60 East 42nd St. Associates L.L.C.

December 31, 2009

 

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, 2009

o  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 0-2670

60 EAST 42nd ST. ASSOCIATES L.L.C.

(Exact name of Registrant as specified in its charter)

A New York Limited Liability Company

13-6077181

(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:

$7,000,000 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    o

Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).   Yes o 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 o  Nox.

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 o  Accelerated Filer o  Non-Accelerated Filer o 

Smaller Reporting Company x

 

                                                  

PART I

Item 1.

Business.

(a)

General

Registrant was originally organized as a partnership on September 25, 1958.  On October 1, 1958, Registrant acquired fee title to One Grand Central Place (the "Building"), formerly known as the Lincoln Building, and the land thereunder, located at 60 East 42nd Street, New York, New York (the "Property"). On November 28, 2001, Registrant converted to a limited liability company under New York law and is now known as 60 East 42nd 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 liability to third parties. 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"). Registrant leases the Property to Lincoln Building Associates L.L.C. ("Lessee") under an operating lease as modified (the "Lease") the current term of which is set to expire September 30, 2033. See Item 2 below in connection with the granting of additional lease extensions.

Lessee is a New York limited liability company whose members consist of, among others, entities for the benefit of members of Peter L. Malkin’s family.  The Members in Registrant hold senior positions at Malkin Holdings LLC (“Malkin Holdings” or the "Supervisor") (formerly Wien & Malkin LLC) One Grand Central Place 60 East 42nd Street, New York, New York, which provides supervisory and other services to Registrant and to Lessee.  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 actual or potential conflicts of interest among Registrant, Lessee and certain of their respective affiliates.

As of December 31, 2009, the Building was approximately 77% occupied by approximately 362 tenants who engage in various businesses, including law, accounting, real estate, engineering and advertising.  Registrant does not maintain a staff.  See Item 2 hereof for additional information concerning the Property.

(b)

Mortgages Payable

On November 29, 2004, a first mortgage (“Mortgage”) was placed on the Property in the amount of $84,000,000 with Prudential Insurance Company of America to provide financing for the improvement program. At closing, $49,000,000 was drawn to pay off the former first mortgage with Morgan Guaranty Trust Company in the amount of $12,020,814 and the second mortgage in the amount of $27,979,186 with Emigrant Savings Bank. The remaining $35,000,000 available under the Mortgage was drawn on various dates through July 5, 2007. The proceeds of $49,000,000 drawn at closing and all subsequent draws have been used to pay for refinancing costs and capital improvements as needed. The initial draw of $49,000,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 5.34% per annum, until July 5, 2007. Commencing August 5, 2007, Registrant is required to make equal monthly payments of $507,838 applied to interest and then principal calculated on a 25 year amortization schedule. The entire $84,000,000 has been drawn and at December 31, 2009 the balance is $79,860,741. The Mortgage matures on November 5, 2014 at which time the principal balance will be $69,797,589. 

On November 5, 2009, Registrant concluded an additional $16,000,000 loan with Prudential Insurance Company of America secured by a mortgage on the Property, subordinate to the First Mortgage and to be used for capital improvements. The new loan requires monthly payments of interest at 7% per annum and principal in the amount of $113,085 calculated on a twenty-five year amortization schedule and is co-terminus with the Mortgage. At December 31, 2009 the balance is $15,980,249. The mortgage matures on November 5, 2014 with a principal balance of $14,613,782. 

The estimated fair value of Registrant’s mortgage debt based on available market information is approximately $91,110,000 as of December 31, 2009.

The mortgage loans 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 mortgages are paid in full during the last 60 days of the term.

Mortgage refinancing costs of $2,870,801 were capitalized by Registrant and are being amortized ratably over the terms of the mortgages.

(c)

The Lease

The Lease, as modified, provides that Lessee is required to pay to Registrant as follows:

 

(i)

annual basic rent ("Basic Rent") equal to the sum of $24,000 for supervisory services payable to Supervisor plus the constant annual mortgage charges on all mortgages. In the event of a mortgage refinancing, unless there is an increase in the mortgage balance, the annual Basic Rent will be modified and will be equal to the sum of $24,000 plus an amount equal to the revised mortgage charges. In the event that such mortgage refinancing results in an increase in the amount of outstanding principal balance of the mortgages, the Basic Rent shall be equal to $24,000 plus an amount equal to the product of the new debt service percentage rate under the refinanced mortgages multiplied by the principal balance of the mortgages immediately prior to the refinancing. In accordance with the Ninth Lease Modification Agreement dated November 5, 2009, Basic Rent was increased to cover debt service on a $100,000,000 mortgage. Basic Rent will be increased or decreased upon the refinancing of the mortgages provided that the aggregate principal balance of all mortgages now or hereafter placed on the Property does not exceed $100,000,000, plus refinancing costs.

(ii)

additional rent ("Additional Rent") equal to, on an annual basis, the lesser of (x) Lessee's net operating income (as defined) for the lease year ending September 30 or (y) $1,053,800 ($87,817 per month) and further additional rent (“Further Additional Rent”) equal to 50% of any remaining balance of Lessee’s net operating income for such lease year.  (Lessee has no obligation to make any payment of Additional Rent or Further Additional Rent until after Lessee has recouped any cumulative operating loss accruing from and after September 30, 1977.  There is currently no accumulated operating loss against which to offset payment of Additional Rent or Further Additional Rent.)

The Lease also requires an advance against Additional Rent equal to, on an annual basis, the lesser of (x) Lessee's net operating income for the preceding lease year or (y) $1,053,800, which, in the latter amount, will permit basic distributions to Participants at an annual rate of approximately 14.95% per annum on their remaining cash investment in Registrant; provided, however, if such advances exceed Lessee's net operating income for any lease year, advances otherwise required during the subsequent lease year shall be reduced by an amount equal to such excess until Lessee shall have recovered, through retention of net operating income, the full amount of such excess. After the Participants have received distributions equal to a return of 14% per annum, $7,380 is paid to Supervisor from the advances against Additional Rent.

Lessee is required to make an annual payment to Registrant of Further Additional Rent, which, as explained above, is the amount representing 50% of the remaining net operating income reported by Lessee for the lease year ending September 30th after deducting the advance against Additional Rent. The Lease requires that the report be delivered by Lessee to Registrant annually within 60 days after the end of each such lease year. Since it is not practicable to estimate Further Additional Rent for the lease year ending on the ensuing September 30th which would be allocable to the first nine months of the lease year until Lessee, pursuant to the Lease, renders to Registrant a report on the operation of the Property, Registrant recognizes Further Additional Rent when earned from the Lessee at the close of the lease year ending September 30th. 

For the lease year ended September 30, 2009, Lessee reported net operating income of $6,034,082. Lessee paid advances against Additional Rent of $1,053,800 for that lease year prior to September 30, 2009 and Further Additional Rent of $2,490,139 subsequent to September 30, 2009.  The Further Additional Rent of $2,490,139 represents 50% of the excess of the Lessee’s net operating income of $6,034,082 over $1,053,800. After deducting $100,000 for  general contingencies, $6,000 for annual New York State filing fees, $6,734 for professional fees and $237,741 as an additional required payment to Supervisor (See Item 11), the balance of $2,139,664 was distributed by Registrant to the Participants on November 30, 2009. 

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

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

Real estate taxes paid directly by the Lessee totaled approximately $10,395,749 and $9,166,315 for the years ended December 31, 2009 and 2008, respectively.

(d)

Competition

 

Pursuant to tenant space leases at the Building, the average base rent payable to Lessee is approximately $36.42 per square foot (exclusive of electricity charges and escalation). The asking rents for new leases at the building range from $40 to $60 per square foot. 

 

(e)

Tenant Leases

Lessee operates the Building free from any federal, state or local government restrictions involving rent control or other similar rent regulations. 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.

Item 2.

Property.

Registrant owns the Building located at 60 East 42nd Street, New York, New York, known as One Grand Central Place (formerly the "Lincoln Building"), and the land thereunder (Item 1).  Registrant's fee title to the Property is encumbered by mortgages with unpaid principal balances totaling $95,840,990 at December 31, 2009.  For a description of the terms of the mortgages, see Note 3 of the Notes to the Financial Statements. The Building, erected in 1930, has 55 floors, a con­course and a lower lobby.  It is located diagonally opposite Grand Central Terminal, on 42nd Street be­tween Park Avenue and Madison Avenue.  The Building is leased to Lessee.  See Item 1 hereof and Note 4 of the Notes to the Financial Statements for additional information con­cerning the Lease.

 

                        In 1999, the Participants of Registrant and the members in Lessee consented to a building improvements program (the "Program") estimated to cost approximately $22,800,000. In 2000, the Participants of Registrant and members in Lessee approved an increase in the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved.  To induce the Lessee to approve the Program, Registrant authorized the Agents to grant to the Lessee, upon completion of the Program, the right to further extensions of the Lease to 2083. The Program was further increased in 2004 to up to $100,000,000. Such increase is expected to permit extending the lease beyond 2083, based on the net present benefit to Registrant of the improvements made. The granting of such Lease extension rights upon completion of the Program is expected to trigger a New York State Transfer Tax under current tax rules, which will be paid from mortgage proceeds and/or the Lessee’s operating cash flow. As of December 31, 2009, the Registrant had incurred or accrued costs related to the Program of $64,412,520 and estimates that the Program upon completion will be approximately $100,000,000 including sprinkler work, required to be completed by 2019. The Participants of Registrant and the members in Lessee had approved increased refinancing of $16,000,000 from the total of $84,000,000 provided by the Mortgage to up to $100,000,000. As noted in Item 1(b), the additional $16,000,000 financing closed on November 5, 2009. Costs of the Program in excess of financing will be funded out of Lessee’s operating cash flow. 

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.  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 financial statements included in this Form 10-K.  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.

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 the Registrant's Common Equity and Related

Security Holder Matters.

Registrant, a limited liability company, was organized on September 25, 1958.

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 membership interests of the Members in Registrant (the "Participations") and are not shares of common stock or the equivalent.  The Participations represent each Participant's fractional share in a Member's undivided interest in Registrant.  One full unit of the Participations was offered at an original purchase price of $10,000; fractional units were also offered for proportionate purchase prices.  Registrant has not repurchased Participations in the past and 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 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 2009, Registrant was advised of 67 transfers of Participations.  In two instances, the indicated purchase price was equal to 2.5 times the face amount of the Participation transferred, i.e., $12,500 for a $5,000 Participation.  In six instances, the indicated purchase price was equal to two times the face amount of the Participation transferred.  In two instances, 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.

(b)

As of December 31, 2009, there were 828 holders of Participations of record.

(c)

Registrant does not pay dividends.  During each of the years ended December 31, 2009 and 2008, Registrant made regular monthly distributions of $124.57 for each $10,000 Participation.  On November 30, 2009 and November 30, 2008, Registrant made additional distributions for each $10,000 

Participation of $3,057 and $8,808, respectively.  Such distributions were derived from Further Additional Rent paid by Lessee subsequent to September 30, 2009 and 2008 in accordance with the terms of the Lease after deducting the Additional Payment to Supervisor, general contingencies, the annual New York State filing fees and professional fees.  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 and Further Additional Rent, depends on the ability of Lessee to make payments of Basic Rent, Additional Rent and Further Additional Rent to Registrant.  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.

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

SELECTED FINANCIAL DATA

(Unaudited)

The following table presents selected financial data of the Registrant for each of the five years in the period ended December 31, 2009.  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

 

2009

2008

2007

2006

2005

 

 

 

 

 

 

Basic rent income

$6,343,542

$6,050,507

$4,618,963

$3,278,174

$2,796,929

 

 

 

 

 

 

Advance of additional rent 

income

1,053,800

1,053,800

1,053,800

1,053,800

1,053,800

 

 

 

 

 

 

Further additional rent income

2,490,139

6,853,701

9,772,882

9,102,338

7,010,371

 

 

 

 

 

 

Miscellaneous income

-

-

1,500

-

-

 

 

 

 

 

 

Interest and dividend income

      2,541

     67,550

    347,765

     140,064

      128,510

 

 

 

 

 

 

Total revenue

9,890,022

14,025,558

15,794,910

13,574,376

  10,989,610

 

 

 

 

 

 

Net income

$2,362,310

$6,516,570

$8,386,847

$7,391,621

$  6,153,768

 

 

 

 

 

 

Earnings per $10,000 

  participation unit, based on 700 

  participation units outstanding 

  during the year

$3,375

$9,309

$11,981

$10,559

$8,791

 

 

 

 

 

 

Total assets

$83,182,002

$69,717,778

$77,577,444

$68,193,888

$57,422,999

 

 

 

 

 

 

Long-term obligations

$95,840,990

$81,638,398

$83,323,818

$66,000,000

$58,250,000

 

 

 

 

 

 

Distributions per $10,000 

  participation unit, based on 700 

  participation units outstanding 

  during the year:

 

 

 

 

 

Income

$3,375

$9,309

$11,981

$10,559

$8,791

Return of capital

1,177

    994

   1,723

    2,638

    1,716

Total distributions

$4,552

$10,303

$13,704

$13,197

$10,507

                                                                                                                                                                                                                                               

Item 6a.

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

QUARTERLY RESULTS OF OPERATIONS

(Unaudited)

The following table presents the Registrant’s unaudited operating results for each of the eight fiscal quarters in the period ended December 31, 2009.  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 Form 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,

June 30,

September 30,

December 31,

 

2009

2009

2009

2009

Statement of Income Data:

 

 

 

 

  Basic rent income

$1,529,514

$1,529,515

$1,529,514

$1,754,999

  Advance of additional income

263,450

263,450

263,450

263,450

  Further additional rent income

      - 

       -

2,490,139

       -

  Dividend income

         850

          624

           300

         767

    Total revenue

1,793,814

 1,793,589

 4,283,403

 2,019,216

 

 

 

 

 

  Interest on mortgages

1,086,002

1,080,135

1,074,189

1,254,716

  Supervisory services

7,845

7,845

245,586

7,845

 Depreciation of building

      improvements and equipment 

  

   412,420

 412,420

 

      412,420

   412,421

Amortization of leasing commissions

165,209

126,591

123,161

452,092

 Amortization of mortgage refinancing costs

52,777

52,777

52,777

78,101

Fees and miscellaneous expense

     31,000

       3,026

         3,708

    (27,351)

Total expenses

1,755,253

 1,682,794

 1,911,841

 2,177,824

 

 

 

 

 

    Net income (loss)

$38,561

$110,795

$2,371,562

($158,608)

Earnings (loss) per $10,000 participation unit, based on 700 participation units outstanding during each period

$55

$158

$3,388

($226)

                                                                                                                                                                                                                                            

Item 6a.

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

QUARTERLY RESULTS OF OPERATIONS (Continued)

(Unaudited)

                                                             Three Months Ended 

 

March 31,

June 30,

September 30,

December 31,

 

2008

2008

2008

2008

Statement of Income Data:

 

 

 

 

  Basic rent income

$1,490,425

$1,510,914

$1,522,073

$1,527,095

  Advance of additional income

263,450

263,450

263,450

263,450

  Further additional rent income

      - 

       -

6,853,701

       -

  Interest and dividend income

     39,089

     18,601

      7,441

      2,419

    Total revenue

1,792,964

 1,792,965

 8,646,665

 1,792,964

 

 

 

 

 

  Interest on mortgages

1,108,703

1,103,141

1,097,504

1,091,790

  Supervisory services

7,845

7,845

692,915

7,845

 Depreciation of building

      improvements and equipment 

   412,665

 412,665

   

  412,665

   412,665

Amortization of leasing commissions

131,425

132,881

132,881

132,094

Amortization of mortgage refinancing costs

52,777

52,777

52,777

52,778

Fees and miscellaneous expense

         350

               -

               -

              -

Total expenses

1,713,765

 1,709,309

 2,388,742

 1,697,172

 

 

 

 

 

Net income 

$79,199

$83,656

$6,257,923

$95,792

Earnings per $10,000 participation unit, based on 700 participation units outstanding during each period

$113

$120

$8,940

$137

                                                                                                                                                                                                                          

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 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 projected. 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 our 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 have been applied consistently as at December 31, 2009 and 2008, and for the years ended December 31, 2009 and 2008. 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 constant annual mortgage charges plus a fixed amount. Registrant records basic rental income as earned ratably on a monthly basis. Additional Rent represents a fixed amount of the Lessee’s net operating profit, as defined, in each lease year and is recorded ratably over the twelve month period. Further Additional Rent, which is based on the net operating profit of the Lessee, as defined, is recorded by Registrant when such amount becomes determinable.

Financial Condition and Results of Operations

Registrant was organized for the purpose of acquiring the Property subject to an operating lease held by Lessee.  Registrant is required to pay, from Basic Rent under the Lease, mortgage charges and amounts for supervisory services. Registrant is required to pay from Additional Rent and Further Additional Rent an Additional Payment to Supervisor and other expenses  and then to distribute the balance of such Additional Rent and Further Additional Rent less any additions to reserves to the Participants.  Under the Lease, Lessee has assumed sole responsibility for the condition, operation, repair, maintenance and management of the Property.  Registrant is not required to maintain substantial reserves or otherwise maintain liquid assets to defray any operating expenses of the Property.

The following summarizes the material factors affecting Registrant's results of operations for the three years ended December 31, 2009:

Total revenues decreased for the year ended December 31, 2009 as compared with the year ended December 31, 2008.  Such decrease is the net result of an increase in Basic Rent and a decreased amount of Further Additional Rent received by Registrant in 2009 and dividend income. The decrease in Further Additional Rent in 2009 is due to a decrease in Lessee’s operating profit subject to Further Additional Rent. 

Total expenses increased for the year ended December 31, 2009 as compared with the year ended December 31, 2008. Such increase is the net result of an increase in interest, amortization expense and fees for special services and a decrease in the Additional Payment to Supervisor in 2009 and depreciation of assets. 

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

Liquidity and Capital Resources

Registrant's liquidity has increased at December 31, 2009 as compared to December 31, 2008 due to the proceeds of the additional $16,000,000 mortgage.  Registrant may from time to time set aside cash for contingencies. Recent adverse developments in credit and investment markets have impaired liquidity in the market generally and 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 36 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.    

The Participants of Registrant and the members in Lessee had approved increased financing of $16,000,000 which closed on November 5, 2009 from the total of $84,000,000 provided by the Mortgage to up to $100,000,000. The balance of the costs of the Program will be financed by the new $16,000,000 mortgage and Lessee’s operating cash flow. 

The mortgages mature on November 5, 2014. 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 mortgage balances at maturity.  

Registrant anticipates that funds for working capital for the Property will be provided by rental payments received from Lessee and, to the extent necessary, from additional capital investment by the members in 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.

Registrant has the following contractual obligations:

**Payments due by period**

**Contractual Obligations**

**Total**

**Less than1 year**

**1-3 years**

**3-5 years**

**More than5 years**

Long-Term Debt Obligations

 

$95,840,990

 

$2,121,140

 

$4,610,402

 

$89,109,448

 

$0

Interest Obligations

24,979,750

5,329,934

10,291,745

9,358,071

0

Capital Lease Obligations

0

0

0

0

0

Purchase Obligations

0

0

0

0

0

Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet 

 

0

0

0

 

0

0

Total

$120,820,740

$7,451,074

$14,902,147

$98,467,519

$0

Inflation

Inflationary trends in the economy do not directly affect Registrant's operations since, as noted above, 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 Additional Rent and Further Additional 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, 2009 and 2008 and for each of the two years in the period ended December 31, 2009 and the financial statements of the Lessee as of and for the year ended December 31, 2009 are included in this annual report immediately following Exhibit 32.2.

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, 2009, 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 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 on behalf of management 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 directors; 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, 2009, Registrant’s internal control over financial reporting was effective.

This annual report does not include an attestation report of Registrant’s current registered public accounting firm regarding internal control over financial reporting. The Registrant’s Supervisor’s report was not subject to attestation by Registrant’s current registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit Registrant to provide only its report in this annual report.

PART III

Item 10.

Directors and Executive Officers of the Registrant.

Registrant has no directors or officers or any other centralization of management.  There is no specific term of office for any Member.  The table below sets forth as to each Member as of December 31, 2009 the following:  name, age, nature of any family relationship with any other Member, business experience during the past five years and principal occupation and employment during such period, including the name and principal business of any corporation or any organization in which such occupation and employment was carried on and the date such individual became a Member:

Name

Age

Nature of Family Relationship

Business Experience

Principal Occupation and Employment

Date Individual became an Agent

Peter L. Malkin

76

Father of Anthony E. Malkin 

Real Estate Supervision

Chairman, Malkin Holdings LLC

1970

Anthony E. Malkin

48

Son of Peter L. Malkin

Real Estate Supervision and Management

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

1997

Thomas N. Keltner, Jr.

64

None

Real Estate Supervision

General Counsel,

Malkin Holdings LLC

1996

As stated above, all three 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 which may pose actual or potential conflicts of interest among Registrant, Lessee and certain of their respective affiliates.

The names of entities which have a class of securi­ties registered pursuant to Section 12 of the Securities Exchange Act of 1934 or are subject to the requirements of Section 15(d) of that Act, and in which the Members are either a director, member or general partner are as follows:

Peter L. Malkin is a member in 250 West 57th St. Associates L.L.C. and a member in Empire State Building Associates L.L.C.

Anthony E. Malkin is a member in 250 West 57th Street Associates L.L.C. and a member in Empire State Building Associates L.L.C.

Thomas N. Keltner, Jr. is a member in Empire State Building Associates L.L.C.

Item 11.

Executive Compensation.

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

 

Registrant’s organizational documents do not provide for a board of directors or officers. As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC. No remuneration was paid during the current fiscal year ended December 31, 2009 by Registrant to any of the Members as such. The supervisory fees are $24,000 per annum plus an Additional Payment of 10% of all distributions received by Participants in Registrant in excess of 14% per annum on their re­maining cash invest­ment in Registrant (which remaining cash investment at December 31, 2009 was equal to the Participants’ original cash investment of $7,000,000). 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 distribution.

 Pursuant to such fee arrangements, Registrant paid Supervisor a total of $269,121 (consisting of $24,000 as an annual basic fee for supervisory services and $245,121 as an Additional Payment) during the year ended December 31, 2009. 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 and 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.

Item 12.

Security Ownership of Certain Beneficial Owners and Management.

(a)

Registrant has no voting securities.  See Item 5 hereof.  At December 31, 2009, no person owned of record or was known by Registrant to own beneficially more than 5% of the outstanding Participations.

(b)

At December 31, 2009, the Members (see Item 10 hereof) beneficially owned, directly or indirectly, the following Participations:

Title of Class

Name & Address of Benefical Owners

Amount of Beneficial Ownership

Percent of Class

Participations

Anthony E. Malkin

One Grand Central Place

60 East 42nd Street

New York, N.Y.  10165

$25,833

0.37%

 

 

 

 

 

Thomas N. Keltner, Jr.

One Grand Central Place

60 East 42nd Street

New York, N.Y.  10165

$2,500

0.04%

At such date, certain of the Members (or their respective spouses) held additional Participations as follows:

Peter L. Malkin owned of record as trustee or co-trustee an aggregate of $169,049 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 $135,000 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations, except that related trusts are required to complete scheduled payments to him.

Anthony E. Malkin owned of record as co-trustee an aggregate of $25,000 of Participations. He disclaims any beneficial ownership of such Participations.

Trusts for the benefit of members of Anthony E. Malkin's family owned of record and beneficially $40,000 of Participations.  Anthony E. Malkin disclaims any beneficial ownership of such Participations.

(c)

Not applicable.

Item 13.

Certain Relationships and Related Transactions.

(a)

As stated in Items 1 and 10 hereof, Peter L. Malkin, Anthony E. Malkin, and Thomas N. Keltner, Jr. are the three Members in Registrant and also act as Agents for Participants in their respective Participation interests therein.  Mr. Peter Malkin is also among the members in Lessee.  As a consequence of one of the three Members being a member in Lessee and all three Members 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 the Participants' behalf.  Such transactions, among others, include modification and extension of the Lease or the mortgages, or a sale or other disposition of the Property or substantially all of Registrant's other assets.

See Items 1 and 2 hereof for a description of the terms of the Lease. The respective interests, if any, of the Members in Registrant and Lessee arise solely from ownership of their respective Participations, and, in the case of Peter L. Malkin, his individual ownership of a member interest 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 of the Members hold senior positions at Supervisor and by reason of their positions at Supervisor may receive income attributable to supervisory or other remuneration paid to Supervisor by Registrant and Lessee.  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 interests of the Members in any remuneration paid or given by Registrant to Supervisor arises solely from such Member's interest in Supervisor.  See Item 11 hereof for a description of the remuneration arrangements between Registrant and Supervisor relating to supervisory services provided by 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 by Malkin Holdings LLC, the Supervisor of Registrant, to Margolin, Winer & Evens LLP for professional services for the years ended December 31, 2009 and 2008, respectively,  were as follows:

Fee Category

2009

2008

 

 

 

Audit Fees

$53,000

$50,500

Audit-Related Fees

-

-

Tax Fees

7,000

6,500

All Other Fees

            -

           -

     Total Fees

$60,000

$57,000

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.

Audit-Related Fees.  Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Registrant’s financial statements and are not reported under “Audit Fees.”  

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 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 Registrant.

For all services, 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 can 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, Financial Statement Schedules and

Reports on Form 10-K.

(a)(1) Financial Statements

    (2) 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 indices to those financial statements and financial statement schedules of the Registrant and the Lessee included immediately following Exhibit 32.2.

 (3) Exhibits: See Exhibit Index.

                                                                                                                                                                                                                                                

EXHIBIT INDEX

Number

Document

Page*

3 (a)

Partnership Agreement, dated September 25, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 3 to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto.

 

 

3 (b)

Amended Business Certificate of Registrant filed with the Clerk of New York County on November 28, 1997, reflecting a change in the Partners of Registrant, was filed as Exhibit 3(b) to Registrant's 10-Q for the quarter ended March 31, 1998, and is incorporated by reference as an exhibit hereto. 

 

 

3 (c)

Registrant’s Consent and Operating Agreement dated as of November 28, 2001

 

 

3 (d)

Certificate of Conversion of Registrant to a limited liability company dated November 28, 2001 filed with the New York Secretary of State on December 3, 2001.

 

 

4

Form of Participating Agreement, which was filed as Exhibit No. 4 to Registrant's Form S-1 Registration Statement, as amended (the "Registration Statement") by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto.

 

 

10 (a)

Deed of Lincoln Building to WLKP Realty Corp., which was filed as Exhibit No. 5 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto.

 

 

10 (c)

Form of Lease between Registrant

and Lincoln Building Associates, which 

was filed as Exhibit No. 9 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto.

 

 

10 (d)

Deed from Lincoln Building Associates

to Registrant, dated October 1, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 10(d) to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference, as an exhibit hereto.

 

 

10 (e)

Second Modification of Lease Agreement,

dated January 1, 1977, which was filed by letter dated March 28, 1980 (Commission File No. 0-2670) as Exhibit II under Item 10(b) of Registrant's Form 10-K for the fiscal year ended December 31, 1979, is incorporated by reference as an exhibit hereto.

 

 

 

10 (f)

Third Modification of Lease Agreement,

which was filed by letter dated March 28, 1980 (Commission File No. 0-2670) as Exhibit II under Item 10(b) of Registrant's Form 10-K for the fiscal year ended December 31, 1979, is incorporated by reference as an exhibit hereto.

 

 

24

Powers of Attorney dated October 9, 2003, October 22, 2003 and October 23, 2003 between the Partners of Registrant and Mark Labell which was filed as Exhibit 24 to Registrant’s 10-Q for the period ended September 30, 2003 and is incorporated by reference as an exhibit hereto.

 

 

31.1

Certification of Mark Labell, 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 Mark Labell, 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

 

_______________________

-

Page references are based on a sequential numbering system.

                                                                                                                                                                                                                                        

SIGNATURE

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

The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Members in Registrant, pursuant to Powers of Attorney, dated October 9, 2003, October 22, 2003 and October 23, 2003 (the "Power").

60 EAST 42ND ST. ASSOCIATES L.L.C.

(Registrant)

 By: /s/ Mark Labell _______

   Mark Labell*, Attorney-in-Fact on behalf of:

Peter L. Malkin, Member

Anthony E. Malkin, Member

Thomas N. Keltner, Jr., Member

Date:  June 17, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned as Attorney-in-Fact for each of the Members in Registrant, pursuant to the Power, on behalf of Registrant and as a Member in Registrant on the date indicated.

By: /s/ Mark Labell _____

   Mark Labell*, Attorney-in-Fact on behalf of:

Peter L. Malkin, Member

Anthony E. Malkin, Member

Thomas N. Keltner, Jr., Member

Date:  June 17, 2010

______________________

* Mr. Labell supervises accounting functions for Registrant.

                                                                                                                                                                                                                                       

**Exhibit 31.1**

**CERTIFICATIONS**

I, Mark Labell, certify that:

1.

I have reviewed this annual report on Form 10-K of 60 East 42nd St. Associates L.L.C.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.

The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

(a)

Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.

The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the 

audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls over financial reporting.

Date: June 17, 2010

By /s/ Mark Labell

Name:

Mark Labell 

Title:

Senior Vice President, Finance 

Malkin Holdings LLC, Supervisor of 

60 East 42nd St. Associates L.L.C.

Registrant’s organizational documents do not provide for a Chief Executive Officer or other officer with equivalent rights and duties.  As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC.  Accordingly, this Chief Executive Officer certification is being signed by a senior executive of Registrant’s supervisor.

                                                                                                                                                                                            

**Exhibit 31.2**

**CERTIFICATIONS**

I, Mark Labell, certify that:

1.

I have reviewed this annual report on Form 10-K of 60 East 42nd St. Associates L.L.C.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.

The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

(a)

Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.

The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls over financial reporting.

Date: June 17, 2010

By /s/ Mark Labell

Name: Mark Labell 

Title: Senior Vice President, Finance 

Malkin Holdings LLC, Supervisor of 

60 East 42nd St. Associates L.L.C.

Registrant’s organizational documents do not provide for a Chief Financial Officer or other officer with equivalent rights and duties.  As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC.  Accordingly, this Chief Financial Officer certification is being signed by a senior member of the financial/accounting staff of Registrant’s supervisor. 

                                                                                                                                                                                                                                         

**Exhibit 32.1**

**Certification Pursuant to 18 U.S.C., Section 1350 as adopted**

**Pursuant to Section 906**

**of Sarbanes – Oxley Act of 2002**

The undersigned, Mark Labell, is signing this Chief Executive Officer certification as Senior Vice President, Finance of Malkin Holdings LLC, the Supervisor* of 60 East 42nd St. Associates L.L.C. (“Registrant”) to certify that:

1.

the Annual Report on Form 10-K of Registrant for the period ended December 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and

2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

Dated: June 17, 2010

By  /s/ Mark Labell 

Mark Labell

Senior Vice President, Finance

Malkin Holdings LLC, Supervisor

*Registrant’s organizational documents do not provide for a Chief Executive Officer or other officer with equivalent rights and duties.  As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC.  Accordingly, this Chief Executive Officer certification is being signed by a senior executive of Registrant’s supervisor.

                                                                                                                                                                                                                                      

**Exhibit 32.2**

**Certification Pursuant to 18 U.S.C., Section 1350 as adopted**

**Pursuant to Section 906**

**of Sarbanes – Oxley Act of 2002**

           The undersigned, Mark Labell, is signing this Chief Financial Officer certification as a senior member of the financial/accounting staff of Malkin Holdings LLC, the Supervisor* of 60 East 42nd St. Associates L.L.C. (“Registrant”), to certify that:

1.

the Annual Report on Form 10-K of Registrant for the period ended December 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and

2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

Dated: June 17, 2010

By /s/ Mark Labell 

Mark Labell 

Senior Vice President, Finance

Malkin Holdings LLC, Supervisor

*Registrant’s organizational documents do not provide for a Chief Financial Officer or other officer with equivalent rights and duties.  As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC.  Accordingly, this Chief Financial Officer certification is being signed by a senior member of the financial/accounting staff of Registrant’s supervisor.  

                                                                                                                                                                                                                                               

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

60 EAST 42ND STREET ASSOCIATES L.L.C.

(A Limited Liability Company)

Report of Margolin, Winer & Evens LLP -- Independent Registered Public Accounting Firm 

Balance Sheets as of December 31, 2009 and 2008 

Statements of Income for the Years Ended December 31, 2009 and 2008 

Statements of Members' Deficiency for the Years Ended December 31, 2009 and 2008 

Statements of Cash Flows for the Years Ended December 31, 2009 and 2008 

Notes to Financial Statements 

SCHEDULE III - Real Estate and Accumulated Depreciation as of December 31, 2009 

All other schedules are omitted as the information is not required, is not material or is otherwise provided       

                                                                                                                                                                                                                                                              

[Letterhead of Margolin, Winer & Evens LLP]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

60 East 42nd St. Associates L.L.C.

(a Limited Liability Company)

New York, New York

We have audited the accompanying balance sheets of 60 East 42nd St. Associates L.L.C. (“Associates”) as of December 31, 2009 and 2008 and the related statements of income, members' deficiency and cash flows for the years then ended, and the supporting financial statement schedule, Schedule III-Real Estate and Accumulated Depreciation for the years ended December 31, 2009 and 2008, also included in this Form 10-K.  These financial statements and schedule are the responsibility of Associates’ management.  Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with 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.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 60 East 42nd St. Associates L.L.C. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America, and the related financial statement schedule for the years ended December 31, 2009 and 2008, 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/ Margolin, Winer & Evens LLP

Garden City, New York

June 17, 2010

                                                                                                                                                                                                                                                

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

 

 

 

 

 

 

 

 

BALANCE SHEETS

 

 

 

 

 

December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

Assets

 

 

 

 

 

 

Real Estate:

 

 

 

 

 

 

Building:

 

 

 

 

 

 

One Grand Central Place, located at 60 East 42nd Street

 

 

 

 

 

and 301 Madison Avenue, New York, N.Y.

 

 $ 16,960,000 

 

 $ 16,960,000 

 

 

Less: Accumulated depreciation

 

    16,960,000 

 

    16,960,000 

 

 

 

 

 

                   -   

 

                   -   

 

Building improvements and equipment

 

    65,986,655 

 

    65,986,655 

 

 

Less: Accumulated depreciation

 

    10,439,517 

 

      8,789,836 

 

 

 

 

 

    55,547,138 

 

    57,196,819 

 

Land

 

      7,240,000 

 

     7,240,000 

 

 

 

Total real estate, net

 

    62,787,138 

 

    64,436,819 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Cash in bank

 

           66,112 

 

           23,738 

 

Cash in distribution account held by Malkin 

Holdings LLC, a related party

 

           87,202 

 

           87,202 

 

Fidelity U.S. Treasury Income Portfolio

 

    16,657,089 

 

      1,241,787 

 

 

 

Total cash and cash equivalents

 

    16,810,403 

 

      1,352,727 

 

 

 

 

 

 

 

 

Leasing commissions, less accumulated amortization of

 

 

 

 

    $2,298,166 in 2009 and $1,431,113 in 2008

 

      1,811,655 

 

      2,678,708 

Mortgage refinancing costs, less 

 

 

 

 

 accumulated amortization of $1,097,995 in 

 

 

 

 

    2009 and $861,563 in 2008 

 

      1,772,806 

 

      1,249,524 

 

 

 

Total assets

 

$  83,182,002 

 

 $ 69,717,778 

 

 

 

 

 

 

 

 

Liabilities and members' deficiency

 

 

 

 

Liabilities:

 

 

 

 

 

 

Mortgages payable 

 

 $ 95,840,990 

 

 $ 81,638,398 

 

Accrued mortgage interest

 

         448,598 

 

         363,291 

 

Payable to lessee, a related party

 

               685 

 

               585 

 

Building improvement costs payable

 

         350,037 

 

         350,037 

 

Accrued expenses

 

               700 

 

               701 

 

 

 

Total liabilities

 

    96,641,010 

 

    82,353,012 

 

 

 

 

 

 

 

 

 

Commitments and contingencies 

 

                   -   

 

                   -   

 

Members' deficiency 

 

 (13,459,008)

 

 (12,635,234)

 

 

 

Total liabilities and members' deficiency

 

 $ 83,182,002 

 

 $ 69,717,778 

 

 

 

See accompanying notes to financial statements.

 

 

 

 

                                                                                                                                                                                                                                 

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

 

 

 

 

 

 

 

 

STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

Revenues:

 

 

 

 

 

 

Rent income, from a related party

 

 $     9,887,481 

 

 $   13,958,008 

 

Dividend income

 

               2,541 

 

             67,550 

 

 

 

Total revenue

 

        9,890,022 

 

      14,025,558 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

Interest on mortgages

 

        4,495,042 

 

        4,401,138 

 

Supervisory services, to a related party

 

           269,121 

 

           716,450 

 

Depreciation of building improvements and equipment

        1,649,681 

 

        1,650,660 

 

Amortization of leasing commissions

 

           867,053 

 

           529,281 

 

Amortization of mortgage refinancing costs

 

           236,432 

 

           211,109 

 

Professional fees

 

               6,734 

 

                   -   

 

Miscellaneous

 

               3,649 

 

                 350 

 

 

 

Total expenses

 

        7,527,712 

 

       7,508,988 

 

 

 

 

 

 

 

 

Net income

 

 

 $     2,362,310 

 

 $    6,516,570 

 

 

 

 

 

 

 

 

 

Earnings per $10,000 participation unit, based on 700 participation units outstanding during each year

 

         $ 3,375

 

    $ 9,309

 

 

 

 

 

 

 

 

                                                                                                                                                                                                                                                  

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company

STATEMENT OF MEMBERS' DEFICIENCY

 

 

 

Members

Deficiency

January 1, 2009

Share of

Net income For Year

Distributions

Members’ Deficiency December 31, 2009

Year Ended December 31, 2009:

 

 

 

 

Peter L. Malkin Group

$(1,805,034)

$337,473

$455,155

$(1,922,716)

 

 

 

 

 

Thomas N. Keltner, Jr. Group

(1,805,033)

337,473

455,155

(1,922,715)

 

 

 

 

 

Peter L. Malkin Group

(1,805,033)

337,473

455,155

(1,922,715)

 

 

 

 

 

Anthony E. Malkin Group

(1,805,033)

337,473

455,155

(1,922,715)

 

 

 

 

 

Peter L. Malkin Group

(1,805,033)

337,473

455,155

(1,922,715)

 

 

 

 

 

Peter L. Malkin Group

(1,805,033)

337,473

455,155

(1,922,715)

 

 

 

 

 

Peter L. Malkin Group

(1,805,033)

337,472

455,154

(1,922,717)

 

 

 

 

 

TOTALS

$(12,635,234)

$2,362,310

$3,186,084

$(13,459,008)

See accompanying notes to financial statements.

 

                                                                                                                                                                                               

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company

STATEMENT OF MEMBERS' DEFICIENCY

 

 

 

Members

Deficiency

January 1, 2008

Share of

Net income For Year

Distributions

Members’ Deficiency December 31, 2008

Year Ended December 31, 2008:

 

 

 

 

Peter L. Malkin Group

$(1,705,680)

$930,939

$1,030,293

$(1,805,034)

 

 

 

 

 

Thomas N. Keltner, Jr. Group

(1,705,679)

930,939

1,030,293

(1,805,033)

 

 

 

 

 

Peter L. Malkin Group

(1,705,678)

930,938

1,030,293

(1,805,033)

 

 

 

 

 

Anthony E. Malkin Group

(1,705,678)

930,938

1,030,293

(1,805,033)

 

 

 

 

 

Peter L. Malkin Group

(1,705,678)

930,938

1,030,293

(1,805,033)

 

 

 

 

 

Peter L. Malkin Group

(1,705,679)

930,939

1,030,293

(1,805,033)

 

 

 

 

 

Peter L. Malkin Group

(1,705,681)

930,939

1,030,293

(1,805,035)

 

 

 

 

 

TOTALS

$(11,939,753)

$6,516,570

$7,212,051

$(12,635,234)

 

 

See accompanying notes to financial statements.
                                                                                                                                                                                                                                                     

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

 

STATEMENTS OF CASH FLOWS

 

Year ended December 31,

 

2009

2008

 

 

 

**Cash flows from operating activities:**

 

 

 

Net income

$2,362,310

$6,516,570

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 Depreciation of building improvements and equipment

1,649,681

1,650,660

 

 Amortization of leasing commissions

867,053

529,281

 

 Amortization of mortgage refinancing costs

236,432

211,109

 

Changes in operating assets and liabilities:

 

 

 

Accrued mortgage interest and other accrued expenses

     85,406

     (7,721)

 

 

 

 

 

Net cash provided by operating activities

  5,200,882

  8,899,899

**Cash flows from investing activities:**

 

 

 

Purchase of building improvements and equipment

-

(4,142,869)

 

Change in restricted cash for payment of building  

 improvement costs

              -

6,547,678

 

 

 

 

 

Net cash provided by investing activities

             -

 2,404,809

 

 

 

**Cash flows from financing activities:**

 

 

 

Proceeds of mortgage payable 

16,000,000

-

 

Repayment of mortgages payable

(1,797,408)

(1,685,420)

 

Decrease in due to lessee 

-

(1,328,175)

 

Payments for financing costs

  (759,714)

-

 

Distributions to participants

(3,186,084)

(7,212,051)

 

Net cash provided by (used in) financing activities

10,256,794

(10,225,646)

 

 

 

Net increase in cash and cash equivalents   

15,457,676

1,079,062

 

 

 

Cash and cash equivalents, beginning of year

  1,352,727

  273,665

CASH AN

Cash and cash equivalents, end of year

$16,810,403

$1,352,727

 

 

 

Supplemental disclosure of cash flow information:

 

 

Cash paid for interest

$4,409,734

$4,408,638

See accompanying notes to financial statements.

                                                                                                                                                                                                                                   

60 EAST 42nd ST. ASSOCIATES L.L.C.

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

1.

Business Activity 

60 East 42nd St. Associates L.L.C. ("Associates") is a New York limited liability company owning commercial property at 60 East 42nd Street and 301 Madison Avenue, New York, N.Y.  The property, known as One Grand Central Place (formerly the "Lincoln Building"), is leased (the “Lease”) to Lincoln Building Associates L.L.C. (the "Lessee").

2.

Summary of Significant Accounting Policies

a.

Cash and Cash Equivalents

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

b.

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.

 
               c.    Land, Building, Building Improvements, Equipment and Depreciation
Real estate, consisting of land, building, building improvements and equipment, is stated at cost.  The building and the building improvements are depreciated using the straight-line basis over their estimated useful lives of 39 years. The building with a cost of $16,960,000 and building improvements with a cost of $1,574,135 at December 31, 2009 have been fully depreciated.

In connection with the building improvements program which began in 1999 (Note 11), costs totaling $64,412,520 have been incurred through December 31, 2009 for new building improvements ($64,282,520) and equipment ($130,000) which have been put into service.  

d.  Mortgage Refinancing Costs, Leasing Commissions and Amortization

Mortgage refinancing costs are being amortized ratably over the term of the related mortgages.

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.

e.

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. 

Additional rent represents a fixed amount of the Lessee’s net operating profit, as defined, in each lease year and is recorded ratably over the twelve month period. Further additional rent, which is based on the net operating profit of the Lessee, as defined, is recorded by Associates when such amounts become determinable.

f.

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.

g.

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, 2006, December 31, 2007, December 31, 2008 and December 31, 2009 are subject to IRS and other jurisdictions tax examinations.

At December 31, 2009 and 2008, the reported amounts of Associates’ net assets and liabilities exceeded their tax bases by approximately $4,330,000 and $3,120,000, respectively.

h.

Recent Accounting Pronouncements:

In June 2009, the FASB issued FASB ASC Topic 105, Generally Accepted Accounting Principles*,*which establishes the FASB Accounting Standards Codification as the sole source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all then-existing non-SEC accounting and reporting standards. The Codification did not change GAAP but reorganizes the literature.  Pursuant to the provisions of FASB ASC Topic 105, Associates has updated references to GAAP in its financial statements issued for the period ended December 31, 2009.  The adoption of FASB ASC Topic 105 did not impact Associates’ financial position or results of operations.

        3.      Mortgages Payable

On November 29, 2004, a new first mortgage was placed on the property in the amount of $84,000,000 with Prudential Insurance Company of America. At closing, $49,000,000 was drawn to pay off the former first mortgage with Morgan Guaranty Trust Company in the amount of $12,020,814 and the second mortgage in the amount of $27,979,186 with Emigrant Savings Bank. The remaining proceeds of $9,000,000 and all subsequent draws were used to pay for refinancing costs and capital improvements as needed. The initial draw of $49,000,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 5.34% per annum until July 5, 2007. Commencing August 5, 2007, Associates is required to repay the full $84,000,000 in equal payments of $507,838 applied to interest and then principal, calculated on a 25 year amortization schedule. The entire $84,000,000 has been drawn and at December 31, 2009 the balance is $79,860,741. The mortgage matures on November 5, 2014 at which time the principal balance will be $69,797,589. 

On November 5, 2009, Associates concluded an additional $16,000,000 loan with Prudential Insurance Company of America secured by a mortgage on the property, subordinate to the first mortgage and to be used for capital improvements. The new loan requires monthly payments of $113,085 applied to interest at the rate of 7% per annum and principal calculated on a twenty-five year amortization schedule and is co-terminus with the first mortgage. At December 31, 2009 the balance is $15,980,249. The mortgage matures on November 5, 2014 with a principal balance of $14,613,782.

The mortgage loans 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 mortgages are paid in full during the last 60 days of the term.

The following is a schedule of principal payments on both mortgages in each of the five years subsequent to December 31, 2009:

          Year ending

          December 31,

 

           2010

$2,121,138

           2011

 2,241,545

           2012

2,368,853

           2013

2,503,464

           2014

86,605,990

           Total

$95,840,990

The real estate is pledged as collateral for the mortgages.

The estimated fair value of Associates’ mortgage debt based on available market information was $91,110,000 and $77,400,000 at December 31, 2009 and 2008, respectively.

    4.

Related Party Transactions - Rent Income 

Associates does not operate the property (Note 1). It leases the property to the Lessee pursuant to an operating lease as modified, which is currently set to expire September 30, 2033. The Lease, as modified, provides for an annual basic rent equal to the sum of the constant annual mortgage charges on all mortgages, plus $24,000 for supervisory services.  In accordance with the Ninth Lease Modification Agreement dated November 5, 2009, basic rent was increased to cover debt service on a $100,000,000 mortgage. The basic rent will be increased or decreased upon the refinancing of the mortgages provided that the aggregate principal balance of all mortgages now or hereafter placed on the property does not exceed $100,000,000 plus refinancing costs.

The Lease, as modified, also provides for payments of total additional rent, as follows:

1.

Advances of additional rent are payable in equal monthly installments totaling an amount equal to the lesser of $1,053,800 ($87,817 per month) or the defined net operating profit of the Lessee during the preceding fiscal year ended September 30th (the "lease year"); and

 

2.

Further additional rent is payable in an amount equal to 50% of the Lessee's remaining net operating profit, as defined, in each lease year.

Advances of additional rent are billed to and advanced by the Lessee and recorded in revenues by Associates in equal monthly installments of $87,817 throughout each year. Since it is not practicable  

to estimate total additional rent for the lease year ending on the ensuing September 30th 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 further additional rent when earned from the Lessee at the close of the lease year ending September 30th. 

Rent income, including total additional rent based on operating profits subject to additional rent, reported by the Lessee of $6,034,082 and $14,761,201 for 2009 and 2008, respectively, was comprised as follows:

 

Year ended December 31,

 

2009

2008

          Basic rent income

$6,343,542

$6,050,507

          Advance of additional rent

1,053,800

1,053,800

          Further additional rent

  2,490,139

  6,853,701 

         Total additional rent

 3,543,939

 7,907,501

          Rent income

$9,887,481

$13,958,008

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

Under the building improvement program (Note 11), the increase in debt service attributable to an increase in the mortgage is funded by a corresponding increase in basic rent payable by the Lessee.

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,

 

            2010

$  7,480,000

            2011

    7,480,000

            2012

    7,480,000

            2013

    7,480,000

            2014

    6,230,000 *

          Thereafter

       440,000 *

 

$36,590,000      

 

 

*Associates intends to refinance the existing mortgages which mature on November 5, 2014. In accordance with the Ninth Lease Modification Agreement, 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 November 2014 from the refinanced debt

Real estate taxes paid directly by the Lessee for the years ended December 31, 2009 and 2008 totaled $10,395,749 and $9,166,315, respectively.

 

5.  Related Party Transactions - Supervisory and Other Services

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

Basic fees for supervisory services are $24,000 per annum. Fees for supervisory services (including disbursements and costs of accounting services) for the years ended December 31, 2009 and 2008 totaled $269,121 and $716,450, respectively. Malkin Holdings receives an additional payment equal to 10% of all distributions received by the participants in Associates in excess of 14% per annum on the initial cash investment of $7,000,000. For tax purposes, such additional payment is treated 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 $245,121 and $692,450 for the years ended December 31, 2009 and 2008, respectively.

Malkin Holdings also serves as supervisor for the Lessee, for which it receives a basic annual fee of $180,000. For the years ended December 31, 2009 and 2008, Malkin Holdings received $44,333 and $140,686, respectively, from the Lessee in other service fees. Malkin Holdings also receives a payment from Lessee in respect of its profits interest equal to 10% of distributions in excess of $400,000 a year. Distributions in respect of Malkin Holdings’ profits interest from the Lessee totaled $460,004 and $960,004 for the years ended December 31, 2009 and 2008, respectively.

      6.

  Number of Participants

There were 828 and 817 participants in the participating groups at December 31, 2009 and 2008, respectively.

7.    Determination of Distributions to Participants

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

8.  Distributions and Amount of Income per $10,000 Participation Unit 

Distributions and amount of income per $10,000 participation unit during the years ended December31, 2009 and 2008, based on 700 participation units outstanding during each year, consisted of the following:

 

Year ended December 31,

 

2009

2008

            Income

$3,375

$9,309

            Return of capital

     1,177

     994

                    Total distributions

$4,552

$10,303

9.

Concentration of Credit Risk

Associates maintains cash and cash equivalents in a bank, a money market fund (Fidelity U.S. Treasury Income Portfolio) and a distribution account held by Malkin Holdings. The Federal Deposit Insurance Corporation (“FDIC”) insures each account up to $250,000. In addition, under the FDIC’s Transaction Account Guarantee Program, through December 31, 2009, all noninterest-bearing accounts are fully guaranteed by the FDIC. At December 31, 2009, the bank account, other than the distribution account, is fully insured. The funds (approximately $87,000 at December 31, 2009) held by Malkin Holdings in the distribution account were paid to the participants on January 1, 2010. Funds in the money market fund were not insured at December 31, 2009.

10.

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. 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.  Accordingly, Associates’ allocable share of such costs is as yet undetermined, and Associates has not provided for the expense and related liability with respect to such costs in these financial statements.  As a result of the August 29, 2006 settlement agreement which included termination of this proceeding, Associates will not recognize any gains or losses from this proceeding other than the possible charges for the aforementioned fees and expenses.

11.

Building Improvements Program and Agreement to Extend Lease

In 1999, the participants of Associates and the members in Lessee consented to a building improvements program (the "Program") estimated to cost approximately $22,800,000. In 2000, the participants of Associates and the Lessee approved an increase in the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. To induce the Lessee to approve the Program, Associates agreed to grant to the Lessee, upon completion of the Program, the right to further extensions of the Lease to 2083. The Program was further increased in 2004 to up to $100,000,000. Such increase would extend the Lease beyond 2083, based on the net present benefit to Associates of the improvements made. The granting of such Lease extension rights upon completion of the Program is expected to trigger a New York State Transfer Tax under current tax rules, which will be paid from mortgage proceeds and/or the Lessee’s operating cash flow. As of December 31, 2009, Associates had incurred costs related to the Program of $64,412,520 and estimates that the Program upon completion will be approximately $100,000,000 including sprinkler work, required to be completed by 2019. The participants of Associates and the members in Lessee had approved increased refinancing of $16,000,000 from the total of $84,000,000 provided by the mortgage to up to $100,000,000. The balance of the costs of the Program will be financed by the new $16,000,000 mortgage 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 fee mortgage (Note 3), and (2) 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 further additional 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 further additional rent continues to be earned. The 1999 consent authorized the members of Associates who act as agents for the participant investors (the "Agents") to give additional extension rights to the Lessee beyond the September 30, 2033 expiration date (Note 4) to September 30, 2083 upon completion of the Program, and to later date(s) for consideration and upon such terms as the Agents deem appropriate for the benefit of Associates.

 

                                                                                                                                                                                                                                                               

SCHEDULE III

60 EAST 42nd ST. ASSOCIATES L.L.C

(A Limited Liability Company)

Real Estate and Accumulated Depreciation

December 31, 2009

Column

A

Description

Land, building and building improvements

and equipment situated at One Grand 

Central Place, 60 East 42nd Street

and 301 Madison Avenue, New York, N.Y.

B

Encumbrances -

Prudential Insurance Company at December 31, 2009

 $95,840,990

C

Initial cost to company

Land

$  7,240,000

Building

$16,960,000

D

Cost capitalized subsequent to acquisition

Building improvements and equipment

$65,986,655

Carrying costs

$       None   

E

Gross amount at which carried at close of period

Land

$  7,240,000

Building, building improvements and equipment

  82,946,655

Total

$90,186,655(a)

F

Accumulated depreciation

$27,399,517(b)

G

Date of construction

1930

H

Date acquired

October 1, 1958

I

Life on which depreciation in latest income

statements is computed

39 years for building improvements

and 7 years for equipment

(a)

Gross amount of real estate

Balance at January 1, 2008

$90,186,655

Purchase of building improvements and equipment and construction 

in progress (expenditures advanced by Lessee, a related party, and recorded

by Associates):

F/Y/E 12/31/08

$        -

12/31/09

           -

-

                                                                  -             

Balance at December 31, 2009 

$90,186,655

The costs for federal income tax purposes are the same as for financial statement purposes.

(b)

Accumulated depreciation

Balance at January 1, 2008

$24,099,176

Depreciation:

F/Y/E 12/31/08

 $1,650,660

12/31/09

 

1,649,681              3,300,341

Balance at December 31, 2009

$27,399,517

**LINCOLN BUILDING ASSOCIATES L.L.C.**

**FINANCIAL STATEMENTS**

**Years Ended December 31, 2009 and 2008**

                                                                                                                                                                                                                                                      

**LINCOLN BUILDING ASSOCIATES L.L.C.**

**CONTENTS**

**Report of Independent Accountants**

1

**Financial Statements:**

Balance Sheets

2

Statements of Operations

3

Statements of Changes in Members’ Equity

4

Statements of Cash Flows

5

Notes to Financial Statements

6 - 13

**                                                                                                                                                                                 **

[Letterhead of Margolin, Winer & Evens LLP]

**Report of Independent Accountants**

Lincoln Building Associates L.L.C.

New York, New York

We have audited the accompanying balance sheets of Lincoln Building Associates L.L.C. (a New York limited liability company) (the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, changes in members’ equity and cash flows for the years then ended.  These financial statements are the responsibility of the management of Lincoln Building Associates L.L.C.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lincoln Building Associates L.L.C. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Garden City, New York

May 26, 2010

/s/ Margolin, Winer & Evens LLP

1

                                                                                                                                                                                                                                                 

 

 

**LINCOLN BUILDING ASSOCIATES L.L.C.**

**BALANCE SHEETS**

*December 31,*

**2009**

2008

**ASSETS**

 

 

 

 

 

**Property - at cost (Notes 1, 2 and 5):**

 

 

Leasehold improvements

**$**

**17,560,249**

$

12,430,123

Subtenant improvements

**14,872,906**

5,392,943

Equipment

**158,132**

158,132

 

**32,591,287**

17,981,198

Less accumulated depreciation and amortization

**8,405,846**

6,045,873

 

 

 

**Net Property**

**24,185,441**

11,935,325

 

 

 

**Other Assets:**

 

 

Cash and cash equivalents (Note 2)

**7,597,135**

15,470,679

Cash - restricted - tenants’ security deposits

**5,656,810**

5,005,435

Rent receivable - net (Note 2)

**906,715**

764,908

Unbilled rent receivable - net (Note 2)

**4,839,677**

5,543,307

Due from managing agent (Note 7)

**696,626**

608,499

Prepaid expenses

**5,282,123**

5,162,357

Deferred charges, net of accumulated

 

 

amortization (Notes 2 and 4)

**5,307,894**

3,122,933

 

 

 

**Total Assets**

**$**

**54,472,421**

$

47,613,443

 

 

 

 

 

 

**LIABILITIES AND MEMBERS’ EQUITY**

 

 

 

 

 

**Liabilities:**

 

 

Accounts payable and accrued liabilities

**$**

**1,156,016**

$

1,637,000

Accrued additional rent due Lessor (Note 5)

**-**

2,430,802

Tenants’ security deposits payable

**5,656,810**

5,006,463

Deferred income (Note 2)

**2,120,012**

1,562,911

 

 

 

**Total Liabilities**

**8,932,838**

10,637,176

 

 

 

**Commitments (Note 5)**

**-**

-

 

 

 

**Members’ Equity (Note 3)**

**45,539,583**

36,976,267

 

 

 

**Total Liabilities and Members’ Equity**

**$**

**54,472,421**

$

47,613,443

 

 

 

*The accompanying notes are an integral part of these statements.*

2

**                                                                                                                   **

**LINCOLN BUILDING ASSOCIATES L.L.C.**

**STATEMENTS OF OPERATIONS**

*Years Ended December 31,*

**2009**

2008

**Income (Notes 2, 5 and 6):**

 

 

Minimum rental revenue

**$**

**40,894,325**

$

42,345,260

Escalations and expense reimbursements

**7,470,017**

7,684,647

Other income

**4,444,195**

950,644

 

 

 

**Total Income**

**52,808,537**

50,980,551

 

 

 

**Operating Expenses:**

 

 

Basic rent expense (Note 5)

**6,343,640**

5,970,656

Additional rent (Note 5)

**1,053,804**

1,053,804

Further additional rent (Note 5)

**59,336**

7,352,069

Real estate taxes

**10,395,749**

9,166,315

Payroll and related costs

**7,123,354**

7,176,814

Repairs and maintenance

**5,861,199**

3,455,690

Utilities

**1,197,771**

1,604,583

Management fee (Note 7)

**301,043**

299,934

Supervisory and other fees (Note 5)

**642,580**

1,169,559

Professional fees

**1,231,873**

1,175,732

Insurance

**542,444**

589,540

Advertising (Note 2)

**680,739**

308,937

Administrative

**293,260**

254,294

Depreciation (Note 2)

**2,359,973**

1,273,089

Amortization (Note 2)

**1,070,214**

869,135

Bad debts, net (Note 2)

**574,309**

580,906

 

 

 

**Total Operating Expenses**

**39,731,288**

42,301,057

 

 

 

**Operating Income**

**13,077,249**

8,679,494

 

 

 

**Interest Income**

**26,063**

319,117

 

 

 

**Net Income**

**$**

**13,103,312**

$

8,998,611

 

 

 

 

 

 

 

 

 

*The accompanying notes are an integral part of these statements.*

3

                                                                                                                                                                                                                                          

 

**LINCOLN BUILDING ASSOCIATES L.L.C.**

**STATEMENTS OF CHANGES IN MEMBERS’ EQUITY**

*Years Ended December 31,*

**2009**

2008

**Members’ Equity - beginning of year**

 

**$**

**36,976,267 **

$

37,017,652 

 

 

 

 

**Net Income**

 

**13,103,312 **

8,998,611 

 

 

 

 

**Distributions**

 

**(4,539,996)**

(9,039,996)

 

 

 

 

**Members’ Equity - end of year**

 

**$**

**45,539,583 **

$

36,976,267 

 

 

 

 

 

 

 

 

 

 

 

 

*The accompanying notes are an integral part of these statements.*

4

**                                                                                                                    **

**LINCOLN BUILDING ASSOCIATES L.L.C.**

**STATEMENTS OF CASH FLOWS**

*Years Ended December 31,*

**2009**

2008

**Cash Flows from Operating Activities:**

 

 

Net income

**$**

**13,103,312 **

$

8,998,611 

Adjustments to reconcile net income to net cash

 

 

provided by operating activities:

 

 

Depreciation

**2,359,973 **

1,273,089 

Amortization

**1,070,214 **

869,135 

Net change in operating assets and liabilities:

 

 

Rent receivable

**(141,807)**

512,272 

Unbilled rent receivable

**703,630 **

(40,740)

Due from managing agent

**(88,127)**

584,944 

Prepaid expenses

**(119,766)**

(550,834)

Unfunded tenant security deposits

**(1,028)**

(11,953)

Accounts payable and accrued liabilities

**(480,984)**

441,499 

Accrued additional rent due Lessor

**(2,430,802)**

498,364 

Deferred income

**557,101 **

1,851 

 

 

 

**Net Cash Provided by Operating Activities**

**14,531,716 **

12,576,238 

 

 

 

**Cash Flows from Investing Activities:**

 

 

Property additions

**(14,610,089)**

(3,182,688)

Deferred charges - leasing commissions

**(3,255,175)**

(1,471,785)

Due from Lessor

**- **

1,248,325 

 

 

 

**Net Cash Used in Investing Activities**

**(17,865,264)**

(3,406,148)

 

 

 

**Cash Flows from Financing Activities -**

 

 

Members’ distributions

**(4,539,996)**

(9,039,996)

 

 

 

**Net Cash Used in Financing Activities**

**(4,539,996)**

(9,039,996)

 

 

 

**Net Increase (Decrease) in Cash and Cash Equivalents**

**(7,873,544)**

130,094 

 

 

 

**Cash and Cash Equivalents - beginning of year**

**15,470,679 **

15,340,585 

 

 

 

**Cash and Cash Equivalents - end of year**

**$**

**7,597,135 **

$

15,470,679 

 

 

 

*The accompanying notes are an integral part of these statements.*

5

 

**LINCOLN BUILDING ASSOCIATES L.L.C.**

**NOTES TO FINANCIAL STATEMENTS**

**1.**

**Organization and Nature of Business**

The Company was originally organized on June 14, 1954 as a general partnership in order to lease and sublease the 1,200,000 square foot office building situated at 60 East 42nd Street, New York, New York (the “Property”).  At December 31, 2009, the Property is approximately 77% occupied.  On November 1, 2002, the Company converted from a general partnership to a New York limited liability company and is now known as Lincoln 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 June 14, 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.

**2.**

**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 rents receivable on the accompanying balance sheet.  Leases generally contain provisions under which tenants reimburse the Company for a portion of property operating expenses, 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 lease 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 $189,000 and $236,000 at December 31, 2009 and 2008, respectively.  Unbilled rent receivable is shown net of an estimated allowance for doubtful accounts of $311,000 and $142,000 at December 31, 2009 and 2008, respectively.

Bad debt expense is shown net of recoveries.

**Cash and cash equivalents -**The Company considers highly liquid investments with an original maturity 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).

 

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, 2009 and 2008.

**Depreciation and amortization -**Depreciation is computed by the straight-line method over the estimated useful lives of forty years for the leasehold improvements and five years for equipment.  Subtenant improvements, leasing commissions and leasing costs are amortized by the straight-line method over the terms of the related tenant leases.

Repairs and maintenance are charged to expense as incurred.  Expenditures which increase the useful lives of the assets are capitalized.  

**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.

Effective January 1, 2009, the Company adopted 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.

**Estimates -**The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 rents (including unbilled rent receivable) as being particularly sensitive.  Further, when tenants experience financial difficulties, uncertainties associated with assessing the recoverability of subtenant improvements and leasing commissions increase.  

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.

**Subsequent events -** The Company has evaluated events and transactions for potential recognition or disclosure through May 26, 2010, the date the financial statements were available to be issued.

**3.**

**Members’ Equity**

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

**4.**

**Deferred Charges**

Deferred charges consist of the following as of December 31, 2009 and 2008:

2009

2008

Leasing commissions

$

20,740,883

$

17,485,708

Leasing costs

62,525

62,525

20,803,408

17,548,233

Less accumulated amortization

15,495,514

14,425,300

Total

$

5,307,894

$

3,122,933

**5.**

**Related Party Transactions**

The Company has entered into a lease agreement with 60 East 42nd St. Associates L.L.C. (the “Lessor”) which is currently set to expire on September 30, 2033.  The Company (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, plus $24,000 for supervisory services.  

The lease also provides for additional rent, as follows:

1)

Additional rent equal to the first $1,053,800 of Lessee’s net operating income, as defined, in each lease year.

2)

Further additional 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 additional 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.

Additional 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 additional rent.  In the event it becomes probable that net operating income for the lease year will be insufficient to require the payment of additional rent, any previously recorded additional rent would be reversed into income.  As of December 31, 2008, accrued further additional rent attributable to the lease year ending September 30, 2009 was $2,430,802.  No further additional rent accrual was made as of December 31, 2009. 

During 1999, the Company and the Lessor entered into a building improvements program (the “Program”) whereby the Lessor would obtain financing to fund improvements to the Property.  To induce the Company to approve the Program, the Lessor agreed to grant the Company, upon completion of the Program, the right to further extensions of the lease to 2083.  In accord with the 2004 consent program, the Program was further increased to up to $100,000,000.  Such increase would extend the lease beyond 2083, based on the net present benefit to the Lessor of the improvements made.  On November 29, 2004, Lessor obtained a new first mortgage of $84,000,000 (the “Loan”), of which $40,000,000 was used to repay the existing first and second mortgages.  On November 5, 2009, Lessor obtained an additional mortgage financing of $16,000,000 (the “Second Loan”).  The balance of the Loan and the proceeds of the Second Loan will be used to complete currently estimated costs for existing and additional improvements, including tenant installation and leasing commissions.

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 further additional 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 further additional rent.

 

The Loan is scheduled to mature on November 5, 2014.  The Loan bears interest at 5.34% per annum, payable monthly in arrears.  Commencing August 5, 2007, the Loan requires equal monthly payments of $507,838 applied first to interest at 5.34% 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 60 days prior to the maturity date.

The Second Loan is scheduled to mature on November 5, 2014 and bears interest at 7% per annum.  The Second Loan requires equal monthly payments of $113,085 applied first to interest at 7% per annum, and then principal based on a 25-year amortization period.  No prepayment fee shall be due if the Second Loan is prepaid during the final 60 days prior to the maturity date.

The following is a schedule of future minimum rental payments as of December 31, 2009 (based on the current amount of the Lessor’s outstanding mortgage obligations and assuming the Company does not surrender the lease):

Year ending December 31,

2010

$

7,480,000

2011

7,480,000

2012

7,480,000

2013

7,480,000

2014

6,230,000 *

Thereafter

440,000 *

$

36,590,000

*

The Lessor intends to refinance the existing mortgages which mature on November 5, 2014.  In accordance with the Ninth Lease Modification Agreement, 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 November 2014 from the refinanced debt.

As of December 31, 2009, the Lessor had incurred costs related to the Program of approximately $64,400,000 and estimates that costs upon completion will be approximately $100,000,000.  The Lessor has funded and capitalized leasing commissions totaling $4,109,821 as of December 31, 2009.  

Supervisory and other services are provided to the Company by its Supervisor, Malkin Holdings LLC (formerly Wien & Malkin LLC), a related               

party.  Beneficial interests in the Company are held directly or indirectly by one or more persons at Malkin Holdings LLC and/or their family members. 

Fees and payments to Malkin Holdings LLC are as follows:

Years Ended December 31,

2009

2008

Basic supervisory fees

$

180,000

$

180,000

Service fee on investment income

2,576

29,555

Profits interest

460,004

960,004

Total

$

642,580

$

1,169,559

Malkin Holdings receives an additional payment from the Company equal to 10% of distributions in excess of $400,000 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 $460,004 and $960,004 for the years ended December 31, 2009 and 2008, respectively.  In addition, other fees and disbursements to Malkin Holdings were $41,757 and $111,131 for the years ended December 31, 2009 and 2008, respectively.

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 $2,576 and $29,555 for the years ended December 31, 2009 and 2008, respectively.  Accrued fees of $2,576 and $29,555 were outstanding as of December 31, 2009 and 2008, respectively.  

Malkin Holdings also serves as supervisor for the Company’s Lessor and receives from the Lessor a basic annual fee and a fee 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.

Malkin Holdings is a tenant of the Company at the Property.  Its office lease was renewed prior to 2008-2009 expiration for a ten-year term from October 2006 through September 2016.  The new rent, which is roughly equivalent to the then current, fully escalated rental rate, was determined by taking a recent transaction at the Property and reducing the rent by the costs not incurred by the Company in the Malkin Holdings renewal (as the Malkin Holdings renewal involves no free rent, base building work, tenant installation allowance, or commission paid to any broker).  Malkin Holdings also surrendered its semi-annual cancellation right until October 2009, thereby reducing the Property’s substantial rollover exposure in 2007 through April 2009.  Electricity is now billed to Malkin Holdings via sub meter, consistent with other full floor tenants.

Following are rent payments (including escalations and expense reimbursements) made by Malkin Holdings:

Rent Paid by Related Parties

                                                                    Years Ended December 31,

2009                     2008

Malkin Holdings

$1,088,603

$ 962,001

 

Peter L. Malkin, a member of Malkin Holdings LLC, was elected to the Board of the Grand Central Partnership, Inc. for a two-year term commencing January 1, 2007 and re-elected for another two-year term commencing January 1, 2009.  The Grand Central Partnership is a month-to-month tenant in the Property commencing March 1, 1998 for 206 rentable square feet at an annual rental of $1,200.  The lease to the Grand Central Partnership is on the same terms and conditions as other space it had previously occupied in the building under a lease dated July 24, 1997.

**  6.**

**Rental Income Under Operating Subleases**

Future minimum rentals to be received, assuming neither renewals nor extensions of leases which may expire during the periods, on noncancelable operating leases in effect at December 31, 2009 are as follows: 

Years ending December 31,

2010

$

39,630,000

2011

34,770,000

2012

29,940,000

2013

23,110,000

2014

16,430,000

Thereafter

40,810,000

$

184,690,000

The above table includes $5,343,000 from Malkin Holdings LLC.

**  7.**

**Management Fee**

The Company has engaged Newmark Knight Frank to lease and manage the Property.  Pursuant to the management agreement, the management fee is equal to 1% of total collected proceeds per month with a cap of $350,000 per annum (which is reduced by the service fee on interest income earned on tenants’ security deposits).  For the years 2009 and 2008, the management fee totaled $301,043 and $299,934, respectively.

A portion of the Company’s cash is held in accounts in the custody of the managing agent.  These amounts are shown as “Due from managing agent.”

**  8.**

**Multiemployer Pension Plan**

 

 In connection with the Company’s collective-bargaining agreements with the Service Employees Janitorial Union - Local 32B-32J and the Central Pension Fund - Local 94, the Company participates with other companies in two defined benefit pension plans.  The plans cover all of the Company’s janitorial and engineering employees who are members of the union.  These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts.  The Company incurred pension expense (which is included in payroll and related costs) of approximately $223,000 and $225,000 for the years ended December 31, 2009 and 2008, respectively.

Under the Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, an employer is liable upon withdrawal or termination of a multiemployer plan for its proportionate share of the plan’s unfunded vested benefits liability.  Management has no intention of undertaking any action which could subject the Company to the obligation. |
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