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**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**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, 2009** |
| ** **                                              |
| **OR**                                                  |
| ** **                                              |
| o                                                       | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from             to             **

 

**Commissionfile number 0-12138**

 

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**NewEngland Realty Associates Limited Partnership**

(Exact name of registrant asspecified 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**                                                        | **02134**                             |
| (Address of principal  executive offices)                                         | (Zip code)                            |
|                                                                              |                                  |
| Registrant’s telephone  number, including area code: **(617) 783-0039** |

 

Securities registeredpursuant 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 A**

**LimitedPartnership Units**

(Title of class)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files). Yes o No o(the Registrant is not yet required to submit interactive Data)

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large accelerated filer o                                              | Accelerated filer x         |
|------------------------------------------------------------------------|-----------------------------|
|                                                                   |                        |
| Non-accelerated filer o  (Do not check if a smaller reporting company) | Smaller reporting company o |

 

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

 

As of May 1, 2009,there were 106,227 Class A units (1,062,272 Depositary Receipts) 25,229 Class Bunits of limited partnership units and 1,327 of General Partnership unitsissued and outstanding.

 

 

 

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**INDEX**

 
| **PART  I—FINANCIAL INFORMATION**   |   |
|------------------------------------------|--------|
| Item 1.                             |   | Financial Statements | 3 |
|                                     |   | Consolidated  Balance Sheets as of March 31, 2009 (unaudited) and December 31,  2008 (audited) | 3 |
|                                     |   | Consolidated Statements of Income for the Three Months  Ended March 31, 2009 and March 31, 2008 (all unaudited) | 4 |
|                                     |   | Consolidated Statement of Changes in Partners’ Capital  for the Three Months Ended March 31, 2009 and 2008 (all unaudited) | 5 |
|                                     |   | Consolidated Statements of Cash Flows for the Three  Months Ended March 31, 2009 and 2008 (all unaudited) | 6 |
|                                     |   | Notes to Financial Statements | 7 |
| Item 7.                             |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 22 |
| Item 3.                             |   | Quantitative  and Qualitative Disclosures About Market Risk | 29 |
| Item 4.                             |   | Controls  and Procedures | 30 |
| **PART II—OTHER  INFORMATION** |   |
| Item 1.                             |   | Legal  Proceedings | 30 |
| Item 1A.                            |   | Risk Factors | 30 |
| Item 2.                             |   | Unregistered  Sales of Equity Securities and Use of Proceeds | 30 |
| Item 3.                             |   | Defaults  Upon Senior Securities | 31 |
| Item 4.                             |   | Submission  of Matters to a Vote of Security Holders | 31 |
| Item 5.                             |   | Other Information | 31 |
| Item 6.                             |   | Exhibits | 31 |
| **SIGNATURES**                           | 32     |

 

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**NEW ENGLAND REALTYASSOCIATES, L.P.**

 

**PART 1 — FINANCIALINFORMATION**

 

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 ofthe Securities 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 beread in conjunction with the notes to the aforementioned financial statementsand Management’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 fiscalyear ended December 31, 2008.

 

The results of operations for the three month periodended March 31, 2009 are not necessarily indicative of the results to beexpected for the entire fiscal year or any other period.

 

**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                   | ** ** | **March 31, 2009  (Unaudited)** | ** ** | **December 31, 2008  (Audited)** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| **ASSETS**                                                                                   |       |                                 |       |                                  |       |
| Rental Properties                                                                            |       | $97,777,973                          |       | $98,560,454                           |       |
| Cash and Cash Equivalents                                                                    |       | 10,220,538                           |       | 10,752,931                            |       |
| Rents Receivable                                                                             |       | 487,577                              |       | 553,392                               |       |
| Real Estate Tax Escrows                                                                      |       | 270,639                              |       | 275,619                               |       |
| Prepaid Expenses and Other Assets                                                            |       | 2,871,747                            |       | 3,018,714                             |       |
| Investments in Unconsolidated Joint Ventures                                                 |       | 10,622,556                           |       | 11,023,611                            |       |
| Financing and Leasing Fees                                                                   |       | 1,030,526                            |       | 1,058,786                             |       |
| **Total Assets**                                                                             |       | $123,281,556                         |       | $125,243,457                          |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                                   |       |                                 |       |                                  |       |
| Mortgage Notes Payable                                                                       |       | $137,954,602                         |       | $138,160,262                          |       |
| Accounts Payable and Accrued Expenses                                                        |       | 1,528,463                            |       | 1,592,610                             |       |
| Advance Rental Payments and Security Deposits                                                |       | 3,205,179                            |       | 3,207,767                             |       |
| **Total Liabilities**                                                                        |       | 142,688,244                          |       | 142,960,639                           |       |
| Commitments and Contingent Liabilities (Note 9)                                         |       |                                 |       |                                  |       |
| Partners’ Capital 132,783 and 135,251 units outstanding in 2009 and  2008, respectively |       | (19,406,688                          | )          | (17,717,182                           | )          |
| **Total Liabilities and Partners’ Capital**                                             |       | $123,281,556                         |       | $125,243,457                          |       |

 

See notes to consolidatedfinancial statements.

 

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTSOF INCOME**

 
| ** **                                              | ** ** | **Three Months Ended  March 31,  (Unaudited)** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                              | ** ** | **2009**                                            | ** ** | **2008** | ** ** |
| Revenues                                                |       |                                                |       |   |   |
| Rental income                                           |       | $                                                   | 8,367,582  |   | $ | 7,922,823 |   |
| Laundry and sundry income                               |       | 93,113                                              |       | 109,144 |   |
|                                                    |       | 8,460,695                                           |       | 8,031,967 |   |
| Expenses                                                |       |                                                |       |   |   |
| Administrative                                          |       | 465,930                                             |       | 425,789 |   |
| Depreciation and amortization                           |       | 1,416,620                                           |       | 1,618,656 |   |
| Management fees                                         |       | 342,888                                             |       | 322,280 |   |
| Operating                                               |       | 1,505,737                                           |       | 1,404,452 |   |
| Renting                                                 |       | 60,958                                              |       | 80,211 |   |
| Repairs and maintenance                                 |       | 978,286                                             |       | 1,040,066 |   |
| Taxes and insurance                                     |       | 964,867                                             |       | 908,990 |   |
|                                                    |       | 5,735,286                                           |       | 5,800,444 |   |
| Income Before Other Income and Discontinued Operations  |       | 2,725,409                                           |       | 2,231,523 |   |
|                                                    |       |                                                |       |   |   |
| Other Income (Loss)                                     |       |                                                |       |   |   |
| Interest income                                         |       | 18,362                                              |       | 48,369 |   |
| Interest expense                                        |       | (1,945,147                                          | )          | (1,925,859 | ) |
| (Loss) from investment in unconsolidated joint ventures |       | (273,555                                            | )          | (247,805 | ) |
| Mortgage prepayment penalties                           |       | —                                              |       | (3,702,168 | ) |
|                                                    |       | (2,200,340                                          | )          | (5,827,463 | ) |
| Income (Loss) From Continuing Operations                |       | 525,069                                             |       | (3,595,940 | ) |
|                                                    |       |                                                |       |   |   |
| Discontinued Operations                                 |       |                                                |       |   |   |
| (Loss) from discontinued operations                     |       | —                                              |       | (27,445 | ) |
| (Loss) gain on the sale of real estate                  |       | (4,984                                              | )          | 6,053,391 |   |
|                                                    |       | (4,984                                              | )          | 6,025,944 |   |
| Net Income                                              |       | $                                                   | 520,085    |   | $ | 2,430,004 |   |
|                                                    |       |                                                |       |   |   |
| Income per Unit                                         |       |                                                |       |   |   |
| Income (loss) before discontinued operations            |       | $                                                   | 3.91       |   | $ | (23.76 | ) |
| (Loss) income from discontinued operations              |       | (0.04                                               | )          | 39.81 |   |
| Net Income per Unit                                     |       | $                                                   | 3.87       |   | $ | 16.05 |   |
| Weighted Average Number of Units Outstanding            |       | 134,202                                             |       | 151,384 |   |

 

See notes to consolidatedfinancial statements.

 

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** **

**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL**

 

**(UNAUDITED)**

** **
| ** **                     | ** ** | **Unit**         | ** ** | **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, 2008 |       | 144,180          |       | 34,243                      |       | 1,802 |   | 180,225 |   | 14,109 |   | 166,116 |   | $ | 1,052,816 |   | $ | 1,531,414 |   | $ | 80,629 |   | $ | 2,664,859 |   |
| Distribution to  Partners      |       | —           |       | —                      |       | — |   | — |   | — |   | — |   | (772,254 | ) | (183,410 | ) | (9,653 | ) | (965,317 | ) |
| Stock Buyback                  |       |             |       |                        |       |   |   |   |   | 25,439 |   | 25,439 |   | (19,744,831 | ) | — |   | — |   | (19,744,831 | ) |
| Net Income                     |       | —           |       | —                      |       | — |   | — |   | — |   | — |   | 1,944,003 |   | 461,701 |   | 24,300 |   | 2,430,004 |   |
| Balance  March 31, 2008   |       | 144,180          |       | 34,243                      |       | 1,802 |   | 180,225 |   | 39,548 |   | 140,677 |   | $ | (17,520,266 | ) | 1,809,705 |   | 95,276 |   | (15,615,285 | ) |
|                           |       |             |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance  January 1, 2009  |       | 144,180          |       | 34,243                      |       | 1,802 |   | 180,225 |   | 44,974 |   | 135,251 |   | $ | (14,173,745 | ) | $ | (3,366,265 | ) | $ | (177,172 | ) | $ | (17,717,182 | ) |
| Distribution to  Partners      |       | —           |       | —                      |       | — |   | — |   | — |   | — |   | (745,200 | ) | (176,985 | ) | (9,315 | ) | (931,501 | ) |
| Stock Buyback                  |       | —           |       | —                      |       | — |   | — |   | 2,468 |   | (2,468 | ) | (1,025,734 | ) | (239,738 | ) | (12,618 | ) | (1,278,090 | ) |
| Stock Transfer                 |       | —           |       | —                      |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Net Income                     |       | —           |       | —                      |       | — |   | — |   | — |   | — |   | 416,068 |   | 98,816 |   | 5,201 |   | 520,085 |   |
|                           |       |             |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,  March  31, 2009 |       | 144,180          |       | 34,243                      |       | 1,802 |   | 180,225 |   | 47,442 |   | 132,783 |   | $ | (15,528,611 | ) | $ | (3,684,172 | ) | $ | (193,904 | ) | $ | (19,406,688 | ) |

 

See notes to consolidatedfinancial statements.

 

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                        | ** ** | **Three Months Ended  March 31,  (Unaudited)** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2009**                                            | ** ** | **2008** | ** ** |
| Cash Flows from Operating Activities                                              |       |                                                |       |   |   |
| Net income                                                                        |       | $                                                   | 520,085    |   | $ | 2,430,004 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities |       |                                                |       |   |   |
| Depreciation and amortization                                                     |       | 1,416,620                                           |       | 1,618,656 |   |
| Loss from investment in unconsolidated joint ventures                             |       | 273,555                                             |       | 247,805 |   |
| (Gain) on the sale of real estate from discontinued operations                    |       | —                                              |       | (6,053,391 | ) |
| Changes in operating assets and liabilities                                       |       |                                                |       |   |   |
| Decrease (Increase) in rents receivable                                           |       | 65,815                                              |       | (10,576 | ) |
| (Decrease) in accounts payable and accrued expense                                |       | (64,147                                             | )          | (196,613 | ) |
| Decrease in real estate tax escrow                                                |       | 4,980                                               |       | 112,460 |   |
| (Increase) Decrease in prepaid expenses and other assets                          |       | 146,967                                             |       | (394,447 | ) |
| (Decrease) in advance rental payments and security deposits                       |       | (2,588                                              | )          | (21,307 | ) |
| Total Adjustments                                                                 |       | 1,841,202                                           |       | (5,370,626 | ) |
| Net cash (used in) provided by operating activities                               |       | 2,361,287                                           |       | (2,940,622 | ) |
| Cash Flows Used in Investing Activities                                           |       |                                                |       |   |   |
| Proceeds from unconsolidated joint ventures                                       |       | 127,500                                             |       | 615,000 |   |
| Net proceeds from the sale of rental properties                                   |       | —                                              |       | 3,991,247 |   |
| Purchase and improvement of rental properties                                     |       | (602,370                                            | )          | (673,876 | ) |
| Net cash provided by (used in) investing activities                               |       | (474,870                                            | )          | 3,932,371 |   |
| Cash Flows Used in Financing Activities                                           |       |                                                |       |   |   |
| Payment of financing costs                                                        |       | (3,559                                              | )          | (673,213 | ) |
| Proceeds of mortgage notes payable                                                |       | —                                              |       | 22,176,956 |   |
| Principal payments of mortgage notes payable                                      |       | (205,660                                            | )          | (236,797 | ) |
| Stock buyback                                                                     |       | (1,278,090                                          | )          | (19,744,831 | ) |
| Distributions to partners                                                         |       | (931,500                                            | )          | (965,317 | ) |
| Net cash (used in) financing activities                                           |       | (2,418,810                                          | )          | (1,994,408 | ) |
| Net (Decrease) in Cash and Cash Equivalents                                       |       | (532,393                                            | )          | (1,002,659 | ) |
| Cash and Cash Equivalents, at beginning of period                                 |       | 10,752,931                                          |       | 6,890,525 |   |
| Cash and Cash Equivalents, at end of period                                       |       | $                                                   | 10,220,538 |   | $ | 5,887,866 |   |

 

See notes to consolidatedfinancial statements.

 

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** **

**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**MARCH 31,2009**

 

**(UNAUDITED)**

 

**NOTE 1. SIGNIFICANT ACCOUNTING POLICIES**

 

*Line of Business:* New EnglandRealty 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.

 

*Principles of Consolidation:* Theconsolidated financial statements include the accounts of NERA and itssubsidiaries. NERA has a 99.67% to 100% ownership interest in each subsidiaryexcept for the eight limited liability companies (the “Investment Properties”or “Joint Ventures”) in which the Partnership has a 50% ownership interest. Theconsolidated group is referred to as the “Partnerships.” Minority interests arenot recorded, since they are insignificant. All significant intercompanyaccounts and transactions are eliminated in consolidation. The Partnershipaccounts for its investment in the above-mentioned Investment Properties usingthe equity method of consolidation. (See Note 14: Investments inUnconsolidated Joint Ventures).

 

The Partnership accounts forits investments in joint ventures for which Financial Accounting Standards (“FASB”)Interpretation No. 46 (revised December 2003), Consolidation ofVariable Interest Entities (“FIN 46”) does not apply under the equitymethod of accounting as the company exercises significant influence, but doesnot control these entities. These investments are recorded initially at cost,as Investments in Unconsolidated Joint Ventures, and subsequently adjusted forequity in earnings and cash contributions and distributions.

 

*Impairment*: On an annualbasis management assesses whether there are any indicators that the value ofthe Company’s rental properties may be impaired. A property’s value is impairedonly if management’s estimate of the aggregate future cash flows (undiscountedand without interest charges) to be generated by the property is less than thecarrying value of the property. To the extent impairment has occurred, the lossshall be measured as the excess of the carrying amount of the property over thefair value of the property. The Company’s estimates of aggregate future cashflows expected to be generated by each property are based on a number ofassumptions that are subject to economic and market uncertainties including,among others, demand for space, competition for tenants, changes in marketrental rates, and costs to operate each property. As these factors aredifficult to predict and are subject to future events that may alter management’sassumptions, the future cash flows estimated by management in its impairment analysesmay not be achieved. The Partnership has not recognized an impairment losssince 1995.

 

*Accounting Estimates:* Thepreparation of the financial statements, in conformity with accountingprinciples generally accepted in the United State of America, requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reported period. Accordingly, actual results coulddiffer from those estimates.

 

*Revenue Recognition:* Rental incomefrom residential and commercial properties is recognized over the term of therelated lease. For residential tenants, amounts 60 days in arrears arecharged against income. The commercial tenants are evaluated on a case by casebasis. Certain leases of the commercial properties provide for increasingstepped minimum rents, which are accounted for on a straight-line basis overthe term of the lease.

 

*Rental Properties:* Rentalproperties are stated at cost less accumulated depreciation. Maintenance andrepairs are charged to expense as incurred; improvements and additions arecapitalized. When assets are retired or otherwise disposed of, the cost of theasset and related accumulated depreciation is eliminated from the accounts, andany gain or loss on such disposition is included in income. Fully depreciatedassets are removed from the accounts. Rental properties are depreciated by bothstraight-line and accelerated methods over their estimated useful lives.Significant acquisitions with long term leases are evaluated to determine if aportion of the purchase price is allocable to intangibles such as non marketrate rents.

 

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In the event that facts andcircumstances indicate that the carrying value of a rental property may beimpaired, an analysis of the value is prepared. The estimated futureundiscounted cash flows are compared to the asset’s carrying value to determineif a write-down to fair value is required.

 

*Financing and LeasingFees:* Financing fees are capitalized and amortized, using the interestmethod, over the life of the related mortgages. Leasing fees are capitalizedand amortized on a straight-line basis over the life of the related lease.Unamortized balances are expensed when the corresponding fee is no longerapplicable.

 

*Income Taxes:* The financialstatements have been prepared on the basis that NERA and its subsidiaries areentitled to tax treatment as partnerships. Accordingly, no provision for incometaxes has been recorded.

 

*Cash Equivalents:* ThePartnership considers cash equivalents to be all highly liquid instrumentspurchased with a maturity of three months or less.

 

*Segment Reporting:* Operatingsegments are revenue-producing components of the Partnership for which separatefinancial information is produced internally for management. Under thedefinition, NERA operated, for all periods presented, as one segment.

 

*Comprehensive Income:* Comprehensiveincome is defined as changes in partners’ equity, exclusive of transactionswith owners (such as capital contributions and dividends). NERA did not haveany comprehensive income items in 2009 or 2008 other than net income asreported.

 

*Income Per Unit:* Net income perunit has been calculated based upon the weighted average number of unitsoutstanding during each period presented. The Partnership has no dilutive unitsand, therefore, basic net income is the same as diluted net income per unit(see Note 7).

 

*Concentration of CreditRisks and Financial Instruments:* The Partnership’sproperties are located in New England, and the Partnership is subject to thegeneral economic risks related thereto. No single tenant accounted for morethan 5% of the Partnership’s revenues in 2009 or 2008. The Partnership makesits temporary cash investments with high-credit-quality financial institutions.At March 31, 2009, substantially all of the Partnership’s cash and cashequivalents were held in interest-bearing accounts at financial institutions,earning interest at rates from 0.1 % to 2.4 %. At March 31, 2009 and December 31,2008, respectively approximately $9,764,000 and $10,300,000 of cash and cashequivalents, and cash included in prepaid expenses and other assets exceededfederally insured amounts.

 

*Advertising Expense:* Advertising isexpensed as incurred. Advertising expense was $14,384 and $18,745 for the threemonths ended March 31, 2009 and 2008, respectively.

 

*Discontinued Operationsand Rental Property Held for Sale:* When assets are identifiedby management as held for sale, the Partnership discontinues depreciating theassets and estimates the sales price, net of selling costs, of such assets. If,in management’s opinion, the net sales price of the assets which have beenidentified as held for sale is less than the net book value of the assets, avaluation allowance is established. Properties identified as held for saleand/or sold are presented in discontinued operations for all periods presented.

 

If circumstances arise thatpreviously were considered unlikely and, as a result, the Partnership decidesnot to sell a property previously classified as held for sale, the property isreclassified as held and used. A property that is reclassified is measured andrecorded individually at the lower of (a) its carrying amount before theproperty was classified as held for sale, adjusted for any depreciation(amortization) expense that would have been recognized had the property beencontinuously classified as held and used, or (b) the fair value at thedate of the subsequent decision not to sell.

 

*Interest Capitalized:* The Companyfollows the policy of capitalizing interest as a component of the cost ofrental property when the time of construction exceeds one year. During thethree months ended March 31, 2009 and the year ended December 31,2008, there was no capitalized interest.

 

*Extinguishment of Debt:* When existingmortgages are refinanced with the same lender, EITF 96-19 “DebtorsAccounting for a Modification or exchange of Debt Instruments” requires they beanalyzed. If it is determined that the refinancing is substantially differentthen they will be recorded as an extinguishment of debt. However if it isdetermined that the refinancing is substantially the same then they will berecorded as an exchange of debt. All refinancings qualify as extinguishment ofdebt.

 

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

 

**NOTE 2. RENTAL PROPERTIES**

 

As of March 31, 2009,the Partnership and its Subsidiary Partnerships owned 2,269 residentialapartment units in 19 residential and mixed-use complexes (collectively, the “ApartmentComplexes”). The Partnership also owns 19 condominium units in a residentialcondominium complex, all of which are leased to residential tenants(collectively referred to as the “Condominium Units”). The Apartment Complexesand Condominium Units are located primarily in the metropolitan Boston area ofMassachusetts.

 

Additionally, as of March 31,2009, the Partnership and Subsidiary Partnerships owned a commercial shoppingcenter in Framingham, commercial buildings in Newton and Brookline andmixed-use properties in Boston, Brockton and Newton, all in Massachusetts.These properties are referred to collectively as the “Commercial Properties.”

 

The Partnership also owned a50% ownership interest in eight residential and mixed use complexes (the “InvestmentProperties”) at March 31, 2009 with a total of 392 units, accounted forusing the equity method of consolidation. See Note 14 for summaryinformation on these investments.

 

Rental properties consist ofthe following:

 
| ** **                          | ** ** | **March 31, 2009** | ** **       | **December 31, 2008** | ** ** | **Useful Life**  | ** ** |
|-------------------------------------|------------|------------------------------|------------------|---------------------------------|------------|-----------------------|------------|
| Land, improvements and parking lots |       | $                            | 25,998,353       |                            | $          | 25,997,753            |       | 15—40 years |   |
| Buildings and improvements          |       | 110,542,088                  |             | 110,467,865                     |       | 15—40 years |       |
| Kitchen cabinets                    |       | 4,335,119                    |             | 4,254,120                       |       | 5—10 years  |       |
| Carpets                             |       | 3,735,293                    |             | 3,650,238                       |       | 5—10 years  |       |
| Air conditioning                    |       | 900,610                      |             | 900,610                         |       | 7—10 years  |       |
| Laundry equipment                   |       | 450,461                      |             | 216,629                         |       | 5—7 years   |       |
| Elevators                           |       | 984,506                      |             | 984,506                         |       | 20 years         |       |
| Swimming pools                      |       | 126,275                      |             | 126,275                         |       | 10 years         |       |
| Equipment                           |       | 1,732,115                    |             | 1,690,142                       |       | 5—7 years   |       |
| Motor vehicles                      |       | 170,445                      |             | 139,453                         |       | 5 years          |       |
| Fences                              |       | 163,907                      |             | 163,907                         |       | 5—10 years  |       |
| Furniture and fixtures              |       | 1,695,484                    |             | 1,641,487                       |       | 5—7 years   |       |
| Smoke alarms                        |       | 112,464                      |             | 111,814                         |       | 5—7 years   |       |
|                                |       | 150,947,120                  |             | 150,344,799                     |       |                  |       |
| Less accumulated depreciation       |       | (53,169,147                  | )                | (51,784,345                     | )          |                  |       |
|                                |       | $                            |  97,777,973 |                            | $          | 98,560,454            |       |   |   |

 

On January 3, 2008, thePartnership sold the Oak Ridge Apartments, a 61-unit residential apartmentcomplex located in Foxboro, Massachusetts. The sale price was $7,150,000, whichresulted in a gain of approximately $6,000,000. In November 2007, thePartnership purchased a fully occupied commercial building located in Newton,Massachusetts, known as Linewt LLC. The purchase price was $3,475,000 andthe building consists of 5,850 square feet of commercial space. The Partnershiputilized Section 1031 of the IRS code to affect a tax free exchange on thegain of Oak Ridge up to the purchase price of the Newton property. Most of thetaxable gain of approximately $3,000,000 will be taxed at the capital gainrates. In accordance with Section 1031, the Newton property was owned by aQualified Intermediary for the period from the purchase date of the Newtonproperty and the sale date of the Foxboro property. The Qualified Intermediaryborrowed $3,225,112 from Harold Brown, Treasurer of the General Partner, topurchase the Newton property. This loan was paid in full, with interest at 6%of $34,401, from the proceeds of the Oak Ridge sale on January 3, 2008. OnJanuary 22, 2008, the Partnership financed the Newton property with afirst mortgage of $1,700,000 at 5.75% interest only until maturity in January 2018.

 

In April 2008, thePartnership sold the Coach Apartments, a 48 unit residential apartment complexlocated in Acton, Massachusetts. The sale price was $4,600,000, which resultedin a gain of approximately $3,800,000 and recorded in the second quarter of2008. In October 2008, the Partnership purchased a fully occupied medicaloffice building located in Brookline, Massachusetts, referred to as “the Barn.”The purchase price of the Barn was $7,000,000 and it consists 20,000 squarefeet of commercial space. The Partnership utilized Section 1031 of the IRScode to affect a tax free exchange on the gain of Coach up to the purchaseprice of the Barn. This acquisition was funded from the assumption of theexisting mortgage of

 

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approximately $4,000,000,the cash from the sale of Coach of approximately $2,600,000, and the balance of$400,000 was funded from cash reserves.

 

As more fully described inNote 3, the Partnership sold the five condominiums located in Brookline,Massachusetts in 2008. The net proceeds from the sale of the five units wereapproximately $740,000 which resulted in a gain of approximately $240,000,which is included in gain from the sale of rental properties in the second andthird quarter of 2008.

 

**NOTE 3. RELATED PARTY TRANSACTIONS**

 

The Partnership’s propertiesare managed by an entity that is owned by the majority shareholder of the GeneralPartner. The management fee is equal to 4% of rental revenue and laundryincome. Total fees paid were approximately $343,000 and $329,000 during thethree months ended March 31, 2009 and 2008, respectively.

 

The Partnership Agreementpermits the General Partner or management company to charge the costs ofprofessional services (such as counsel, accountants and contractors) to NERA.During the three months ended March 31, 2009 and 2008, approximately$188,000 and $155,000 was charged to NERA for legal, accounting, construction,maintenance, rental and architectural services and supervision of capitalimprovements. Of the 2009 expenses referred to above, approximately $94,000consisted of repairs and maintenance and $57,000 of administrative expense.Approximately $6,000 of expenses for construction, architectural services andsupervision of capital projects were capitalized in rental properties.Additionally in 2009, the Hamilton Company received approximately $114,000 fromthe Investment Properties of which approximately $71,000 was the managementfee, approximately $600 was for construction supervision and architecturalfees, approximately $38,000 was for maintenance services and approximately$4,000 was for administrative services

 

On January 1, 2004, allemployees were transferred to the management company’s payroll. The Partnershipreimburses the management company for the payroll and related expenses of theemployees who work at the properties. Total reimbursement was approximately$541,000 and $505,000 for the three months ended March 31, 2009 and 2008,respectively. The Management Company maintains a 401K plan for all eligibleemployees whereby the employees may contribute the maximum allowed by law. Theplan also provides for discretionary contributions by the employer. There wereno employer contributions in 2009 and 2008.

 

In 1996, prior to becomingan employee and President of the Management Company, the current President ofthe Management Company performed asset management consulting services to thePartnership. This individual continues to perform this service and receives anasset management fee from the Partnership, receiving $12,500 during the threemonths ended March 31, 2009 and 2008.

 

The Partnership has investedin eight limited partnerships, which have invested in mixed use residentialapartment complexes. The Partnership has a 50% ownership interest in eachinvestment. 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. See Note 14 for a description of the propertiesand their operations.

 

On June 30, 2003, thePartnership purchased five condominium units in a 42-unit building located inBrookline, Massachusetts. These were purchased from Harvard 45Associates LLC (“Harvard 45”) which is owned 70% by the 75%shareholder and treasurer of the General Partner, and 5% by the President ofHamilton. The total purchase price for these condominiums was approximately$2,416,000 and was approved both by the Partnership’s Advisory Committee andthe General Partner. Harvard 45 realized a gain of approximately $648,000from these sales. Harvard 45 also sold 16 units to unrelated parties;the prices for all 21 units sold were comparable. The Partnership sold all ofthe units in 2008 and realized a gain of approximately $240,000. The abovementioned gains are recorded as gain on the sale of real estate fromdiscontinued operations.  In addition,the Partnership paid The Hamilton Company or its affiliate approximately$16,000 in legal fees and approximately $62,000 in commissions in connectionwith the sale of these condominiums in 2008.

 

The above 42-unitcondominium building was managed by an entity wholly owned by the 25%shareholder and President of the General Partner. That entity received annualmanagement fees from the five units of approximately $1,500, and Hamiltonreduced its management fees to approximately 2%, so that the total managementfee will not exceed the 4% allowed by the Partnership’s Partnership Agreement.

 

In March 2005, thePartnership sold the Middlesex Apartments to an entity wholly owned by themajority shareholder of the General Partner. The selling price was $6,500,000which resulted in a capital gain for the Partnership of approximately$5,800,000 and an increase in the Partnership’s cash reserves of approximately$4,800,000 after paying off the existing

 

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$1,300,000 mortgage, prepayment penalties andother selling expenses. The buyer is selling the property as condominium units.An entity 31% owned by the majority shareholder of the General Partner and 5%owned by the President of the management company is the sales agent and willreceive a variable commission of 3% to 5% on each sale. Total commissions paidto date are approximately $138,000. Although the buyer assumed the costs andeconomic risks of converting and selling the condominium units, if the net gainfrom the sale of these units exceeds $500,000, the excess will be split equallybetween the buyer and Partnership. The Partnership previously estimated itsshare of the excess gain to be approximately $90,000. The last remaining unitwas sold in October 2008, which resulted in a reduction in the estimatedgain to approximately $50,000.

 

On September 17, 2008,the Partnership completed the issuance of an aggregate of 6,642 Class AUnits held in treasury to current holders of Class B and General PartnerUnits upon the simultaneous retirement to treasury of 6,309 Class B Unitsand 333 General Partner Units pursuant to an equity distribution plan authorizedby the Board of Directors of the General Partner on August 8, 2008 and asfurther described under Item 3.02 of the Partnership’s Current Report on Form 8-Kas filed with the Securities and Exchange Commission on September 18,2008, which is incorporated herein by reference. Harold Brown, the treasurer ofthe General Partner, owns 75% of the issued and outstanding Class B Unitsof the Partnership and 75% of the issued and outstanding equity of the GeneralPartner, Ronald Brown, the brother of Harold Brown and the president of theGeneral Partner, owns 25% of the issued and outstanding Class B Units ofthe Partnership and 25% of the issued and outstanding equity of the GeneralPartner.

 

In 2008, the Partnershipborrowed a total of approximately $8,510,000 from Harold Brown. Approximately$5,285,000 was used to repurchase depositary receipts and approximately$3,225,000 was used to facilitate the purchase of Linewt. These loans wererepaid in 2008 with interest of approximately $72,300.

 

**NOTE 4. OTHER ASSETS**

 

As of March 31, 2009**,**approximately$1,426,000 and $1,382,000 of security deposits and prepaid rent deposits areincluded in prepaid expenses and other assets at March 31, 2009 and December 31,2008, respectively.

 

Included in prepaid expenses and other assets at March 31, 2009and December 31, 2008 is approximately $1,021,000 and $984,000,respectively, held in escrow to fund future capital improvements.

 

Financing and leasing feesof approximately $1,031,000 and $1,059,000 are net of accumulated amortizationof approximately $392,000 and $363,000 at March 31, 2009 and December 31,2008, respectively.

 

**NOTE 5. MORTGAGE NOTES PAYABLE**

 

At March 31, 2009 and December 31,2008, the mortgages payable consisted of various loans, all of which weresecured by first mortgages on properties referred to in Note 2. At March 31,2009, the fixed interest rates on these loans ranged from 4.84% to 8.46%,payable in monthly installments aggregating approximately $727,000, includingprincipal, to various dates through 2023. The majority of the mortgages aresubject to prepayment penalties. At March 31, 2009, the weighted averageinterest rate on the above mortgages was 5.63%. The effective rate of 5.72%includes the amortization expense of deferred financing costs. See Note 12for fair value information.

 

The Partnerships havepledged tenant leases as additional collateral for certain of these loans.

 

Approximate annualmaturities at March 31, 2009 are as follows:

 
| 2010—current maturities |   | $          | 835,000           |   |
|------------------------------|--------|------------|-------------------|--------|
| 2011                         |   | 2,587,000  |              |
| 2012                         |   | 2,793,000  |              |
| 2013                         |   | 19,871,000 |              |
| 2014                         |   | 24,683,000 |              |
| Thereafter                   |   | 87,186,000 |              |
|                         |   | $          |  137,955,000 |   |

 

In January 2008, thePartnership obtained a $1,700,000 mortgage on an unencumbered commercialproperty in Newton, Massachusetts known as Linewt LLC. The mortgage whichmatures in January 2018 requires interest only payments at 5.75% for theterm of the mortgage.

 

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In February 2008, thePartnership refinanced ten properties with outstanding 8.44% mortgages ofapproximately $37,800,000 with new mortgages totaling $58,000,000. The newmortgages which mature in February 2023 require interest only payments atinterest rates from 5.6% to 5.7%. Deferred costs associated with thesemortgages totaled approximately $710,000 and, accordingly, the effectiveinterest rates are 5.7% to 5.8%. Prepayment penalties of approximately$3,700,000 were incurred in these transactions. After payment of existingmortgages, prepayment penalties and other costs of the transactions,approximately $16,000,000 was received by the Partnership.

 

InApril 2008, the Partnership refinanced the property located at 659Worcester Road with a mortgage balance of approximately $3,500,000 at 7.84%with a new $6,000,000 mortgage at 5.97% interest only mortgage which matures inMarch 2018. Deferred financing costs associated with this mortgage totaledapproximately $86,000 and accordingly the effective interest rate is 6.1%.Prepayment penalties of approximately $783,000 were incurred in thistransaction.  After payment of the existingmortgage and prepayment penalties, approximately $1,700,000 was received by thePartnership.

 

InJune 2008, the Partnership refinanced the Westside Colonial Apartmentswith a balance of approximately $4,600,000 maturing in 2008 with interest at arate of 6.52% with $7,000,000 at 5.66% interest only mortgage maturing in June 2023.Deferred financing costs associated with this mortgage totaled approximately$62,000 and accordingly the effective interest rate is 5.8%.  Closing costs were approximately $100,000.There were no prepayment penalties. After payment of the existing mortgage andclosing costs, approximately $2,377,000 was received by the Partnership.

 

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

 

ThePartnership’s residential lease agreements may require tenants to maintain aone-month advance rental payment and/or a security deposit. At March 31,2009, amounts received for prepaid rents of approximately $1,506,000 areincluded in cash and cash equivalents, and security deposits of approximately$1,426,000 are included in other assets.

 

**NOTE 7.PARTNERS’ CAPITAL**

 

ThePartnership has two classes of Limited Partners (Class A and B) andone category of General Partner. Under the terms of the Partnership Agreement,distributions to holders of 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.

 

InFebruary 2009 the Partnership approved a quarterly distribution of $7.00per unit ($0.70 per receipt) payable on March 31, 2009.

 

In2008, the Partnership paid quarterly distributions of $7.00 per unit ($.70 perreceipt) in March, June, September, and December for a total distributionof $28.00 per unit ($2.80 per receipt).

 

ThePartnership has entered into a deposit agreement with an agent to facilitatepublic trading of limited partners’ interests in Class A Units. Under theterms of this agreement, the holders of Class A Units have the right toexchange each Class A Unit for 10 Depositary Receipts. The following isinformation per Depositary Receipt:

 
| ** **                                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                          | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Income (loss) per Depositary Receipt before Discontinued Operations |       | $                                      | 0.39       |   | $ | (2.38 | ) |
| Income (loss) from Discontinued Operations                          |       | (0.01                                  | )          | 3.98 |   |
| Net Income per Depositary Receipt after Discontinued Operations     |       | $                                      | 0.38       |   | $ | 1.60 |   |
| Distributions per Depositary Receipt                                |       | $                                      | 0.70       |   | $ | 0.70 |   |

 

**NOTE 8.TREASURY UNITS**

 

TreasuryUnits at March 31, 2009 are as follows:

 
| Class A        |   | 37,953 |   |
|---------------------|--------|--------|--------|
| Class B        |   | 9,014  |   |
| General Partnership |   | 475    |   |
|                |   | 47,442 |   |

 

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OnAugust 20, 2007, NewReal, Inc., the General Partner authorized anequity repurchase program (“Repurchase Program”) under which the Partnershipwas permitted to purchase, over a period of twelve months, up to 100,000Depositary Receipts (each of which is one-tenth of a Class A Unit). On January 15, 2008, the General Partner authorized an increase in theRepurchase Program from 100,000 to 200,000 Depositary Receipts. On January 30,2008 the General Partner authorized an increase the Repurchase Program from200,000 to 300,000 Depositary Receipts.  On March 6, 2008, theGeneral Partner authorized the increase in the total number of DepositaryReceipts that could be repurchased pursuant to the Repurchase Program from300,000 to 500,000.  On August 8,2008, the General Partner re-authorized and renewed the Repurchase Program foran additional 12-month period ending August 19, 2009.  In addition,the General Partner also authorized the expansion of the Repurchase Program torequire the Partnership to repurchase a proportionate number of Class BUnits and General Partner Units in connection with any repurchases of anyDepositary Receipts by the Partnership based upon the 80%, 19% and 1% fixeddistribution percentages of the holders of the Class A, Class B andGeneral Partner Units under the Partnership’s Second Amended and RestateContract of Limited Partnership.  Repurchases of Depositary Receipts orPartnership Units pursuant to the Repurchase Program may be made by thePartnership from time to time in its sole discretion in open markettransactions or in privately negotiated transactions.  As of March 31, 2009, the Partnershiphas repurchased 387,924 Depositary Receipts at an average price of $74.22 perreceipt (or $742.20 per underlying Class A Unit), 1,477 Class B Unitsand 78 General Partnership Units both at an average price of $583.00 per Unit,totaling approximately $29,700,000 including brokerage fees paid by thePartnership.

 

On September 17, 2008, the Partnership completed the issuance ofan aggregate of 6,642 Class A Units held in treasury to current holders ofClass B and General Partner Units upon the simultaneous retirement totreasury of 6,309 Class B Units and 333 General Partner Units pursuant toan equity distribution plan authorized by the Board of Directors of the GeneralPartner on August 8, 2008 and as further described under Item 3.02 of thePartnership’s Current Report on Form 8-K as filed with the Securities andExchange Commission on September 18, 2008, which is incorporated herein byreference. Harold Brown, the treasurer of the General Partner, owns 75% of theissued and outstanding Class B Units of the Partnership and 75% of theissued and outstanding equity of the General Partner, Ronald Brown, the brotherof Harold Brown and the president of the General Partner, owns 25% of theissued and outstanding Class B Units of the Partnership and 25% of theissued and outstanding equity of the General Partner.

 

On January 18, 2008, 113,518 Depositary Receipts included abovebecame available to purchase at a price of $75.50 per receipt. In order for thePartnership to take advantage of this opportunity, the Partnership borrowed$5,285,000 from Harold Brown, the Treasurer of the General Partner. This loanwas paid in full, with interest at 6% of $37,899, on February 29, 2008.

 

Duringthe three months ended March 31, 2009, the Partnership purchased 19,740receipts for approximately $1,025,000, 469 Class B Units for approximately$240,000 and 25 General Partnership units for approximately $13,000.

 

As of March 31, 2009, the equity repurchase program above resultedin the Partnership having a negative Partners’ Capital of approximately$19,407,000.

 

In April 2009, the Partnership did not purchase any DepositaryReceipts, Class B Units or General Partnership Units.

 

**NOTE 9.COMMITMENTS AND CONTINGENCIES**

 

Fromtime to time, the Partnerships are involved in various ordinary routinelitigation incidental to their business. The Partnership either has insurancecoverage or has provided for any uninsured claims which, in the aggregate, arenot significant. The Partnerships are not involved in any material pendinglegal proceedings.

 

**NOTE10. RENTAL INCOME**

 

Duringthe three months ended March 31, 2009, approximately 90% of rental incomewas related to residential apartments and condominium units with leases of oneyear or less. The remaining 10% was related to commercial properties, whichhave minimum future annual rental income on non-cancellable operating leases atMarch 31, 2009 as follows:

 
| ** ** | ** ** | **Commercial  Property Leases** | ** **       |
|------------|------------|---------------------------------|------------------|
| 2010       |       | $                               | 2,621,000        |   |
| 2011       |       | 2,449,000                       |             |
| 2012       |       | 2,303,000                       |             |
| 2013       |       | 1,625,000                       |             |
| 2014       |       | 1,411,000                       |             |
| Thereafter |       | 2,374,000                       |             |
|       |       | $                               |  12,783,000 |   |

 

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Theaggregate minimum future rental income does not include contingent rentals thatmay be received under various leases in connection with percentage rents,common area charges and real estate taxes. Aggregate contingent rentals fromcontinuing operations were approximately $174,000 for the three months ended March 31,2009 and approximately $477,000 for the year ended December 31, 2008.

 

Rentsreceivable are net of an allowance for doubtful accounts of approximately$520,000 at March 31, 2009 and approximately $460,000 at December 31,2008.  Included in rents receivable at March 31,2009 is approximately $355,000 resulting from recognizing rental income fromnon-cancelable commercial leases with future rental increases on astraight-line basis. The majority of this amount is for long-term leases withStaples and Trader Joe’s at Staples Plaza in Framingham, Massachusetts.

 

In2009, rent at the commercial properties includes approximately $ 2,800 ofamortization of deferred rents arising from the fair values assigned toin-place leases upon the purchase of Cypress Street in Brookline, Massachusetts**.**

 

**NOTE11. CASH FLOW INFORMATION**

 

Duringthe three months ended March 31, 2009 and 2008, cash paid for interest was$1,945,499, and $1,936,402, respectively.

 

Non-cashfinancing activity — exchange of depositary receipts for Class B andGeneral Partnership Units in 2008 (Note 8).

 

**NOTE12. FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

Thefollowing methods and assumptions were used by the Partnership in estimatingthe fair value of its financial instruments:

 

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

 

·                  For mortgagenotes payable: fair value is generally based on estimated future cash flows,which are discounted using the quoted market rate from an independent sourcefor similar obligations. Refer to the table below for the carrying amount andestimated fair value of such instruments.

 
| ** **                | ** ** | **Carrying Amount** | ** **  | **Estimated Fair Value** | ** ** |
|---------------------------|------------|---------------------|-------------|--------------------------|------------|
| Mortgage Notes Payable    |       |                |        |                     |       |
| Partnership Properties    |       |                |        |                     |       |
| At March 31, 2009    |       | $                   | 137,954,602 |                     | $          | 133,637,589 |   |
| At December 31, 2008 |       | 138,160,262         |        | 143,432,532              |       |
| Investment Properties     |       |                |        |                     |       |   |   |
| At March 31, 2009    |       | $                   | 51,827,068  |                     | $          | 50,500,191 |   |

 

Disclosureabout fair value of financial instruments is based on pertinent informationavailable to management as of March 31, 2009 and December 31, 2008.Although management is not aware of any factors that would significantly affectthe fair value amounts, such amounts have not been comprehensively revalued forpurposes of these financial statements since December 31, 2008 and currentestimates of fair value may differ significantly from the amounts presentedherein.

 

**NOTE13. TAXABLE INCOME AND TAX BASIS**

 

Taxableincome reportable by the Partnership and includable in its partners’ taxreturns is different than financial statement income because of a tax freeexchanges, accelerated depreciation, different tax lives, and timingdifferences related to 

 

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prepaid rents andallowances. Taxable income is approximately $7,500,000 less than statementincome for the year ended December 31, 2008 and approximately $1,000,000greater than statement income for the year ended December 31, 2007. Thecumulative tax basis of the Partnership’s real estate at December 31, 2008is approximately $5,000,000 less than the statement basis. The primary reasonfor the lower taxable income and the lower tax basis is the acquisition ofLinewt and Cypress Street utilizing tax free exchanges in 2008. The Partnership’stax basis in its joint venture investments is approximately $200,000 less thanstatement basis. The tax free exchanges and mortgage prepayment penalties in2008  generated substantial taxdeductions in 2008, accordingly taxable income in future years may exceedstatement income.

 

**NOTE14. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES**

 

SinceNovember 2001, the Partnership has invested in eight limited partnerships,the majority of which has invested in residential apartment complexes, with onepartnership investing in commercial property. The Partnership has a 50%ownership interest in each investment. The other investors are Harold Brown,the President of the Management Company and five other employees of theManagement Company. Harold Brown’s ownership interest is between 43.2% and47.5%, with the balance of 6.8% and 2.5% owned by the others. A description ofeach investment is as follows:

 

**NOTE14. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)**

 

OnOctober 3, 2005, the Partnership invested $2,500,000 for a 50% ownershipinterest in a 168-unit apartment complex in Quincy, Massachusetts. The purchaseprice was $30,875,000. The Partnership plans to sell the majority of units ascondominium and retain 48 units for long-term investment. Gains from the salesof units will be taxed at ordinary income rates (approximately $47,000 perunit). In February 2007, the Partnership refinanced the 48 units whichwill be retained with a new mortgage in the amount of $4,750,000 with aninterest rate of 5.57%, interest only for five years. The loan will beamortized over 30 years thereafter and matures in March 2017. In April 2008,the Partnership refinanced an additional 20 units and obtained a new mortgagein the amount of $2,368,000 with interest at 5.75%, interest only, whichmatures in 2013.  As of April 27,2009, the Partnership sold 105 units, the proceeds of which went to pay downthe mortgage on the property.  Thebalance on the new mortgage is approximately $1,808,000 at March 31, 2009.Gain from the sale of units (approximately $38,000) will be taxed at ordinaryincome rates.  This investment isreferred to as Hamilton Bay Apartments, LLC.

 

OnMarch 7, 2005, the Partnership invested $2,000,000 for a 50% ownershipinterest in a building comprising 49 apartments, one commercial space and a50-car surface parking lot located in Boston, Massachusetts. The purchase pricewas $14,300,000, with a $10,750,000 mortgage. The Partnership plans to operatethe building and initiate development of the parking lot.  In June 2007, the Partnership separatedthe parcels, formed an additional limited liability company for the residentialapartments and obtained a mortgage on the property. The new limited liabilitycompany formed for the residential apartments is referred to as Hamilton Essex81, LLC.  In August 2008, thePartnership restructured the mortgages on both parcels at Essex 81 andtransferred the residential apartments to Hamilton Essex 81, LLC.  The mortgage on Hamilton Essex 81, LLC is$8,600,000 with interest only at 5.79% due in August 2015.  The mortgage on Essex Development, LLC is$2,162,000 with a variable interest rate of 2.25% over the daily Libor rate(0.8% at March 31, 2009) and is due in August 2011.  Harold Brown has issued a personal guarantyup to $1,000,000 of this mortgage. In the event that he is obligated to makepayments to the lender as a result of this guaranty, the Partnership and otherinvestors have, in turn, agreed to indemnify him for their proportionate shareof any such payments.  The investment inthe parking lot is referred to as Hamilton Essex Development, LLC; the investmentin the apartments is referred to as Hamilton Essex 81, LLC.

 

OnMarch 2, 2005, the Partnership invested $2,352,000 for a 50% ownershipinterest in a 176-unit apartment complex with an additional small commercialbuilding located in Quincy, Massachusetts. The purchase price was $23,750,000.The Partnership plans to sell the majority of units as condominiums and retain49 units for long-term investment. The Partnership obtained a new 10-yearmortgage in the amount of $5,000,000 on the units to be retained by thePartnership. The interest on the new loan is 5.67% fixed for the 10 yearterm with interest only payments for five years and amortized over a30 year period for the balance of the loan term.  As of April 27, 2009, all of the 127units have been sold.  Gains from thesales of units (approximately $60,000 per unit) were taxed at ordinary incomerates. This investment is referred to as Hamilton 1025, LLC.

 

InSeptember 2004, the Partnership invested approximately $5,075,000 for a50% ownership interest in a 42-unit apartment complex located in Lexington,Massachusetts. The purchase price was $10,100,000. In October 2004, thePartnership obtained a mortgage on the property in the amount of $8,025,000 andreturned $3,775,000 to the Partnership. The Partnership obtained a new 10-yearmortgage in the amount of $5,500,000 in January 2007. The interest on thenew loan is 5.67% fixed for the ten year term with interest only payments forfive years and amortized over a 30 year period for the balance of theloan. This new loan required a cash contribution by the Partnership of$1,250,000 in December 2006. The unamortized 

 

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deferred financing costs ofapproximately $30,000 were written off in the first quarter of 2007. Thisinvestment is referred to as Hamilton Minuteman, LLC.

 

InAugust 2004, the Partnership invested $8,000,000 for a 50% ownershipinterest in a 280-unit apartment complex located in Watertown, Massachusetts.The total purchase price was $56,000,000. As of May 2008,, the Partnershipsold all of the 137 units as condominiums which were located in threebuildings. Gains from these sales were taxed as ordinary income (approximately$50,000 per unit). The majority of the sales proceeds were applied to reducethe mortgage with the final payment made during the second quarter of 2007.With the sale of the units and the payments of the liabilities, the assets willbe combined with Hamilton on Main Apartments, LLC.  An entity partially owned by the majorityshareholder of the General Partner and the President of the management company,31% and 5%, respectively, was the sales agent and will receive a variable commissionon each sale of 3% to 5%. Hamilton on Main, LLC is known as HamiltonPlace.

 

In2005, Hamilton on Main Apartments, LLC obtained a new ten year mortgage onthe three buildings to be retained. The new mortgage is $16,825,000, withinterest only of 5.18% for three years and amortizing on a 30 yearschedule for the remaining seven years when the balance is due. The netproceeds after funding escrow accounts and closing costs on the new mortgagewere approximately $16,700,000, which were used to reduce the existingmortgage. Hamilton on Main LLC paid a fee of approximately $400,000 inconnection with this early extinguishment of debt.

 

**NOTE 14. INVESTMENT INUNCONSOLIDATED JOINT VENTURES (Continued)**

 

InNovember 2001, the Partnership invested approximately $1,533,000 for a 50%ownership interest in a 40-unit apartment building in Cambridge, Massachusetts.This property has a 12-year mortgage, with a remaining balance at March 31,2009 of approximately $7,428,000 at 6.9% which is amortized on a 30-year schedule,with a final payment of approximately $6,000,000 in 2014. This investment isreferred to as 345 Franklin, LLC.

 

As required by the lender,the Treasurer of the General Partner has provided a limited repayment guarantyequal to fifty percent (50%) of the outstanding balance for the loan on the forsale units at Hamilton Bay and a limited guaranty of $1,000,000 for the loan onHamilton Essex Development.  In the eventthat he is obligated to make payments to the lenders as a result of theseguaranties, the Partnership and other investors have, in turn, agreed toindemnify him for their proportionate share of any such payments.

 

**Summary financialinformation for the three months ended March 31, 2009**

 
| ** **                                                            | ** ** | **Hamilton  Essex 81** | ** ** | **Hamilton  Essex   Development** | ** ** | **345  Franklin** | ** ** | **Hamilton  1025** | ** ** | **Hamilton  Bay Sales** | ** ** | **Hamilton  Bay Apts** | ** ** | **Hamilton  Minuteman  Apts** | ** ** | **Hamilton  on Main  Apts** | ** ** | **Hamilton  Place  Sales** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------------------------|------------|------------------------|------------|-----------------------------------|------------|-------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|-------------------------------|------------|-----------------------------|------------|----------------------------|------------|------------|------------|
| **ASSETS**                                                            |       |                   |       |                              |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |       |       |
| Rental Properties                                                     |       | 10,491,301             |       | 2,576,552                         |       | 9,259,169         |       | 6,551,961          |       | 2,306,968               |       | 8,175,737              |       | 8,182,545                     |       | 24,858,257                  |       |                       |       | 72,402,490 |       |
| Cash &  Cash Equivalents                                     |       | 34,597                 |       | 155                               |       | 6,436             |       | 38,535             |       | 723                     |       | 908                    |       | 1,251                         |       | 402                         |       |                       |       | 83,006     |       |
| Rent Receivable                                                       |       | 1,686                  |       | —                            |       |              |       | 430                |       | —                  |       | 1,206                  |       | (3,425                        | )          | 5,254                       |       |                       |       | 5,151      |       |
| Real Estate Tax  Escrow                                               |       | 42,251                 |       | —                            |       | 41,472            |       | 32,674             |       | —                  |       | 40,281                 |       | 39,508                        |       | 102,655                     |       |                       |       | 298,840    |       |
| Due From  Investment Properties                                       |       | 100,000                |       | —                            |       | —            |       | 90,000             |       | 100,000                 |       | 40,000                 |       | —                        |       | 210,000                     |       |                       |       | 540,000    |       |
| Prepaid  Expenses & Other Assets                             |       | 67,281                 |       | 569                               |       | 77,964            |       | 63,128             |       | 233,764                 |       | 51,393                 |       | 62,982                        |       | 415,029                     |       |                       |       | 972,111    |       |
| Financing &  Leasing Fees                                    |       | 136,691                |       | 15,119                            |       | 38,786            |       | 38,494             |       | 20,497                  |       | 50,100                 |       | 31,727                        |       | 41,076                      |       |                       |       | 372,490    |       |
| **Total  Assets**                                                     |       | 10,873,807             |       | 2,592,395                         |       | 9,423,827         |       | 6,815,221          |       | 2,661,952               |       | 8,359,624              |       | 8,314,588                     |       | 25,632,673                  |       |                       |       | 74,674,088 |       |
| ** **                                                            |       |                   |       |                              |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |       |       |
| **LIABILITIES  AND PARTNERS’ CAPITAL**                           |       |                   |       |                              |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |       |       |
| Mortgage Notes  Payable                                               |       | 8,600,000              |       | 2,162,000                         |       | 7,428,006         |       | 5,000,000          |       | 1,808,000               |       | 4,750,000              |       | 5,500,000                     |       | 16,579,062                  |       |                       |       | 51,827,068 |       |
| Due to Investment  Properties                                         |       | —                 |       | —                            |       | 425,000           |       | —             |       | 44,000                  |       | 26,000                 |       | 25,000                        |       | 20,000                      |       |                       |       | 540,000    |       |
| Accounts Payable &  Accrued Expense                          |       | 49,000                 |       | 3,416                             |       | 70,308            |       | 8,296              |       | 16,480                  |       | 26,856                 |       | 50,852                        |       | 176,133                     |       |                       |       | 401,340    |       |
| Advance Rental  Pymts & Security Dep                         |       | 141,811                |       | —                            |       | 125,785           |       | 59,674             |       | 18,776                  |       | 76,241                 |       | 50,526                        |       | 187,750                     |       |                       |       | 660,563    |       |
| Total Liabilities                                                     |       | 8,790,811              |       | 2,165,416                         |       | 8,049,098         |       | 5,067,971          |       | 1,887,255               |       | 4,879,097              |       | 5,626,378                     |       | 16,962,945                  |       |                       |       | 53,428,971 |       |
| Partners’ Capital                                                |       | 2,082,997              |       | 426,980                           |       | 1,374,729         |       | 1,747,251          |       | 774,697                 |       | 3,480,527              |       | 2,688,210                     |       | 8,669,727                   |       |                       |       | 21,245,118 |       |
| **Total  Liabilities and Capital**                                    |       | 10,873,807             |       | 2,592,395                         |       | 9,423,827         |       | 6,815,221          |       | 2,661,952               |       | 8,359,624              |       | 8,314,588                     |       | 25,632,673                  |       |                       |       | 74,674,088 |       |
| **Partners’  Capital–NERA 50%**                             |       | 1,041,498              |       | 213,490                           |       | 687,365           |       | 873,625            |       | 387,348                 |       | 1,740,264              |       | 1,344,105                     |       | 4,334,864                   |       |                       |       | 10,622,559 |       |
|                                                                  |       |                   |       |                              |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |       |       |
| Total units/  condominiums                                            |       |                   |       |                              |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |       |       |
| Apartments                                                            |       | 48                     |       | —                            |       | 40                |       | 175                |       | 120                     |       | 48                     |       | 42                            |       | 148                         |       | 137                        |       | 758        |       |
| Commercial                                                            |       | 1                      |       | 1                                 |       | —            |       | 1                  |       | —                  |       | —                 |       | —                        |       | —                      |       | —                     |       | 3          |       |
| Total                                                                 |       | 49                     |       | 1                                 |       | 40                |       | 176                |       | 120                     |       | 48                     |       | 42                            |       | 148                         |       | 137                        |       | 761        |       |
| Units to be  retained                                                 |       | 49                     |       | 1                                 |       | 40                |       | 49                 |       | —                  |       | 48                     |       | 42                            |       | 148                         |       | —                     |       | 377        |       |
| Units to be sold                                                      |       | —                 |       | —                            |       | —            |       | 127                |       | 120                     |       | —                 |       | —                        |       | —                      |       | 137                        |       | 384        |       |
| Units sold  through April 27, 2009                               |       | —                 |       | —                            |       | —            |       | 127                |       | 105                     |       | —                 |       | —                        |       | —                      |       | 137                        |       | 369        |       |
| Balance of unsold  units                                              |       | —                 |       | —                            |       | —            |       | —             |       | 15                      |       | —                 |       | —                        |       | —                      |       | —                     |       | 15         |       |
| Unsold units with  deposits for future sale as of April 27, 2009 |       | —                 |       | —                            |       | —            |       | —             |       | —                  |       | —                 |       | —                        |       | —                      |       | —                     |       | —     |       |

 

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**NOTE 14. INVESTMENT INUNCONSOLIDATED JOINT VENTURES (Continued)**

 

**Three Months Ended March 31,2009**

 
| ** **                           | ** ** | **Hamilton  Essex 81** | ** ** | **Hamilton  Essex  Development** | ** ** | **345  Franklin** | ** ** | **Hamilton  1025** | ** ** | **Hamilton  Bay Sales** | ** ** | **Hamilton  Bay Apts** | ** ** | **Hamilton  Minuteman  Apts** | ** ** | **Hamilton  on Main  Apts** | ** ** | **Hamilton  Place  Sales** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|------------------------|------------|----------------------------------|------------|-------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|-------------------------------|------------|-----------------------------|------------|----------------------------|------------|-----------|------------|
| **Revenues**                         |       |                   |       |                             |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |      |       |
| Rental Income                        |       | 342,328                |       | 76,248                           |       | 279,052           |       | 204,624            |       | 58,410                  |       | 195,873                |       | 190,945                       |       | 612,047                     |       |                       |       | 1,959,527 |       |
| Laundry and  Sundry Income           |       | 593                    |       | —                           |       | 602               |       | —             |       | —                  |       | —                 |       | 330                           |       | 6,238                       |       |                       |       | 7,763     |       |
|                                 |       | 342,921                |       | 76,248                           |       | 279,654           |       | 204,624            |       | 58,410                  |       | 195,873                |       | 191,275                       |       | 618,284                     |       |                       |       | 1,967,289 |       |
| **Expenses**                         |       |                   |       |                             |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |      |       |
| Administrative                       |       | 2,721                  |       | 2,124                            |       | 6,097             |       | 4,113              |       | 1,465                   |       | 5,052                  |       | 2,771                         |       | 10,702                      |       |                       |       | 35,043    |       |
| Depreciation and  Amortization       |       | 107,970                |       | 356                              |       | 105,241           |       | 77,910             |       | 26,534                  |       | 98,382                 |       | 114,378                       |       | 374,564                     |       |                       |       | 905,335   |       |
| Management Fees                      |       | 14,439                 |       | 2,781                            |       | 11,529            |       | 8,085              |       | 2,353                   |       | 7,593                  |       | 7,205                         |       | 24,904                      |       |                       |       | 78,887    |       |
| Operating                            |       | 39,999                 |       | —                           |       | 19,176            |       | 703                |       | 61                      |       | 3,417                  |       | 27,760                        |       | 112,468                     |       |                       |       | 203,586   |       |
| Renting                              |       | 5,850                  |       | —                           |       | 14,670            |       | 1,265              |       | —                  |       | 540                    |       | 899                           |       | 4,056                       |       |                       |       | 27,280    |       |
| Repairs and  Maintenance             |       | 24,041                 |       | 330                              |       | 13,048            |       | 67,530             |       | 14,956                  |       | 65,684                 |       | 17,313                        |       | 67,628                      |       |                       |       | 270,531   |       |
| Taxes and  Insurance                 |       | 37,048                 |       | 21,992                           |       | 17,401            |       | 37,755             |       | 12,032                  |       | 42,604                 |       | 24,614                        |       | 75,170                      |       |                       |       | 268,616   |       |
|                                 |       | 232,068                |       | 27,583                           |       | 187,162           |       | 197,361            |       | 57,401                  |       | 223,272                |       | 194,940                       |       | 669,492                     |       |                       |       | 1,789,278 |       |
| **Income  Before Other Income**      |       | 110,853                |       | 48,666                           |       | 92,492            |       | 7,264              |       | 1,009                   |       | (27,399                | )          | (3,665                        | )          | (51,208                     | )          |                       |       | 178,011   |       |
| **Other  Income (Loss)**             |       |                   |       |                             |       |              |       |               |       |                    |       |                   |       |                          |       |                        |       |                       |       |      |       |
| Interest Expense                     |       | (125,274               | )          | (16,429                          | )          | (129,511          | )          | (71,239            | )          | (26,164                 | )          | (66,875                | )          | (78,244                       | )          | (216,671                    | )          |                       |       | (730,407  | )          |
| Interest Income                      |       | 2                      |       | —                           |       | 15                |       | 17                 |       | 4,940                   |       | —                 |       | —                        |       | 1                           |       |                       |       | 4,974     |       |
| Gain on Sale of  Real Estate         |       | —                 |       | —                           |       | —            |       | —             |       | 310                     |       | —                 |       | —                        |       | —                      |       |                       |       | 310       |       |
|                                 |       | (125,272               | )          | (16,429                          | )          | (129,496          | )          | (71,222            | )          | (20,914                 | )          | (66,875                | )          | (78,244                       | )          | (216,670                    | )          |                       |       | (729,817  | )          |
| **Net  Income (Loss)**               |       | (14,419                | )          | 32,237                           |       | (37,003           | )          | (63,959            | )          | (19,905                 | )          | (94,274                | )          | (81,909                       | )          | (267,879                    | )          |                       |       | (547,111  | )          |
| **Net  Income (loss)—NERA 50%** |       | (7,210                 | )          | 16,118                           |       | (18,501           | )          | (31,979            | )          | (9,953                  | )          | (47,137                | )          | (40,954                       | )          | (133,939                    | )          |                       |       | (273,555  | )          |

 

Future annual mortgage maturities at March 31,2009 are as follows:

 
| ** **           | ** ** | **Hamilton  Essex 81** | ** ** | **Hamilton  Essex  Development** | ** ** | **Franklin  Street** | ** ** | **1025  Hamilton** | ** ** | **Hamilton  Bay** | ** ** | **Hamilton  Bay** | ** ** | **Hamilton  Minuteman** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place** | ** ** | ** ** | ** ** |
|----------------------|------------|------------------------|------------|----------------------------------|------------|----------------------|------------|--------------------|------------|-------------------|------------|-------------------|------------|-------------------------|------------|---------------------|------------|---------------------|------------|------------|------------|
| **Period  End**      | ** ** | **March  2005**        | ** ** | **March  2005**                  | ** ** | **November  2001**   | ** ** | **March  2005**    | ** ** | **October  2005** | ** ** | **October  2005** | ** ** | **August  2004**        | ** ** | **August  2004**    | ** ** | **August  2004**    | ** ** | **Total**  | ** ** |
| March 31,  2010 |       |                   |       |                             |       | 139,818              |       |               |       |              |       |              |       |                    |       | 241,117             |       |                |       | 380,935    |       |
| March 31,  2011 |       | 63,287                 |       |                             |       | 149,776              |       |               |       |              |       |              |       |                    |       | 251,758             |       |                |       | 464,822    |       |
| March 31,  2012 |       | 113,579                |       | 2,162,000                        |       | 160,444              |       | 19,763             |       |              |       |              |       | 16,704                  |       | 267,635             |       |                |       | 2,740,124  |       |
| March 31,  2013 |       | 120,333                |       |                             |       | 171,872              |       | 62,402             |       |              |       | 68,593            |       | 68,345                  |       | 282,034             |       |                |       | 773,579    |       |
| March 31,  2014 |       | 127,488                |       |                             |       | 6,806,096            |       | 66,085             |       | 1,808,000         |       | 67,089            |       | 72,379                  |       | 297,208             |       |                |       | 9,244,345  |       |
| Thereafter           |       | 8,175,313              |       |                             |       |                 |       | 4,851,750          |       |              |       | 4,614,318         |       | 5,342,572               |       | 15,239,310          |       |                |       | 38,223,263 |       |
|                 |       | 8,600,000              |       | 2,162,000                        |       | 7,428,006            |       | 5,000,000          |       | 1,808,000         |       | 4,750,000         |       | 5,500,000               |       | 16,579,062          |       |                |       | 51,827,068 |       |

 

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**Summary financial information forthe three months ended March 31, 2008**

 
| ** **                                    | ** ** | **Essex 81  Commercial** | ** ** | **Essex 81  Apts** | ** ** | **345  Franklin** | ** ** | **Hamilton  1025** | ** ** | **Hamilton  Bay Sales** | ** ** | **Hamilton  Bay Apts** | ** ** | **Minuteman  Apts** | ** ** | **Hamilton  on Main Apts** | ** ** | **Hamilton  Place Sales** | ** ** | **Total**      | ** ** |
|-----------------------------------------------|------------|--------------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|---------------------|------------|----------------------------|------------|---------------------------|------------|----------------|------------|
| **ASSETS**                                    |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
|                                          |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
| Rental Properties                             |       | 2,822,838                |       | 10,663,494         |       | 9,217,122         |       | 7,069,822          |       | 3,712,583               |       | 8,482,664              |       | 8,611,109           |       | 25,143,592                 |       | 1,203,431                 |       | 76,926,655     |       |
| Cash & Cash Equivalents              |       | 227,109                  |       | 1,460              |       | 1,014             |       | 2,294              |       | 678                     |       | 30,673                 |       | 24,855              |       | 5,830                      |       | 1,911                     |       | 295,824        |       |
| Rent Receivable                               |       | 42,366                   |       | 27,870             |       | —            |       | 2,798              |       | —                  |       | —                 |       | (4,045              | )          | —                     |       | —                    |       | 68,990         |       |
| Real Estate Tax Escrow                        |       | —                   |       | 9,526              |       | 43,947            |       | 45,244             |       | —                  |       | 29,692                 |       | 25,849              |       | 418,329                    |       | —                    |       | 572,588        |       |
| Due From Investment Properties                |       | 23,000                   |       | —             |       | —            |       | 1,188,000          |       | —                  |       | 250                    |       | —              |       | —                     |       | 1,161,330                 |       | 2,372,580      |       |
|                                          |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
| Prepaid  Expenses & Other Assets     |       | 1,371                    |       | 132,496            |       | 109,802           |       | 64,501             |       | 473,323                 |       | 39,045                 |       | 62,873              |       | 299,656                    |       | 379,333                   |       | 1,562,399      |       |
| Financing &  Leasing Fees            |       | 30,557                   |       | 114,514            |       | 46,952            |       | 43,521             |       | —                  |       | 56,461                 |       | 36,797              |       | 49,772                     |       | 1,636                     |       | 380,209        |       |
|                                          |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
| **Total  Assets**                             | ** ** | **3,147,241**            | ** ** | **10,949,359**     | ** ** | **9,418,837**     | ** ** | **8,416,179**      | ** ** | **4,186,585**           | ** ** | **8,638,785**          | ** ** | **8,757,438**       | ** ** | **25,917,179**             | ** ** | **2,747,641**             | ** ** | **82,179,244** | ** ** |
| ** **                                    | ** ** | ** **               | ** ** | ** **         | ** ** | ** **        | ** ** | ** **         | ** ** | ** **              | ** ** | ** **             | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **                | ** ** | ** **     | ** ** |
| **LIABILITIES  AND PARTNERS’ CAPITAL**   |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
|                                          |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
| Mortgage Notes  Payable                       |       | 3,000,000                |       | 7,762,000          |       | 7,558,527         |       | 5,000,000          |       | —                  |       | 4,750,000              |       | 5,500,000           |       | 16,807,869                 |       | —                    |       | 50,378,396     |       |
| Due to Investment  Properties                 |       | —                   |       | —             |       | 48,000            |       | —             |       | 1,788,250               |       | —                 |       | 75,000              |       | 461,330                    |       | —                    |       | 2,372,580      |       |
| Accounts  Payable& Accrued Exp            |       | 69,221                   |       | 5,288              |       | 76,207            |       | 10,285             |       | 61,520                  |       | 6,338                  |       | 45,754              |       | 219,158                    |       | 13,101                    |       | 506,873        |       |
| Advance Rental  Pymts & Security Dep |       | 24,000                   |       | 114,824            |       | 116,794           |       | 60,385             |       | 24,124                  |       | 86,650                 |       | 42,710              |       | 153,937                    |       | —                    |       | 623,424        |       |
| **Total  Liabilities**                        |       | 3,093,221                |       | 7,882,113          |       | 7,799,529         |       | 5,070,670          |       | 1,873,894               |       | 4,842,989              |       | 5,663,464           |       | 17,642,294                 |       | 13,101                    |       | 53,881,273     |       |
|                                          |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
| Partners’ Capital                        |       | 54,020                   |       | 3,067,247          |       | 1,619,308         |       | 3,345,509          |       | 2,312,691               |       | 3,795,796              |       | 3,093,973           |       | 8,274,886                  |       | 2,734,541                 |       | 28,297,970     |       |
| **Total  Liabilities and Capital**            | ** ** | **3,147,241**            | ** ** | **10,949,359**     | ** ** | **9,418,837**     | ** ** | **8,416,179**      | ** ** | **4,186,585**           | ** ** | **8,638,785**          | ** ** | **8,757,438**       | ** ** | **25,917,179**             | ** ** | **2,747,641**             | ** ** | **82,179,244** | ** ** |
|                                          |       |                     |       |               |       |              |       |               |       |                    |       |                   |       |                |       |                       |       |                      |       |           |       |
| **Partners’  Capital—NERA 50%**     | ** ** | **27,010**               | ** ** | **1,533,623**      | ** ** | **809,654**       | ** ** | **1,672,754**      | ** ** | **1,156,345**           | ** ** | **1,897,898**          | ** ** | **1,546,987**       | ** ** | **4,137,443**              | ** ** | **1,367,270**             | ** ** | **14,148,985** | ** ** |

 

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**SummaryInformation for the Three Months Ended March 31, 2008**

 
| ** **                                                            | ** ** | **Essex 81  Commercial** | ** ** | **Essex 81  Apartments** | ** ** | **345 Franklin** | ** ** | **Hamilton 1025** | ** ** | **Hamilton Bay  Sales** | ** ** | **Hamilton Bay  Apts** | ** ** | **Minuteman** | ** ** | **Hamilton on Main** | ** ** | **Hamilton Pl  Sales** | ** ** | **Total**    | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|------------------|------------|-------------------|------------|-------------------------|------------|------------------------|------------|---------------|------------|----------------------|------------|------------------------|------------|--------------|------------|
|                                                                  |       |                     |       |                     |       |             |       |              |       |                    |       |                   |       |          |       |                 |       |                   |       |         |       |
| **Revenues**                                                          |       |                     |       |                     |       |             |       |              |       |                    |       |                   |       |          |       |                 |       |                   |       |         |       |
| Rental Income                                                         |       | 95,372                   |       | 270,191                  |       | 260,505          |       | 198,927           |       | 50,441                  |       | 203,708                |       | 186,315       |       | 589,877              |       | 1,747                  |       | 1,857,084    |       |
| Laundry and Sundry Income                                             |       | —                   |       | (1,297                   | )          | 416              |       | —            |       | —                  |       | —                 |       | 983           |       | 6,190                |       | —                 |       | 6,292        |       |
|                                                                  |       | 95,372                   |       | 268,895                  |       | 260,921          |       | 198,927           |       | 50,441                  |       | 203,708                |       | 187,297       |       | 596,067              |       | 1,747                  |       | 1,863,376    |       |
|                                                                  |       |                     |       |                     |       |             |       |              |       |                    |       |                   |       |          |       |                 |       |                   |       |         |       |
| **Expenses**                                                          |       |                     |       |                     |       |             |       |              |       |                    |       |                   |       |          |       |                 |       |                   |       |         |       |
| Administrative                                                        |       | 3,766                    |       | 1,881                    |       | 6,219            |       | 3,696             |       | 6,322                   |       | 2,087                  |       | (804          | )          | 17,825               |       | 2,466                  |       | 43,458       |       |
| Depreciation and Amortization                                         |       | 29,882                   |       | 94,945                   |       | 86,694           |       | 82,998            |       | 52,415                  |       | 97,005                 |       | 128,456       |       | 374,025              |       | 14,272                 |       | 960,691      |       |
| Management Fees                                                       |       | 11,099                   |       | 8,157                    |       | 10,330           |       | 7,797             |       | 2,638                   |       | 8,071                  |       | 7,247         |       | 24,736               |       | 51                     |       | 80,125       |       |
| Operating                                                             |       | 8,476                    |       | 27,636                   |       | 15,996           |       | 487               |       | 1,294                   |       | 241                    |       | 19,653        |       | 127,976              |       | 200                    |       | 201,959      |       |
| Renting                                                               |       | —                   |       | 3,000                    |       | 3,838            |       | 270               |       | 1,167                   |       | 417                    |       | 555           |       | 8,585                |       | —                 |       | 17,832       |       |
| Repairs and Maintenance                                               |       | 739                      |       | 22,720                   |       | 11,795           |       | 88,584            |       | 78,111                  |       | 102,340                |       | 25,631        |       | 134,107              |       | 10,555                 |       | 474,583      |       |
| Taxes and Insurance                                                   |       | 18,405                   |       | 25,326                   |       | 21,716           |       | 36,703            |       | 22,310                  |       | 34,385                 |       | 34,403        |       | 81,130               |       | 3,468                  |       | 277,847      |       |
|                                                                  |       | 72,367                   |       | 183,665                  |       | 156,588          |       | 220,535           |       | 164,256                 |       | 244,547                |       | 215,141       |       | 768,385              |       | 31,012                 |       | 2,056,495    |       |
| **Income Before Other Income**                                        |       | 23,005                   |       | 85,230                   |       | 104,333          |       | (21,608           | )          | (113,815                | )          | (40,839                | )          | (27,844       | )          | (172,318             | )          | (29,265                | )          | (193,119     | )          |
|                                                                  |       |                     |       |                     |       |             |       |              |       |                    |       |                   |       |          |       |                 |       |                   |       |         |       |
| **Other Income (Loss)**                                               |       |                     |       |                     |       |             |       |              |       |                    |       |                   |       |          |       |                 |       |                   |       |         |       |
| Interest Income                                                       |       | 726                      |       | 5                        |       | 127              |       | 545               |       | —                  |       | 245                    |       | 91            |       | 517                  |       | 2,571                  |       | 4,827        |       |
| Interest expense                                                      |       | (38,943                  | )          | (116,169                 | )          | (131,682         | )          | (71,951           | )          | (5,318                  | )          | (67,613                | )          | (79,060       | )          | (221,550             | )          | (7                     | )          | (732,292     | )          |
| Gain on Sale of Real Estate                                           |       | —                   |       | —                   |       | —           |       | 54,980            |       | 76,672                  |       | —                 |       | —        |       | 12,381               |       | 280,944                |       | 424,977      |       |
| Other Income (Expenses)                                               |       | —                   |       | —                   |       | —           |       | —            |       | —                  |       | —                 |       | —        |       | —               |       | —                 |       | —       |       |
|                                                                  |       | (38,217                  | )          | (116,164                 | )          | (131,555         | )          | (16,426           | )          | 71,354                  |       | (67,368                | )          | (78,969       | )          | (208,652             | )          | 283,508                |       | (302,488     | )          |
|                                                                  |       |                     |       |                     |       |             |       |              |       |                    |       |                   |       |          |       |                 |       |                   |       |         |       |
| **Net Income (Loss)**                                                 | ** ** | **(15,212**              | **)**      | **(30,934**              | **)**      | **(27,222**      | **)**      | **(38,033**       | **)**      | **(42,461**             | **)**      | **(108,207**           | **)**      | **(106,812**  | **)**      | **(380,970**         | **)**      | **254,242**            | ** ** | **(495,607** | **)**      |
| ** **                                                            | ** ** | ** **               | ** ** | ** **               | ** ** | ** **       | ** ** | ** **        | ** ** | ** **              | ** ** | ** **             | ** ** | ** **    | ** ** | ** **           | ** ** | ** **             | ** ** | ** **   | ** ** |
| **P&L- NERA 50%**                                                 | ** ** | **(7,606**               | **)**      | **(15,467**              | **)**      | **(13,611**      | **)**      | **(19,016**       | **)**      | **(21,230**             | **)**      | **(54,103**            | **)**      | **(53,406**   | **)**      | **(190,485**         | **)**      | **127,121**            | ** ** | **(247,804** | **)**      |
| ** **                                                            | ** ** | ** **               | ** ** | ** **               | ** ** | ** **       | ** ** | ** **        | ** ** | ** **              | ** ** | ** **             | ** ** | ** **    | ** ** | ** **           | ** ** | ** **             | ** ** | ** **   | ** ** |
| Total units/  condominiums                                            |       | 1                        |       | 48                       |       | 40               |       | 176               |       | 120                     |       | 48                     |       | 42            |       | 146                  |       | 137                    | ** ** | **758**      | ** ** |
| Units to be  retained                                                 |       | 1                        |       | 48                       |       | 40               |       | 49                |       | 20                      |       | 48                     |       | 42            |       | 146                  |       | —                 | ** ** | **394**      | ** ** |
| Units to be sold                                                      |       | —                   |       | —                   |       | —           |       | 127               |       | 100                     |       | —                 |       | —        |       | —               |       | 137                    | ** ** | **364**      | ** ** |
| Units sold  through April 28, 2008                               |       | —                   |       | —                   |       | —           |       | 125               |       | 99                      |       | —                 |       | —        |       | —               |       | 136                    | ** ** | **360**      | ** ** |
| Balance of unsold  units                                              | ** ** | **—**               | ** ** | **—**               | ** ** | **—**       | ** ** | **2**             | ** ** | **1**                   | ** ** | **—**             | ** ** | **—**    | ** ** | **—**           | ** ** | **1**                  | ** ** | **4**        | ** ** |
| Unsold units with  deposits for future sale as of April 28, 2008 |       | —                   |       | —                   |       | —           |       | —            |       | 1                       |       | —                 |       | —        |       | —               |       | 1                      | ** ** | **2**        | ** ** |

 

**Futureannual mortgage maturities at March 31, 2008 are as follows:**

 
| ** **           | ** ** | **Essex 81**      | ** ** | **Essex 81****Apartments** | ** ** | **Franklin  Street** | ** ** | **1025 Hamilton** | ** ** | **Hamilton Bay**    | ** ** | **Hamilton Bay**    | ** ** | **Hamilton  Minuteman** | ** ** | **Hamilton Place** | ** ** | **Hamilton Place** | ** ** | ** ** | ** ** |
|----------------------|------------|-------------------|------------|----------------------------|------------|----------------------|------------|-------------------|------------|---------------------|------------|---------------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|------------|------------|
| **Period End**       | ** ** | **March****2005** | ** ** | **March****2005**          | ** ** | **November****2001** | ** ** | **March****2005** | ** ** | **October****2005** | ** ** | **October****2005** | ** ** | **August****2004**      | ** ** | **August****2004** | ** ** | **August****2004** | ** ** | **Total**  | ** ** |
| March 31,  2009 |       | 3,000,000         |       |                       |       | 130,522              |       |              |       |                |       |                |       |                    |       | 243,736            |       |               |       | 3,374,258  |       |
| March 31,  2010 |       |              |       | 75,629                     |       | 139,818              |       |              |       |                |       |                |       |                    |       | 254,117            |       |               |       | 469,563    |       |
| March 31,  2011 |       |              |       | 95,588                     |       | 149,776              |       |              |       |                |       |                |       |                    |       | 267,597            |       |               |       | 512,961    |       |
| March 31,  2012 |       |              |       | 100,212                    |       | 160,444              |       | 19,763            |       |                |       | 5,131               |       | 16,704                  |       | 281,792            |       |               |       | 584,046    |       |
| March 31,  2013 |       |              |       | 107,585                    |       | 171,872              |       | 62,402            |       |                |       | 63,462              |       | 68,345                  |       | 296,741            |       |               |       | 770,406    |       |
| Thereafter           |       |              |       | 7,382,987                  |       | 6,806,096            |       | 4,917,835         |       |                |       | 4,681,407           |       | 5,414,951               |       | 15,463,886         |       |               |       | 44,667,162 |       |
|                 |       | 3,000,000         |       | 7,762,000                  |       | 7,558,527            |       | 5,000,000         |       | —              |       | 4,750,000           |       | 5,500,000               |       | 16,807,869         |       |               |       | 50,378,396 |       |

 

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**NOTE 15. NEW ACCOUNTING PRONOUNCEMENT**

 

In June 2005, the FASBratified the consensus reached by the Emerging Issues Task Force (“EITF”)regarding EITF 04-05, “Investor’s Accounting for an Investment in aLimited Partnership When the Investor is the Sole General Partner and theLimited Partners Have Certain Rights.” The conclusion provides a framework foraddressing the question of when a sole general partner, as defined inEITF 04-05, should consolidate a limited partnership. The EITF hasconcluded that the general partner of a limited partnership should consolidatea limited partnership, unless the limited partners have either (a) thesubstantive ability to dissolve the limited partnership or otherwise remove thegeneral partner without cause, or (b) substantive participating rights. Inaddition, the EITF concluded that the guidance should be expanded to includeall limited partnerships, including those with multiple general partners. Weadopted EITF 04-05 as of January 1, 2006. We have assessed ourinvestments in unconsolidated real estate joint ventures and have determinedthat EITF 04-05 did not have an impact on our financial condition orresults of operations.

 

**Fair Value Measurements—SFAS 157 & The Fair Value Optionfor Financial Assets and Financial Liabilities—SFAS 159, and FASB StaffPosition No. 157-2**

 

Effective January 1, 2008, the Partnershipadopted Statement of Financial Accounting Standards (SFAS) No. 157, “FairValue Measurements” (SFAS 157) and SFAS No. 159 “The Fair ValueOption for Financial Assets and Financial Liabilities” (SFAS 159).SFAS 157 defines fair value, establishes a framework for measuring fairvalue under accounting principles generally accepted in the United States(GAAP) and enhances disclosures about fair value measurements. Fair value isdefined under SFAS 157 as the exchange price that would be received for anasset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date. SFAS 159 allows anentity the irrevocable option to elect fair value for the initial andsubsequent measurement for certain financial assets and liabilities on acontract-by-contract basis. The impact of adopting both SFAS 157 andSFAS 159 was immaterial to the Partnership.

 

In February 2008, the FASB issued FASB StaffPosition 157-2, which deferred the effective date of SFAS 157 for one-yearfor nonfinancial assets and nonfinancial liabilities that are recognized ordisclosed at fair value on a nonrecurring basis. SFAS 157 is now effectivefor those assets and liabilities for years beginning after November 15,2008.

 

**FASB Statement No. 141(R)—(revised 2007), (“FASB No. 141(R)”),***Business Combinations*

 

In December 2007, the FASB issued FASB No. 141(R) whichestablishes principles and requirements for how the acquirer shall recognizeand measure in its financial statements the identifiable assets acquired,liabilities assumed, any noncontrolling interest in the acquiree and goodwillacquired in a business combination. This statement is effective for businesscombinations for which the acquisition date is on or after the beginning of thefirst annual reporting period beginning on or after December 15, 2008.

 

**FASB Statement No. 160 (“FASB No. 160”),***NoncontrollingInterests in Consolidated Financial Statements—an Amendment of ARB No. 51*

 

In December 2007, the FASB issued No. 160,which establishes and expands accounting and reporting standards for minorityinterests, which will be recharacterized as noncontrolling interests, in asubsidiary and the deconsolidation of a subsidiary. FASB 160 is effectivefor business combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008. This statement is effective for fiscal years beginning on or after December 15,2008. The expected impact of adopting FASB No. 160 is immaterial

 

***FASB Staff Position No. 142-3,****Determination of the Useful Life of Intangible Assets*

 

The FASB Staff Position (FSP) No. 142-3 amendsthe factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetsunder FASB Statement No. 142, Goodwill and Other Intangible Assets. Theintent of the FSP is to improve the consistency between the useful life of arecognized intangible asset under FASB No. 142 and the period of expectedcash flows used to measure the fair value of the asset under FASB Statement No. 141(revised 2007), Business Combinations, and other U.S. generally acceptedaccounting principles. The FSP shall be effective be effective for financialstatements issued for fiscal years beginning after December 15, 2008, andinterim periods within those fiscal years. Early adoption is prohibited. Theguidance for determining the useful life of a recognized intangible asset ifthis FSP shall be applied prospectively to intangible assets acquired after theeffective date. The 

 

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disclosurerequirements shall be applied prospectively to all intangible assets recognizedas of, and subsequent to, the effective date. The Partnership does not believethat the adoption of this FSP will have a material effect on the financialposition and results of operations.

 

***FASB Staff Position No. 157-3,****Determining the Fair Value of a Financial Asset When the Market for That AssetIs Not Active*

 

In October 2008, the FASB issued Staff PositionNo. 157-3, Determining the Fair Value of a Financial Asset When the Marketfor That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarified the applicationof SFAS 157 in cases where a market is not active. FSB 157-3 was effectiveupon issuance, including prior periods for which financial statements had notbeen issued. The Partnership has considered the guidance provided by FSP 157-3in its determination of estimated fair values as of December 31, 2008, andthe impact was not material.

 

***FASB Statement No. 161 (“FASB No. 161”),****Disclosuresabout Derivative Instruments and Hedging Activities—an Amendment of FASBStatement No. 133*

 

In March 2008, the FASB issued FASB No. 161.FASB No. 161 requires entities that utilize derivative instruments toprovide qualitative disclosures about their objectives and strategies for usingsuch instruments, as well as any details of credit-risk-related contingentfeatures contained within derivatives. FASB No. 161 also requires entitiesto disclose additional information about the amounts and location ofderivatives located within the financial statements, how the provisions ofSFAS 133 have been applied, and the impact that hedges have on an entity’sfinancial position, financial performance, and cash flows. SFAS 161 iseffective for fiscal years and interim periods beginning after November 15,2008, with early application encouraged. The Partnership does not anticipatethe adoption of SFAS 161 will have a material impact on the disclosurescontained in its financial statements.

 

In May 2008, the FASB issued SFAS no. 162, “The Hierarchy ofGenerally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles andthe framework for selecting the principles used in the preparation of financialstatements of nongovernmental entities that are presented in conformity withgenerally accepted accounting principles in the United States.  We do not expect any significant changes toour financial accounting and reporting as a result of the issuance of SFAS No. 162.

 

**NOTE 16. DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE**

 

The following tables summarizeincome from discontinued operations and the related realized gain and loss onsale of rental property for the three months ended March 31, 2009 and2008:

 
| ** **                                 | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                 | ** ** | **2009**           | ** ** | **2008**           | ** ** |
| Total Revenues                             |       | $                  | —     |               | $          | 142,598 |   |
| Operating and other expenses               |       | 4,984              |       | 133,873            |       |
| Depreciation and amortization              |       | —             |       | 36,172             |       |
|                                       |       | 4,984              |       | 170,045            |       |
| Income (loss) from discontinued operations |       | (4,984             | )          | (27,447            | )          |
| Gain on the sale of rental property        |       | —             |       | 6,053,391          |       |
| Income (loss) from discontinued operations |       | $                  | (4,984     | )                  | $          | 6,025,944 |   |

 

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**ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussionshould be read in conjunction with the financial statements and notes thereofappearing elsewhere in this Report.  ThisReport, on Form 10-Q, contains forward-looking statements within themeaning of the securities law.  Actual resultsor developments could differ materially from those projected in such statementsas a result of certain factors set forth in the section below entitles “FactorsThat May Affect Future Results” and elsewhere in this Report.

 

The real estate market in theGreater Boston area has continued to soften, but not to the degree of othermajor markets throughout the country. The Partnership anticipated the climatewill remain the same for the balance of 2009 as well as 2010.  Though not apparent now, Management believesthe second half of 2009 will show higher vacancy and slowing revenueincreases.  The Partnership believes itspresent cash reserves as well as anticipated rental revenue will be sufficientto fund its current operations, finance current planned improvements to itsproperties, and continue distribution payments in the foreseeable future.  The Partnership does not anticipate recordingany impairment losses at this time.

 

Since the Partnership’slong-term goals include the acquisition of additional properties, a portion ofthe proceeds from the refinancing and sale of properties is reserved for thispurpose. The Partnership will consider refinancing or selling existingproperties if the Partnership’s cash reserves are insufficient to repayexisting mortgages or if the Partnership needs additional funds for futureacquisitions.

 

Managementbelieves that the financial difficulties experienced since the lending crisisin 2007 will continue and recovery will take longer than previousrecessions.  Management also believesthat the national recession and the challenging credit market will continueinto 2010 and the recovery will be slow and steady.  The Greater Boston Metropolitan Area, thePartnership’s primary market, continues to experience high unemployment levelsand continued downsizing by many corporations and we believe the conditionswill continue to decline locally thru the balance of 2009.

 

Duringthe three months ended March 31, 2009, the Partnership’s rental incomeincreased approximately 6% from the same quarter in 2008.  Occupancy remained above 97 percent for thequarter and bad debt did not rise to levels previously anticipated byManagement.  Operating expenses decreasedby 1%, due primarily to the decrease in depreciation and amortization expense.  Currently, the Partnership properties are allexperiencing high occupancy levels. However, Management believes that anyincrease in revenue will be offset by a rise in bad debt, a higher vacancy ratein the latter half of 2009, higher turnover costs, and increases in utilitycosts. Management believes that the weakening economy will negatively impactboth revenue and operating expenses mitigating any earnings growth for 2009 ascompared to 2008.

 

TheStock Repurchase Program that was initiated in 2007 has purchased 387,924depository receipts through March 2009. Given the lack of alternative investments, liquidity markets and thecurrent share price, Management continues to support the buyback program andbelieve it to be accretive to the remaining shareholders.  Management continues to be active bidding oncommercial real estate within Massachusetts and remains poised to acquire realestate it deems opportune given the current selling and financing environment.

 

The Partnership has retainedThe Hamilton Company (“Hamilton”) to manage and administer the Partnership’sand Joint Ventures’ Properties. Hamilton is a full-service real estatemanagement company, which has legal, construction, maintenance, architectural,accounting and administrative departments. The Partnership’s propertiesrepresent approximately 40% of the total properties and 70% of the residentialproperties managed by Hamilton. Substantially all of the other propertiesmanaged by Hamilton are owned, wholly or partially, directly or indirectly, byHarold 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 Partnershippays Hamilton the full annual Management Fee, in monthly installments.

 

At March 31, 2009,Harold Brown, his brother Ronald Brown and the President of Hamilton, CarlValeri, collectively own approximately 38% of the Depositary Receiptsrepresenting the Partnership Class A Units (including Depositary Receiptsheld by trusts for the benefit of such persons’ family members). Harold Brownalso owns 75% of the Partnership’s Class B Units, 75% of the capital stockof NewReal, Inc. (“NewReal”), the Partnership’s sole general partner, andall of the outstanding stock of Hamilton. Ronald Brown also owns 25% of thePartnership’s Class B Units and 25% of NewReal’s capital stock. Inaddition, Ronald Brown is the President and director of NewReal and HaroldBrown is NewReal’s Treasurer and a director. Two of NewReal’s other directors,Roberta Ornstein and Conrad DiGregorio, also own immaterial amounts of thePartnership’s Class A Units or receipts.

 

In addition to 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. Additionally,from time to time, the Partnership 

 

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pays Hamilton for repairs and maintenanceservices, legal services, construction services and accounting services. Thecosts charged by Hamilton for these services are at the same hourly rate chargedto all entities managed by Hamilton, and management believes such rates arecompetitive in the marketplace.

 

Hamilton accounted forapproximately 10% of the repair and maintenance expense paid for by thePartnership in the years three months ended March 31, 2009 and 5% for theyear ended December 31, 2008. Of the funds paid to Hamilton for thispurpose, the great majority was to cover the cost of services provided by theHamilton maintenance department, including plumbing, electrical, carpentryservices, and snow removal for those properties close to Hamilton’sheadquarters. However, several of the larger Partnership properties have theirown maintenance staff. Further, those properties that do not have their ownmaintenance staff and are located more than a reasonable distance from Hamilton’sheadquarters in Allston, Massachusetts are generally serviced by local,independent companies.

 

Hamilton’s legal departmenthandles most of the Partnership’s eviction and collection matters.Additionally, it prepares most long-term commercial lease agreements andrepresents the Partnership in selected purchase and sale transactions. Overall,Hamilton provided approximately 72% of the legal services paid for by thePartnership during the three months ended March 31, 2009 and approximately50% for the year ended December 31, 2008.

 

Additionally, as describedin Note 3 to the consolidated financial statements, The Hamilton Companyreceives similar fees from the Investment Properties.

 

R. Brown Partners, which isowned by Ronald Brown, managed the condominium association containing fivecondominium units which were sold in 2008 located in Brookline, Massachusetts.That entity received annual management fees from the five units ofapproximately $1,500, and Hamilton reduced its management fees to approximately2%, so that the total management fee will not exceed the 4% allowed by thePartnership’s Partnership Agreement.

 

The Partnership requiresthat three bids be obtained for construction contracts in excess of $5,000.Hamilton may be one of the three bidders on a particular project and may beawarded the contract if its bid and its ability to successfully complete theproject are deemed appropriate. For contracts that are not awarded to Hamilton,Hamilton charges the Partnership a construction supervision fee equal to 5% ofthe contract amount. Hamilton’s architectural department also provides servicesto the Partnership on an as-needed basis. In 2009, the construction andarchitectural service provided to the Partnership by Hamilton wasinsignificant. During the three months ended March 31, 2008, Hamiltonprovided construction and architectural services paid for by the Partnershiptotaling $6,000.

 

Prior to 1991, thePartnership employed an outside, unaffiliated company to perform itsbookkeeping and accounting functions. Since that time, such services have beenprovided by Hamilton’s accounting staff, which consists of approximately 14people. During the three months ended March 31, 2009, Hamilton charged thePartnership $31,250 ($125,000 per year) for bookkeeping and accountingservices.

 

For more information onrelated party transactions, see Note 3 to the Consolidated FinancialStatements.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

The preparation of theconsolidated 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 Partnership regularly and continually evaluates itsestimates, including those related to acquiring, developing and assessing thecarrying values of its real estate properties and its investments in andadvances 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 futureevents and their effects cannot be determined with certainty, the determinationof estimates requires the exercise of judgment. The Partnership’s criticalaccounting policies are those which require assumptions to be made about suchmatters that are highly uncertain. Different estimates could have a materialeffect on the Partnership’s financial results. Judgments and uncertaintiesaffecting the application of these policies and estimates may result inmaterially different amounts being reported under different conditions andcircumstances. See Note 1 to the Consolidated Financial Statements,Principles of Consolidation.

 

*Revenue Recognition:*  Rental income from residential and commercialproperties is recognized over the term of the related lease. For residentialtenants, amounts 60 days in arrears are charged against income. Thecommercial tenants are evaluated on a case by case basis. Certain leases of thecommercial properties provide for increasing stepped minimum rents, which areaccounted for on a straight-line basis over the term of the lease.

 

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*Real Estate andDepreciation:*  Real estateassets are stated at the lower of cost or fair value, less accumulateddepreciation. Costs related to the acquisition, development, construction andimprovement of properties are capitalized, including interest, wages andbenefits, real estate taxes and insurance. Capitalization usually begins withcommencement of development activity and ends when the property is ready forleasing. Replacements and improvements, such as HVAC equipment, structuralreplacements, windows, appliances, flooring, carpeting and kitchen/bathreplacements and renovations, are capitalized and depreciated over theirestimated useful lives as follows:

 

·                  Depreciation is computed onthe straight-line and accelerated methods over the estimated useful lives ofthe related assets. In assessing estimated useful lives, the Partnership makesassumptions based on historical experience acquired from both within andoutside the Partnership. These assumptions have a direct impact on thePartnership’s net income.

 

·                  Ordinary repairs andmaintenance, such as unit cleaning and painting and appliance repairs, areexpensed.

 

*Impairment*:  On an annual basis management assesseswhether there are any indicators that the value of the Company’s rentalproperties may be impaired.  A property’svalue is impaired only if management’s estimate of the aggregate future cashflows (undiscounted and without interest charges) to be generated by theproperty is less than the carrying value of the property.  To the extent impairment has occurred, theloss shall be measured as the excess of the carrying amount of the propertyover the fair value of the property.  TheCompany’s estimates of aggregate future cash flows expected to be generated byeach property are based on a number of assumptions that are subject to economicand market uncertainties including, among others, demand for space, competitionfor tenants, changes in market rental rates, and costs to operate eachproperty.  As these factors are difficultto predict and are subject to future events that may alter management’sassumptions, the future cash flows estimated by management in its impairmentanalyses may not be achieved. The Partnership has not recognized an impairmentloss since 1995.

 

*Rental Property Held forSale and Discontinued Operations:*  When assets are identified by management asheld for sale, the Partnership discontinues depreciating the assets andestimates the sales price, net of selling costs, of such assets. If, inmanagement’s opinion, the net sales price of the assets which have beenidentified as held for sale is less than the net book value of the assets, avaluation allowance is established. Properties identified as held for saleand/or sold are presented in discontinued operations for all periods presented.

 

*Investments inPartnerships:*  ThePartnership accounts for its 50% ownership in the Investment Properties underthe equity method of accounting, as it exercises significant influence over,but does not control these entities. These investments are recorded initiallyat cost, as Investments in Partnerships, and subsequently adjusted for thePartnership’s share in earnings, cash contributions and distributions. Underthe equity method of accounting, our net equity is reflected on theconsolidated balance sheets, and our share of net income or loss from thePartnership is included on the consolidated statements of income.

 

With respect to investmentsin and advances to the Investment Properties, the Partnership looks to theunderlying properties to assess performance and the recoverability of carryingamounts for those investments in a manner similar to direct investments in realestate properties. An impairment charge is recorded if management’s estimate ofthe aggregate future cash flows (undiscounted and without interest charges) tobe generated by the property is less than the carrying value of the property.

 

*Legal Proceedings:*  The Partnership is subject to various legalproceedings and claims that arise, from time to time, in the ordinary course ofbusiness. These matters are frequently covered by insurance. If it isdetermined that a loss is likely to occur, the estimated amount of the loss isrecorded in the financial statements. Both the amount of the loss and the pointat which its occurrence is considered likely can be difficult to determine.

 

**RESULTS OF OPERATIONS**

 

**Three Months Ended March 31, 2009 and 2008 (as adjusted fordiscontinued operations)**

 

The Partnership and itsSubsidiary Partnerships earned income before other income and discontinuedoperations of approximately $2,725,000 during the three months ended March 31,2009, compared to approximately $2,232,000 for the three months ended March 31,2008, an increase of approximately $494,000 (22%).

 

The rental activity issummarized as follows:

 

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| ** **                                       | ** ** | **Occupancy Date**      | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|
| ** **                                       | ** ** | **April 27, 2009** | ** ** | **April 28, 2008** | ** ** |
| **Residential**                                  |       |                    |       |   |   |
| Units—exclusive of available for sale units |       | 2,269                   |       | 2,297 |   |
| Vacancies                                        |       | 42                      |       | 44 |   |
| Vacancy rate                                     |       | 1.9                     | %          | 1.9 | % |
| **Commercial**                                   |       |                    |       |   |   |
| Total square feet                                |       | 114,395                 |       | 90,848 |   |
| Vacancy                                          |       | 0                       |       | 0 |   |
| Vacancy rate                                     |       | 0                       | %          | 0 | % |

 
| ** **             | ** ** | **Rental Income (in thousands)  Three Months Ended March 31,** | ** ** |
|------------------------|------------|---------------------------------------------------------------------|------------|
| ** **             | ** ** | **2009**                                                            | ** ** | **2008** | ** ** |
| ** **             | ** ** | **Total  Operations**                                               | ** ** | **Continuing  Operations** | ** ** | **Total  Operations** | ** ** | **Continuing  Operations** | ** ** |
| Total rents            |       | $                                                                   | 8,461      |   | $ | 8,461 |   | $ | 8,175 |   | $ | 8,032 |   |
| Residential percentage |       | 90                                                                  | %          | 90 | % | 92 | % | 93 | % |
| Commercial percentage  |       | 10                                                                  | %          | 10 | % | 8 | % | 7 | % |
| Contingent rentals     |       | $                                                                   | 174        |   | $ | 174 |   | $ | 120 |   | $ | 120 |   |

 

Three Months Ended March 31,2009 Compared to Three Months Ended March 31, 2008:

 
| ** **                                                      | ** ** | **Three Months Ended March 31,** | ** **      | **Dollar** | ** ** | **Percent** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------|-----------------|------------|------------|-------------|------------|
| ** **                                                      | ** ** | **2009**                              | ** **      | **2008**   | ** ** | **Change**  | ** ** | **Change** | ** ** |
| Revenues:                                                       |       |                                  |            |       |       |        |       |   |   |
| Rental income                                                   |       | $                                     | 8,367,582       |       | $          | 7,922,823   |       | $ | 444,759 |   | 6 | % |
| Laundry and sundry income                                       |       | 93,113                                |            | 109,144    |       | (16,031     | )          | (15 | )% |
|                                                            |       | $                                     |  8,460,695 |       | 8,031,967  |        | 428,728    |   | 5 | % |
| Expenses                                                        |       |                                  |            |       |       |        |       |   |   |
| Administrative                                                  |       | 465,930                               |            | 425,789    |       | 40,141      |       | 9 | % |
| Depreciation and amortization                                   |       | 1,416,620                             |            | 1,618,656  |       | (202,036    | )          | (12 | )% |
| Management fees                                                 |       | 342,888                               |            | 322,280    |       | 20,608      |       | 6 | % |
| Operating                                                       |       | 1,505,737                             |            | 1,404,452  |       | 101,285     |       | 7 | % |
| Renting                                                         |       | 60,958                                |            | 80,211     |       | (19,253     | )          | (24 | )% |
| Repairs and maintenance                                         |       | 978,286                               |            | 1,040,066  |       | (61,780     | )          | (6 | )% |
| Taxes and insurance                                             |       | 964,867                               |            | 908,990    |       | 55,877      |       | 6 | % |
|                                                            |       | 5,735,286                             |            | 5,800,444  |       | (65,158     | )          | (1 | )% |
| Income Before Other Income and Discontinued Operations          |       | 2,725,409                             |            | 2,231,523  |       | 493,886     |       | 22 | % |
| Other Income (Loss)                                             |       |                                  |            |       |       |        |       |   |   |
| Interest expense                                                |       | (1,945,147                            | )               | (1,925,859 | )          | (19,288     | )          | 1 | % |
| Interest income                                                 |       | 18,362                                |            | 48,369     |       | (30,007     | )          | (62) | % |
| Casualty (loss)                                                 |       | —                                |            | —     |       | —      |       |   |   |
| (Loss) from investment in unconsolidated joint ventures         |       | (273,555                              | )               | (247,805   | )          | (25,750     | )          | 10 | % |
| Other income (loss)                                             |       | —                                |            | (3,702,168 | )          | 3,702,168   |       | (100 | )% |
|                                                            |       | (2,200,340                            | )               | (5,827,463 | )          | 3,627,123   |       | (62 | )% |
| Income from Continuing Operations                               |       | 525,069                               |            | (3,595,940 | )          | 4,121,009   |       | 115 | % |
| Discontinued Operations:                                        |       |                                  |            |       |       |        |       |   |   |
| Income (loss) from discontinued operations                      |       | —                                |            | (27,447    | )          | 27,447      |       | 100 | % |
| Gain (loss) on sale of real estate from discontinued operations |       | (4,984                                | )               | 6,053,391  |       | (6,058,375  | )          | (100 | )% |
|                                                            |       | (4,984)                               |            | 6,025,944  |       | (6,030,928  | )          | (100 | )% |
| Net Income                                                      |       | $                                     | 520,085         |       | $          | 2,430,004   |       | $ | (1,909,919 | ) | (79 | )% |

 

Rental income fromcontinuing operations for the three months ended March 31, 2009 wasapproximately $8,368,000, compared to approximately $7,923,000 for the threemonths ended March 31, 2008, an increase of approximately $445,000 (6%).Properties with significant increases in rental income include the 62 BoylstonStreet, Westgate Apartments, 1144 

 

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Commonwealth Avenue, and Redwood Hills. ThePartnership’s acquisition of Cypress Street in October 2008 representsapproximately $201,000 of this increase.

 

Expenses from continuingoperations for the three months ended March 31, 2009 were approximately$5,735,000 compared to approximately $5,800,000 for the three months ended March 31,2008, a decrease of approximately $65,000 (1%). The most significant factorcontributing to this decrease was: a decrease in depreciation and amortizationexpense of approximately $202,000 (12%); a decrease in renting expense ofapproximately $19,000 (24%) due to a decrease in rental commissions and adecrease in repairs and maintenance expenses of approximately 62,000 (6%) dueto some major repairs done at the properties in the first quarter of 2008.

 

These decreases are offsetby an increase in operating expenses of approximately $101,000 (7%) due to theincreases in snow removal and utility costs; an increase in taxes and insuranceof approximately $56,000 (6%) due to increase in property taxes and an increasein administrative expenses of approximately $40,000 (9%) due to an increase inprofessional fees and employee benefits.

 

Interest expense increasedapproximately $19,000 (1.0%) due to the refinancing of Partnership propertiesresulting in a higher level of debt offset by lower interest rates.

 

At March 31, 2009, thePartnership has a 50% ownership interest in eight Investment Properties. See adescription of these properties included in the section titled InvestmentProperties as well as Note 14 to the Consolidated Financial Statements fora detail of the financial information of each Investment Property.

 

As described in Note 14to the Consolidated Financial Statements, the Partnership’s share of the netloss from the 50% owned Investment Properties was approximately $274,000 forthe three months ended March 31, 2009 compared to a loss of approximately$248,000 for the three months ended March 31, 2008, an increase ofapproximately $26,000.  No units weresold during the three months ended March 31, 2009.

 

Interest income for thethree months ended March 31, 2009 was approximately $18,000 compared toapproximately $48,000 for the three months ended March 31, 2008, adecrease of approximately $30,000. This decrease is due to a drop in interestrates.

 

During the first quarter of2008, the Partnership refinanced a number of mortgages with outstanding 8.44%mortgages of approximately $37,800,000 with new mortgages totalingapproximately $60,000,000.  Non-recurringprepayment penalties of approximately $3,702,000 were incurred in thesetransactions and are included in other expenses during the three months ended March 31,2008.

 

In January 2008, thePartnership sold the Oak Ridge Apartments in Foxboro, Massachusetts. The netloss from operations of approximately $27,000 and the gain on the sale ofapproximately $6,053,000 is included in discontinued operations.

 

As a result of the changesdiscussed above, net income for the three months ended March 31, 2009 was$520,085 compared to $2,430,004 for the three months ended March 31, 2008,a decrease of $1,909,919.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Partnership’s principalsource of cash during 2009 and 2008 was the collection of rents, sale of realestate, and refinancing of partnership properties. The majority of cash andcash equivalents of $10,220,538 at March 31, 2009 and $10,752,931 at December 31,2008 were held in interest bearing accounts at creditworthy financialinstitutions.

 

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This decrease of $532,393 atMarch 31, 2009 is summarized as follows:

 
| ** **                                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                 | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| Cash provided by (used in) operating activities                            |       | $                                     | 2,361,287  |   | $ | (2,940,622 | ) |
| Cash provided by (used in) investing activities                            |       | (474,870                              | )          | 3,932,371 |   |
| Cash (used in) provided by financing activities                            |       | (209,219                              | )          | 18,715,740 |   |
| Repurchase of Depositary Receipts, Class B and General Partner  Units |       | (1,278,090                            | )          | (19,744.831 | ) |
| Distributions paid                                                         |       | (931,500                              | )          | (965,317 | ) |
| Net (decrease) in cash and cash equivalents                                |       | $                                     | (532,393   | ) | $ | (1,002,659 | ) |

 

Thecash provided by operating activities is primarily due to the collection ofrents less cash operating expenses. The decrease in cash provided by investingactivities is due to the sale of properties in 2008 and a reduction in thedistribution received from the joint ventures. The decrease in cash provided byfinancing activities is due to the refinancing of Partnership properties in2008.

 

Duringthe three months ended March 31, 2009, the Partnership and its SubsidiaryPartnerships completed improvements to certain of the Properties at a totalcost of approximately $602,000. These improvements were funded from cash reservesand, to some extent, escrow accounts established in connection with thefinancing or refinancing of the applicable Properties. These sources have beenadequate to fully fund improvements. The most significant improvements weremade at Redwood Hills, Olde English, Hamilton Oaks and Clovelly, at a cost ofapproximately $87,000, $76,000, $67,000, and $48,000, respectively. ThePartnership plans to invest approximately $1,371,000 in additional capitalimprovements in 2009.

 

In2009 the Partnership repurchased 2,468 Class A Units, Class B Unitsand General Partnership Units at a total cost of $1,278,090.

 

OnJanuary 3, 2008, the Partnership sold the Oak Ridge Apartments, a 61-unitresidential apartment complex located in Foxboro, Massachusetts. The sale pricewas $7,150,000, which resulted in a gain of approximately $6,000,000. In November 2007,the Partnership purchased a fully occupied commercial building located inNewton, Massachusetts, known as Linewt LLC. The purchase price was$3,475,000 and the building consists of 5,850 square feet of commercial space.The Partnership utilized Section 1031 of the IRS code to affect a tax freeexchange on the gain of Oak Ridge up to the purchase price of the Newtonproperty. Most of the taxable gain of approximately $3,000,000 will be taxed atthe capital gain rates. In accordance with Section 1031, the Newtonproperty was owned by a Qualified Intermediary for the period from the purchasedate of the Newton property and the sale date of the Foxboro property. The QualifiedIntermediary borrowed $3,225,112 from Harold Brown, Treasurer of the GeneralPartner, to purchase the Newton property. This loan was paid in full, withinterest at 6% of $34,401, from the proceeds of the Oak Ridge sale on January 3,2008. On January 22, 2008, the Partnership financed the Newton propertywith a first mortgage of $1,700,000 at 5.75% interest only until maturity in January 2018.

 

In2008, the Partnership obtained mortgages on 13 properties.  The new mortgages total approximately$73,000,000 with interest rates ranging 5.6% to 5.97%.  The new mortgages mature in 2023 and call forinterest only payments.  After paymentsof existing mortgages of approximately $37,800,000 and prepayment penalties ofapproximately $4,400,000, the excess funds were used to repurchase DepositaryReceipts.

 

InFebruary 2009, the Partnership approved a distribution of $7.00 per Unit($0.70 per Receipt) payable March 31, 2009.

 

In2008 the Partnership paid quarterly distributions of $7.00 per Unit ($0.70 perReceipt) in March, June, September and December 2008 for a totaldistribution of $28.00 per unit ($2.80 per receipt).

 

ThePartnership anticipates that cash from operations and interest bearing accountswill be sufficient to fund its current operations and to finance currentimprovements to its properties. The Partnership’s net income and cash flow mayfluctuate dramatically from year to year as a result of the sale of properties,increases or decreases in rental income or expenses, or the loss of significanttenants.

 

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**Off-BalanceSheet Arrangements-Joint Venture Indebtedness**

 

Asof March 31, 2009, the Partnership had a 50% ownership in eight jointventures, all of which have mortgage indebtedness. We do not have control ofthese partnerships and therefore we account for them using the equity method.At March 31, 2009, our proportionate share of the non-recourse debt relatedto these investments was equal to approximately $25,914,000. See Note 14to the Consolidated Financial Statements.

 

**ContractualObligations**

 

SeeNotes 5 and 14 to the Consolidated Financial Statements for a description ofmortgage notes payable. The Partnerships have no other material contractualobligations 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 statementsreflect management’s good faith beliefs when those statements are made, cautionshould be exercised in interpreting and relying on such forward lookingstatements, the realization of which may be impacted by known and unknown risksand uncertainties, events that may occur subsequent to the forward-lookingstatements, and other factors which may be beyond the Partnership’s control andwhich can materially affect the Partnership’s actual results, performance orachievements for 2009 and beyond. Should one or more of the risks oruncertainties mentioned below materialize, or should underlying assumptionsprove incorrect, actual results may vary materially from those anticipated,estimated or projected. We expressly disclaim any responsibility to update ourforward looking statements, whether as a result of new information, futureevents or otherwise. Accordingly, investors should use caution in relying onpast forward looking statements, which are based on results and trends at thetime they are made, to anticipate future results or trends.

 

Alongwith risks detailed from time to time in the Partnership’s filings with theSecurities and Exchange Commission, some factors that could cause thePartnership’s actual results, performance or achievements to differ materiallyfrom those expressed or implied by forward-looking statements include but arenot limited to the following:

 

ThePartnership depends on the real estate markets where its properties arelocated, primarily in Eastern Massachusetts and these markets may be adverselyaffected by local economic market conditions, which are beyond the Partnership’scontrol.

 

ThePartnership is subject to the general economic risks affecting the real estateindustry, such as dependence on tenant’s financial condition and the need toenter into new leases or renew leases on terms favorable to tenants in order togenerate rental revenues and our ability to collect rents from our tenants.

 

ThePartnership is also impacted by changing economic conditions making alternativehousing arrangements more or less attractive to the Partnership’s tenants, suchas the interest rates on single family home mortgages and the availability andpurchase price of single-family homes in the Greater Boston metropolitan area.

 

ThePartnership is subject to significant expenditures associated with eachinvestment, such as debt service payments, real estate taxes, insurance andmaintenance costs, which are generally not reduced when circumstances cause areduction in revenues from a property.

 

ThePartnership is subject to increases in heating and utility costs that may ariseas a result of economic and market conditions and fluctuations in seasonalweather conditions.

 

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

 

Actualor threatened terrorist attacks may adversely affect our ability to generaterevenues and the value of our properties.

 

Financingor refinancing of Partnership properties may not be available to the extentnecessary or desirable, or may not be available on favorable terms.

 

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ThePartnership properties face competition from similar properties in the samemarket. This competition may affect the Partnership’s ability to attract andretain tenants and may reduce the rents that can be charged.

 

Giventhe nature of the real estate business, the Partnership is subject to potentialenvironmental liabilities. These include environmental contamination in thesoil at the Partnership’s or neighboring real estate, whether caused by thePartnership, previous owners of the subject property or neighbors of thesubject property, and the presence of hazardous materials in the Partnership’sbuildings, such as asbestos, mold and radon gas. Management is not aware of anymaterial environmental liabilities at this time.

 

Insurancecoverage for and relating to commercial properties is increasingly costly anddifficult to obtain. In addition, insurance carriers have excluded certainspecific items from standard insurance policies, which have resulted inincreased risk exposure for the Partnership. These include insurance coveragefor acts of terrorism and war, and coverage for mold and other environmentalconditions. Coverage for these items is either unavailable, or prohibitivelyexpensive.

 

Marketinterest rates could adversely affect the market prices for Class APartnership Units and Depositary Receipts as well as performance and cash flow.

 

Changesin income tax laws and regulations may affect the income taxable to owners ofthe Partnership. These changes may affect the after-tax value of futuredistributions.

 

ThePartnership may fail to identify, acquire, construct, or develop additionalproperties; may develop or acquire properties that do not produce a desired orexpected yield on invested capital; may be unable to sell poorly- performing orotherwise undesirable properties quickly; or may fail to effectively integrateacquisitions of properties or portfolios of properties.

 

Risksassociated with the use of debt to fund acquisitions and developments.

 

Competitionfor acquisitions may result in increased prices for properties.

 

Anyweakness identified in the Partnership’s internal controls as part of theevaluation being undertaken by the Company and its independent publicaccountants pursuant to Section 404 of the Sarbanes-Oxley Act of 2002could have an adverse effect on the Company’s business.

 

Ongoingcompliance with Sarbanes-Oxley Act of 2002 may require additional personnel orsystem changes.

 

Theforegoing factors should not be construed as exhaustive or as an admissionregarding the adequacy of disclosures made by the Partnership prior to the datehereof or the effectiveness of said Act. The Partnership expressly disclaimsany obligation to publicly update or revise any forward- looking statement,whether as a result of new information, future events or otherwise.

 

Theresidential real estate market in the Greater Boston area has softened and thePartnership anticipates the climate will remain the same in the foreseeablefuture. This may result in increases in vacancy rates and/or a reduction inrents. The Partnership believes its present cash reserves as well asanticipated rental revenue will be sufficient to fund its current operations,and to finance current planned improvements to its properties and continue dividendpayments in the foreseeable future.

 

Sincethe Partnership’s long-term goals include the acquisition of additionalproperties, a portion of the proceeds from the refinancing and sale ofproperties is reserved for this purpose. The Partnership will considerrefinancing existing properties if the Partnership’s cash reserves areinsufficient to repay existing mortgages or if the Partnership needs additionalfunds for future acquisitions.

 

**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Asof March 31, 2009, the Partnership, its Subsidiary Partnerships and theInvestment Properties collectively have approximately $163,868,000 in long-termdebt, substantially all of which pays interest at fixed rates. Accordingly, thefair 

 

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value of these debtinstruments is affected by changes in market interest rates. These mortgagesmature through 2023. For information regarding the fair value and maturitydates of these debt obligations, see Item 2 and Notes 5, 12 and 14 tothe Consolidated Financial Statements.

 

Foradditional disclosure about market risk, see “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Factors That May Affect Future Results”.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

*Disclosure Controls and Procedures*.  The Company’s management,with the participation of the president and chief executive officer and chieffinancial officer of the Company’s general partner, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-15(e) and 15d-15(e) under the ExchangeAct) as of the end of the period covered by this report.  Based onsuch evaluation, the president and chief executive officer and chief financialofficer of the Company’s general partner have concluded that, as of the end ofsuch period, the Company’s disclosure controls and procedures are effective inrecording, processing, summarizing and reporting, on a timely basis,information required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act.

 

*InternalControl Over Financial Reporting*.  There have not been any changes in theCompany’s internal control over financial reporting (as such term is defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) during thefiscal quarter to which this report relates that have materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**PART II—OTHERINFORMATION**

 

**Item 1.  Legal Proceedings**

 

The Partnership, theSubsidiary Partnership and their properties are not presently subject to anymaterial litigation, and, to management’s knowledge, there is not any materiallitigation presently threatened against them. The Partnership and SubsidiaryPartnership are occasionally subject to ordinary routine legal andadministrative proceedings incident to the ownership of residential andcommercial real estate. Some of the legal and other expenses related to theseproceedings are covered by insurance and none of these costs and expenses areexpected to have a material advance office on the Consolidated FinancialStatements of the Partnership.

 

**Item 1A.  Risk Factors**

 

Therewere no material changes to the Risk Factors disclosed in our annual report on Form 10-Kfor the year ended December 31, 2008.

 

None.

 

**Item 2.  Unregistered Saleof Equity Securities and Use of Proceeds**

 

(a)                                  None

 

(b)                                 None.

 

(c)                                  IssuerPurchases of Equity Securities during the First Quarter of 2009:

 
| **Period**                      | ** ** | **Average Price  Paid** | ** ** | **Depositary  Receipts  Purchased as  Part of  Publicly  Announced  Plan** | ** ** | **Remaining Number of  Depositary Receipts that  may be purchased  Under the Plan  (as amended)** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
|                            |       |                    |       |                                                                            |       | 165,756                                                                                           |       |
| January 1 - 31, 2009       |       | $                       | 53.10      |                                                                            | 3,200      |                                                                                              | 162,556    |   |
| February 1 – 28, 2009 |       | $                       | 54.37      |                                                                            | 6,640      |                                                                                              | 155,916    |   |
| March 1 - 31, 2009         |       | $                       | 48.33      |                                                                            | 9,900      |                                                                                              | 146,016    |   |
| Total:                          | ** ** | $                       | 51.14      |                                                                            | 19,740     |                                                                                              | 146,016    |   |

 

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OnAugust 20, 2007, NewReal, Inc., the General Partner authorized anequity repurchase program (“Repurchase Program”) under which the Partnershipwas permitted to purchase, over a period of twelve months, up to 100,000Depositary Receipts (each of which is one-tenth of a Class A Unit). On January 15, 2008, the General Partner authorized an increase in theRepurchase Program from 100,000 to 200,000 Depositary Receipts and on January 30,2008 the General Partner further increased the Repurchase Program from 200,000to 300,000 Depositary Receipts.  On March 6, 2008, the GeneralPartner further increased the total number of Depositary Receipts that could berepurchased pursuant to the Repurchase Program from 300,000 to 500,00.  On August 8, 2008, the General Partnerre-authorized and renewed the Repurchase Program for an additional 12-monthperiod ending August 19, 2009.  In addition, the General Partner alsoauthorized the expansion of the Repurchase Program to require the Partnershipto repurchase a proportionate number of Class B Units and General PartnerUnits in connection with any repurchases of any Depositary Receipts by thePartnership based upon the 80%, 19% and 1% fixed distribution percentages ofthe holders of the Class A, Class B and General Partner Units underthe Partnership’s Second Amended and Restate Contract of LimitedPartnership.  Repurchases of Depositary Receipts or Partnership Unitspursuant to the Repurchase Program may be made by the Partnership from time totime in its sole discretion in open market transactions or in privatelynegotiated transactions.  As of March 31,2009, the Partnership has repurchased 387,924 Depositary Receipts at an averageprice of $74.22 per receipt (or $742.20 per underlying Class A Unit), 1,477Class B Units and 78 General Partner Units both at an average price of$583.00 per Unit, totaling approximately $29,700,000 including brokerage feespaid by the Partnership.

 

SeeNote 8 to the Consolidated Financial Statements for information concerningthis repurchase program through March 31, 2009.

** **

**Item 3.  Defaults UponSenior Securities**

 

None.

 

**Item 4.  Submission ofMatters to a Vote of Security Holders**

 

None.

 

**Item 5.  Other Information**

 

None.

 

**Item 6.  Exhibits**

 

(a)                                  See the exhibitindex below.

 

**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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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|   | NEW  ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP |
|--------|----------------------------------------------------|
|   | By:                                                | /s/ NEWREAL, INC. |
|   |                                               | Its General Partner |
|   | By:                                                | /s/ RONALD BROWN |
|   |                                               | Ronald  Brown, President |

 

Dated: May 8, 2009

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 
| **Signature**    | ** ** | **Title**                                                          | ** ** | **Date**          |
|------------------|------------|--------------------------------------------------------------------|------------|-------------------|
| /s/ RONALD BROWN |       | President and Director of  the General Partner                     |       | May 8,  2009 |
| Ronald Brown     |       | (Principal Executive  Officer)                                     |       |              |
| /s/ HAROLD BROWN |       | Treasure and Director to  the General Partner                      |       | May 8,  2009 |
| Harold Brown     |       | (Principal and Finance  Officer and  Principal Accounting Officer) |       |              |

 

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