**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**Form 10-Q**
| (Mark One)                                         | ** **                                                                                              |
|----------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| x                                                  | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                               | ** **                                                                                              |
| **For the  quarterly period ended March 31, 2007** |
|                                               | ** **                                                                                              |
| **OR**                                             |
|                                               | ** **                                                                                              |
| o                                                  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom ***            * to *           *

**Commission file number 0-12138**

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**NewEngland Realty Associates Limited Partnership**

(Exact name of registrant as specified in its charter)

| **Massachusetts**                                                                          |   | **04-2619298**                        |
|--------------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                           |   | (I.R.S. employer  identification no.) |
|                                                                                       |   |                                  |
| **39  Brighton Avenue,  Allston, Massachusetts**  (Address of principal executive offices) |   | **02134**(Zip code)                   |

 

Registrant’s telephone number, including area code: **(617) 783-0039**

Securitiesregistered pursuant to Section 12(b) of the Act:

| Depositary Receipts    | ** ** | **American Stock Exchange**                  |
|------------------------|------------|----------------------------------------------|
| (Title of each  Class) |       | (Name of each  Exchange on which Registered) |

 

Securities registeredpursuant to Section 12(g) of the Act:

**Class ALimited Partnership Units**

**(Title of class)**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  Yes o  No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes o  No x

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K.

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non- accelerated filer. See definition of “acceleratedfiler” and “large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):
| Large accelerated  filer  o | Accelerated filer  x | Non-accelerated filer  o |
|---------------------------------------|--------------------------------|------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  No x

**Documents Incorporated By Reference**

None

As of March 31, 2007, 1,323,766 depository receiptsand 6,002 units of the registrant are outstanding.

 

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**INDEX**

**PART I – FINANCIAL INFORMATION**
| Item 1.                               | Financial Statements                                                                                                                       |       |
|---------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                  |                                                                                                                                       |       |
|                                  | Consolidated Balance Sheets as of March 31, 2007  (unaudited) and December 31, 2006 (audited)                                              |       |
|                                  |                                                                                                                                       |       |
|                                  | Consolidated Statements of Income for the Three  Months Ended March 31, 2007 and March 31, 2006 (all unaudited)                            |       |
|                                  |                                                                                                                                       |       |
|                                  | Consolidated Statement of Changes in Partners’  Capital for the Three Months Ended March 31, 2007 and March 31, 2006 (all  unaudited) |       |
|                                  |                                                                                                                                       |       |
|                                  | Consolidated Statements of Cash Flows for the Three  Months Ended March 31, 2007 and March 31, 2006 (all unaudited)                        |       |
|                                  |                                                                                                                                       |       |
|                                  | Notes to Financial Statements                                                                                                              |       |
|                                  |                                                                                                                                       |       |
| Item 2.                               | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                |       |
|                                  |                                                                                                                                       |       |
| Item 3.                               | Quantitative and Qualitative Disclosures About Market  Risk                                                                                |       |
|                                  |                                                                                                                                       |       |
| Item 4.                               | Controls and Procedures                                                                                                                    |       |
|                                  |                                                                                                                                       |       |
| **PART II  – OTHER INFORMATION** |
|                                  | ** **                                                                                                                                 | ** ** |
| Item 1.                               | Legal Proceedings                                                                                                                          |       |
|                                  |                                                                                                                                       |       |
| Item 1A.                              | Risk Factors                                                                                                                               |       |
|                                  |                                                                                                                                       |       |
| Item 2.                               | Changes in Securities and Use of Proceeds                                                                                                  |       |
|                                  |                                                                                                                                       |       |
| Item 3.                               | Defaults Upon Senior Securities                                                                                                            |       |
|                                  |                                                                                                                                       |       |
| Item 4.                               | Submission of Matters to a Vote of Security Holders                                                                                        |       |
|                                  |                                                                                                                                       |       |
| Item 5.                               | Other Information                                                                                                                          |       |
|                                  |                                                                                                                                       |       |
| Item 6.                               | Exhibits and Reports on Form 8-K                                                                                                           |       |
|                                  |                                                                                                                                       |       |
| **SIGNATURES**                        |                                                                                                                                       |

 

2

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**NEWENGLAND REALTY ASSOCIATES, L.P.**

**PART 1 –FINANCIAL INFORMATION**

Item 1. Financial Statements

The accompanying unaudited consolidated balancesheets, statements of income, changes in partners’ capital, and cash flows andrelated notes thereto, have been prepared in accordance with generally acceptedaccounting principles in the United States of America (“GAAP”) for interimfinancial information and in conjunction with the rules and regulations of theSecurities and Exchange Commission (“SEC”). Accordingly, they do not include all of the disclosures required by GAAPfor complete financial statements.  Thefinancial statements reflect all adjustments consisting only of normal,recurring adjustments, which are in the opinion of management, necessary for afair presentation for the interim periods.

The aforementioned financial statements should be readin conjunction with the notes to the aforementioned financial statements andManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and the financial statements and notes thereto included in NewEngland Realty Associates L.P.’s Annual Report on Form 10-K for the fiscal yearended December 31, 2006.

The results of operations for the three month periodended March 31, 2007 are not necessarily indicative of the results to beexpected for the entire fiscal year or any other period.

**NEW ENGLAND REALTYASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED BALANCESHEETS**
| ** **                                        | ** ** | **March 31,  2007** | ** **  | **December 31,  2006** | ** ** |
|---------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                                        | ** ** | **(Unaudited)**          | ** **  | **(Audited)**               | ** ** |
| **ASSETS**                                        |       |                     |        |                        |       |
| Rental Properties                                 |       | $                        | 97,174,424  |                        | $          | 98,283,838 |   |
| Cash and Cash  Equivalents                        |       | 10,225,132               |        | 9,773,250                   |       |
| Rents Receivable                                  |       | 621,981                  |        | 580,638                     |       |
| Insurance Recovery  Receivable                    |       | 100,000                  |        | —                      |       |
| Real Estate Tax Escrows                           |       | 853,254                  |        | 826,301                     |       |
| Prepaid Expenses and  Other Assets                |       | 2,285,428                |        | 2,341,653                   |       |
| Investment in Joint  Ventures                     |       | 17,572,953               |        | 18,193,178                  |       |
| Financing and Leasing  Fees                       |       | 457,400                  |        | 484,452                     |       |
| **Total  Assets**                                 |       | $                        | 129,290,572 |                        | $          | 130,483,310 |   |
| ** **                                        |       |                     |        |                        |       |
| **LIABILITIES AND PARTNERS’  CAPITAL**       |       |                     |        |                        |       |
| ** **                                        |       |                     |        |                        |       |
| Mortgage Notes Payable                            |       | $                        | 114,390,113 |                        | $          | 114,659,052 |   |
| Accounts Payable and  Accrued Expenses            |       | 1,650,333                |        | 1,289,643                   |       |
| Advance Rental Payments  and Security Deposits    |       | 2,878,482                |        | 2,892,612                   |       |
| **Total Liabilities**                             |       | 118,918,928              |        | 118,841,307                 |       |
| ** **                                        |       |                     |        |                        |       |
| Commitments and  Contingent Liabilities (Note 9)  |       |                     |        |                        |       |
|                                              |       |                     |        |                        |       |
| Partners’ Capital                            |       |                     |        |                        |       |
|                                              |       |                     |        |                        |       |
| 173,252 units  outstanding in 2007 and 2006       |       | 10,371,644               |        | 11,642,003                  |       |
| **Total Liabilities and Partners’  Capital** |       | $                        | 129,290,572 |                        | $          | 130,483,310 |   |

 

See notes toconsolidated financial statements.

3

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTSOF INCOME**
| ** **                                              | ** ** | **Three Months Ended  March 31,  (Unaudited)** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                                      | ** ** | **2006** | ** ** |
| Revenues                                                |       |                                                          |       |   |   |
| Rental income                                           |       | $                                                             | 8,034,588  |   | $ | 7,967,592 |   |
| Laundry and sundry income                               |       | 107,845                                                       |       | 124,031 |   |
|                                                    |       | 8,142,433                                                     |       | 8,091,623 |   |
| Expenses                                                |       |                                                          |       |   |   |
| Administrative                                          |       | 396,261                                                       |       | 351,652 |   |
| Depreciation and amortization                           |       | 1,711,456                                                     |       | 1,649,043 |   |
| Interest                                                |       | 1,904,266                                                     |       | 1,916,124 |   |
| Management fees                                         |       | 324,052                                                       |       | 321,660 |   |
| Operating                                               |       | 1,418,294                                                     |       | 1,291,634 |   |
| Renting                                                 |       | 71,507                                                        |       | 55,866 |   |
| Repairs and maintenance                                 |       | 1,080,745                                                     |       | 1,030,728 |   |
| Taxes and insurance                                     |       | 915,308                                                       |       | 871,329 |   |
|                                                    |       | 7,821,889                                                     |       | 7,488,036 |   |
|                                                    |       |                                                          |       |   |   |
| Income Before  Other Income and Discontinued Operations |       | 320,544                                                       |       | 603,587 |   |
|                                                    |       |                                                          |       |   |   |
| Other Income  (Loss)                                    |       |                                                          |       |   |   |
| Interest income                                         |       | 100,126                                                       |       | 93,478 |   |
| Casualty (Loss)                                         |       | (60,000                                                       | )          | — |   |
| (Loss) from investment in joint ventures                |       | (420,225                                                      | )          | (245,180 | ) |
|                                                    |       | (380,099                                                      | )          | (151,702 | ) |
| Income (Loss)  From Continuing Operations               |       | (59,555                                                       | )          | 451,885 |   |
|                                                    |       |                                                          |       |   |   |
| Discontinued  Operations                                |       |                                                          |       |   |   |
| Loss from discontinued operations                       |       | —                                                        |       | (10,125 | ) |
|                                                    |       | —                                                        |       | (10,125 | ) |
| Net (Loss)  Income                                      |       | $                                                             | (59,555    | ) | $ | 441,760 |   |
|                                                    |       |                                                          |       |   |   |
| Income per Unit                                         |       |                                                          |       |   |   |
| Income (Loss) before discontinued operations            |       | $                                                             | (0.34      | ) | $ | 2.61 |   |
| Income from discontinued operations                     |       | —                                                        |       | (.06 | ) |
| Net Income per  Unit                                    |       | $                                                             | (0.34      | ) | $ | 2.55 |   |
| Weighted Average Number  of Units Outstanding           |       | 173,252                                                       |       | 173,252 |   |

 

See notes toconsolidated financial statements.

4

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTSOF CHANGES IN PARTNERS’ CAPITAL**

**(UNAUDITED)**
| ** **                    | ** ** | **Units**        | ** ** | **Partner’s Capital** | ** ** |
|-------------------------------|------------|------------------|------------|---------------------------------|------------|
| ** **                    | ** ** | **Limited**      | ** ** | **General**                     | ** ** | ** ** | ** ** | **Treasury** | ** ** | ** ** | ** ** | **Limited** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Class A** | ** ** | **Class B**                | ** ** | **Partnership** | ** ** | **Subtotal** | ** ** | **Units** | ** ** | **Total** | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Balance, January  1, 2006     |       | 144,180          |       | 34,243                          |       | 1,802 |   | 180,225 |   | 6,973 |   | 173,252 |   | $ | 12,062,684 |   | $ | 2,868,340 |   | $ | 150,995 |   | $ | 15,082,019 |   |
| Distribution to  Partners     |       | 3⁄4           |       | 3⁄4                          |       | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | (968,643 | ) | (230,053 | ) | (12,108 | ) | (1,210,804 | ) |
| Net Income                    |       | 3⁄4           |       | 3⁄4                          |       | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | 353,408 |   | 83,934 |   | 4,418 |   | 441,760 |   |
| Balance, March  31, 2006      |       | 144,180          |       | 34,243                          |       | 1,802 |   | 180,225 |   | 6,973 |   | 173,252 |   | $ | 11,447,449 |   | $ | 2,722,221 |   | $ | 143,305 |   | $ | 14,312,975 |   |
|                          |       |             |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, January  1, 2007     |       | 144,180          |       | 34,243                          |       | 1,802 |   | 180,225 |   | 6,973 |   | 173,252 |   | $ | 9,310,672 |   | $ | 2,214,737 |   | $ | 116,594 |   | $ | 11,642,003 |   |
| Distribution to  Partners     |       | 3⁄4           |       | 3⁄4                          |       | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | (968,643 | ) | (230,053 | ) | (12,108 | ) | (1,210,804 | ) |
| Net Income                    |       | 3⁄4           |       | 3⁄4                          |       | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | 3⁄4 |   | (47,644 | ) | (11,315 | ) | (596 | ) | (59,555 | ) |
| Balance, March 31,  2007 |       | 144,180          |       | 34,243                          |       | 1,802 |   | 180,225 |   | 6,973 |   | 173,252 |   | $ | 8,294,385 |   | $ | 1,973,369 |   | $ | 103,890 |   | $ | 10,371,644 |   |

 

See notes to consolidated financial statements.

5

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**NEW ENGLAND REALTY ASSOCIATES LIMITEDPARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**
| ** **                                                                        | ** ** | **Three Months Ended  March 31,  (Unaudited)** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2007**                                                      | ** ** | **2006** | ** ** |
| Cash Flows from  Operating Activities                                             |       |                                                          |       |   |   |
| Net income                                                                        |       | $                                                             | (59,555    | ) | $ | 441,760 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities |       |                                                          |       |   |   |
| Depreciation and amortization                                                     |       | 1,711,456                                                     |       | 1,649,042 |   |
| Loss from investment in joint ventures                                            |       | 420,225                                                       |       | 245,180 |   |
| Changes in operating  assets and liabilities                                      |       |                                                          |       |   |   |
| (Increase) in rents receivable                                                    |       | (41,343                                                       | )          | (60,138 | ) |
| (Increase) in insurance recovery receivable                                       |       | (100,000                                                      | )          | — |   |
| (Increase) in financing and leasing fees                                          |       | (8,201                                                        | )          | — |   |
| Increase (Decrease) in accounts payable and accrued  expense                      |       | 360,690                                                       |       | (102,884 | ) |
| (Increase) in real estate tax escrow                                              |       | (26,953                                                       | )          | (34,850 | ) |
| (Increase) Decrease in prepaid expenses and other  assets                         |       | 56,225                                                        |       | (27,134 | ) |
| (Decrease) in advance rental payments and security  deposits                      |       | (14,130                                                       | )          | (32,187 | ) |
| Total Adjustments                                                                 |       | 2,357,969                                                     |       | 1,637,029 |   |
| Net cash provided by operating activities                                         |       | 2,298,414                                                     |       | 2,078,789 |   |
| Cash Flows Used  in Investing Activities                                          |       |                                                          |       |   |   |
| (Investment in) joint ventures                                                    |       | —                                                        |       | (300,000 | ) |
| Proceeds from joint ventures                                                      |       | 200,000                                                       |       | — |   |
| Purchase and improvement of rental properties                                     |       | (566,789                                                      | )          | (418,946 | ) |
| Net cash (used in) investing activities                                           |       | (366,789                                                      | )          | (718,946 | ) |
| Cash Flows Used  in Financing Activities                                          |       |                                                          |       |   |   |
| Principal payments of mortgage notes payable                                      |       | (268,939                                                      | )          | (195,870 | ) |
| Distributions to partners                                                         |       | (1,210,804                                                    | )          | (1,210,804 | ) |
| Net cash (used in) financing activities                                           |       | (1,479,743                                                    | )          | (1,406,674 | ) |
| Net Increase  (Decrease in) Cash and Cash Equivalents                             |       | 451,882                                                       |       | (46,831 | ) |
| Cash and Cash  Equivalents, at beginning of period                                |       | 9,773,250                                                     |       | 12,049,392 |   |
| Cash and Cash  Equivalents, at end of period                                      |       | $                                                             | 10,225,132 |   | $ | 12,002,561 |   |

 

See notes toconsolidated financial statements.

6

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**MARCH 31, 2007**

** NOTE 1. SIGNIFICANT ACCOUNTING POLICIES**

*Lineof Business:*   NewEngland Realty Associates Limited Partnership (“NERA” or the “Partnership”) wasorganized in Massachusetts in 1977. NERA and its subsidiaries own and operatevarious residential apartment buildings, condominium units and commercialproperties located in Massachusetts and New Hampshire. NERA has also madeinvestments in other real estate partnerships and has participated in otherreal estate-related activities, primarily located in Massachusetts. Inconnection with the mortgages referred to in Note 5, a substantial numberof NERA’s properties are owned by separate subsidiaries without any change inthe historical cost basis.

*Principlesof Consolidation:*   The consolidated financialstatements include the accounts of NERA and its subsidiaries. NERA has a 99.67%to 100% ownership interest in each subsidiary except for eight limitedliability companies (the “Investment Properties” or “Joint Ventures”) in whichthe Partnership has a 50% ownership interest. The consolidated group isreferred to as the “Partnerships.” Minority interests are not recorded, sincethey are insignificant. All significant intercompany accounts and transactionsare eliminated in consolidation. The Partnership accounts for its investment inthe above-mentioned Investment Properties using the equity method ofconsolidation. (See Note 14 for information on the Investment Properties).

*AccountingEstimates:*   The preparation of the financialstatements, in conformity with accounting principles generally accepted in theUnited State of America, requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported period.Accordingly, actual results could differ from those estimates.

*RevenueRecognition:*   Rental income from residential andcommercial properties is recognized over the term of the related lease. Amounts60 days in arrears are charged against income. Certain leases of thecommercial properties provide for increasing stepped minimum rents, which are accountedfor on a straight-line basis over the term of the lease.

*RentalProperties:*   Rental properties are stated at costless accumulated depreciation. Maintenance and repairs are charged to expenseas incurred; improvements and additions are capitalized. When assets areretired or otherwise disposed of, the cost of the asset and related accumulateddepreciation is eliminated from the accounts, and any gain or loss on suchdisposition is included in income. Fully depreciated assets are removed fromthe accounts. Rental properties are depreciated by both straight-line andaccelerated methods over their estimated useful lives.

In the event that facts and circumstances indicatethat the carrying value of a rental property may be impaired, an analysis ofthe value is prepared. The estimated future undiscounted cash flows arecompared to the asset’s carrying value to determine if a write-down to fairvalue is required.

*Financingand Leasing Fees:*   Financing fees are capitalizedand amortized, using the interest method, over the life of the relatedmortgages. Leasing fees are capitalized and amortized on a straight-line basisover the life of the related lease. Unamortized balances are expensed when thecorresponding fee is no longer applicable.

*IncomeTaxes:*   The financial statements have beenprepared on the basis that NERA and its subsidiaries are entitled to taxtreatment as partnerships. Accordingly, no provision for income taxes has beenrecorded.

*CashEquivalents:*   The Partnership considers cashequivalents to be all highly liquid instruments purchased with a maturity ofthree months or less.

*SegmentReporting:*   Operating segments arerevenue-producing components of the Partnership for which separate financialinformation is produced internally for management. Under the definition, NERAoperated, for all periods presented, as one segment.

7

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*ComprehensiveIncome:*   Comprehensive income is defined aschanges in partners’ equity, exclusive of transactions with owners (such ascapital contributions and dividends). NERA did not have any comprehensiveincome items in 2007 or 2006 other than net income as reported.

*IncomePer Unit:*   Net income per unit has beencalculated based upon the weighted average number of units outstanding duringeach year presented. The Partnership has no dilutive units and, therefore,basic net income is the same as diluted net income per unit (see Note 7).

*Concentrationof Credit Risks and Financial Instruments:*   The Partnership’s properties arelocated in New England, and the Partnership is subject to the general economicrisks related thereto. No single tenant accounted for more than 5% of thePartnership’s revenues in 2007 or 2006. The Partnership makes its temporarycash investments with high-credit-quality financial institutions. AtMarch 31, 2007, substantially all of the Partnership’s cash and cashequivalents were held in interest-bearing accounts at financialinstitutions, earning interest at rates from 2.33% to 5.15%.  At March 31, 2007 and December 31, 2006,respectively, approximately $11,000,000 and $10,000,000 of cash and cash equivalents,and cash included in prepaid expenses and other assets exceeded federallyinsured amounts.

*Advertising Expense:*   Advertising is expensed as incurred. Advertisingexpense was $36,101 and $16,293 for the three months ended March 31, 2007, and2006 respectively.

*Discontinued Operations and Rental Property Held forSale:*   Whenassets are identified by management as held for sale, the Partnershipdiscontinues depreciating the assets and estimates the sales price, net ofselling costs, of such assets. If, in management’s opinion, the net sales priceof the assets which have been identified as held for sale is less than the netbook of the assets, a valuation allowance is established. Properties identifiedas held for sale and/or sold are presented in discontinued operations for allperiods presented.

If circumstances arise that previously were consideredunlikely and, as a result, the Partnership decides not to sell a propertypreviously classified as held for sale, the property is reclassified as heldand used. A property that is reclassified is measured and recorded individuallyat the lower of (a) its carrying amount before the property was classifiedas held for sale, adjusted for any depreciation (amortization) expense thatwould have been recognized had the property been continuously classified asheld and used, or (b) the fair value at the date of the subsequentdecision not to sell.

*InterestCapitalized:*   The Company follows the policy ofcapitalizing interest as a component of the cost of rental property when thetime of construction exceeds one year. During the three months ended March 31, 2007 and the year ended December31, 2006, there was no capitalized interest.

*Reclassifications:*   Certainreclassifications have been made to prior period amounts in order to conform tocurrent period presentation.

**NOTE2. RENTAL PROPERTIES**

As of March 31, 2007, the Partnership and itsSubsidiary Partnerships owned 2,377 residential apartment units in 22residential and mixed-use complexes (collectively, the “Apartment Complexes”).The Partnership also owns 24 condominium units in two residential condominiumcomplexes, all of which are leased to residential tenants (collectivelyreferred to as the “Condominium Units”). The Apartment Complexes andCondominium Units are located primarily in the metropolitan Boston area ofMassachusetts.

Additionally, as of March 31, 2007, the SubsidiaryPartnerships owned a commercial shopping center in Framingham, Massachusettsand mixed-use properties in Boston, Brockton and Newton, Massachusetts. Theseproperties are referred to collectively as the “Commercial Properties.”

Additionally, as of March 31, 2007, the Partnershipowned a 50% ownership interest in eight residential and mixed use complexes(the “Investment Properties”) with a total of 490 units, accounted for usingthe equity method of consolidation. See Note 14 for summary information onthese investments.

8

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See Note 3 for a description of the sale of MiddlesexApartments to the majority shareholder of the General Partner in 2005.

Rental properties consist of the following:
| ** **                           | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** | **Useful Life** | ** ** |
|--------------------------------------|------------|------------------------------|------------|---------------------------------|------------|----------------------|------------|
| Land,  improvements and parking lots |       | $                            | 23,225,753 |                            | $          | 23,217,629           |       | 10-31 years |   |
| Buildings and  improvements          |       | 105,830,692                  |       | 105,759,848                     |       | 15-31 years          |       |
| Kitchen cabinets                     |       | 4,142,551                    |       | 3,994,136                       |       | 5-10 years           |       |
| Carpets                              |       | 3,578,369                    |       | 3,447,775                       |       | 5-10 years           |       |
| Air conditioning                     |       | 838,711                      |       | 838,324                         |       | 7-10 years           |       |
| Laundry  equipment                   |       | 196,024                      |       | 192,938                         |       | 5-7 years            |       |
| Elevators                            |       | 797,960                      |       | 748,769                         |       | 20 years             |       |
| Swimming pools                       |       | 147,082                      |       | 147,082                         |       | 10 years             |       |
| Equipment                            |       | 1,753,397                    |       | 1,629,583                       |       | 5-7 years            |       |
| Motor vehicles                       |       | 113,150                      |       | 113,150                         |       | 5 years              |       |
| Fences                               |       | 250,352                      |       | 250,352                         |       | 5-10 years           |       |
| Furniture and fixtures               |       | 4,363,911                    |       | 4,331,597                       |       | 5-7 years            |       |
| Smoke alarms                         |       | 131,364                      |       | 130,744                         |       | 5-7 years            |       |
|                                 |       | 145,369,316                  |       | 144,801,927                     |       |                 |       |
| Less accumulated  depreciation       |       | 48,194,892                   |       | 46,518,089                      |       |                 |       |
|                                 |       | $                            | 97,174,424 |                            | $          | 98,283,838           |       |   |   |

 

**NOTE 3. RELATED PERSONTRANSACTIONS**

The Partnership’s properties are managed by an entitythat is owned by the majority shareholder of the General Partner. Themanagement fee is equal to 4% of rental revenue and laundry income. Total feespaid were approximately $324,000 and $322,000 in 2007 and 2006, respectively.

The Partnership Agreement permits the General Partneror management company to charge the costs of professional services (such ascounsel, accountants and contractors) to NERA. In 2007 and 2006, approximately$192,000 and $103,000, respectively, was charged to NERA for legal, accounting,construction, maintenance, rental and architectural services and supervision ofcapital improvements.  Of the 2007expenses referred to above, approximately $70,000 consisted of repairs andmaintenance and $75,000 of administrative expense. Approximately $47,000 ofexpenses for construction, architectural services and supervision of capitalprojects was capitalized in rental properties.

Additionally in 2007, the Hamilton Company receivedapproximately $124,000 from the Investment Properties of which approximately$66,000 was the management fee, $500 was for construction supervision andarchitectural fees, $49,000 was for maintenance services and $6,000 was foradministrative services.  The HamiltonCompany legal department acts as closing attorney on certain condo salesreceiving approximately $9,000 during the three months ended March 31,2007.  As more fully described in Note14, an entity partially owned by the majority shareholder of the GeneralPartner is the sales agent for certain condominium sales receivingapproximately $29,000 of commissions in 2007.

On January 1, 2004, all employees weretransferred to the management company’s payroll. The Partnership reimburses themanagement company for the payroll and related expenses of the employeesdirectly employed by the properties. Total reimbursement was approximately$497,000 for the three months ended March 31, 2007 and $2,259,000 for the yearended December 31, 2006. The Management Company maintains a 401K plan for alleligible employees whereby the employees may contribute the maximum allowed bylaw. The plan also provides for discretionary contributions by the employer.There were no employer contributions in 2007 and 2006.

9

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In 1996, prior to becoming an employee and Presidentof the Management Company, the current President of the Management Companyperformed asset management consulting services to the Partnership. Thisindividual continues to perform this service and receives an asset managementfee from the Partnership, receiving $12,500 during the three months ended March31, 2007 and $50,000 during the year ended December 31, 2006.

The Partnership has invested in joint ventures topurchase six residential apartment complexes (the “Investment Properties”). ThePartnership owns 50% of each entity, the majority shareholder of the GeneralPartner owns between 43.2% and 47.5% and the President of Hamilton owns between2.5% and 4.5%, and five other management employees of Hamilton own collectivelybetween 0% and 2.3% respectively. See Note 14 for a description of theproperties and their operations.

On June 30, 2003, the Partnership purchased fivecondominium units in a 42-unit building located in Brookline,Massachusetts. These were purchased from Harvard 45 Associates LLC (“Harvard 45”)which is owned 70% by the 75% shareholder and treasurer of the General Partner,and 5% by the President of Hamilton. The total purchase price for thesecondominiums was approximately $2,416,000 and was approved both by the Partnership’sAdvisory Committee and the General Partner. Harvard 45 realized a gain ofapproximately $648,000 from these sales. Harvard 45 also sold 16 units tounrelated parties; the prices for all 21 units sold were comparable. Themajority shareholder of the general partner has guaranteed the $1,600,000mortgage for these five units. The original mortgage of $1,600,000 has beenextended to August 2009.  Themortgage rate of 6.5% is fixed for three years and the cost associated withthis extension is approximately $8,000.

The above 42-unit condominium building ismanaged by an entity wholly owned by the 25% shareholder and President of theGeneral Partner. That entity will receive annual management fees from the fiveunits of approximately $1,500, and Hamilton will reduce its management fees toapproximately 2%, so that the total management fee will not exceed the 4%allowed by the Partnership’s Partnership Agreement.

In March 2005, the Partnership sold the MiddlesexApartments to an entity wholly owned by the majority shareholder of the GeneralPartner. The selling price was $6,500,000 which resulted in a capital gain forthe Partnership of approximately $5,800,000 and an increase in the Partnership’scash reserves of approximately $4,800,000 after payment off the existing$1,300,000 mortgage, prepayment penalties and other selling expenses. The buyeris selling the property as condominium units. An entity 31% owned by themajority shareholder of the General Partner and 5% owned by the President ofthe management company is the sales agent and will receive a variablecommission of 3% to 5% on each sale. Total commissions paid to date areapproximately $138,000. Although the buyer is assuming the costs and economicrisks of converting and selling the condominium units, if the net gains fromthe sale of these units exceed $500,000, the excess will be split equallybetween the buyer and the Partnership. The buyer estimated that the gain fromthe sale of these units would exceed $500,000. There is one remaining unit unsoldat March 31, 2007.

**NOTE 4. OTHER ASSETS**

Included in prepaid expenses and other assets at March31, 2007 and December 31, 2006 is approximately $282,000 and $250,000,respectively, held in escrow to fund future capital improvements.

Financing and leasing fees of $457,400 and $484,452are net of accumulated amortization of $540,880 and $517,728 at March 31,2007 and December 31, 2006, respectively.

**NOTE 5. MORTGAGE NOTESPAYABLE**

At March 31, 2007 and December 31, 2006, themortgages payable consisted of various loans, all of which were secured byfirst mortgages on properties referred to in Note 2. At March 31,2007, the fixed interest rates on these loans ranged from 4.84% to 8.46%,payable in monthly installments aggregating approximately $704,000, includinginterest, to various dates through 2016. The majority of the mortgages aresubject to prepayment penalties. At March 31, 2007, the weighted averageinterest rate on the above mortgages was 6.63%. The effective rate of 6.71%includes the amortization expense of deferred financing costs.  See Note 12 for fair value information.

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The Partnerships have pledged tenant leases asadditional collateral for certain of these loans.

Approximate annual maturities at March 31, 2007are as follows:
| 2008- current maturities |   | $          | 1,093,000   |   |
|--------------------------|--------|------------|-------------|--------|
| 2009                     |   | 5,712,000  |        |
| 2010                     |   | 13,097,000 |        |
| 2011                     |   | 33,416,000 |        |
| 2012                     |   | 1,179,000  |        |
| Thereafter               |   | 59,893,000 |        |
|                     |   | $          | 114,390,000 |   |

 

**NOTE 6.ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS**

The Partnership’s residential lease agreements mayrequire tenants to maintain a one-month advance rental payment and/or asecurity deposit. At March 31, 2007, amounts received for prepaid rents ofapproximately $1,441,000 are included in cash and cash equivalents, and securitydeposits of approximately $1,191,000 are included with other assets.

**NOTE 7. PARTNERS’ CAPITAL**

The Partnership has two classes of Limited Partners(Class A and B) and one category of General Partner. Under the terms ofthe Partnership Agreement, Class B Units and General Partnership Unitsmust represent 19% and 1%, respectively, of the total units outstanding. Allclasses have equal profit sharing and distribution rights, in proportion totheir ownership interests.

In February 2007, the Partnership approved a quarterlydistribution of $7.00 per unit ($0.70 per receipt) payable on March 31, 2007.

In 2006, the Partnership paid quarterly distributionsof $7.00 per unit ($.70 per receipt) in March, June, September, and December2006 for a total distribution of $28.00 per unit ($2.80 per receipt).

The Partnership has entered into a deposit agreementwith an agent to facilitate public trading of limited partners’ interests inClass A Units. Under the terms of this agreement, the holders ofClass A Units have the right to exchange each Class A Unit for 10Depositary Receipts. The following is information per Depositary Receipt:
|                                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Income (Loss)  per Depositary Receipt before Discontinued Operations |       | $                                                | (0.03      | ) | $ | 0.26 |   |
| Income from  Discontinued Operations                                 |       | —                                           |       | (0.01 | ) |
| Net Income per  Depositary Receipt after Discontinued Operations     |       | $                                                | (0.03      | ) | $ | 0.25 |   |
| Distributions per  Depositary Receipt                                |       | $                                                | 0.70       |   | $ | 0.70 |   |

 

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**NOTE 8. TREASURY UNITS**

Treasury Units at March 31, 2007 are as follows:
| Class A         |   | 5,681 |   |
|----------------------|--------|-------|--------|
| Class B         |   | 1,228 |   |
| General  Partnership |   | 64    |   |
|                 |   | 6,973 |   |

 

**NOTE 9. COMMITMENTS ANDCONTINGENCIES**

From time to time, the Partnerships are involved invarious ordinary routine litigation incidental to their business. ThePartnership either has insurance coverage or has provided for any uninsuredclaims which, in the aggregate, are not significant. The Partnerships are notinvolved in any material pending legal proceedings.

On January 18, 2007, a pipe burst at 62 BoylstonStreet resulting in approximately 40 apartments being evacuated and will remainunoccupied for an extended period. The partnership has insurance coverage forboth repairs and rental loss until such time as the apartments are availablefor rent.  The potential uninsured rentalloss and other miscellaneous uninsured expenses cannot be estimated and maysignificantly reduce the income of the property.  An estimated recovery of $100,000 has beenrecorded at March 31, 2007 including approximately $65,000 in rentalincome.  The remaining loss ofapproximately $60,000 at March 31, 2007 is inclusive of the estimateddeductible and other non reimbursable expenses.

**NOTE 10. RENTAL INCOME**

During the three months ended March 31, 2007,approximately 93% of rental income was related to residential apartments andcondominium units with leases of one year or less. The remaining 7% was relatedto commercial properties, which have minimum future annual rental income onnon-cancellable operating leases at March 31, 2007 as follows:
|            | ** ** | **Commercial  Property Leases** | ** ** |
|------------|------------|--------------------------------------|------------|
| 2008       |       | $                                    | 1,809,000  |   |
| 2009       |       | 1,732,000                            |       |
| 2010       |       | 1,455,000                            |       |
| 2011       |       | 1,236,000                            |       |
| 2012       |       | 1,104,000                            |       |
| Thereafter |       | 3,621,000                            |       |
|       |       | $                                    | 10,957,000 |   |

 

The aggregate minimum future rental income does notinclude contingent rentals that may be received under various leases inconnection with percentage rents, common area charges and real estate taxes.Aggregate contingent rentals from continuing operations were approximately$112,000 and $389,000 for the three months ended March 31, 2007 and for theyear ended December 31, 2006.

Rents receivable are net of allowances for doubtfulaccounts of approximately $570,000 and $494,000 at March 31, 2007 andDecember 31, 2006, respectively. Included in rents receivable is approximately$409,583 resulting from recognizing rental income from non-cancelablecommercial leases with future rental increases on a straight-line basis. Themajority of this amount is for long-term leases with Staples and Trader Joe’sat Staples Plaza in Framingham, Massachusetts.

**NOTE 11. CASH FLOWINFORMATION**

During the three months ended March 31 2007 and 2006,cash paid for interest was $1,904,266 and $1,916,124.

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**NOTE 12. FAIR VALUE OFFINANCIAL INSTRUMENTS**

The following methods and assumptions were used by thePartnership in estimating the fair value of its financial instruments:

·       For cash and cashequivalents, other assets, investment in partnerships, accounts payable,advance rents and security deposits: fair value approximates the carrying valueof such assets and liabilities.

·       For mortgage notes payable:fair value is generally based on estimated future cash flows, which arediscounted using the quoted market rate from an independent source for similarobligations. Refer to the table below for the carrying amount and estimatedfair value of such instruments.
|                            | ** ** | **Carrying Amount** | ** **  | **Estimated Fair Value** | ** ** |
|----------------------------|------------|--------------------------|-------------|------------------------------------|------------|
| Mortgage Notes  Payable    |       |                     |        |                               |       |
| At March 31,  2007    |       | $                        | 114,390,113 |                               | $          | 117,025,632 |   |
| At December 31,  2006 |       | $                        | 114,659,052 |                               | $          | 117,251,025 |   |

 

**Disclosure about fair value offinancial instruments is based on pertinent information available to managementas of March 31, 2007 and December 31, 2006.  Although management is not aware of anyfactors that would significantly affect the fair value amounts, such amountshave not been comprehensively revalued for purposes of these financialstatements since December 31, 2006 and current estimates of fair value maydiffer significantly from the amounts presented herein.**

**NOTE 13. TAXABLE INCOMEAND TAX BASIS**

Taxable income reportable by the Partnership andincludable in its partner’s tax returns is different than financial statementincome because of accelerated depreciation, different tax lives, and timingdifferences related to prepaid rents and allowances. Taxable income isapproximately $200,000 greater than statement income for the three months endedMarch 31, 2007 and approximately $700,000 greater than statement income for theyear ended December 31, 2006. The cumulative tax basis of the Partnership’sreal estate at December 31, 2006 is approximately $1,100,000 greater than thestatement basis. The Partnership’s tax basis in its joint venture investmentsat December 31, 2006 is approximately $400,000 less than statement basis. Thedepreciation rules that generated substantial tax deductions in 2004 and2003 expired in 2004, accordingly taxable income in future years may exceedstatement income.

**NOTE 14. INVESTMENT INPARTNERSHIPS**

Since November 2001, the Partnership has investedin eight limited partnerships, each of which has invested primarily inresidential apartment complexes. The Partnership has a 50% ownership interestin each investment. The other investors are Harold Brown, the President of theManagement Company and five other employees of the Management Company. HaroldBrown’s ownership interest is between 43.2% and 47.5%, with the balance of 6.8%and 2.5% owned by others. A description of each investment is as follows:

On March 7, 2005, the Partnership invested$2,000,000 for a 50% ownership interest in a building comprising 49 apartments,one commercial space and a 50-car surface parking lot located in Boston,Massachusetts. The purchase price was $14,300,000, and a $10,750,000 30-monthmortgage with a floating interest rate (7.35%) of 2% over the 30 day LiborIndex (5.35% at December 31, 2006) was obtained to finance this acquisition.The Partnership plans to operate the building and initiate development of theparking lot. The plan may also include disposition of selected units, ascondominiums in order to reduce the above mentioned mortgage. Any profits fromthe condominium sales will be taxed at ordinary rates. Mr. Brown hasguaranteed 25% of this mortgage until such time as $2,687,500 of principal hasbeen paid. The Partnership and the other investor have, in turn agreed toindemnify Mr. Brown for their proportional share of any losses incurred bythis guarantee. This investment is referred to as Essex Street.  The $10,750,000 matures in 2007 andmanagement is currently seeking long-term financing.

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On March 2, 2005,the Partnership invested $2,352,000 for a 50% ownership interest in a 176-unitapartment complex with an additional small commercial building located inQuincy, Massachusetts. The purchase price was $23,750,000. . The Partnershipplans to sell the majority of units as condominiums and retain 49 units forlong-term investment.  The Partnershipobtained a new 10-year mortgage in the amount of $5,000,000 on the units to beretained by the Partnership.  Theinterest on the new loan is 5.67% fixed for the 10 year term with interest onlypayments for five years and amortized over a 30 year period for the balance ofthe loan term.  The closing costsassociated with the new mortgage were approximately $50,000, which will beamortized over the 10-year term.  As ofMarch 31, 2007, 112 units have been sold, and five units have a signed purchaseand sales agreement. Gains from the sales of units (approximately $54,000 perunit) will be taxed at ordinary income rates. This investment is referred to asHamilton 1025, LLC.

On October 3, 2005,the Partnership invested $2,500,000 for a 50% ownership interest in a 168-unitapartment complex in Quincy, Massachusetts. The purchase price was $30,875,000.The Partnership plans to sell the majority of units as condominium and retain48 units for long-term investment. The proceeds from the condominium sales areprimarily to be used to reduce the above-mentioned mortgage. Gains from thesales of units will be taxed at ordinary income rates (approximately $47,000per unit). As of March 31, 2007, 55 units have been sold and an additional nineunits have a signed purchase and sales agreement. In February 2007, the Partnershiprefinanced the 48 units which will be retained with a new mortgage in theamount of $4,750,000 with an interest rate of 5.57%, interest only for fiveyears and amortized over 30 years thereafter. The loan will be amortized over 30 years and matures in March 2017. Thebalance on the original loan on the 65 units held for sale is approximately$9,575,000.  This investment is referredto as Hamilton Bay, LLC.

In September 2004,the Partnership invested approximately $5,075,000 for a 50% ownership interestin a 42-unit apartment complex located in Lexington, Massachusetts. Thepurchase price was $10,100,000. In October 2004, the Partnership obtaineda mortgage on the property in the amount of $8,025,000 and returned $3,775,000to the Partnership. In January 2007, the Partnership obtained a new 10-yearmortgage in the amount of $5,500,000. The interest on the new loan is 5.67% fixed for the 10 year term withinterest only payments for five years and amortized over a 30 year period forthe balance of the loan.  This new loanrequired a cash contribution by the Partnership of $1,250,000 in 2006.  The closing costs associated with the newmortgage were approximately $37, 000, which will be amortized over the 10-yearterm.  The unamortized deferred financingcosts of approximately $30,000 were written off in the first quarter of2007.  This investment is referred to asHamilton Minuteman, LLC.

In August 2004, thePartnership invested $8,000,000 for a 50% ownership interest in a 280-unitapartment complex located in Watertown, Massachusetts. The total purchase pricewas $56,000,000. The Partnership plans to sell, over time, three buildings witha total of 137 units as condominiums commencing in January 2005.  As of March 31, 2007, 101 units have beensold and an additional five units were under contract. Gains from these saleswill be taxed as ordinary income (approximately $62,000 per unit).  The majority of the sales proceeds will beused to reduce the mortgage. An entity partially owned by the majorityshareholder of the General Partner and the President of the management company,31% and 5% respectively, is the sales agent and will receive a variablecommission on each sale of 3% to 5%. This investment is referred to as HamiltonOn Main, LLC.

In 2005, Hamilton onMain, LLC obtained a new 10 year mortgage on the three buildings to beretained.  The new mortgage is$16,825,000, with interest only of 5.18% for three years and amortizing on a 30year schedule for the remaining seven years when the balance is due.  At March 31, 2007, the outstanding balance ofthe mortgage on the units held for sale was approximately $1,600,000.

In November 2001,the Partnership formed a limited liability company to purchase a 40-unitapartment building in Cambridge, Massachusetts. This property has a 12-yearmortgage, which is amortized on a 30-year schedule, with a final paymentof approximately $6,000,000 in 2014.  ThePartnership is a 50% owner in this investment and is referred to as 345Franklin, LLC.

As required by the lenderfor the 2004 and 2005 acquisitions, the Treasurer of the General Partner hasprovided a limited repayment guaranty equal to fifty percent (50%) of theoutstanding balance, reducing to zero percent (0%) upon the completion of theCurtailment Payments. In the event that he is obligated to make 

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payments to the lender asa result of this guaranty, the Partnership and other investors have, in turn,agreed to indemnify him for their proportionate share of any such payments

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**Summaryfinancial information for the three months ended March 31, 2007 (unaudited)**
| ** **                                  | ** ** | **Essex 81** | ** ** | **345 Franklin** | ** ** | **Hamilton 1025** | ** ** | **HamiltonBay Sales** | ** ** | **HamiltonBay Apts** | ** ** | **Minuteman** | ** ** | **Hamilton on Main** | ** ** | **Hamilton Pl Sales** | ** ** | **Total**       | ** ** |
|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|------------------------|------------|----------------------------|------------|---------------------------|------------|---------------|------------|--------------------------------|------------|---------------------------------|------------|-----------------|------------|
| ** **                                  |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
| **ASSETS**                                  |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
| ** **                                  |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
| Rental  Properties                          |       | 13,816,621        |       | 9,445,423             |       | 8,786,263              |       | 11,203,955                 |       | 9,279,485                 |       | 9,096,999     |       | 26,515,913                     |       | 7,859,218                       |       | 96,003,877      |       |
| Cash  & Cash Equivalents                |       | 9,072             |       | 33,689                |       | 77,027                 |       | 2,196                      |       | 5,494                     |       | 3,618         |       | 1,830                          |       | 56,178                          |       | 189,104         |       |
| Rent  Receivable                            |       | 56,713            |       | 2,215                 |       | 3,840                  |       | (1,689                     | )          | 4,712                     |       | 1,397         |       | 1,637                          |       | 2,971                           |       | 71,796          |       |
| Real  Estate Tax Escrow                     |       | —            |       | 46,617                |       | 24,006                 |       | —                     |       | 31,116                    |       | 18,064        |       | 375,092                        |       | —                          |       | 494,895         |       |
| Due  From Investment Properties             |       | 175,000           |       | —                |       | 300,000                |       | 4,699,931                  |       | —                    |       | —        |       | —                         |       | 25,000                          |       | 5,199,931       |       |
|                                        |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       | —                         |       |                            |       |            |       |
| Prepaid  Expenses & Other Assets        |       | 71,732            |       | 109,509               |       | 95,296                 |       | 147,946                    |       | 85,373                    |       | 63,987        |       | 334,981                        |       | 3,417                           |       | 912,241         |       |
| Financing  & Leasing Fees               |       | 63,891            |       | 55,118                |       | 48,547                 |       | 46,240                     |       | 62,623                    |       | 42,709        |       | 58,468                         |       | 18,197                          |       | 395,793         |       |
|                                        |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
| **Total  Assets**                           | ** ** | **14,193,029**    | ** ** | **9,692,571**         | ** ** | **9,334,979**          | ** ** | **16,098,579**             | ** ** | **9,468,803**             | ** ** | **9,226,774** | ** ** | **27,287,921**                 | ** ** | **7,964,981**                   | ** ** | **103,267,637** | ** ** |
|                                        |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
|                                        |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
| **LIABILITIES  AND PARTNERS’ CAPITAL** |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
|                                        |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
| Mortgage  Notes Payable                     |       | 10,750,000        |       | 7,680,371             |       | 5,000,000              |       | 9,575,646                  |       | 4,750,000                 |       | 5,500,000     |       | 16,825,000                     |       | 1,580,087                       |       | 61,661,104      |       |
| Due  to Investment Properties               |       | —            |       | —                |       | —                 |       | 300,000                    |       | 4,699,931                 |       | 175,000       |       | 25,000                         |       | —                          |       | 5,199,931       |       |
| Accounts  Payable& Accrued Exp          |       | 111,202           |       | 63,063                |       | 11,616                 |       | 123,106                    |       | 4,306                     |       | 39,706        |       | 132,806                        |       | 70,449                          |       | 556,254         |       |
| Advance  Rental Pymts& Security Dep     |       | 135,744           |       | 136,229               |       | 65,704                 |       | 87,028                     |       | 77,410                    |       | 38,197        |       | 148,770                        |       | 15,358                          |       | 704,440         |       |
| **Total  Liabilities**                      |       | 10,996,946        |       | 7,879,663             |       | 5,077,320              |       | 10,085,780                 |       | 9,531,647                 |       | 5,752,903     |       | 17,131,576                     |       | 1,665,894                       |       | 68,121,729      |       |
|                                        |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |            |       |
| Partners’  Capital**                   |       | 3,196,083         |       | 1,812,908             |       | 4,257,659              |       | 6,012,799                  |       | (62,844                   | )          | 3,473,871     |       | 10,156,345                     |       | 6,299,087                       |       | 35,145,907      |       |
| **Total Liabilities and Capital**           | ** ** | **14,193,029**    | ** ** | **9,692,571**         | ** ** | **9,334,979**          | ** ** | **16,098,579**             | ** ** | **9,468,803**             | ** ** | **9,226,774** | ** ** | **27,287,921**                 | ** ** | **7,964,981**                   | ** ** | **103,267,637** | ** ** |
| ** **                                  | ** ** | ** **        | ** ** | ** **            | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **                | ** ** | ** **    | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **      | ** ** |
| **Partners’ Capital - NERA 50%**       | ** ** | **1,598,042**     | ** ** | **906,454**           | ** ** | **2,128,830**          | ** ** | **3,006,400**              | ** ** | **(31,422**               | **)**      | **1,736,936** | ** ** | **5,078,173**                  | ** ** | **3,149,544**                   | ** ** | **17,572,953**  | ** ** |

 

**Futureannual mortgage maturities at March 31, 2007 are as follows:**
| ** **          | ** ** | **Essex 81** | ** ** | **Franklin  Street** | ** ** | **1025 Hamilton** | ** ** | **Hamilton Bay  Sales** | ** ** | **Hamilton Bay  Apts.** | ** ** | **Hamilton  Minuteman** | ** ** | **Hamilton  on Main** | ** ** | **Hamilton  Place Sale** | ** ** | ** ** | ** ** |
|---------------------|------------|-------------------|------------|----------------------|------------|------------------------|------------|------------------------------|------------|------------------------------|------------|-------------------------|------------|-----------------------|------------|--------------------------|------------|------------|------------|
| **Period End** | ** ** | **March**  2005   | ** ** | **November**  2001   | ** ** | **March**  2005        | ** ** | **October**  2005            | ** ** | **October**  2005            | ** ** | **August**  2004        | ** ** | **August**  2004      | ** ** | **August**  2004         | ** ** | **Total**  | ** ** |
| March 31, 2008      |       | 10,750,000        |       | 121,844              |       |                   |       |                         |       |                         |       |                    |       | 19,552                |       | 1,580,087                |       | 12,471,483 |       |
| March 31, 2009      |       |              |       | 130,522              |       |                   |       | 9,575,646                    |       |                         |       |                    |       | 241,315               |       |                     |       | 9,947,483  |       |
| March 31, 2010      |       |              |       | 139,818              |       |                   |       |                         |       |                         |       |                    |       | 254,117               |       |                     |       | 393,934    |       |
| March 31, 2011      |       |              |       | 149,776              |       |                   |       |                         |       |                         |       |                    |       | 267,597               |       |                     |       | 417,373    |       |
| March 31,2012       |       |              |       | 160,444              |       |                   |       |                         |       |                         |       |                    |       | 281,792               |       |                     |       | 442,236    |       |
| Thereafter          |       |              |       | 6,977,967            |       | 5,000,000              |       |                         |       | 4,750,000                    |       | 5,500,000               |       | 15,760,627            |       |                     |       | 37,988,594 |       |
|                |       | 10,750,000        |       | 7,680,371            |       | 5,000,000              |       | 9,575,646                    |       | 4,750,000                    |       | 5,500,000               |       | 16,825,000            |       | 1,580,087                |       | 61,661,104 |       |

 

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| ** **                                                      | ** ** | **Essex 81** | ** ** | **345 Franklin** | ** ** | **Hamilton 1025** | ** ** | **HamiltonBay Sales** | ** ** | **HamiltonBay Apts** | ** ** | **Minuteman** | ** ** | **Hamilton on Main** | ** ** | **Hamilton Pl Sales** | ** ** | **Total**    | ** ** |
|-----------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|------------------------|------------|----------------------------|------------|---------------------------|------------|---------------|------------|--------------------------------|------------|---------------------------------|------------|--------------|------------|
| ** **                                                      |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| **Revenues**                                                    |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| Rental Income                                                   |       | 363,135           |       | 260,062               |       | 227,195                |       | 317,657                    |       | 61,771                    |       | 179,855       |       | 588,842                        |       | 102,449                         |       | 2,100,966    |       |
| Laundry and Sundry Income                                       |       | 1,276             |       | 1,588                 |       | 7,973                  |       | 4,193                      |       | —                    |       | —        |       | 6,852                          |       | —                          |       | 21,882       |       |
|                                                            |       | 364,411           |       | 261,650               |       | 235,168                |       | 321,850                    |       | 61,771                    |       | 179,855       |       | 595,693                        |       | 102,449                         |       | 2,122,848    |       |
|                                                            |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| **Expenses**                                                    |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| Administrative                                                  |       | 3,796             |       | 7,612                 |       | 6,585                  |       | 14,413                     |       | 2,163                     |       | 45,860        |       | 14,283                         |       | 2,426                           |       | 97,138       |       |
| Depreciation and Amortization                                   |       | 110,908           |       | 82,538                |       | 97,205                 |       | 246,246                    |       | 14,623                    |       | 158,935       |       | 511,314                        |       | 82,067                          |       | 1,303,836    |       |
| Interest                                                        |       | 201,673           |       | 133,738               |       | 71,050                 |       | 224,984                    |       | 34,542                    |       | 86,075        |       | 218,910                        |       | 38,260                          |       | 1,009,232    |       |
| Management Fees                                                 |       | 14,353            |       | 10,746                |       | 9,766                  |       | 13,131                     |       | —                    |       | 7,314         |       | 23,860                         |       | 3,960                           |       | 83,130       |       |
| Operating                                                       |       | 36,432            |       | 18,514                |       | 673                    |       | 13,144                     |       | —                    |       | 23,230        |       | 87,288                         |       | 1,310                           |       | 180,591      |       |
| Renting                                                         |       | —            |       | 1,403                 |       | 2,459                  |       | 1,207                      |       | —                    |       | 1,010         |       | 2,960                          |       | —                          |       | 9,039        |       |
| Repairs and Maintenance                                         |       | 17,428            |       | 9,136                 |       | 73,127                 |       | 106,969                    |       | 23,160                    |       | 16,698        |       | 73,624                         |       | 71,122                          |       | 391,264      |       |
| Taxes and Insurance                                             |       | 42,652            |       | 27,855                |       | 43,956                 |       | 71,626                     |       | 13,258                    |       | 18,033        |       | 82,187                         |       | 29,789                          |       | 329,356      |       |
|                                                            |       | 427,242           |       | 291,542               |       | 304,821                |       | 691,720                    |       | 87,746                    |       | 357,155       |       | 1,014,426                      |       | 228,934                         |       | 3,403,586    |       |
| **Income  Before Other Income**                                 |       | (62,831           | )          | (29,892               | )          | (69,653                | )          | (369,870                   | )          | (25,975                   | )          | (177,300      | )          | (418,732                       | )          | (126,485                        | )          | (1,280,738   | )          |
|                                                            |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| **Other  Income (Loss)**                                        |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| Interest Income                                                 |       | 563               |       | 239                   |       | 2,000                  |       | 109                        |       | 4                         |       | 5,470         |       | 108                            |       | 2,025                           |       | 10,518       |       |
| Gain on Sale of Real Estate                                     |       | —            |       | —                |       | 141,323                |       | 163,195                    |       | —                    |       | —        |       | —                         |       | 125,252                         |       | 429,770      |       |
| Other Income (Expenses)                                         |       | —            |       | —                |       | —                 |       | —                     |       | —                    |       | —        |       | —                         |       | —                          |       | —       |       |
|                                                            |       | 563               |       | 239                   |       | 143,323                |       | 163,304                    |       | 4                         |       | 5,470         |       | 108                            |       | 127,277                         |       | 440,288      |       |
|                                                            |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| **Net  Income (Loss)**                                          | ** ** | **(62,268**       | **)**      | **(29,653**           | **)**      | **73,670**             | ** ** | **(206,566**               | **)**      | **(25,971**               | **)**      | **(171,830**  | **)**      | **(418,624**                   | **)**      | **792**                         | ** ** | **(840,450** | **)**      |
|                                                            |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| **P&L-  NERA 50%**                                          | ** ** | **(31,134**       | **)**      | **(14,827**           | **)**      | **36,835**             | ** ** | **(103,283**               | **)**      | **(12,986**               | **)**      | **(85,915**   | **)**      | **(209,312**                   | **)**      | **396**                         | ** ** | **(420,225** | **)**      |
|                                                            |       |              |       |                  |       |                   |       |                       |       |                      |       |          |       |                           |       |                            |       |         |       |
| ** **                                                      | ** ** | ** **        | ** ** | ** **            | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **                | ** ** | ** **    | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **   | ** ** |
| Total units/ condominiums                                       |       | 49                |       | 40                    |       | 176                    |       | 120                        |       | 48                        |       | 42            |       | 146                            |       | 137                             | ** ** | **758**      | ** ** |
| Units to be retained                                            |       | 49                |       | 40                    |       | 49                     |       | 0                          |       | 48                        |       | 42            |       | 146                            | ** ** | **0**                           | ** ** | **374**      | ** ** |
| Units to be sold                                                |       | —            |       | —                |       | 127                    |       | 120                        |       | —                    |       | —        |       | —                         | ** ** | **137**                         | ** ** | **384**      | ** ** |
| Units sold through April  30, 2007                              |       | —            |       | —                |       | 112                    |       | 55                         |       | —                    |       | —        |       | —                         | ** ** | **101**                         | ** ** | **268**      | ** ** |
| Balance of unsold units                                         | ** ** | ** **        | ** ** | ** **            |       | 15                     |       | 65                         | ** ** | ** **                | ** ** | ** **    | ** ** | ** **                     | ** ** | **36**                          | ** ** | **116**      | ** ** |
| Unsold units with deposits for future sale as of April 30, 2007 |       | —            |       | —                |       | 5                      |       | 9                          |       | —                    |       | —        |       | —                         | ** ** | **5**                           | ** ** | **19**       | ** ** |

 

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**Summary financial information for the three monthsended March 31, 2006 (unaudited)**
| ** **                                                      | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex 81** | ** ** | **1025  Hamilton** | ** ** | **Hamilton  Bay** | ** ** | ** **  | ** ** |
|-----------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|-------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|-------------|------------|
| **Acquisition Date**                                       | ** ** | **November  2001**   | ** ** | **August  2004**    | ** ** | **August  2004**    | ** ** | **August  2004**        | ** ** | **March  2005**   | ** ** | **March  2005**    | ** ** | **October  2005** | ** ** | **Total**   | ** ** |
| Property assets – net                                      |       | 9,893,274            |       | 27,200,000          |       | 13,822,494          |       | 9,259,909               |       | 14,175,975        |       | 11,390,302         |       | 28,793,802        |       | 114,535,756 |       |
| Mortgages payable                                               |       | 7,794,113            |       | 16,825,000          |       | 8,237,677           |       | 7,879,510               |       | 10,750,000        |       | 7,864,340          |       | 23,775,924        |       | 83,126,564  |       |
| Total Equity                                                    |       | 2,007,648            |       | 14,047,811          |       | 2,891,541           |       | 1,659,456               |       | 3,459,258         |       | 4,197,222          |       | 4,522,369         |       | 32,785,305  |       |
| NERA – 50% equity                                          |       | 1,003,824            |       | 7,023,905           |       | 1,445,771           |       | 829,728                 |       | 1,729,629         |       | 2,098,611          |       | 2,261,184         |       | 16,392,652  |       |
| Summary income  statement:                                      |       |                 |       |                |       |                |       |                    |       |              |       |               |       |              |       |        |       |
| Rental income                                                   |       | 253,398              |       | 606,322             |       | 180,974             |       | 174,759                 |       | 341,230           |       | 238,536            |       | 489,274           |       | 2,284,493   |       |
| Operating expenses                                              |       | 64,878               |       | 224,589             |       | 160,155             |       | 62,233                  |       | 139,081           |       | 301,712            |       | 475,452           |       | 1,428,100   |       |
| Management fees                                                 |       | 10,141               |       | 24,102              |       | 1,917               |       | 7,028                   |       | 13,921            |       | 2,981              |       | 12,450            |       | 72,540      |       |
| Interest expense                                                |       | 135,615              |       | 218,780             |       | 145,924             |       | 134,077                 |       | 181,684           |       | 149,574            |       | 427,956           |       | 1,393,610   |       |
| Depreciation &  amortization                           |       | 88,910               |       | 366,859             |       | 121,879             |       | 132,630                 |       | 109,849           |       | 140,046            |       | 273,535           |       | 1,233,708   |       |
| Financing expense                                               |       | —               |       | —              |       | —              |       | —                  |       | —            |       | —             |       | —            |       | —      |       |
| Gain on sale of  condominiums                                   |       | —               |       | —              |       | 144,962             |       | —                  |       | —            |       | 427,133            |       | 781,011           |       | 1,353,106   |       |
| Net profit (loss)                                               |       | (46,146              | )          | (228,008            | )          | (103,939            | )          | (161,209                | )          | (103,305          | )          | 71,356             |       | 80,892            |       | (490,359    | )          |
| NERA – 50%                                                 |       | (23,073              | )          | (114,004            | )          | (51,969             | )          | (80,605                 | )          | (51,653           | )          | 35,678             |       | 40,446            |       | (245,180    | )          |
| Total units/  condominiums                                      |       | 40                   |       | 146                 |       | 137                 |       | 42                      |       | 49                |       | 176                |       | 168               |       | 758         |       |
| Units to be retained                                            |       | 40                   |       | 146                 |       | 0                   |       | 42                      |       | 49                |       | 49                 |       | 48                |       | 374         |       |
| Units to be sold                                                |       | 0                    |       | 0                   |       | 137                 |       | 0                       |       | 0                 |       | 127                |       | 120               |       | 384         |       |
| Units sold through April  24, 2006                              |       | 0                    |       | 0                   |       | 69                  |       | 0                       |       | 0                 |       | 91                 |       | 13                |       | 173         |       |
| Balance of unsold units                                         |       | 0                    |       | 0                   |       | 68                  |       | 0                       |       | 0                 |       | 36                 |       | 107               |       | 211         |       |
| Unsold units with deposits for future sale as of April 24, 2006 |       | 0                    |       | 0                   |       | 8                   |       | 0                       |       | 0                 |       | 7                  |       | 13                |       | 28          |       |

 

Interest rates, themajority of which are variable, range from 5.18% to 7.48% at March 31, 2007.

**NOTE 15. NEW ACCOUNTINGPRONOUNCEMENT**

In June 2005, the FASB ratified the consensusreached by the Emerging Issues Task Force (“EITF”) regarding EITF 04-05, “Investor’sAccounting for an Investment in a Limited Partnership When the Investor is theSole General Partner and the Limited Partners Have Certain Rights.” Theconclusion provides a framework for addressing the question of when a solegeneral partner, as defined in EITF 04-05, should consolidate a limitedpartnership. The EITF has concluded that the general partner of a limitedpartnership should consolidate a limited partnership, unless the limitedpartners have either (a) the substantive ability to dissolve the limitedpartnership or otherwise remove the general partner without cause, or(b) substantive participating rights. In addition, the EITF concluded thatthe guidance should be expanded to include all limited partnerships, includingthose with multiple general partners. We adopted EITF 04-05 as ofJanuary 1, 2006. We have assessed our investments in unconsolidated realestate joint ventures and have determined that EITF 04-05 did not have animpact on our financial condition or results of operations.

In September 2006,the FASB issued Statement No. 157, *Fair Value Measurements*(“SFASNo. 157”).  SFAS No. 157 providesguidance for using fair value to measure assets and liabilities. This statementclarifies the principle that fair value should be based on the assumptions thatmarket participants would use when pricing the asset or liability. SFAS No. 157establishes a fair value hierarchy, giving the highest priority to quotedprices in active markets and the lowest priority to unobservable data. SFAS No.157 applies whenever other standards require assets or liabilities to bemeasured at fair value. This statement is effective in fiscal years beginningafter November 15, 2007. We believe that the adoption of this standard onJanuary 1, 2008 will not have a material effect on our consolidated financialstatements.

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In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108(“SAB 108”), which becomes effective for the first fiscal period ending afterNovember 15, 2006. SAB 108 provides guidance on the consideration of theeffects of prior period misstatements in quantifying current year misstatementsfor the purpose of a materiality assessment. SAB 108 provides for the quantificationof the impact of correcting all misstatements, including both the carryover andreversing effects of prior year misstatements, on the current year financialstatements. The adoption of SAB 108 on December 21, 2006 did not have amaterial effect on our consolidated financial statements.

In February 2007,the FASB issued statement No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities*(“SFAS No. 159”). SFASNo. 159 expands opportunities to use fair value measurement in financialreporting and permits entities to choose to measure many financial instrumentsand certain other items at fair value. This Statement is effective for fiscal years beginning after November15, 2007.  We have not decided if we willearly adopt SFAS No. 159 or if we will choose to measure any eligible financialassets and liabilities at fair value.

**NOTE 16.    DISCONTINUEDOPERATIONS and SALES of REAL ESTATE**

The following tables summarize income fromdiscontinued operations and the related realized gain on sale of rentalproperty for the three months ended March 31, 2007 and 2006:
|                                             | ** ** | **Three Months Ended  March 31** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                  | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
|                                        |       |                                            |       |   |   |
| Total Revenues                              |       | $                                               | —     |   | $ | — |   |
| Operating and  other expenses               |       | —                                          |       | 10,125 |   |
| Depreciation and  amortization              |       | —                                          |       | — |   |
|                                        |       | —                                          |       | 10,125 |   |
| Income (loss)  from discontinued operations |       | —                                          |       | (10,125 | ) |
| Gain on sale of  discontinued operations    |       | —                                          |       | — |   |
|                                        |       | $                                               | —     |   | $ | (10,125 | ) |

 

Item 2 — MANAGEMENTSDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Thefollowing discussion should be read in conjunction with the financialstatements and notes thereof appearing elsewhere in this Report. This Report,on Form 10 –Q contains forward –lookings statements within the meaning of thesecurities law. Actual results or developments could differ materially fromthose projected in such statements as a result of certain factors set forth inthe section below entitled “Factors That May Affect Future Results” andelsewhere in this Report.

TheMassachusetts economy continues to grow at a modest rate. Office vacancy ratesin metropolitan Boston, an indicator of present and future growth, havecontinued to decline thereby improving the prospects of low residential vacancyrates and upward pressure on rental rates. Rental revenue has increasedslightly at the majority of the properties and operating expenses have increasedat a faster rate than revenue resulting in a decrease in income from operations.Management continues to place emphasis on tenant retention amidst thecompetitive backdrop of newer housing product and a low interest rateenvironment which has provided alternative housing choices for our residentialcustomers. Management believes that upward pressure on rental rates may occurin the 2nd and 3rd quarters of 2007 during the renewal season;however there will be equal pressure on operating expenses related to energy,taxes, and insurance and therefore it is unclear if operating income in 2007will outpace 2006.

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Managementanticipates that the operating loss at the joint venture properties, net ofdepreciation, will decrease as condominium units are sold thereby reducingmortgage interest expense and vacancy losses. Though slow for the firstquarter, condominium sales have picked up and management believes it is ontrack to close out two of the three joint ventures held for sale returning  approximately $3–4 million of capital by yearend.

The Partnershiphas retained The Hamilton Company (“Hamilton”) to manage and administer thePartnership’s properties.  Hamilton is afull-service real estate management company, which has legal, construction,maintenance, architectural, accounting and administrative departments.  The Partnership’s properties representapproximately 40% of the total properties and 70% of the residential propertiesmanaged by Hamilton.  Substantially allof the other properties managed by Hamilton are owned - wholly or partially,directly or indirectly - by Harold Brown. The Partnership’s Second Amended and Restated Contract of LimitedPartnership (the “Partnership Agreement”) expressly provides that the generalpartner may employ a management company to manage the properties, and that suchmanagement company may be paid a fee of 4% of rental receipts foradministrative and management services (the “Management Fee”).  The Partnership annually pays Hamilton the fullManagement Fee, in monthly installments.

Harold Brown, hisbrother Ronald Brown and the President of Hamilton, Carl Valeri, collectivelyown approximately 22.2% of the depositary receipts representing the PartnershipClass A Units (including depositary receipts held by trusts for the benefit ofsuch persons’ family members).  HaroldBrown also owns 75% of the Partnership’s Class B Units, 75% of the capitalstock of NewReal, Inc. (“NewReal”), the Partnership’s sole general partner, andall of the outstanding stock of Hamilton. Ronald Brown also owns 25% of the Partnership’s Class B Units and 25% ofNewReal’s capital stock.  In addition,Ronald Brown is the President and director of NewReal and Harold Brown isNewReal’s Treasurer and also a director. Three of NewReal’s other directors Thomas Raffoul, Conrad DiGregorio,and Edward Sarkesian also own immaterial amounts of the Partnership’s Class AUnits or receipts.

Beyond theManagement Fee, the Partnership Agreement further provides for the employmentof outside professionals to provide services to the Partnership and allowsNewReal to charge the Partnership for the cost of employing professionals toassist with the administration of the Partnership’s properties.  In addition to the Management Fee, from timeto time the Partnership pays Hamilton for repairs and maintenance services,legal services, construction services and accounting services.  The costs charged by Hamilton for theseservices are at the same hourly rate charged to all entities managed by Hamilton,and management believes such rates are competitive in the marketplace.

Hamilton accountedfor approximately 7% of the repair and maintenance expense paid for by thePartnership in the three months ended March 31, 2007 and approximately 4% forthe year ended December 31, 2006.  Of thefunds paid to Hamilton for this purpose, the great majority was to cover thecost of services provided by the Hamilton maintenance department, includingplumbing, electrical, carpentry services, and snow removal for those propertiesclose to Hamilton’s headquarters. However, several of the larger Partnership properties have their ownmaintenance staff.  Further, thoseproperties that do not have their own maintenance staff but are located morethan a reasonable distance from Hamilton’s headquarters in Allston,Massachusetts are generally serviced by local, independent companies.

Hamilton’s legaldepartment handles most of the Partnership’s eviction and collectionmatters.  Additionally, it prepares mostlong-term commercial lease agreements and represents the Partnership inselected purchase and sale transactions. Overall, Hamilton provided approximately 81 % of the legal services paidfor by the 

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Partnership during thethree months ended March 31, 2007 and approximately 72% for the year endedDecember 31, 2006.

Additionally, asdescribed in Note 3 to the Consolidated Financial Statements, the HamiltonCompany received similar fees from the Investment Properties totalingapproximately $124,000.

R. Brown Partners,which is owned by Ronald Brown, manages five condominium units located inBrookline, Massachusetts.  That entitywill receive annual management fees from the five units of approximately$1,500, and Hamilton will reduce its management fees to approximately 2%, sothat the total management fee will not exceed the 4% allowed by the Partnership’sPartnership Agreement.

The Partnershiprequires that three bids be obtained for construction contracts in excess of$5,000.  Hamilton may be one of the threebidders on a particular project and may be awarded the contract if its bid andits ability to successfully complete the project are deemed appropriate.  For contracts that are not awarded toHamilton, Hamilton charges the Partnership a construction supervision fee equalto 5% of the contract amount.  Hamilton’sarchitectural department also provides services to the Partnership on anas-needed basis.  During the three monthsended March 31, 2007, Hamilton provided the Partnership approximately $5,000 inconstruction and architectural services, compared to $36,000 for the year endedDecember 31, 2006.

Prior to 1991, thePartnership employed an outside, unaffiliated company to perform itsbookkeeping and accounting functions. Since that time, such services have been provided by the accountingstaff at Hamilton which consists of approximately twelve people.  Hamilton currently charges the Partnership$100,000 ($25,000 per quarter) per year for bookkeeping and accountingservices.

For moreinformation on related party transactions, see Note 3 to the ConsolidatedFinancial Statements.

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

The preparation ofconsolidated financial statements, in accordance with accounting principlesgenerally accepted in the United States of America, requires the Partnership tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses and related disclosures of contingent assetsand liabilities.  The Partnershipregularly and continually evaluates its estimates, including those related toacquiring, developing and assessing the carrying values of its real estateproperties and its investments in and advances to joint ventures.  The Partnership bases its estimates on historicalexperience, current market conditions, and on various other assumptions thatare believed to be reasonable under the circumstances.  However, because future events and theireffects cannot be determined with certainty, the determination of estimates requiresthe exercise of judgment.  The Partnership’scritical accounting policies are those which require assumptions to be madeabout such matters that are highly uncertain. Different estimates could have a material effect on the Partnership’sfinancial results.  Judgments anduncertainties affecting the application of these policies and estimates mayresult in materially different amounts being reported under differentconditions and circumstances.  See Note 1to the Consolidated Financial Statements, Principles of Consolidation.

Revenue Recognition:Revenues from rental properties are recognized when due from tenants.  Residential leases are generally for terms ofone year and commercial leases are generally for five to ten years, withrenewal options at increased rents. Significant commercial leases with stepped increases over the term ofthe lease are recorded on the straight-line basis.

Real Estate andDepreciation: Real estate assets are stated at the lower of cost or fair value,less accumulated depreciation.  Costsrelated to the acquisition, development, construction and improvement ofproperties are capitalized, including interest, internal wages and benefits,real estate taxes and insurance. Capitalization usually begins with commencement of development activityand ends when the property is ready for leasing.  Replacements and improvements— such as HVACequipment, structural replacements, windows, appliances, 

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flooring, carpeting andkitchen/bath replacements and renovations — are capitalized and depreciatedover their estimated useful lives as follows:

·                  Depreciationis computed on a straight-line basis over the estimated useful lives of therelated assets.  In assessing estimateduseful lives, the Partnership makes assumptions based on historical experienceacquired from both within and outside the Partnership.  These assumptions have a direct impact on thePartnership’s net income.

·                  Ordinaryrepairs and maintenance, such as unit cleaning and painting and appliancerepairs, are expensed.

If there is anevent or change in circumstances that indicates an impairment in the value of aproperty, the Partnership’s policy is to assess the impairment by making acomparison of the current and projected operating cash flows of the propertyover its remaining useful life, on an undiscounted basis, to the carryingamount of the property.  If the carryingvalue is in excess of the estimated projected operating cash flows of theproperty, the Partnership would recognize an impairment loss equivalent to theamount required to adjust the carrying amount to its estimated fair value.  The Partnership has not recognized animpairment loss since 1995.

Rental PropertyHeld for Sale and Discontinued Operations: When assets are identified by management as held for sale, thePartnership discontinues depreciating the assets and estimates the sales price,net of selling costs, of such assets. If, in management’s opinion, the net sales price of the assets whichhave been identified as held for sale is less than the net book value of theassets, a valuation allowance is established. Properties identified as held for sale and/or sold are presented indiscontinued operations for all periods presented.

Investments inPartnerships:  The Partnership accountsfor its 50% ownership in the Investment Properties under the equity method ofaccounting, as it exercises significant influence over, but does not controlthese entities.  These investments arerecorded initially at cost, as Investments in Partnerships, and subsequentlyadjusted for the Partnership’s share in earnings, cash contributions anddistributions.  Under the equity methodof accounting, our net equity is reflected on the consolidated balance sheets,and our share of net income or loss from the Partnership is included on theconsolidated statements of income.

With respect toinvestments in and advances to the Investment Properties, the Partnership looksto the underlying properties to assess performance and the recoverability ofcarrying amounts for those investments in a manner similar to directinvestments in real estate properties. An impairment charge is recorded if the carrying value of the investmentexceeds its fair value.

Legal Proceedings:The Partnership is subject to various legal proceedings and claims that arise,from time to time, in the ordinary course of business.  These matters are frequently covered byinsurance.  If it is determined that aloss is likely to occur, the estimated amount of the loss is recorded in thefinancial statements.  Both the amount ofthe loss and the point at which its occurrence is considered likely can bedifficult to determine.

**RESULTS OF OPERATIONS**

Comparison of the threemonths ended March 31, 2007 to the three months ended March 31, 2006 (asadjusted for discontinued operations)

#### The Partnership and its SubsidiaryPartnerships earned income before other income and discontinued operations of$320,544 during the three months ended March 31, 2007 compared to $603,587 forthe three months ended March 31, 2006, a decrease of $283,043 (47%).

22

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The rental activity issummarized as follows:
|                   | ** ** | **Occupancy Date**  | ** ** |
|-------------------|------------|--------------------------|------------|
| ** **        | ** ** | **April 30,  2007** | ** ** | **February 1,  2007** | ** ** | **April 24,  2006** | ** ** |
|              | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Residential       |       |                     |       |   |   |   |   |
| Units             |       | 2,377                    |       | 2,377 |   | 2,402 |   |
| Vacancies         |       | 40                       |       | 32 |   | 30 |   |
| Vacancy rate      |       | 1.7                      | %          | 1.3 | % | 1.2 | % |
| Commercial        |       |                     |       |   |   |   |   |
| Total square feet |       | 84,998                   |       | 84,998 |   | 84,998 |   |
| Vacancy           |       | 0                        |       | 0 |   | 6,075 |   |
| Vacancy rate      |       | 0                        | %          | 0 | % | 7.1 | % |

 

|                        | ** ** | **Rental Income (in thousands)  Three Months Ended March 31,** | ** ** |
|------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **             | ** ** | **2007**                                                                                          | ** ** | **2006** | ** ** |
| ** **             | ** ** | **Total  Operations**                                                                             | ** ** | **Continuing  Operations** | ** ** | **Total  Operations** | ** ** | **Continuing  Operations** | ** ** |
| Total rents            |       | $                                                                                                 | 8,035      |   | $ | 8,035 |   | $ | 7,968 |   | $ | 7,968 |   |
| Residential percentage |       | 93                                                                                                | %          | 93 | % | 93.5 | % | 93.5 | % |
| Commercial percentage  |       | 7                                                                                                 | %          | 7 | % | 6.5 | % | 6.5 | % |
| Contingent rentals     |       | $                                                                                                 | 112        |   | $ | 112 |   | $ | 390 |   | $ | 390 |   |

 

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***Three Months Ended March 31, 2007 Compared to Three Months Ended March31, 2006***
| ** **                                              | ** ** | **March 31,  2007** | ** ** | **March 31,  2006** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|---------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                              | ** ** | ** **               | ** ** | ** **               | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                               |       |                     |       |                     |       |               |       |                |       |
| Rental income                                           |       | $                        | 8,034,588  |                     | $          | 7,967,592          |       | $                   | 66,996     |   | 0.8 | % |
| Laundry and sundry income                               |       | 107,845                  |       | 124,031                  |       | (16,186            | )          | (13                 | )%         |
|                                                    |       | 8,142,433                |       | 8,091,623                |       | 50,810             |       | 0.6                 | %          |
|                                                    |       |                     |       |                     |       |               |       |                |       |
| Expenses:                                               |       |                     |       |                     |       |               |       |                |       |
| Administrative                                          |       | 396,261                  |       | 351,652                  |       | 44,609             |       | 12.7                | %          |
| Depreciation and amortization                           |       | 1,711,456                |       | 1,649,043                |       | 62,413             |       | 3.8                 | %          |
| Interest                                                |       | 1,904,266                |       | 1,916,124                |       | (11,858            | )          | (0.6                | )%         |
| Management fees                                         |       | 324,052                  |       | 321,660                  |       | 2,392              |       | 0.7                 | %          |
| Operating                                               |       | 1,418,294                |       | 1,291,634                |       | 126,660            |       | 9.8                 | %          |
| Renting                                                 |       | 71,507                   |       | 55,866                   |       | 15,641             |       | 28.0                | %          |
| Repairs and maintenance                                 |       | 1,080,745                |       | 1,030,728                |       | 50,017             |       | 4.9                 | %          |
| Taxes and insurance                                     |       | 915,308                  |       | 871,329                  |       | 43,979             |       | 5.0                 | %          |
|                                                    |       | 7,821,889                |       | 7,488,036                |       | 333,853            |       | 4.5                 | %          |
|                                                    |       |                     |       |                     |       |               |       |                |       |
| Income  Before Other Income and Discontinued Operations |       | 320,544                  |       | 603,587                  |       | (283,043           | )          | (46.9               | )%         |
|                                                    |       |                     |       |                     |       |               |       |                |       |
| Other  Income (Loss)                                    |       |                     |       |                     |       |               |       |                |       |
| Interest income                                         |       | 100,126                  |       | 93,478                   |       | 6,648              |       | 7.1                 | %          |
| Casualty (loss)                                         |       | (60,000                  | )          | —                   |       | (60,000            | )          | —              |       |
| (Loss) from investment in joint ventures                |       | (420,225                 | )          | (245,180                 | )          | (175,045           | )          | 71.4                | %          |
|                                                    |       | (380,099                 | )          | (151,702                 | )          | (228,397           | )          | 150.6               | %          |
| (Loss) Income from Continuing Operations                |       | (59,555                  | )          | 451,885                  |       | (511,440           | )          | (113.2              | )%         |
|                                                    |       |                     |       |                     |       |               |       |                |       |
| Discontinued  Operations:                               |       |                     |       |                     |       |               |       |                |       |
| Income (loss) from discontinued operations              |       | —                   |       | (10,125                  | )          | 10,125             |       | (100                | )%         |
|                                                    |       | —                   |       | —                   |       | —             |       | —              |       |
|                                                    |       | —                   |       | (10,125                  | )          | 10,125             |       | (100                | )%         |
| Net (Loss) Income                                       |       | $                        | (59,555    | )                        | $          | 441,760            |       | $                   | (501,315   | ) | (113.5 | )% |

 

Rental income forthe three months ended March 31, 2007 was approximately $8,035,000 compared toapproximately $7,968,000 for the three months ended March 31, 2006, an increaseof approximately $67,000 (0.8%).  Theproperties with the most significant increases include 62 Boylston Street withan increase of approximately $36,000; Westgate Apartments with an increase ofapproximately $13,000; and 1144 Commonwealth Avenue with an increase ofapproximately $21,000.  The majority ofthe Partnership’s other properties experienced minimal rental income increases.

Total expenses forthe three months ended March 31, 2007 were approximately $7,822,000 compared toapproximately $7,488,000 for the three months ended March 31, 2006, an increaseof approximately $334,000 (4.5%). The most significant increases were inoperating expenses of approximately $127,000 (9.8%) due to increased utilitycosts; an increase in taxes and insurance of approximately $44,000 due toincreases in real estate taxes and insurance premiums; an increase indepreciation and amortization of approximately $62,000 due to ongoing capitalimprovements to Partnership properties; an increase in repairs and maintenanceexpenses of approximately $50,000 due to repairs to Partnership properties inan ongoing effort to maintain occupancy levels; 

24

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and an increase inadministrative expenses of approximately $45,000 due to an increase in salariesand wages as well as professional fees due to the increased SEC compliancecosts.  Interest expense decreasedapproximately $12,000 due to a lower level of debt.

At March 31, 2007,the Partnership has a 50% ownership interest in joint ventures. The net loss onthese investments is $420,225 for the three months ended March 31, 2007compared to a loss of $245,180 for the three months ended March 31, 2006 anincrease of $175,045 (71.4%).  Thisincrease in loss on the investment properties is due to slower than projectedsales of the units, vacancies at the properties while preparing them forresale, an increase in depreciation and amortization expense due to capitalimprovements, and professional fees associated with converting the propertiesinto condominium units.  See Note 14 tothe Consolidated Financial Statements for financial information of theseinvestment properties.  The summaries areas follows:

Franklin Street,Cambridge, Massachusetts

The Partnershipinvested in a 40-unit property in 2001. The Partnership’s share of loss on this investment is $14,827 and$23,073 for the three months ended March 31, 2007 and 2006, respectively.  There was one vacant unit at April 30, 2007.

Hamilton Place,Watertown, Massachusetts

The Partnershipinvested in 283 units in six buildings in August 2004.  The Partnership plans to sell 137 of theunits as condominiums located in three buildings.  At April 30, 2007, 101 units have been soldand five additional units have reservation agreements.  The Partnership’s share of loss for the threemonths ended March 31, 2007 was $208,916 which includes a gain of $62,626 onthe sale of condominium units.  ThePartnership’s share of loss for the three months ended March 31, 2006 was$165,973 which includes a gain on the sale of units of $72,481.  There were eight units vacant at April 30,2007.

HamiltonMinuteman, Lexington, Massachusetts

The Partnershipinvested in a 42-unit residential complex in September 2004.  The Partnership’s share of loss on thisinvestment was $85,914 and $80,605 for the three months ended March 31, 2007and 2006, respectively.  The loss for theperiod includes the expensing of approximately $40,000 of previously deferredcondominium conversion costs as the conversion will not occur in theforeseeable future.  There is one vacantunit at April 30, 2007.

Essex 81, Boston,Massachusetts

The Partnershipinvested in this property in March 2005. The property consists of 49 residential units, one commercial space, anda 50 car surface parking lot.  ThePartnership’s share of loss on this investment is $31,134 and $51,653 for thethree months ended March 31, 2007 and 2006 respectively.  There is one vacant unit at April 30, 2007.

1025 Hamilton,Quincy, Massachusetts

The Partnershipinvested in a 176-unit property in March 2005. The Partnership plans to sell 127 units as condominiums.  As of April 30, 2007,112 units have beensold, and five units have been reserved. The Partnership’s share of income on this investment for the threemonths ended March 31, 2007 is $36,835 which includes a gain on unit sales of$70,662.  The Partnership’s share ofincome on this investment for the three month ended March 31, 2006 was $35,678which includes a gain on unit sales of $ 213,567.  There are two vacant units at April 30, 2007.

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Hamilton Bay, Quincy, Massachusetts

The Partnership invested $2,500,000 in a 168 unitapartment complex in Quincy, Massachusetts in October 2005.  The purchase price was $30,875,000. ThePartnership plans to sell the majority of units as condominiums and retain 48units for long-term investment.  Theproceeds from the condominium sales will be used primarily to reduce theabove-mentioned mortgage.  Gains from thesales of units will be taxed at ordinary income rates.  As of April 30, 2007, 55 units have been soldand an additional nine units have a signed purchase and sales agreement.  There are seven vacant units at April 30,2007.  The Partnership’s share of lossfor the three months ended March 31, 2007 was $116,268 which includes a gain of$81,598 on the sale of condominium units. The Partnership’s share of income for the three months ended March 31,2006 was $40,446 which includes a gain of $390,506 on the sale of condominiumunits.

Interest incomewas approximately $100,000 for the three months ended March 31, 2007 comparedto approximately $93,000 for the three months ended March 31, 2006, an increaseof approximately $7,000 (7.1%).  Thisincrease reflects an increase in interest rates.

As a result of thechanges discussed above, net loss for the three months ended March 31, 2007 was$59,555 compared to income of $441,760 for the three months ended March 31,2006, a decrease of $501,315 (113.5%).

**LIQUIDITY AND CAPITAL RESOURCES**

The Partnership’sprincipal source of cash during 2007 and 2006 was the collection of rents.

Themajority of cash and cash equivalents of $10,225,132 at March 31, 2007 and$9,773,250 at December 31, 2006 were held in interest bearing accounts atcreditworthy financial institutions.

This increase of$451,882 for the three months ended March 31, 2007 is summarized as follows:
|                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Cash provided by  operating activities                |       | $                                                | 2,298,414  |   | $ | 2,078,789 |   |
| Cash (used in)  investing activities                  |       | (366,789                                         | )          | (718,946 | ) |
| Cash (used in)  financing activities                  |       | (268,939                                         | )          | (195,870 | ) |
| Distributions  paid                                   |       | (1,210,804                                       | )          | (1,210,804 | ) |
| Net increase (decrease)  in cash and cash equivalents |       | $                                                | 451,882    |   | $ | (46,831 | ) |

 

The cash providedby operating activities is primarily due to the depreciation expense as well asa non cash loss on the investment in joint ventures. The decrease in cash usedin investing activities is due to a distribution from the joint ventures duringthe three months ended March 31, 2007 and continued capital improvements toPartnership properties.  The increase incash used in financing activities is due to the principal payments on the mortgagenotes payable.

During the three monthsended March 31, 2007 the Partnership received a distribution of $200,000 fromthe joint venture compared to an investment of $300,000 in the joint ventureduring the three months ended March 31, 2006.  See Note 14 of the Consolidated Financial Statements for additionalinformation on the joint ventures and the related financial information.

26

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The Partnershippaid a quarterly distribution of $7.00 per unit ($0.70 per depositary receipts)on March 31, 2007 for a total distribution of $1,210,804.   Management anticipates that similardistributions will continue to be made during 2007.

During the threemonths ended March 31, 2007, the Partnership and its Subsidiary Partnershipscompleted certain improvements to their properties at a total cost of approximately$567,000.  The most significantimprovements were made at the following properties: approximately $86,000 atExecutive Apartments in Framingham, Massachusetts; approximately $65,000 atWestgate Apartments in Woburn, Massachusetts; approximately $59,000 at 62Boylston Street in Boston, Massachusetts; approximately $56,000 at HamiltonOaks in Brockton, Massachusetts; and approximately $45,000 at Westside Colonialin Brockton, Massachusetts.  All suchimprovements were funded from the Partnership’s cash reserves and escrowaccounts established in connection with the financing of applicable properties.

In addition tothe improvements made to date in 2007, the Partnership and its SubsidiaryPartnerships plan to invest approximately $1,421,000 in capital improvementsduring the balance of 2007, the majority of which will be spent at 1144Commonwealth Avenue, Westside Colonial, Redwood Hills, School Street andWestgate Woburn.  These improvements willbe funded from escrow accounts established in connection with the financing ofapplicable properties, as well as from the Partnership’s cash.

As of March 31,2007, the Partnership had a 50% ownership in eight joint ventures, all of whichhave mortgage indebtedness.  We do nothave control of these partnerships and therefore we account for them using theequity method of consolidation.  At March31, 2007, our proportionate share of the non-recourse debt related to theseinvestments was equal to approximately $30,830,000.  See Note 14 to the Consolidated Financial Statementsfor details of the investment in joint ventures including results ofoperations, equity and units sales.

The Partnershipanticipates that cash from operations and interest-bearing investments will besufficient to fund its current operations, finance current improvements to itsproperties and meet bank obligations on current mortgages.  The Partnership’s net income and cash flowmay fluctuate dramatically from year to year as a result of the sale ofproperties, mortgage financings, unanticipated increases in expenses, or theloss of significant tenants.

**Contractual Obligations**

Please see Note 5 to the Consolidated FinancialStatements for a description of mortgage notes payable. The Partnerships haveno other contractual obligation to be disclosed.

**FactorsThat May Affect Future Results**

Certaininformation contained herein includes forward-looking statements, which aremade pursuant to the safe harbor provisions of the Private SecuritiesLiquidation Reform Act of 1995 (the “Act”). While forward looking statements reflect management’s good faith beliefswhen those statements are made, caution should be exercised in interpreting andrelying on such forward looking statements, the realization of which may beimpacted by known and unknown risks and uncertainties, events that may occursubsequent to the forward-looking statements, and other factors which may bebeyond the Partnership’s control and which can materially affect thePartnership’s actual results, performance or achievements for 2007 and beyond.

Along with risksdetailed from time to time in the Partnership’s filings with the Securities andExchange Commission, some factors that could cause the Partnership’s actualresults, performance or achievements to differ materially from those expressedor implied by forward-looking statements include but are not limited to thefollowing:

27

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The Partnershipdepends on the real estate markets where its properties are located, primarilyin Eastern Massachusetts and these markets may be adversely affected by localeconomic market conditions, which are beyond the Partnership’s control.

The Partnership issubject to the general economic risks affecting the real estate industry, suchas dependence on tenant’s financial condition and the need to enter into newleases or renew leases on terms favorable to tenants in order to generaterental revenues.  The Partnership is alsoimpacted by changing economic conditions making alternative housingarrangements more or less attractive to the Partnership’s tenants, such as the interestrates on single family home mortgages and the availability and purchase priceof single-family homes in the Greater Boston metropolitan area.

The Partnership issubject to significant expenditures associated with each investment, such asdebt service payments, real estate taxes, insurance and maintenance costs,which are generally not reduced when circumstances cause a reduction inrevenues from a property.

The Partnership issubject to increases in heating and utility costs that may arise as a result ofeconomic and market conditions and fluctuations in seasonal weather conditions.

Civildisturbances, earthquakes and other natural disasters may result in uninsuredor underinsured loses.

Actual or threatened terrorist attacks may adversely affect our abilityto generate revenues and the value of our properties.

Financing or refinancing of Partnership properties may not be availableto the extent necessary or desirable, or may not be available on favorableterms.

The Partnership properties face competition from similar properties inthe same market.  This competition mayaffect the Partnership’s ability to attract and retain tenants and may reducethe rents that can be charged.

Given the nature of the real estate business, the Partnership issubject to potential environmental liabilities. These include environmental contamination in the soil at the Partnership’sor neighboring real estate, whether caused by the Partnership, previous ownersof the subject property or neighbors of the subject property, and the presenceof hazardous materials in the Partnership’s buildings, such as asbestos, moldand radon gas.  Management is not awareof any material environmental liabilities at this time.

Insurance coverage for and relating to commercial properties is increasinglycostly and difficult to obtain.  Inaddition, insurance carriers have excluded certain specific items from standardinsurance policies, which have resulted in increased risk exposure for thePartnership.  These include insurancecoverage for acts of terrorism and war, and coverage for mold and otherenvironmental conditions.  Coverage forthese items is either unavailable, or prohibitively expensive.

Market interest rates could adversely affect the market prices forClass A Partnership Units and Depositary Receipts as well as performance andcash flow.

Changes in the tax laws and regulations may affect the income taxableto owners of the Partnership.  Thesechanges may affect the after-tax value of future distributions.

The Partnership may fail to identify, acquire, construct, or developadditional properties; may develop or acquire properties that do not produce adesired or expected yield on invested capital; may be unable to sellpoorly-performing or otherwise undesirable properties quickly; or may fail toeffectively integrate acquisitions of properties or portfolios of properties.

Risks associated with the use of debt to fundacquisitions and developments.

28

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Competition for acquisitions may result in increasedprices for properties.

The sale of condominium units may not generate enough net proceeds topay the minimum curtailment payments required at the Investment Properties. ThePartnership may be required to fund any deficiencies.

Any weakness identified in the Partnership’s internal controls as partof the evaluation being undertaken by the Company and its independent publicaccountants pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 couldhave an adverse effect on the Company’s business.

Ongoing compliance with Sarbanes-Oxley Act of 2002 mayrequire additional personnel or system changes.

The foregoingfactors should not be construed as exhaustive or as an admission regarding theadequacy of disclosures made by the Partnership prior to the date hereof or theeffectiveness of said Act.  ThePartnership expressly disclaims any obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, futureevents or otherwise.

The residentialreal estate market in the Greater Boston area continues to be competitive andthe Partnership anticipates the climate will remain the same in the foreseeablefuture.  This may result in increases invacancy rates and/or a reduction in rents. The Partnership believes its presentcash reserves as well as anticipated rental revenue will be sufficient to fundits current operations, and to finance current planned improvements to itsproperties and continue dividend payments in the foreseeable future.

Since thePartnership’s long-term goals include the acquisition of additional properties,a portion of the proceeds from the refinancing and sale of properties isreserved for this purpose.  ThePartnership will consider refinancing existing properties if the Partnership’scash reserves are insufficient to repay existing mortgages or if thePartnership needs additional funds for future acquisitions.

Item 3 –QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31,2007, the Partnership and its subsidiary Partnerships collectively haveapproximately $114,400,000 in long-term debt, all of which have fixed interestrates.  Accordingly, the fair value ofthese debt instruments is affected by changes in market interest rates.  For information regarding the fair value andmaturity dates of these debt obligations, see Notes 5 and 12 to theConsolidated Financial Statements.

For additionaldisclosures about market risk, see “Item 2 – Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Factors that MayAffect Future Results.”

Item 4—CONTROLSAND PROCEDURES

Our principalexecutive officer and principal financial officer have as of the end of theperiod covered by this quarterly report, evaluated the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) and Rule15d-15(e) under the Securities Exchange Act of 1934, as amended) and havedetermined that such disclosure controls and procedures are effective.  There have been no changes in internalcontrols or in other factors that have materially affected or are reasonablylikely to materially affect our internal controls since the date ofevaluation.  We do not believe anysignificant deficiencies or material weaknesses exist in our internal controls.  Accordingly, no corrective actions have beentaken. We continue to review and document our disclosure controls andprocedures, including our internal controls over financial reporting, and mayfrom time to time, make changes aimed at enhancing their effectiveness and toensure our systems evolve with our business.

29

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PART II - OTHER INFORMATION

Item 1.                         LegalProceedings

There is no materialpending legal proceedings.

Item 1A.               Risk Factors

There were nomaterial changes to the Risk Factors disclosed in our annual report on Form10-K for the year ended December 31, 2006.

None.

Item 2.                         UnregisteredSale of Equity Securities and Use of Proceeds

None.

Item 3.                         DefaultsUpon Senior Securities

None.

Item 4.                         Submissionof Matters to a Vote of Security Holders

None.

Item 5.                         OtherInformation

None.

Item 6.                         Exhibits

(a)                                              Seethe exhibit index below.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.
| Date:    May 10, 2007 |
|-------------------------------------------|
|                                      |   |
|                                      | NEW ENGLAND REALTY ASSOCIATES  LIMITED PARTNERSHIP |
|                                      |   |   |
|                                      | By: | NEWREAL, INC., |
|                                      |   | its General Partner* |
|                                      |   |   |
|                                      |   |   |
|                                      | By: | /s/ Ronald Brown |   |
|                                      |   | Ronald Brown, President |
|                                      |   |   |
|                                      |   |   |
|                                           |   |   |
|                                           | * | Functional equivalent of Chief Executive Officer,  Principal  Financial Officer and Principal Accounting Officer |

 

 

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**EXHIBIT INDEX**
| Exhibit  No. | ** ** | **Description of Exhibit**                                                                                                                                                                                                        |
|--------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** ** | ** **                                                                                                                                                                                                                        |
| (31.1)       |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of Ronald Brown, Principal Executive Officer of  the Partnership (President and a Director of NewReal, Inc., sole General  Partner of the Partnership)   |
|         |       |                                                                                                                                                                                                                              |
| (31.2)       |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of Harold Brown, Principal Financial Officer of  the Partnership (Treasurer and a Director of NewReal, Inc., sole General  Partner of the Partnership)   |
|         |       |                                                                                                                                                                                                                              |
| (32.1)       |       | Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, of Ronald Brown, Principal Executive Officer of  the Partnership (President and a Director of NewReal, Inc., sole General  Partner of the Partnership). |
|         |       |                                                                                                                                                                                                                              |
| (32.2)       |       | Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, of Harold Brown, Principal Financial Officer of  the Partnership (Treasurer and a Director of NewReal, Inc., sole General  Partner of the Partnership). |

 

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