000 participation unit, based on      3,300 participation units outstanding during each period

 

 

$100

 

 

$73

 

 

 

$56

 

 

$5,472
     
 

 

 

 

 

 

 

 

 

 

Item 7. Management's Discussion and Analysis ofFinancial Condition and Results of Operations.

Forward Looking Statements

Readers of this discussion are advisedthat the discussion should be read in conjunction with the consolidatedfinancial statements of Registrant (including related notes thereto) appearingelsewhere in this Form 10-K. Certain statements in this discussion mayconstitute "forward-looking statements" within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements reflectRegistrant's current expectations regarding future results of operations,economic performance, financial condition and achievements of Registrant, and donot relate strictly to historical or current facts. Registrant has tried,wherever possible, to identify these forward-looking statements by using wordssuch as "believe", "expect", "anticipate", "intend", "plan", "estimate" or wordsof similar meaning.

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

 

SIGNIFICANT ACCOUNTING POLICIES ANDESTIMATES

The Securities and Exchange Commission("SEC") issued disclosure guidance for "Critical Accounting Policies." The SECdefines Critical Accounting guidance for Critical Accounting Policies as thosethat require the application of management's most difficult, subjective, orcomplex judgments, often because of the need to make estimates about the effectof matters that are inherently uncertain and may change in subsequentperiods.

Registrant's discussion and analysis ofits financial condition and results of operations are based upon Registrant'sconsolidated financial statements, the preparation of which takes into accountestimates based on judgments and assumptions that affect certain amounts anddisclosures. Accordingly, actual results could differ from these estimates. Theaccounting policies and estimates used and outlined in Note 2 to Registrant'sconsolidated financial statements, which are presented elsewhere in this annualreport, have been applied consistently as at December 31, 2007 and 2006, and forthe years ended December 31, 2007, 2006 and 2005. Registrant believes that thefollowing accounting policies or estimates require the application ofmanagement's most difficult, subjective, or complex judgments:

Valuation of Long-Lived Assets: Registrantassesses the carrying amount of long-lived assets whenever events or changes incircumstances indicate that their carrying amount may not be recoverable. WhenRegistrant determines that the carrying amount of long-lived assets may beimpaired, the measurement of any impairment is based on a discounted cash flowmethod. 

Revenue Recognition: Basic Rent andAdditional Rent, which is based on the Sublessee's annual net income as definedin the Sublease, are recognized when earned. Before Registrant can recognizerevenue, it is required to assess, among other things, its collectibility. IfRegistrant incorrectly determines the collectability of revenue, its net incomeand assets could be overstated.

 

Financial Condition and Results of Operations

At the time of its organization,Registrant acquired the Master Lease of the Property subject to the Sublease.Basic Rent received by Registrant was used to pay annual rent due under theMaster Lease and the Basic Payment for supervisory services to Supervisor; thebalance of such Basic Rent was distributed to the Participants. Currently, BasicRent received by Registrant is used to pay the Basic Payment and a portion ofdebt service on the Mortgage; and the balance of such Basic Rent is distributedto the Participants. Additional Rent and any interest and dividends accumulatedthereon are distributed to the Participants after the additional payment toSupervisor. Pursuant to the Sublease, Sublessee has assumed responsibility forthe condition, operation, repair, maintenance and management of the Property.Registrant is not required to maintain liquid assets to defray any operatingexpenses of the Property.

The supervisory services provided toRegistrant by Supervisor include, but are not limited to, maintaining all of itsentity and Participant records, performing physical inspections of the Building,providing or coordinating counsel services to Registrant, reviewing insurancecoverage, conducting annual supervisory review meetings, receipt of monthly rentfrom Sublessee, payment of monthly and additional distributions to theParticipants, payment of all other disbursements, confirmation of the payment ofreal estate taxes, and active review of financial statements submitted toRegistrant by Sublessee and financial statements audited by and tax informationprepared by Registrant's independent registered public accounting firm, anddistribution of related materials to the Participants. Supervisor also preparesquarterly, annual and other periodic filings with the SEC and applicable stateauthorities.

Registrant pays Supervisor for otherservices at hourly rates.

Registrant's results of operations areaffected primarily by the amount of rent payable to it under the Sublease. Theamount of Additional Rent payable to Registrant is affected by the New York Cityeconomy and real estate rental and tourist attraction markets, which aredifficult for management to forecast. 

As compared with the prior year, adecrease in Additional Rent earned in any year reduces the distributions made tothe Participants in the following year and the additional payment to Supervisor.Reductions in the amount of Additional Rent paid to Registrant in the futurewill not have any other impact on Registrant. See paragraph 1 of Item 7 hereofand Notes 2 and 3 of the Notes to the consolidated financial statements. 

The following summarizes the materialfactors affecting Registrant's results of operations for the three precedingyears: 

(a) Total revenues decreased for the yearended December 31, 2007 as compared with the year ended December 31, 2006. Suchdecrease was the net result of a decrease in Additional Rent received byRegistrant in 2007 and an increase in dividend and interest income earned ascompared with the year ended December 31, 2006. Total revenues increased for theyear ended December 31, 2006 as compared with the year ended December 31, 2005.Such increase was the result of an increase in Additional Rent received byRegistrant in 2006 and an increase in dividend and interest income earned ascompared with the year ended December 31, 2005. See Note 3 of the Notes to theConsolidated Financial Statements.

(b) Total expenses increased for the yearended December 31, 2007 as compared with the year ended December 31, 2006. Suchincrease is the net result of a decrease in the additional payment to Supervisorand an increase in professional fees and miscellaneous expenses for servicesrelated to a tender offer as compared with the year ended December 31, 2006.Total expenses increased for the year ended December 31, 2006 as compared withthe year ended December 31, 2005. Such increase is the result of an increase inthe additional payment to Supervisor and an increase in professional fees andmiscellaneous expenses as compared with the year ended December 31, 2005. 

Liquidity and Capital Resources

Registrant's liquidity has notsignificantly changed for the year ended December 31, 2007 as compared with theyear ended December 31, 2006. Registrant may from time to time set aside cashfor contingent liabilities.

No amortization payments are due under theMortgage to reduce the outstanding 

principal balance prior to maturity.Furthermore, Registrant does not maintain any reserve to cover the principalpayment of such Mortgage indebtedness at maturity. Therefore, repayment of theMortgage will depend on Registrant's ability to arrange a refinancing. If theReal Estate continues to generate an annual net profit in future yearscomparable to that in past years, and if current real estate trends continue inthe geographic area in which the Real Estate is located, Registrant anticipatesthat the value of the Real Estate would be sufficient to cover the Mortgagebalance at maturity. 

Registrant anticipates that funds forworking capital for the Real Estate will be provided from rental paymentsreceived by Sublessee, which entity is required to make payments of Basic Rentand Additional Rent under the Sublease and, to the extent necessary, fromadditional capital investment by the Members of the Sublessee. Registrant has norequirement to maintain substantial reserves to defray any operating expenses ofthe Real Estate.

 

 

Registrant has the following contractualobligations:
**Payments due by  period**