10-K

FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the calendar year ended December 31, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 0-2670

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

(Exact name of Registrant as specified in its charter)

A New York Limited Liability Company	13-6077181
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Grand Central Place

60 East 42nd Street

New York, New York 10165

(Address of principal executive offices)

(212) 687-8700

(Registrant’s telephone number, including area code)

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

None

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

$7,000,000 of Participations in LLC Member Interests

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

The aggregate market of the voting stock held by non-affiliates of the Registrant: Not applicable, but see Items 5 and 10 of this report.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

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

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

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	x

PART I

Item 1. Business.

(a) General

Registrant was originally organized as a partnership on September 25, 1958. On October 1, 1958, Registrant acquired fee title to One Grand Central Place (the “Building”), formerly known as the Lincoln Building, at 60 East 42nd Street, New York, New York and the land thereunder (the “Property”). On November 28, 2001, Registrant converted to a limited liability company under New York law and is now known as 60 East 42nd St. Associates L.L.C. The conversion did not change any aspect of the assets and operations of Registrant other than to protect its participants from liability to third parties. Registrant’s members (“Members”) are Peter L. Malkin and Anthony E. Malkin (collectively, the “Agents”), each of whom also acts as an agent for holders of participations in his respective member interest in Registrant (the “Participants”). Registrant leases the Property to Lincoln Building Associates L.L.C. (“Lessee”) pursuant to an operating lease as modified (the “Lease”), which is currently set to expire on September 30, 2033. See Item 2 below in connection with the granting of additional lease extensions.

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

As of December 31, 2011, the Building was approximately 80% occupied by 317 tenants who engage in various businesses, including law, accounting, real estate, engineering and advertising. Registrant does not maintain a staff. See Item 2 hereof for additional information concerning the Property.

(b) Mortgages Payable

On November 29, 2004, a first mortgage (“Mortgage”) was placed on the Property in the amount of $84,000,000 with Prudential Insurance Company of America to provide financing for the improvement program described below. At closing, $49,000,000 was drawn to pay off the former first mortgage with Morgan Guaranty Trust Company in the amount of $12,020,814 and the second mortgage in the amount of $27,979,186 with Emigrant Savings Bank. The remaining $35,000,000 available under the Mortgage was drawn on various dates through July 5, 2007. The proceeds of $49,000,000 drawn at closing and all subsequent draws have been used to pay for refinancing costs and capital improvements as needed. The initial draw of $49,000,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 5.34% per annum, until July 5, 2007. Commencing August 5, 2007, Registrant is required to make equal monthly payments of $507,838 applied to interest and then principal calculated on a 25-year amortization schedule. The entire $84,000,000 has been drawn and at December 31, 2011 the balance is $76,008,249. The Senior Mortgage matures on November 5, 2014 at which time the principal balance will be $69,797,589.

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On November 5, 2009, Registrant took out an additional $16,000,000 loan with Prudential Insurance Company of America secured by a second mortgage on the Property, subordinate to the first mortgage and to be used for capital improvements. The loan requires payments of interest at 7% per annum and principal in the aggregate amount of $113,085 calculated on a 25-year amortization schedule and is co-terminus with the first mortgage. At December 31, 2011 the balance is $15,470,055. The Subordinate Mortgage matures on November 5, 2014 with a principal balance of $14,613,782.

The mortgage loans may be prepaid at any time, in whole only, upon payment of a prepayment penalty based on a yield maintenance formula. There is no prepayment penalty if the mortgages are paid in full during the last 60 days of the term.

The estimated fair value of Registrant’s mortgage debt based on available market information is $96,658,956 as of December 31, 2011.

Mortgage refinancing costs of $2,873,632 were capitalized by Registrant and are being amortized ratably over the terms of the mortgages.

(c) The Lease

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

(i) annual basic rent (“Basic Rent”) equal to the sum of $24,000 plus the constant annual mortgage charges on all mortgages. In accordance with the Ninth Lease Modification Agreement dated November 5, 2009, Basic Rent was increased to cover debt service on a $100,000,000 mortgage. Basic Rent will be increased or decreased upon the refinancing of the mortgages provided that the aggregate principal balance of all mortgages now or hereafter placed on the Property does not exceed $100,000,000, plus refinancing costs.

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

The Lease also requires an advance against Additional Rent equal to, on an annual basis, the lesser of (x) Lessee’s net operating income for the preceding lease year or (y) $1,053,800 which is recorded in revenue in monthly installments of $87,817 which, in the latter amount, will permit basic distributions to Participants at an annual rate of approximately 14.95% per annum on their original and remaining cash investment of $7,000,000 in Registrant; provided, however, if such advances exceed Lessee’s net operating income for any lease year, advances otherwise required during the subsequent lease year shall be reduced by an amount equal to such excess until Lessee shall have recovered, through retention of net operating income, the full amount of such excess. After the Participants have received distributions equal to a return of 14% per annum, $7,380 is paid to Supervisor from the advances against Additional Rent.

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

For the lease year ended September 30, 2011, Lessee reported net operating income of $7,225,766. Lessee paid advances against Additional Rent of $1,053,800 for that lease year prior to September 30, 2011 and Further Additional Rent of $3,085,983 subsequent to September 30, 2011. The Further Additional Rent of $3,085,983 represents 50% of the excess of the Lessee’s net operating income of $7,225,766 over $1,053,800. During November 2011, Registrant did not make any additional distribution of Further Additional Rent received for the lease year ending September 30, 2011 to Participants as such amount was required for (i) fees relating to a proposed consolidation of Registrant, other public and private entities supervised by Malkin Holdings and Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed REIT, (ii) the increase in the supervisory fee to Supervisor, (iii) accounting fees, (iv) the New York State annual filing fee, and (v) general contingencies.

The Supervisor of the Registrant has filed a registration statement on Form S-4 for the solicitation of consents of the Participants in the Registrant and other public limited liability companies supervised by the Supervisor to a consolidation transaction. In such consolidation, (x) the property interests of the Registrant, such other public limited liability companies and certain private entities supervised by the Supervisor, and (y) the Supervisor and certain affiliated management companies will be contributed to the operating partnership of a newly organized publicly traded real estate investment trust.

Consents are required from Participants in the Registrant and such other public limited liability companies for them to contribute their interests in the consolidation, and the solicitation of such consents will not commence until the SEC declares effective the registration statement on Form S-4. Consents have been obtained from participants in the private entities and the Supervisor and certain affiliated companies and affiliates of the Supervisor for them to make such contributions.

The consideration to be paid to the contributing companies and entities in the consolidation will be allocated in accordance with exchange values determined based on appraisals by an independent third party. Such method of allocation has been approved by the Lessee. Based on the preliminary exchange values, if the consolidation proposal is approved by the Registrant’s Participants, the consideration with respect to One Grand Central Place will be allocated approximately 50% to the Registrant and 50% to the Lessee, which the Supervisor believes is in accordance with the historical treatment of the Registrant and the Lessee.

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

Real estate taxes paid directly by the Lessee totaled $10,928,078 and $10,594,397 for the years ended December 31, 2011 and 2010, respectively.

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(d) Competition

Pursuant to tenant space leases at the Building, the average base rent payable to Lessee is $47 per square foot (exclusive of electricity charges and escalation). The asking rents for new leases at the building range from $42 to $59 per square foot. Further Additional Rent may be impacted by Lessee’s ability to negotiate higher average base rent.

(e) Tenant Leases

Lessee operates the Building free from any federal, state or local government restrictions involving rent control or other similar rent regulations. Any increase or decrease in the amount of rent payable by a tenant is governed by the provisions of the tenant’s lease or, if a new tenant, by then existing trends in the rental market for office space.

Item 2. Property.

Registrant owns the Building located at 60 East 42nd Street, New York, New York, known as One Grand Central Place (formerly the “Lincoln Building”), and the land thereunder (Item 1). Registrant’s fee title to the Property is encumbered by mortgages with unpaid principal balances totaling $91,478,304 at December 31, 2011. For a description of the terms of the mortgages, see Note 3 of the Notes to Financial Statements. The Building, erected in 1930, has 55 floors, a concourse and a lower lobby. It is located diagonally opposite Grand Central Terminal, on 42nd Street between Park Avenue and Madison Avenue. The Building is leased to Lessee. See Item 1 hereof and Note 4 of the Notes to Financial Statements for additional information concerning the Lease.

In 1999, the Participants of Registrant and the members in Lessee consented to a building improvements program (the “Program”) estimated to cost approximately $22,800,000. In 2000, the Participants of Registrant and members in Lessee approved an increase in the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. To induce the Lessee to approve the Program, Registrant authorized the Agents to grant to the Lessee, upon completion of the Program, the right to further extensions of the Lease to 2083. The Program was further increased in 2004 to up to $100,000,000. Such increase is expected to permit extending the lease beyond 2083, based on the net present benefit to Registrant of the improvements made. The granting of such Lease extension rights upon completion of the Program is expected to trigger a New York State Transfer Tax under current tax rules, which will be paid from mortgage proceeds and/or the Lessee’s operating cash flow. As of December 31, 2011, the Registrant had incurred costs related to the Program of $74,308,199 and estimates that the cost of the Program upon completion will be approximately $100,000,000, including sprinkler work, required to be completed by 2019. The Participants of Registrant and the members in Lessee had approved increased refinancing of $16,000,000 from the total of $84,000,000 provided by the Mortgage to up to $100,000,000. As noted in Item 1(b), the additional $16,000,000 financing closed on November 5, 2009. Costs of the Program in excess of financing, if applicable, will be funded out of Lessee’s operating cash flow.

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Item 3. Legal Proceedings.

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

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

Five putative class actions have been brought by Participants in Registrant and several other entities supervised by Malkin Holdings that own fee or leasehold interests in various properties located in New York City, the first of which was filed March 1, 2012 (the “Class Actions”). As now pending in New York State Supreme Court, New York County, each Class Action challenges the proposed consolidation of those and other properties supervised by Malkin Holdings into a real estate investment trust (the “REIT”) and the initial public offering of shares in Empire State Realty Trust, Inc., a Maryland corporation which intends to qualify for U.S. tax purposes as a REIT. The plaintiffs assert claims against Malkin Holdings, Malkin Properties, L.L.C., Malkin Properties of New York, L.L.C., Malkin Properties of Connecticut, Inc., Malkin Construction Corp., Anthony E. Malkin, Peter L. Malkin, Estate of Leona M. Helmsley, Empire State Realty OP, L.P., and the REIT (“Defendants”) for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duty, alleging, inter alia, that the terms of the transaction are unfair to the Participants and overly favorable to Malkin Holdings and related parties. The complaints seek money damages and injunctive relief preventing the proposed transaction. On April 3, 2012, plaintiffs moved for consolidation of the actions and for appointment of co-lead counsel. Defendants intend to consent to consolidation, and have no position with respect to appointment of co-lead counsel.

The Class Actions are in a very preliminary stage, with no responses to the complaints having been filed to date. Defendants have stated they believe the Class Actions are without merit and intend to defend them vigorously.

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

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

PART II

Item 5. Market for the Registrant’s Common Equity and Related

Security Holder Matters.

Registrant, a limited liability company, was organized on September 25, 1958. Registrant has not issued any common stock. The securities registered by it under the Securities Exchange Act of 1934, as amended, consist of participations in the membership interests of the Members in Registrant (the “Participations”) and are not shares of common stock or their equivalent. The Participations represent each Participant’s fractional share in a Member’s undivided interest in Registrant. One full unit of the Participations was offered at an original purchase price of $10,000; fractional units were also offered for proportionate purchase prices. Registrant has not repurchased Participations in the past and is not likely to change its policy in the future.

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(a) The Participations are neither traded on an established securities market nor are readily tradable on a secondary market or the equivalent thereof. Based on Registrant’s transfer records, Participations are sold by the holders thereof from time to time in privately negotiated transactions and, in many instances, Registrant is not aware of the prices at which such transactions occur. During 2011, Registrant was advised of 64 transfers of Participations, In six instances, the indicated purchase price was equal to 5.6 times the face amount of the Participation transferred, i.e., $56,100 for a $10,000 Participation. In two instances, the indicated purchase price was equal to 3.5 times the face amount of the Participation transferred. In five instances, the indicated purchase price was equal to 2 times the face amount of the Participation transferred. In one instance, the indicated purchase price was equal to 1.6 times the face amount of the Participation transferred. In one instance, the indicated purchase price was equal to 1.5 times the face amount of the Participation transferred. In all other cases, no consideration was indicated.

(b) As of December 31, 2011, there were 848 holders of Participations of record.

(c) During each of the years ended December 31, 2011 and 2010, Registrant made regular monthly distributions of $124.57 for each $10,000 Participation. During November 2011 and November 2010, Registrant did not make any additional distribution of Further Additional Rent received for the lease year ended September 30, 2011 and September 30, 2010, respectively, but added amounts to the contingency reserves of Registrant. See Item 1 hereof. There are no restrictions on Registrant’s present or future ability to make distributions; however, the amount of such distributions, particularly distributions of Additional Rent and Further Additional Rent, depends on the ability of Lessee to make payments of Basic Rent, Additional Rent and Further Additional Rent to Registrant. See Item 1 hereof. Registrant expects to make distributions so long as it receives the payments provided for under the Lease. See Item 7 hereof.

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[SELECTED FINANCIAL DATA]

Item 6.

The following table presents selected financial data of the Registrant for each of the five years in the period ended December 31, 2011. This information is unaudited and has been derived from the audited financial statements included in this Annual Report on Form 10-K or from audited financial statements included in Annual Reports on Form 10-K previously filed by the Registrant. This data should be read together with the financial statements and the notes thereto included in this Annual Report on Form 10-K.

	Year ended December 31
	2011		2010		2009		2008		2007
Basic rent income	$	7,474,112	$	7,474,120	$	6,343,542	$	6,050,507	$	4,618,963
Advance of additional rent income		1,053,800		1,053,800		1,053,800		1,053,800		1,053,800
Further additional rent income		3,085,983		55,347		2,490,139		6,853,701		9,772,882
Miscellaneous income		—		—		—		—		1,500
Dividend income		1,064		1,878		2,541		67,550		347,765
Total revenue	$	11,614,959	$	8,585,145	$	9,890,022	$	14,025,558	$	15,794,910
Net income	$	2,645,990	$	64,399	$	2,362,310	$	6,516,570	$	8,386,847
Earnings per $10,000 participation unit, based on 700 participation units outstanding during the year	$	3,780	$	92	$	3,375	$	9,309	$	11,981
Total assets	$	81,212,379	$	81,159,477	$	83,182,002	$	69,717,778	$	77,577,444
Long-term obligations	$	91,478,304	$	93,719,850	$	95,840,990	$	81,638,398	$	83,323,818
Distributions per $10,000 participation unit, based on 700 participation units outstanding during the year:
Income	$	1,495	$	92	$	3,375	$	9,309	$	11,981
Return of capital		—		1,403		1,177		994		1,723
Total distributions	$	1,495	$	1,495	$	4,552	$	10,303	$	13,704

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Item 6a.

The following table presents the Registrant’s unaudited operating results for each of the eight fiscal quarters in the period ended December 31, 2011. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited financial statements included in this Annual Report on Form 10-K. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have been included to present fairly the unaudited quarterly results. This data should be read together with the financial statements and the notes thereto of the Registrant included in this Annual Report on Form 10-K.

	Three Months Ended
	March 31, 2011			June 30, 2011			September 30, 2011		December 31, 2011
Statement of Income Data:
Basic rent income	$	1,868,514		$	1,868,518		$	1,868,531	$	1,868,549
Advance of additional income		263,450			263,450			263,450		263,450
Further additional rent income		—			—			3,085,983		—
Dividend income		280			268			254		262
Total revenue		2,132,244			2,132,236			5,218,218		2,132,261
Interest on mortgages		1,402,306			1,394,642			1,386,869		1,378,988
Supervisory services		46,845			46,845			48,478		48,478
Depreciation of building improvements and equipment		633,448			648,277			631,015		642,353
Amortization of leasing commissions		79,961			77,245			73,412		70,435
Professional fees		29,118			18,050			49,582		131,853
Accounting fees		18,750			18,750			59,250		24,750
Miscellaneous		3,000			—			9		6,260
Total expenses		2,213,428			2,203,809			2,248,615		2,303,117
Net income (loss)	$	(81,184	)	$	(71,573	)	$	2,969,603	$	(170,856	)
Earnings (loss) per $10,000 participation unit, based on 700 participation units outstanding during each period	$	(116	)	$	(102	)	$	4,242	$	(244	)

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Item 6a.

	Three Months Ended
	March 31, 2010		June 30, 2010		September 30, 2010		December 31, 2010
Statement of Income Data:
Basic rent income	$	1,868,768	$	1,868,769	$	1,868,517	$	1,868,066
Advance of additional income		263,450		263,450		263,450		263,450
Further additional rent income		—		—		55,347		—
Dividend income		407		414		398		659
Total revenue		2,132,625		2,132,633		2,187,712		2,132,175
Interest on mortgages		1,431,918		1,424,671		1,418,318		1,408,865
Supervisory services		7,845		7,845		46,845		46,845
Depreciation of building improvements and equipment		412,272		420,337		515,613		805,089
Amortization of leasing commissions		116,039		92,289		90,336		145,233
Professional fees						42,602		9,674
Accounting fees		—		—		—		75,000
Miscellaneous		3,000		—		—		110
Total expenses		1,971,074		1,945,142		2,113,714		2,490,816
Net income (loss)	$	161,551	$	187,491	$	73,998	$	(358,641	)
Earnings (loss) per $10,000 participation unit, based on 700 participation units outstanding during each period	$	231	$	268	$	106	$	(513	)

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Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

Forward-Looking Statements

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

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

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

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

Registrant’s discussion and analysis of its financial condition and results of operations are based upon Registrant’s financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used and outlined in Note 2 to Registrant’s financial statements, which are presented elsewhere in this annual report, have been applied consistently at December 31, 2011 and 2010 and for the years ended December 31, 2011 and 2010.

Registrant believes that the following accounting policies or estimates require the application of management’s most difficult, subjective, or complex judgments:

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

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Revenue Recognition: Basic rental income, as defined in the Lease, is equal to the sum of the mortgage charges plus a fixed amount. Registrant records basic rental income as earned ratably on a monthly basis. Additional Rent represents a fixed amount of the Lessee’s net operating profit ($1,053,800 a year minimum), as defined, in each lease year and is recorded ratably over the twelve-month period. Further Additional Rent, which is based on the net operating profit of the Lessee, as defined, is recorded by Registrant when such amount is realized and earned.

Financial Condition and Results of Operations

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

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

Registrant pays Supervisor for other services at hourly rates.

The following summarizes the material factors affecting Registrant’s results of operations for the two years ended December 31, 2011:

Total revenues increased for the year ended December 31, 2011 as compared with the year ended December 31, 2010. Such increase of $3,030,636 is the result of an increase in Further Additional Rent received by Registrant in 2011 primarily attributable to a decrease in improvement and tenanting costs.

11

Total expenses increased for the year ended December 31, 2011 as compared with the year ended December 31, 2010. Such increase is the net result of a decrease in interest on the mortgages of $120,967 and an increase in depreciation of assets of $401,782 and accounting and professional fees in 2011 of $229,095 including an increase in fees to Malkin Holdings for services rendered in connection with a proposed consolidation of Associates, other public and private entities supervised by Malkin Holdings and Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed REIT.

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

Liquidity and Capital Resources

Registrant’s liquidity has increased at December 31, 2011 as compared to December 31, 2010 as a result of Further Additional Rent received from the Lessee for the lease year ended September 30, 2011. Registrant may from time to time set aside cash for contingencies. Adverse developments in economic, credit and investment markets over the last several years have impaired general liquidity (although some improvements in such markets has arisen recently) and the developments may negatively impact Registrant and/or space tenants at the Building. Any such impact should be ameliorated by the fact that (a) each of Registrant and its Lessee has very low debt in relation to asset value, (b) the maturity of Registrant’s existing and planned debt will not occur within the next 24 months, and (c) the Building’s rental revenue is derived from a substantial number of tenants in diverse businesses with lease termination dates spread over numerous years.

The mortgages mature on November 5, 2014. Assuming that the Property continues to generate an annual net profit in future years comparable to that in past years, and assuming further that real estate capital and operating markets return to more stable patterns, consistent with long-term historical real estate trends in the geographic area in which the Property is located, Registrant anticipates that the value of the Property will be in excess of the amount of the mortgage balances at maturity.

Registrant anticipates that funds for short-term working capital requirements for the Property will be provided by cash on hand and rental payments received from Lessee. Long-term sources of working capital will be provided by rental payments received from Lessee and to the extent necessary, from additional capital investment by the members in Lessee and/or external financing. However, as noted above, Registrant has no requirement to maintain substantial reserves to defray any operating expenses of the Property.

The Supervisor of the Registrant has filed a registration statement on Form S-4 for the solicitation of consents of the Participants in the Registrant and other public limited liability companies supervised by the Supervisor to a consolidation transaction. In such consolidation, (x) the property interests of the Registrant, such other public limited liability companies and certain private entities supervised by the Supervisor, and (y) the Supervisor and certain affiliated management companies would be contributed to the operating partnership of Empire State Realty Trust, Inc., a newly organized real estate investment trust.

12

Consents are required from Participants in the Registrant and such other public limited liability companies for them to contribute their interests in the consolidation, and the solicitation of such consents will not commence until the SEC declares effective the registration statement on Form S-4. Consents have been obtained from participants in the private entities and the Supervisor and certain affiliated companies and affiliates of the Supervisor for them to make such contributions.

The consideration to be paid to the contributing companies and entities in the consolidation will be allocated in accordance with exchange values determined based on appraisals by an independent third party. Such method of allocation has been approved by the Lessee. Based on the preliminary exchange values, if the consolidation proposal is approved by the Registrant’s Participants, the consideration with respect to One Grand Central Place will be allocated approximately 50% to the Registrant and 50% to the Lessee, which the Supervisor believes is in accordance with the historical treatment of the Registrant and the Lessee.

Inflation

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

Item 8. Financial Statements and Supplementary Data.

The financial statements of the Registrant as of December 31, 2011 and 2010 and for each of the two years in the period ended December 31, 2011 and the financial statements of the Lessee as of and for the year ended December 31, 2011 are included in this annual report immediately following Exhibit 32.2.

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

None.

Item 9a. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. The Supervisor, after evaluating the effectiveness of Registrant’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of December 31, 2011, the end of the period covered by this report, has concluded that as of that date Registrant’s disclosure controls and procedures were effective and designed to ensure that material information relating to Registrant would be made known to it by others within those entities on a timely basis.

13

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

Management’s Annual Report on Internal Control Over Financial Reporting

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision of and with the participation of the Supervisor, an assessment was conducted of the effectiveness of Registrant’s internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Registrant’s Supervisor has concluded that, as of December 31, 2011, Registrant’s internal control over financial reporting was effective.

14

PART III

Item 10. Members and Executive Officers of the Registrant.

Registrant has no members or officers or any other centralization of management. There is no specific term of office for any Member. The table below sets forth as to each Member as of December 31, 2011 the following: name, age, nature of any family relationship with any other Member, business experience during the past five years and principal occupation and employment during such period, including the name and principal business of any corporation or any organization in which such occupation and employment was carried on and the date such individual became a Member:

Name	Age	Nature of Family Relationship	Business Experience	Principal Occupation and Employment	Date Individual became an Agent
Peter L. Malkin	78	Father of Anthony E. Malkin	Real Estate Supervision	Chairman, Malkin Holdings LLC	1970
Anthony E. Malkin	49	Son of Peter L. Malkin	Real Estate Supervision and Management	President, Malkin Holdings LLC and Malkin Properties, L.L.C.	1997

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

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

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

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

15

Item 11. Executive Compensation.

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

Registrant’s organizational documents do not provide for a board of members or officers. As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings. Registrant pays Supervisor for supervisory services and disbursements. The basic fee (“Basic Payment”) had been payable at the rate of $24,000 per annum, payable $2,000 per month, since October 1, 1958. The Basic Payment was increased, with the approval of the Agents, by an amount equal to the increase in the Consumer Price Index since such date, resulting in an increase in the Basic Payment to $180,000 per annum effective July 1, 2010, to be adjusted annually for any subsequent increase in the Consumer Price Index. The fee is payable (i) not less than $2,000 per month and (ii) the balance out of available reserves from Further Additional Rent. If Further Additional Rent is insufficient to pay such balance, any deficiency shall be payable in the next year in which Further Additional Rent is sufficient. The Agents also approved payment by Registrant, effective July 1, 2010, of the expenses in connection with regular accounting services related to maintenance of Registrant’s books and records. Such expenses were previously paid by Supervisor.

Supervisor also receives a payment (“Additional Payment”) equal to 10% of all distributions received by Participants in Registrant in excess of 14% per annum on their remaining cash investment in Registrant (which remaining cash investment at December 31, 2011 was equal to the Participants’ original cash investment of $7,000,000). For tax purposes, such Additional Payment is recognized as a profits interest, and the Supervisor is treated as a partner, all without modifying each Participant’s distributive share of reportable income and cash distribution. Supervisor received $7,380 as the Additional Payment, which Registrant expensed monthly as paid from Primary Additional Rent.

In 2011, Supervisor earned $228,603 from Registrant and $214,266 from Lessee for special supervisory services at hourly rates in connection with a proposed consolidation of Registrant, other public and private entities supervised by Malkin Holdings, and Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed REIT, all representing Registrant’s and Lessee’s allocable portion of such fees to be paid directly and not borne indirectly through Further Additional Rent deductions.

The basic supervisory services provided to Registrant by Supervisor include, but are not limited to, maintaining all of its entity and Participant records, performing physical inspections of the Building, providing or coordinating certain counsel services to Registrant, reviewing insurance coverage, conducting annual supervisory review meetings, receipt of monthly rent from Lessee, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, active review of financial statements submitted to Registrant by Lessee and financial statements audited by and tax information prepared by Registrant's independent registered public accounting firm, and distribution of related materials to the Participants. Supervisor also prepares quarterly, annual and other periodic filings with the SEC and applicable state authorities. Registrant pays Supervisor for other services at hourly rates. No remuneration was paid during the current fiscal year ended December 31, 2011 by Registrant to any of the Members as such.

16

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

(a) Registrant has no voting securities. See Item 5 hereof. At December 31, 2011, no person owned of record or was known by Registrant to own beneficially more than 5% of the outstanding Participations.

(b) At December 31, 2011, the Members (see Item 10 hereof) beneficially owned, directly or indirectly, the following Participations:

Title of Class	Name & Address of Beneficial Owners	Amount of Beneficial Ownership	Percent of Class
Participations	Anthony E. Malkin One Grand Central Place 60 East 42nd Street New York, N.Y. 10165	$25,833		0.37%

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

Peter L. Malkin owned of record as trustee or co-trustee an aggregate of $69,046 of Participations. He disclaims any beneficial ownership of such Participations.

Entities for the benefit of members of Peter L. Malkin’s family owned of record and beneficially $160,000 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations, except that related trusts are required to complete scheduled payments to him.

Anthony E. Malkin owned of record as co-trustee an aggregate of $45,000 of Participations. He disclaims any beneficial ownership of such Participations.

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

(c) Not applicable.

17

Item 13. Certain Relationships and Related Transactions.

(a) As stated in Items 1 and 10 hereof, Peter L. Malkin and Anthony E. Malkin are Members in Registrant and also act as Agents for Participants in their respective Participation interests therein. Mr. Peter Malkin is also among the members in Lessee. As a consequence of one of the Members being a member in Lessee and both Members holding senior positions at Supervisor (which supervises Registrant and Lessee), certain actual or potential conflicts of interest may arise with respect to the management and administration of the business of Registrant. However, under the respective Participating Agreements pursuant to which the Members act as Agents for the Participants, certain transactions require the prior consent from Participants owning a specified interest under the Agreements in order for the Agents to act on the Participants’ behalf. Such transactions, among others, include modification and extension of the Lease or the mortgages, or a sale or other disposition of the Property or substantially all of Registrant’s other assets.

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

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

(b) Reference is made to paragraph (a) above.

(c) Not applicable.

(d) Not applicable.

18

Item 14. Principal Accountant Fees and Services.

The fees paid or accrued to Ernst & Young LLP and Margolin, Winer & Evens LLP for professional services for the years ended December 31, 2011 and 2010, respectively, were as follows:

Fee Category	2011		2010
Audit Fees	$	114,000	$	75,000
Tax Fees		7,500		7,500
Total Fees	$	121,500	$	82,500

Audit Fees. Consist of fees billed for professional services rendered for the audits of Registrant’s financial statements and review of the interim financial statements included in quarterly reports. The Agents approved payment by Registrant, effective July 1, 2010, of accounting and tax fees. Such expenses were previously paid by Supervisor and, therefore, were not reflected as an expense in Registrant’s financial statements.

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

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT SERVICES

AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

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

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

19

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 10-K.

(a)(1) Financial Statements

(2) Financial Statement Schedules

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

(3) Exhibits: See Exhibit Index.

20

EXHIBIT INDEX

Number	Document
3.1	Partnership Agreement, dated September 25, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 3 to Registrant’s Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto.
3.2	Amended Business Certificate of Registrant filed with the Clerk of New York County on November 28, 1997, reflecting a change in the Partners of Registrant, was filed as Exhibit 3(b) (i) to Registrant’s 10-K for the year ended December 31, 1997 (file number 000-02670), and is incorporated by reference as an exhibit hereto.
3.3	Registrant’s Consent and Operating Agreement dated as of November 28, 2001, incorporated by reference to Exhibit 3.2 to Registrant’s Form 10-K for the year ended December 31, 2002 (file number 000-02670).
3.4	Certificate of Conversion of Registrant to a limited liability company dated November 28, 2001 filed with the New York Secretary of State on December 3, 2001 incorporated by reference to Exhibit 3.3 to Registrant’s Form 10-K for the year ended December 31, 2002 (file number 000-02670).
3.5	Amendment to Registrant’s Operating Agreement as of July 1, 2010 which was filed under Item 10(g) of Registrant’s Form 10-Q for the fiscal period ended June 30, 2010 and is incorporated by reference as an exhibit hereto.
3.6	Amendment to Registrant’s Operating Agreement of 60 East 42nd St. Associates L.L.C., dated as of November 30, 2011, by and among Peter L. Malkin and Anthony E. Malkin incorporated by reference to Exhibit 3.1 to the Form 8-K filed on December 5, 2011.
4	Form of Participating Agreement, which was filed as Exhibit No. 4 to Registrant’s Form S-1 Registration Statement, as amended (the “Registration Statement”) by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto.
4.1	Modification Agreement dated July 23, 1956, among Lawrence A.Wien, as agent, and others, relating to Registrant.
10.1	Deed of Lincoln Building to WLKP Realty Corp., which was filed as Exhibit No. 5 to Registrant’s Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto.
10.2	First Mortgage evidenced by a Modification, Extension & Consolidation Agreement, dated March 31, 1954, between WLKP Realty Corp. and The Prudential Insurance Company of America, which was filed as Exhibit No. 6 to Registrant’s Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto.

1

EXHIBIT INDEX

(continued)

Number	Document
10.3	Second Amended, Restated and Consolidated Mortgage Note dated November 5, 2009, made by Registrant to the order of The Prudential Insurance Company of America.
10.4	Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement dated November 5, 2009 between 60 East 42nd St. Associates, L.L.C., The Prudential Insurance Company of America and Lincoln Building Associates L.L.C..
10.5	Form of Lease between Registrant and Lincoln Building Associates, which was filed as Exhibit No. 9 to Registrant’s Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto.
10.6	First Modification of Lease Agreement dated January 1, 1964, between Registrant and Lincoln Building Associates L.L.C.
10.7	Second Modification of Lease Agreement dated January 1, 1977, between Registrant and Lincoln Building Associates L.L.C.
10.8	Third Modification of Lease Agreement dated April 1, 1979, between Registrant and Lincoln Building Associates L.L.C.
10.9	Fourth Modification of Lease Agreement dated April 1, 1981, between Registrant and Lincoln Building Associates L.L.C.
10.10	Fifth Modification of Lease Agreement dated April 1, 1982, between Registrant and Lincoln Building Associates L.L.C.
10.11	Sixth Modification of Lease Agreement dated October 1, 1987, between Registrant and Lincoln Building Associates L.L.C.
10.12	Seventh Modification of Lease Agreement dated March 1, 2000, between Registrant and Lincoln Building Associates L.L.C.
10.13	Eighth Modification of Lease Agreement dated November 23, 2004, between Registrant and Lincoln Building Associates L.L.C.
10.14	Ninth Modification of Lease Agreement dated November 5, 2009, between Registrant and Lincoln Building Associates L.L.C.
24.1	Power of Attorney dated March 13, 2012, between Members of Registrant and Mark Labell which is being filed as Exhibit 24.1 to Registrant’s 10-K for the year ended December 31, 2011.
31.1	Certification of Mark Labell, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Mark Labell, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

2

EXHIBIT INDEX

(continued)

Number	Document
32.1	Certification of Mark Labell, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Mark Labell, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

3

SIGNATURE

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

The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Members in Registrant, pursuant to Powers of Attorney, dated March 13, 2012 (the “Power”) and is supervisor of the accounting functions.

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

(Registrant)

By: /s/ Mark Labell

Mark Labell as Senior Vice President, Finance of Malkin Holdings LLC,

Supervisor of 60 East 42^nd St. Associates* and as Attorney-in-Fact on behalf of:

Peter L. Malkin, Member

Anthony E. Malkin, Member

Dated: April 11, 2012

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

1

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

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

(A Limited Liability Company)

Report of Ernst & Young LLP — Independent Registered Public Accounting Firm	2
Balance Sheets as of December 31, 2011 and 2010	3
Statements of Income for the Years Ended December 31, 2011 and 2010	4
Statements of Members’ Deficiency for the Years Ended December 31, 2011 and 2010	5
Statements of Cash Flows for the Years Ended December 31, 2011 and 2010	7
Notes to Financial Statements	8
SCHEDULE III – Real Estate and Accumulated Depreciation as of December 31, 2011 and 2010	1

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

(A Limited Liability Company)

We have audited the accompanying balance sheets of 60 East 42nd St. Associates L.L.C. as of December 31, 2011 and 2010, and the related statements of income, members’ deficiency and cash flows for each of the two years in the period ended December 31, 2011. Our audits also included the financial statement schedule, Schedule III- Real Estate and Accumulated Depreciation for the years ended December 31, 2011 and 2010, also included in this Form 10-K. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 60 East 42nd St. Associates L.L.C. at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP

New York, New York

April 11, 2012

2

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

(A Limited Liability Company)

BALANCE SHEETS

	December 31
	2011			2010
Assets
Real Estate:
Building: One Grand Central Place, located at 60 East 42nd Street and 301 Madison Avenue, New York, N.Y.	$	16,960,000		$	16,960,000
Less: Accumulated depreciation		(16,960,000	)		(16,960,000	)
		—			—
Building improvements and equipment		66,940,647			66,034,042
Less: Accumulated depreciation		(12,187,313	)		(12,076,880	)
		54,753,334			53,957,162
Tenant improvements		5,793,417			5,598,316
Less: Accumulated depreciation		(1,386,473	)		(515,948	)
		4,406,944			5,082,368
Land		7,240,000			7,240,000
Total real estate, net		66,400,278			66,279,530
Cash and cash equivalents:
Cash in bank		6,285			34,677
Fidelity U.S. Treasury Income Portfolio		10,460,092			11,520,657
Total cash and cash equivalents		10,466,377			11,555,334
Due from Supervisor		87,202			87,202
Receivable from participants – NYS estimated tax		3,357			3,357
Deferred costs		2,140,059			454,277
Leasing commissions, less accumulated amortization of $1,444,673 in 2011 and $2,742,063 in 2010		1,066,705			1,367,758
Mortgage refinancing costs, less accumulated amortization of $1,825,231 in 2011 and $1,461,613 in 2010		1,048,401			1,412,019
Total assets	$	81,212,379		$	81,159,477
Liabilities and members’ deficiency
Liabilities:
Mortgages payable	$	91,478,304		$	93,719,850
Accrued mortgage interest		428,479			438,819
Accrued supervisory fees, a related party		81,265			78,000
Payable to Lessee, a related party		720,066			1,082,082
Due to Supervisor		922,728			43,555
Accrued expenses		422,996			238,200
Total liabilities		94,053,838			95,600,506
Commitments and contingencies		—			—
Members’ deficiency		(12,841,459	)		(14,441,029	)
Total liabilities and members’ deficiency	$	81,212,379		$	81,159,477

See accompanying notes to financial statements.

3

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

(A Limited Liability Company)

STATEMENTS OF INCOME

	Years ended December 31
	2011		2010
Revenues:
Rent income, from a related party	$	11,613,895	$	8,583,267
Dividend income		1,064		1,878
Total revenues		11,614,959		8,585,145
Expenses:
Interest on mortgages		5,562,805		5,683,772
Supervisory services to a related party		190,646		109,380
Depreciation of building and tenant improvements and equipment		2,555,093		2,153,311
Amortization of leasing commissions		301,053		443,897
Fees for special services, including amounts paid to a related party		228,603		52,276
Accounting fees		121,500		75,000
Miscellaneous		9,269		3,110
Total expenses		8,968,969		8,520,746
Net income	$	2,645,990	$	64,399
Earnings per $10,000 participation unit, based on 700 participation units outstanding during each year	$	3,780	$	92

See accompanying notes to financial statements.

4

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

(A Limited Liability Company)

STATEMENT OF MEMBERS’ DEFICIENCY

	Members’ Deficiency at January 1, 2011			Share of Net Income For the Year		Distributions			Members’ Deficiency at December 31, 2011
Year Ended December 31, 2011:
Peter L. Malkin Group	$	(2,063,004	)	$	377,999	$	(149,488	)	$	(1,834,493	)
Anthony E. Malkin Group		(2,063,003	)		377,999		(149,488	)		(1,834,492	)
Peter L. Malkin Group		(2,063,004	)		377,999		(149,489	)		(1,834,494	)
Anthony E. Malkin Group		(2,063,004	)		377,999		(149,489	)		(1,834,494	)
Peter L. Malkin Group		(2,063,004	)		377,998		(149,489	)		(1,834,495	)
Peter L. Malkin Group		(2,063,005	)		377,998		(149,489	)		(1,834,496	)
Peter L. Malkin Group		(2,063,005	)		377,998		(149,488	)		(1,834,495	)
TOTALS	$	(14,441,029	)		2,645,990	$	(1,046,420	)	$	(12,841,459	)

See accompanying notes to financial statements.

5

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

(A Limited Liability Company)

STATEMENT OF MEMBERS’ DEFICIENCY

	Members’ Deficiency at January 1, 2010			Share of Net Income For the Year		Distributions			Members’ Deficiency at December 31, 2010
Year Ended December 31, 2010:
Peter L. Malkin Group	$	(1,922,716	)		9,200	$	(149,488	)	$	(2,063,004	)
Thomas N. Keltner, Jr. Group		(1,922,715	)		9,200		(149,488	)		(2,063,003	)
Peter L. Malkin Group		(1,922,715	)		9,200		(149,489	)		(2,063,004	)
Anthony E. Malkin Group		(1,922,715	)		9,200		(149,489	)		(2,063,004	)
Peter L. Malkin Group		(1,922,715	)		9,200		(149,489	)		(2,063,004	)
Peter L. Malkin Group		(1,922,715	)		9,199		(149,489	)		(2,063,005	)
Peter L. Malkin Group		(1,922,717	)		9,200		(149,488	)		(2,063,005	)
TOTALS	$	(13,459,008	)	$	64,399	$	(1,046,420	)	$	(14,441,029	)

See accompanying notes to financial statements.

6

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

(A Limited Liability Company)

STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2011			2010
Cash flows from operating activities:
Net income	$	2,645,990		$	64,399
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of building and tenant improvements and equipment		2,555,093			2,153,311
Amortization of leasing commissions		301,053			443,897
Amortization of mortgage refinancing costs		363,618			363,618
Changes in operating assets and liabilities:
Due to Supervisor		879,173			43,555
Accrued mortgage interest		(10,340	)		(9,779	)
Accrued expenses		184,796			237,500
Accrued supervisory fees, a related party		3,265			78,000
Net cash provided by operating activities		6,922,648			3,374,501
Cash flows from investing activities:
Purchase of building and tenant improvements		(2,675,841	)		(4,914,343	)
Decrease in payable to Lessee, a related party		(362,016	)		—
Net cash used in investing activities		(3,037,857	)		(4,914,343	)
Cash flows from financing activities:
Change in receivable from participants – NYS estimated tax		—			(3,357	)
Repayment of mortgages payable		(2,241,546	)		(2,121,140	)
Financing costs		—			(2,831	)
Distributions to Participants		(1,046,420	)		(1,046,420	)
Deferred costs		(1,685,782	)		(454,277	)
Net cash used in financing activities		(4,973,748	)		(3,628,025	)
Net decrease in cash and cash equivalents		(1,088,957	)		(5,167,867	)
Cash and cash equivalents, beginning of year		11,555,334			16,723,201
Cash and cash equivalents, end of year	$	10,466,377		$	11,555,334
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,209,527		$	5,329,934
Net cash used in investing activities excludes increases of $0 and $731,360 in payable to lessee for the years ended December 31, 2011 and 2010, respectively.

See accompanying notes to financial statements.

7

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

1. Business Activity

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

Associates’ members are Peter L. Malkin and Anthony E. Malkin each of whom also acts as an agent for holders of participations in his respective member interest in Associates. In the Statements of Members’ Deficiency, each such agent’s representation is referred to as a Group (i.e., Peter L. Malkin represents five Groups and Anthony E. Malkin represents two Groups).

2. Summary of Significant Accounting Policies

a. Cash and Cash Equivalents

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

b. Use of Estimates

In preparing financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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

c. Land, Building, Building Improvements, Equipment and Depreciation

Real estate, consisting of land, building, building improvements, tenant improvements and equipment, is stated at cost. Building improvements are depreciated using the straight-line basis over their estimated useful lives of 39 years. The tenant improvements are being depreciated over the terms of the individual tenant leases or the estimated useful life if shorter.

In connection with the building improvements program which began in 1999 (Note 11), costs totaling $74,308,199 and $71,632,358 have been incurred through December 31, 2011 and 2010, respectively, for new building improvements ($66,810,647 for 2011 and $64,329,907 for 2010), tenant improvements ($5,793,417 for 2011 and $5,598,316 for 2010) and equipment ( $130,000 for 2011 and $130,000 for 2010).

8

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

2. Summary of Significant Accounting Policies (continued)

d. Mortgage Refinancing Costs, Leasing Commissions and Amortization

Mortgage refinancing costs are being amortized ratably over the term of the related mortgages and included in mortgage interest expense.

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

e. Revenue Recognition

Basic rental income, as defined in the Lease, is equal to the sum of the mortgage charges plus a fixed amount. Associates records basic rental income as earned ratably on a monthly basis. Additional rent represents a fixed amount of the Lessee’s net operating profit ($1,053,800 a year minimum), as defined, in each lease year and is recorded ratably over the 12-month period. Further additional rent, which is based on the net operating profit of the Lessee, as defined, is recorded by Associates when such amounts become realizable and earned.

f. Valuation of Long-Lived Assets

Associates assesses the carrying amount of long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When Associates determines that the carrying amount of long-lived assets is impaired, the measurement of any impairment is based on a discounted cash flow method. No impairment loss has been recorded in the years ended December 31, 2011 and 2010.

g. Income Taxes

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

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

Taxable years ended December 31, 2008, 2009, 2010 and 2011 are subject to IRS and other jurisdictions’ tax examinations.

9

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

2. Summary of Significant Accounting Policies (continued)

At December 31, 2011 and 2010, the reported amounts of Associates’ aggregate net assets exceeded their tax bases by approximately $7,362,800 and $6,700,000, respectively.

h. Offering Costs

External offering costs of $1,685,782 and $454,277 were incurred for the years ended December 31, 2011 and 2010, respectively, and are reflected as deferred costs on Associates’ consolidated balance sheets. Such costs are comprised of accounting fees, legal fees, and other professional fees. Such costs have been deferred and shall be recorded as a reduction of proceeds of the IPO, or expensed as incurred if the IPO is not consummated. Additional offering costs for work done by employees of the Supervisor of $228,603 and $56,757 for the years ended December 31, 2011 and 2010, respectively, were incurred and advanced by the Supervisor and have been reimbursed to the Supervisor by the entities to be included in the consolidation.

i. Recently Adopted Accounting Pronouncements

In May 2011 the FASB issued ASU 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP. This ASU provides guidance setting forth additional requirements relating to disclosures about fair value. The guidance will be effective for us beginning with the first interim period in 2012. In accordance with the guidance, we will be required to disclose the level in the fair value hierarchy in which each fair value lies that is disclosed but not used to measure an asset or liability on the balance sheet. The guidance also clarifies that the fair value of a non-financial asset is based on its highest and best use and requires disclosure if a non-financial asset is being used in a manner that is not its highest and best use. Associates does not have any financial instruments that would be materially impacted by this standard as of December 31, 2011.

10

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

3. Mortgages Payable

On November 29, 2004, a first mortgage was placed on the property in the amount of $84,000,000 with Prudential Insurance Company of America. At closing, $49,000,000 was drawn to pay off the former first mortgage with Morgan Guaranty Trust Company in the amount of $12,020,814 and the second mortgage in the amount of $27,979,186 with Emigrant Savings Bank. The remaining $35,000,000 available under the mortgage was drawn on various dates through July 5, 2007. The proceeds of $49,000,000 drawn at closing and all subsequent draws have been used to pay for the associated refinancing costs and capital improvements as needed. The initial draw of $49,000,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 5.34% per annum until July 5, 2007. Commencing August 5, 2007, Associates is required to make equal monthly payments of $507,838 applied to interest and then principal, calculated on a 25-year amortization schedule. The entire $84,000,000 has been drawn and, at December 31, 2011, the balance is $76,008,249. The mortgage matures on November 5, 2014, at which time the principal balance will be $69,797,589.

On November 5, 2009, Associates concluded an additional $16,000,000 loan with Prudential Insurance Company of America secured by a mortgage on the property, subordinate to the first mortgage and to be used for capital improvements (the $84,000,000 and $16,000,000 mortgages are referred to as the “Mortgages”). The new loan requires payments of interest at 7% per annum and principal in the amount of $113,085 per month calculated on a 25-year amortization schedule and is co-terminus with the first mortgage. At December 31, 2011, the balance is $15,470,055. The mortgage matures on November 5, 2014 with a principal balance of $14,613,782.

The mortgage loans may be prepaid at any time, in whole only, upon payment of a prepayment penalty based on a yield maintenance formula. There is no prepayment penalty if the mortgages are paid in full during the last 60 days of the term.

The following is a schedule of principal payments on the Mortgages in each of the three years (mortgages mature in 2014) subsequent to December 31, 2011:

Year ending December 31,
2012	$	2,368,853
2013		2,503,464
2014		86,605,987
Total	$	91,478,304

The real estate and all sublease rents are pledged as collateral for the Mortgages.

11

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

3. Mortgages Payable (concluded)

The estimated fair value of Associates’ mortgage debt based on available market information was approximately $96,658,956 and $98,784,000 at December 31, 2011 and 2010, respectively.

The fair values of the mortgages payable are based on discounted cash flow models using currently available market rates assuming the loans are outstanding through maturity and considering the loan to value ratios.

4. Related Party Transactions - Rent Income

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

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

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

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

Advances of additional rent are billed to and advanced by the Lessee and recorded in revenues by Associates in equal monthly installments of $87,817 throughout each year. Since it is not practicable to estimate total additional rent for the lease year ending on the ensuing September 30 which would be allocable to the first nine months of the lease year until the Lessee, pursuant to the Lease, renders to Associates a report on the operation of the property, Associates recognizes further additional rent when it is realized and earned from the Lessee at the close of the lease year ending September 30.

Payable to Lessee of $720,066 and $1,082,082 at December 31, 2011 and 2010, respectively, represents improvement and tenanting costs advanced by Lessee in connection with the improvement program (Note 11).

12

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

4. Related Party Transactions - Rent Income (continued)

Rent income, including total additional rent based on operating profits subject to additional rent, reported by the Lessee of $11,613,895 and $8,583,267 for 2011 and 2010, respectively, was comprised as follows:

	Year ended December 31,
	2011		2010
Basic rent income	$	7,474,112	$	7,474,120
Advance of additional rent		1,053,800		1,053,800
Further additional rent		3,085,983		55,347
Total additional rent		4,139,783		1,109,147
Rent income	$	11,613,895	$	8,583,267

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

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

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

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

Year ending December 31,
2012	$	7,480,000
2013		7,480,000
2014		6,230,000	*
2015		24,000	*
Thereafter		416,000	*
	$	21,630,000

* Associates intends to refinance the existing mortgages which mature on November 5, 2014. In accordance with the Ninth Lease Modification Agreement, basic rent will increase to include the required debt service on the refinanced mortgages. The above table does not reflect the additional basic rent that will result after November 2014 from the refinanced debt.

13

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

4. Related Party Transactions - Rent Income (concluded)

Real estate taxes paid directly by the Lessee for the years ended December 31, 2011 and 2010 totaled $10,928,078 and $10,594,397, respectively.

5. Related Party Transactions - Supervisory and Other Services

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

Associates pays Supervisor for supervisory services and disbursements. The basic fee had been payable at the rate of $24,000 per annum since October 1, 1958. The Agents approved an increase in such fee in an amount equal to the increase in the Consumer Price Index since such date, resulting in an increase in the basic fee to $180,000 per annum effective July 1, 2010, to be adjusted annually for any subsequent increase in the Consumer Price Index. Fees for supervisory services (including disbursements and costs of accounting services) for the years ended December 31, 2011 and 2010 totaled $190,646 and $109,380, respectively. For the years ended December 31, 2011 and 2010, Malkin Holdings earned $228,603 and $56,757, respectively, for special supervisory services at hourly rates in connection with a proposed consolidation of Associates, other public and private entities supervised by Malkin Holdings, and Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed REIT, all representing Associates’ allocable portion of such fees to be paid directly and not borne indirectly through additional rent deductions. Malkin Holdings receives an additional payment equal to 10% of all distributions received by the participants in Associates in excess of 14% per annum on the initial cash investment of $7,000,000. For tax purposes, such additional payment is treated as a profits interest and the Supervisor is treated as a partner, all without modifying each Participant’s distributive share of reportable income and cash distributions. Distributions in respect of Malkin Holdings’ profits interest totaled $7,380 for each of the years ended December 31, 2011 and 2010, respectively.

Malkin Holdings also serves as supervisor for the Lessee, for which it receives a basic annual fee of $383,000, effective January 1, 2010, to be adjusted each year for any subsequent increase in the Consumer Price Index . Fees for supervisory services for the years ended December 31, 2011 and 2010 totaled $389,251 and $383,000, respectively. For the years ended December 31, 2011 and 2010, Malkin Holdings earned $175,911 and $11,370, respectively, from the Lessee in other service fees. Malkin Holdings also receives a payment from Lessee in respect of its profits interest equal to 10% of distributions in excess of $400,000 a year. Distributions in respect of Malkin Holdings’ profits interest from the Lessee totaled $260,004 and $460,004 for the years ended December 31, 2011 and 2010, respectively.

6. Number of Participants

There were 848 and 837 participants in the participating groups at December 31, 2011 and 2010, respectively.

14

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

7. Determination of Distributions to Participants

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

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

Distributions and amount of income per $10,000 participation unit during the years ended December 31, 2011 and 2010, based on 700 participation units outstanding during each year, consisted of the following:

	Year ended December 31
	2011		2010
Income	$	1,495	$	92
Return of capital		—		1,403
Total distributions	$	1,495	$	1,495

9. Concentration of Credit Risk

Associates maintains cash and cash equivalents in a bank and a money market fund (Fidelity U.S. Treasury Income Portfolio). The Federal Deposit Insurance Corporation (“FDIC”) insures each interest bearing account up to $250,000 and fully insures non-interest bearing accounts through December 31, 2012. At December 31, 2011 and 2010, the bank account is fully insured. Funds in the money market fund were not insured at December 31, 2011 and 2010. Distributions are paid from a cash account held by Malkin Holdings. That account is included on the accompanying balance sheet as “Due from Supervisor.” The funds (approximately $87,000 at December 31, 2011 and 2010) were paid to the participants on January 1, 2012 and 2011, respectively.

10. Contingencies

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

15

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

10. Contingencies (concluded)

Five putative class actions have been brought by Participants in Registrant and several other entities supervised by Malkin Holdings that own fee or leasehold interests in various properties located in New York City, the first of which was filed March 1, 2012 (the “Class Actions”). As now pending in New York State Supreme Court, New York County, each Class Action challenges the proposed consolidation of those and other properties supervised by Malkin Holdings into a real estate investment trust (the “REIT”) and the initial public offering of shares in Empire State Realty Trust, Inc., a Maryland corporation which intends to qualify for U.S. tax purposes as a REIT. The plaintiffs assert claims against Malkin Holdings, Malkin Properties, L.L.C., Malkin Properties of New York, L.L.C., Malkin Properties of Connecticut, Inc., Malkin Construction Corp., Anthony E. Malkin, Peter L. Malkin, Estate of Leona M. Helmsley, Empire State Realty OP, L.P., and the REIT (“Defendants”) for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duty, alleging, inter alia, that the terms of the transaction are unfair to the Participants and overly favorable to Malkin Holdings and related parties. The complaints seek money damages and injunctive relief preventing the proposed transaction. On April 3, 2012, plaintiffs moved for consolidation of the actions and for appointment of co-lead counsel. Defendants intend to consent to consolidation, and have no position with respect to appointment of co-lead counsel.

The Class Actions are in a very preliminary stage, with no responses to the complaints having been filed to date. Defendants have stated they believe the Class Actions are without merit and intend to defend them vigorously.

11. Building Improvements Program and Agreement to Extend Lease

In 1999, the participants of Associates and the members in Lessee consented to a building improvements program (the “Program”) estimated to cost approximately $22,800,000. In 2000, the participants of Associates and the members in the Lessee approved an increase in the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. To induce the Lessee to approve the Program, Associates agreed to grant to the Lessee, upon completion of the Program, the right to further extensions of the Lease to 2083. The Program was further increased in 2004 to up to $100,000,000. Such increase would extend the Lease beyond 2083, based on the net present benefit to Associates of the improvements made. The granting of such Lease extension rights upon completion of the Program is expected to trigger a New York State Transfer Tax under current tax rules, which will be paid from mortgage proceeds and/or the Lessee’s operating cash flow. As of December 31, 2011, Associates had incurred costs related to the Program of $74,308,199 and estimates that the costs of the Program upon completion will be approximately $100,000,000 including sprinkler work, required to be completed by 2019. The participants of Associates and the members in Lessee had approved increased refinancing of $16,000,000 from the total of $84,000,000 provided by the mortgage to up to $100,000,000. The balance of the costs of the Program will be financed by the new $16,000,000 mortgage and Lessee’s operating cash flow.

16

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

(A Limited Liability Company)

NOTES TO FINANCIAL STATEMENTS

(continued)

11. Building Improvements Program and Agreement to Extend Lease (concluded)

The Lessee is financing the Program and billing Associates for the costs incurred. The Program (1) grants the ownership of the improvements to Associates and acknowledges its intention to finance them through an increase in the fee mortgage (Note 3), and (2) allows for the increased mortgage charges to be paid by Associates from an equivalent increase in the basic rent paid by the Lessee to Associates. Since any further additional rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Associates and the Lessee share the costs of the Program equally, assuming further additional rent continues to be earned. The 1999 consent authorized the members of Associates who act as agents for the participant investors (the “Agents”) to give additional extension rights to the Lessee beyond the September 30, 2033 expiration date (Note 4) to September 30, 2083 upon completion of the Program, and to later date(s) for consideration and upon such terms as the Agents deem appropriate for the benefit of Associates.

12. Subsequent Events

Subsequent events have been evaluated for potential recognition and disclosure.

17

SCHEDULE III

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

(A Limited Liability Company)

Real Estate and Accumulated Depreciation

Column		December 31, 2011			December 31, 2010
A	Description
	Land, building and building improvements and equipment situated at One Grand Central Place, 60 East 42nd Street and 301 Madison Avenue, New York, N.Y.
B	Encumbrances
	Prudential Insurance Company at December 31	$	91,478,304		$	93,719,850
C	Initial cost to company
	Land	$	7,240,000		$	7,240,000
	Building	$	16,960,000		$	16,960,000
D	Cost capitalized subsequent to acquisition
	Building improvements and equipment	$	74,308,199		$	71,632,358
	Carrying costs	$	None		$	None
E	Gross amount at which carried at close of period
	Land	$	7,240,000		$	7,240,000
	Building, building improvements and equipment		91,268,199			88,592,358
	Total	$	98,508,199	(a)	$	95,832,358	(a)
F	Accumulated depreciation	$	32,107,921	(b)	$	29,552,828	(b)
G	Date of construction		1930			1930
H	Date acquired		October 1, 1958			October 1, 1958
I	Life on which depreciation in latest income statements is computed		39 years for building improvements and 7 years for equipment			39 years for building improvements and 7 years for equipment
(a)	Gross amount of real estate
	Balance at January 1	$	95,832,358		$	90,186,655
	Purchase of building improvements and equipment and construction in progress (expenditures advanced by Lessee, a related party, and recorded by Associates):		2,675,841			5,645,703
	Balance at December 31	$	98,508,199		$	95,832,358
	The aggregate cost of land, building, and improvements, before depreciation, for Federal income tax purposes at December 31, 2011 was $95,702,358.
(b)	Accumulated depreciation
	Balance at January 1	$	29,552,828		$	27,399,517
	Depreciation: F/Y/E December 31		2,555,093			2,153,311
	Balance at December 31	$	32,107,921		$	29,552,828

18

LINCOLN BUILDING

ASSOCIATES L.L.C.

FINANCIAL STATEMENTS

Years Ended December 31, 2011 and 2010

LINCOLN BUILDING ASSOCIATES L.L.C.

CONTENTS

Report of Independent Registered Public Accounting Firm	1
Financial Statements:
Balance Sheets	2
Statements of Income	3
Statements of Changes in Members’ Equity	4
Statements of Cash Flows	5
Notes to Financial Statements	6 -16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Lincoln Building Associates L.L.C.

(A Limited Liability Company)

We have audited the accompanying balance sheets of Lincoln Building Associates L.L.C. as of December 31, 2011 and 2010, and the related statements of income, changes in members’ equity and cash flows for each of the two years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lincoln Building Associates L.L.C. at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York

April 11, 2012

1

LINCOLN BUILDING ASSOCIATES L.L.C.

BALANCE SHEETS

December 31,	2011		2010
ASSETS
Property - at cost:
Leasehold improvements	$	18,790,248	$	18,676,938
Subtenant improvements		26,256,303		21,552,926
Equipment		—		158,132
		45,046,551		40,387,996
Less accumulated depreciation and amortization		13,384,063		11,748,530
Net Property		31,662,488		28,639,466
Other Assets:
Cash and cash equivalents		955,140		3,415,068
Restricted cash—tenants’ security deposits		6,053,555		5,722,515
Restricted cash—managing agent		1,490,657		917,573
Rent receivable—net		897,783		557,051
Unbilled rent receivable—net		8,349,040		6,723,487
Due from Lessor		369,811		732,045
Due from Supervisor		165,236		1,038,334
Due from nonresident members		11,654		—
Prepaid expenses		5,579,358		5,359,887
Deferred charges and other deferred costs, net of accumulated amortization		9,835,561		7,992,306
Total Assets	$	65,370,283	$	61,097,732
LIABILITIES AND MEMBERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities	$	2,451,248	$	2,983,242
Accrued additional rent due Lessor		481,931		770,987
Tenants’ security deposits payable		6,053,555		5,722,515
Deferred income		1,554,012		1,958,673
Total Liabilities		10,540,746		11,435,417
Commitments and Contingencies		—		—
Members’ Equity		54,829,537		49,662,315
Total Liabilities and Members’ Equity	$	65,370,283	$	61,097,732

The accompanying notes are an integral part of these statements.

2

LINCOLN BUILDING ASSOCIATES L.L.C.

STATEMENTS OF INCOME

Years Ended December 31,	2011		2010
Revenue:
Minimum rental revenue	$	46,740,661	$	44,065,035
Escalations and expense reimbursements		10,108,761		11,051,151
Other income		956,701		1,096,472
Total Revenue		57,806,123		56,212,658
Operating Expenses:
Basic rent expense		7,473,373		7,474,379
Additional rent		1,053,804		1,053,804
Further additional rent		2,796,927		826,334
Real estate taxes		10,928,078		10,594,397
Payroll and related costs		7,222,898		7,145,280
Repairs and maintenance		5,817,729		4,903,544
Electricity		3,423,580		4,377,112
Utilities		1,669,606		1,651,158
Management fee		293,018		309,024
Supervisory and other fees		649,333		843,103
Professional fees		1,121,855		1,235,776
Insurance, advertising and administrative		1,204,968		1,490,535
Depreciation		4,140,035		3,592,262
Amortization		1,505,741		1,261,944
Bad debts, net		598,740		792,452
Total Operating Expenses		49,899,685		47,551,104
Operating Income		7,906,438		8,661,554
Interest Income		780		1,174
Net Income	$	7,907,218	$	8,662,728

The accompanying notes are an integral part of these statements.

3

LINCOLN BUILDING ASSOCIATES L.L.C.

STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

Years Ended December 31,	2011			2010
Members’ Equity — beginning of year	$	49,662,315		$	45,539,583
Net Income		7,907,218			8,662,728
Distributions		(2,739,996	)		(4,539,996	)
Members’ Equity — end of year	$	54,829,537		$	49,662,315

The accompanying notes are an integral part of these statements.

4

LINCOLN BUILDING ASSOCIATES L.L.C.

STATEMENTS OF CASH FLOWS

Years Ended December 31,	2011			2010
Cash Flows from Operating Activities:
Net income	$	7,907,218		$	8,662,728
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,140,035			3,592,262
Amortization		1,505,741			1,261,944
Bad debts		598,740			792,452
Net change in operating assets and liabilities:
Rent receivable		(939,472	)		(442,788	)
Due from Supervisor		873,098			(900,000	)
Unbilled rent receivable		(1,625,553	)		(1,883,810	)
Restricted cash—managing agent		(573,084	)		(220,947	)
Prepaid expenses		(219,471	)		(77,764	)
Deferred charges—leasing commissions		(1,874,092	)		(3,384,866	)
Accounts payable and accrued liabilities		(906,171	)		1,284,749
Accrued additional rent due Lessor		(289,056	)		770,987
Deferred income		(404,661	)		(161,339	)
Net Cash Provided by Operating Activities		8,193,272			9,293,608
Cash Flows from Investing Activities:
Property additions		(6,955,226	)		(7,611,022	)
Due from Lessor		362,234			(732,045	)
Net Cash Used in Investing Activities		(6,592,992	)		(8,343,067	)
Cash Flows from Financing Activities:
Members’ distributions		(2,739,996	)		(4,539,996	)
Other deferred costs		(1,308,558	)		(454,278	)
Due from nonresident members—net		(11,654	)		—
Net Cash Used in Financing Activities		(4,060,208	)		(4,994,274	)
Net Decrease in Cash and Cash Equivalents		(2,459,928	)		(4,043,733	)
Cash and Cash Equivalents—beginning of year		3,415,068			7,458,801
Cash and Cash Equivalents—end of year	$	955,140		$	3,415,068
Net cash used in investing activities excludes increases of $106,264 and $542,477 in accounts payable and accrued liabilities for the years ended December 31, 2011 and 2010, respectively.
Net cash used in financing activities excludes increases of $267,913 and $42,603 in accounts payable and accrued liabilities for the years ended December 31, 2011 and 2010, respectively.

The accompanying notes are an integral part of these statements.

5

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

1. Organization and Nature of Business

The Company was originally organized on June 14, 1954 as a general partnership in order to lease and sublease the 1,200,000 square foot office building situated at 60 East 42^nd Street, New York, New York (the “Property” or “One Grand Central Place”). At December 31, 2011, the Property is approximately 80% occupied. On November 1, 2002, the Company converted from a general partnership to a New York limited liability company and is now known as Lincoln Building Associates L.L.C. (the “Company”). Although limited liability companies are unincorporated associations, their members have limited personal liability for the obligations or debts of the entity similar to stockholders of a corporation.

The Company commenced operations on June 14, 1954 and is to continue until the earlier of the complete disposition of all of the Company’s assets, unless sooner terminated pursuant to the Operating Agreement or by law.

2. Summary of Significant Accounting Policies

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

The Company provides an estimated allowance for uncollectible rent receivable based upon an analysis of tenant receivables and historical bad debts, tenant concentrations, tenant credit worthiness, tenant security deposits (including letters of credit and sublease guarantees provided by the tenant), current economic trends and changes in tenant payment terms. Rent receivable is shown net of an estimated allowance for doubtful accounts of $129,237 and $66,035 at December 31, 2011 and 2010, respectively. Unbilled rent receivable is shown net of an estimated allowance for doubtful accounts of approximately $623,000 and $356,000 at December 31, 2011 and 2010, respectively.

Bad debt expense is shown net of recoveries.

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

6

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

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

Property — The Company reviews real estate assets for impairment whenever events or changes in circumstances indicate the carrying amount of assets to be held and used may not be recoverable. Impairment losses are recognized when the estimated undiscounted cash flows expected to be generated by those assets are less than the assets’ carrying amount. Impaired assets are recorded at their estimated fair value calculated based on the discounted cash flows expected to be generated by the asset. No impairment loss has been recorded in the years ended December 31, 2011 and 2010.

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

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

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

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

Advertising — The Company expenses advertising costs as incurred.

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

7

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

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

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

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

Recently adopted accounting pronouncements — In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 amends ASC 820 and requires disclosure of details of significant asset or liability transfers in and out of Level 1 and Level 2 measurements within the fair value hierarchy and inclusion of gross purchases, sales, issuances, and settlements in the rollforward of assets and liabilities valued using Level 3 inputs within the fair value hierarchy. The guidance also clarifies and expands existing disclosure requirements related to the disaggregation of fair value disclosures and inputs used in arriving at fair values for assets and liabilities using Level 2 and Level 3 inputs within the fair value hierarchy. These disclosure requirements were effective for interim and annual reporting periods beginning after December 15, 2009. Adoption of this guidance on January 1, 2010, excluding the Level 3 rollforward, did not result in additional disclosures in the financial statements. The gross presentation of the Level 3 rollforward is required for interim and annual reporting periods beginning after December 15, 2010. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

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

8

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

In September 2011, the FASB issued ASU 2011-9, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan. The ASU requires substantially more disclosures regarding the multiemployer plan the Company participates in, the nature of the Company’s commitment to the plan and other disclosures. The current recognition and measurement guidance is unchanged. The Company is evaluating the disclosures required under the ASU. For non-public companies this ASU is effective for annual periods for fiscal years ending after December 31, 2012.

Subsequent events — The Company has evaluated events and transactions for potential recognition or disclosure through April 11, 2012, the date the financial statements were available to be issued.

3. Members’ Equity

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

4. Deferred Charges

Deferred charges consist of the following as of December 31, 2011 and 2010:

	2011			2010
Leasing commissions	$	11,453,706		$	9,974,766
Leasing costs		62,525			62,525
Other deferred costs		2,030,749			454,278
		13,546,980			10,491,569
Less accumulated amortization		(3,711,419	)		(2,499,263	)
Total	$	9,835,561		$	7,992,306

9

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

5. Related Party Transactions

The Company has entered into a lease agreement with 60 East 42^nd St. Associates L.L.C. (the “Lessor”) which is currently set to expire on September 30, 2033. The Company (the “Lessee”) may terminate the lease on 60 days prior written notice without any further liability.

The lease provides for an annual basic rent equal to the sum of the constant annual mortgage charges incurred on all mortgages by the Lessor (excluding any balloon principal payment due at maturity), plus $24,000.

The lease also provides for additional rent, as follows:

1) Additional rent equal to the first $1,053,804 of Lessee’s net operating income, as defined, in each lease year.

2) Further additional rent equal to 50% of the Lessee’s remaining net operating income, as defined, in each lease year.

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

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

Further additional rent expense is recognized prior to the end of the lease year based on net operating income earned to date, provided it is probable that the Company will generate net operating income for the lease year in such amount as to obligate the Company to pay further additional rent. In the event it becomes probable that net operating income for the lease year will be insufficient to require the payment of further additional rent, any previously recorded further additional rent would be reversed into income. As of December 31, 2011 and 2010, accrued further additional rent attributable to the lease years ending September 30, 2012 and 2011, was $481,931 and $770,987, respectively.

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

10

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The Company is financing the Program and billing the Lessor for the costs incurred. The Program (1) grants the ownership of the improvements to the Lessor and acknowledges the Lessor’s intention to finance them through an increase in the fee mortgage, and (2) allows for the increased mortgage charges to be paid by the Lessor from an equivalent increase in the basic rent paid by the Company. Since any further additional rent will be decreased by one-half of that amount, the net effect is to have the Company and the Lessor share the costs of the Program equally, assuming the Company continues to be obligated to pay further additional rent. At December 31, 2011 and 2010, the Company recorded a receivable of $369,811 and $732,045, respectively, from the Lessor for costs incurred by the Company under the Program.

The Lessor’s Loan is scheduled to mature on November 5, 2014. The Lessor’s Loan bears interest at 5.34% per annum, payable monthly in arrears. Commencing August 5, 2007, the Lessor’s Loan requires equal monthly payments of $507,838 applied first to interest at 5.34% per annum, and then principal based on a 25-year amortization period. No prepayment fee shall be due if the Lessor’s Loan is prepaid during the final 60 days prior to the maturity date.

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

In connection with the Lessor’s mortgage Loans, the Company has assigned all subleases and rents to the lender as additional collateral.

11

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The following is a schedule of future minimum rental payments annual base rent as of December 31, 2011 (based on the current amount of the Lessor’s outstanding mortgage obligations and assuming the Company does not surrender the lease):

Years ending December 31,
2012	$	7,480,000
2013		7,480,000
2014		6,230,000	*
2015		24,000	*
2016		24,000	*
Thereafter		402,000	*
	$	21,640,000

* The Lessor intends to refinance the existing mortgages which mature on November 5, 2014. In accordance with the Ninth Lease Modification Agreement, basic rent will increase to include the required debt service on the refinanced mortgages. The above table does not reflect the additional basic rent that will result after November 2014 from the refinanced debt.

As of December 31, 2011 and 2010, the Lessor had incurred costs related to the Program of approximately $74,300,000 and $71,600,000, respectively, and estimates that costs upon completion will be approximately $100,000,000. The Lessor has funded and capitalized leasing commissions totaling $4,109,821 at both December 31, 2011 and 2010.

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

Fees and payments to Malkin Holdings LLC are as follows:

	Years Ended December 31,
	2011			2010
Basic supervisory fees	$	389,251		$	383,000
Offering costs for work done by employees of the Supervisor		214,266	*		52,066	*
Service fee on investment income		78			99
Profits interest		260,004			460,004
Total	$	863,599		$	895,169

* Included in professional fees in the Statements of Income.

12

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Malkin Holdings receives an additional payment from the Company equal to 10% of distributions in excess of $400,000 a year. For tax purposes such additional payment is treated as a profits interest and Malkin Holdings is treated as a member. Distributions in respect of Malkin Holdings’ profits interest totaled $260,004 and $460,004 for the years ended December 31, 2011 and 2010, respectively. In addition, other fees and disbursements to Malkin Holdings were $228,068 and $78,554 for the years ended December 31, 2011 and 2010, respectively. The distributions are paid from a cash account held by Malkin Holdings. That account is reflected on the balance sheets as “Due from Supervisor.” The balance at December 31, 2010 includes a deposit in transit of $900,000.

For administration and investment of the Company’s supervisory account, Malkin Holdings has earned since 1978 a service fee of 10% of the account interest (an annual fee currently less than 0.1% of the account balance), which fee totaled $78 and $99 for the years ended December 31, 2011 and 2010, respectively.

Malkin Holdings also serves as supervisor for the Company’s Lessor and receives from the Lessor a basic annual fee and a fee based on distributions to its investors which totaled $7,380 in 2011 and zero in 2010. Beneficial interests in the Lessor are held directly or indirectly by one or more persons at Malkin Holdings and/or their family members.

Through December 31, 2011, the Company has incurred an aggregate of $2,030,749 (of which $1,576,471 and $454,278 is related to the years ended December 31, 2011 and 2010, respectively) to reimburse Malkin Holdings for third-party fees it had advanced pertaining to certain matters regarding a course of action that could result in the Company becoming part of a newly formed public real estate investment trust (REIT). Such fees are to be borne entirely by the Company and are not shared indirectly with the Lessor through Additional Rent deductions. These fees were capitalized by the Company and included as part of deferred charges and other deferred costs.

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

13

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

Rent payments (including escalations and expense reimbursements) made by Malkin Holdings totaled $1,037,398 and $1,010,435 for the years ended December 31, 2011 and 2010, respectively.

Peter L. Malkin, a member of Malkin Holdings LLC, was elected to the Board of the Grand Central Partnership, Inc. for a two-year term commencing January 1, 2007 and re-elected for additional two-year terms through December 31, 2012. The Grand Central Partnership, Inc. is a month-to-month tenant in the Property commencing March 1, 1998 for 206 rentable square feet at an annual rental of $1,200. The lease to the Grand Central Partnership, Inc. is on the same terms and conditions as other space it had previously occupied in the building under a lease dated July 24, 1997.

6. Rental Income Under Operating Subleases

Future minimum rentals to be received, assuming neither renewals nor extensions of subleases which may expire during the periods, on noncancelable operating subleases in effect at December 31, 2011 are as follows:

Years ending December 31,
2012	$	44,646,000
2013		38,464,000
2014		32,506,000
2015		26,258,000
2016		22,843,000
Thereafter		81,237,000
	$	245,954,000

The above table includes $3,763,000 from Malkin Holdings LLC.

7. Management Fee

The Company has engaged Newmark Knight Frank to lease and manage the Property. Pursuant to the management agreement, the management fee is equal to 1% of total collected proceeds per month with a cap of $350,000 per annum (which is reduced by the service fee on interest income earned on tenants’ security deposits). For the years ended December 31, 2011 and 2010, the management fee totaled $293,018 and $309,024, respectively.

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

14

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

8. Multiemployer Pension Plan

In connection with the Company’s collective-bargaining agreements with the Service Employees Janitorial Union—Local 32B-32J and the Central Pension Fund—Local 94, the Company participates with other companies in two defined benefit pension plans. The plans cover all of the Company’s janitorial and engineering employees who are members of the union. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. The Company incurred pension expense (which is included in payroll and related costs) of approximately $236,000 and $224,000 for the years ended December 31, 2011 and 2010, respectively.

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

9. Subsequent Events

Five putative class actions have been brought by participants in Empire State Building Associates L.L.C. and several other entities supervised by Malkin Holdings that own fee or leasehold interests in various properties located in New York City, the first of which was filed March 1, 2012 (the “Class Actions”). As now pending in New York State Supreme Court, New York County, each Class Action challenges the proposed consolidation of those and other properties supervised by Malkin Holdings into a real estate investment trust (the “REIT”) and the initial public offering of shares in Empire State Realty Trust, Inc., a Maryland corporation which intends to qualify for U.S. tax purposes as a REIT. The plaintiffs assert claims against Malkin Holdings, Malkin Properties, L.L.C., Malkin Properties of New York, L.L.C., Malkin Properties of Connecticut, Inc., Malkin Construction Corp., Anthony E. Malkin, Peter L. Malkin, Estate of Leona M. Helmsley, Empire State Realty OP, L.P., and the REIT (“Defendants”) for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duty, alleging, inter alia, that the terms of the transaction are unfair to the participants and overly favorable to Malkin Holdings and related parties. The complaints seek money damages and injunctive relief preventing the proposed transaction. On April 3, 2012, plaintiffs moved for consolidation of the actions and for appointment of co-lead counsel. Defendants intend to consent to consolidation, and have no position with respect to appointment of co-lead counsel.

15

LINCOLN BUILDING ASSOCIATES L.L.C.

NOTES TO FINANCIAL STATEMENTS

The Class Actions are in a very preliminary stage, with no responses to the complaints having been filed to date. Defendants have stated they believe the Class Actions are without merit and intend to defend them vigorously.

16

EX-4.1

Exhibit 4.1

MODIFCATION AGREEMENT

The undersigned, a party to that certain joint venture agreement dated as of December 1, 1954, made between ALVIN SILVERMAN, as Agent, and others, relating to 60 East 42nd St. ASSOCIATES, agrees that the first sentence of Paragraph “Seventh” of said agreement is hereby modified by deleting the phrase “who is not shown by the instruments of transfer to be acting in a representative capacity”, so that the sentence shall read as follows:

“The sale or transfer of the interest of any party, otherwise than under the provisions of Paragraph “Fourth” hereof, shall not be valid unless the transferee is an individual of full age, unless duplicate originals of appropriate written instruments evidencing such sale or transfer are delivered to the Agent for deposit with the original copy of this agreement, and unless the transferee shall accept the transfer in writing.”

The undersigned further agrees to the modification of the second sentence of Paragraph “Eighth” of said agreement by deleting the phrase “provided such individual is not shown by the designation to be acting in a representative capacity”, and by modifying the sentence so that it shall read as follows:

“Any party may designate any individual of full age to succeed him upon his death as a member of the joint venture.”

Except as thus modified, the said joint venture agreement shall remain in full force and effect.

Dated: July 23, 1956

/s/ Rose Simon

Rose Simon

48122.1

EX-10.3

Exhibit 10.3

SECOND AMENDED, RESTATED AND CONSOLIDATED

MORTGAGE NOTE

$96,012,524.00	New York, New York
Loan Nos. 7061xxxxx and 7061xxxxx	November 5, 2009

THIS SECOND AMENDED, RESTATED AND CONSOLIDATED MORTGAGE NOTE by 60 EAST 42ND ST. ASSOCIATES L.L.C., a New York limited liability company, having a principal place of business at c/o Malkin Holdings LLC, 60 East 42^nd Street, New York, New York 10165 (“Borrower”), to the order of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation (“Lender”, which shall also mean successors and assigns who become holders of this Note (defined below), at 2100 Ross Avenue, Suite 2500, Dallas, Texas 75201.

W I T N E S S E T H:

WHEREAS, Lender is the owner and holder of a certain consolidated mortgage, as more particularly described in Exhibit A attached hereto (the “Instrument”), and of the notes, bonds or other obligations secured thereby (the “Existing Notes”); and

WHEREAS, Borrower is the current obligor under the Existing Notes; and

WHEREAS, Borrower and Lender have agreed in the manner hereinafter set forth (i) to amend, restate and consolidate the Existing Notes to evidence one unified indebtedness in the aggregate outstanding principal amount of Ninety-Six Million Twelve Thousand Five Hundred Twenty-Four and No/100 Dollars ($96,012,524.00), (ii) to change the monthly payments on this Note, and (iii) to modify certain other terms and provisions of the Existing Notes;

NOW, THEREFORE, in consideration of the foregoing recitals, which are incorporated into the operative provisions of this Note by this reference, and for other good and valuable consideration, the receipt and adequacy of which are hereby conclusively acknowledged, Borrower hereby represents and warrants to and covenants and agrees with Lender as follows:

1. Outstanding Indebtedness. The aggregate outstanding indebtedness evidenced by the Existing Notes and secured by the Instrument is Ninety-Six Million Twelve Thousand Five Hundred Twenty-Four and No/100 Dollars ($96,012,524.00), it being understood that no interest under the Existing Notes is accrued and unpaid for the period prior to the date hereof, but that interest shall accrue from and after the date hereof at the rate or rates herein provided.

2. Consolidation of Existing Notes. The Existing Notes are hereby combined and consolidated so that together they shall hereafter constitute in law but one note evidenced solely by this Second Amended, Restated and Consolidated Mortgage Note in the aggregate principal amount of NINETY-SIX MILLION TWELVE THOUSAND FIVE HUNDRED TWENTY-FOUR AND NO/100 DOLLARS ($96,012,524.00), together with interest thereon as hereinafter provided (the Existing Notes, as so combined and consolidated and as modified, amended, restated, ratified and confirmed pursuant to the provisions hereof, are herein collectively referred to as this “Note”).

		BORROWER’S INITIALS:
	1
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

3. Amendment and Restatement of Existing Notes. The terms, covenants and provisions of the Existing Notes are hereby modified, amended and restated so that henceforth such terms, covenants and provisions shall be those set forth herein, and the Existing Notes, as so modified, amended and restated, are hereby ratified and confirmed in all respects by Borrower.

4. Borrower’s Promise to Pay. FOR VALUE RECEIVED, Borrower promises to pay to the order of Lender at its offices set forth above the principal sum of NINETY-SIX MILLION TWELVE THOUSAND FIVE HUNDRED TWENTY-FOUR AND NO/100 DOLLARS ($96,012,524.00), with interest on the unpaid balance (“Balance”) at the following rates from and including the date of the first disbursement of Loan proceeds under this Note (“Funding Date”) until Maturity (defined below): (A) interest shall be due and payable on a portion of the principal sum of the indebtedness evidenced by this Note equal to $80,012,524.00 (the “Tier One Indebtedness”) at a rate equal to five and thirty-four hundredths percent (5.34%) per annum (“Tier One Note Rate”), and (B) interest shall be due and payable on the remaining portion of the principal sum of the indebtedness evidenced by this Note equal to $16,000,000.00 (the “Tier Two Indebtedness”) at a rate equal to seven and zero hundredths percent (7.00%) per annum (“Tier Two Note Rate”; the Tier One Note Rate and the Tier Two Note Rate are sometimes hereinafter collectively referred to as the “Note Rate”, and all references to the “Note Rate” herein shall mean, the Tier One Note Rate with respect to the Tier One Indebtedness and the Tier Two Note Rate with respect to the Tier Two Indebtedness). Capitalized terms used without definition shall have the meanings ascribed to them in the Instrument.

1. Regular Payments. Principal and interest shall be payable as follows:

(a) Interest on the Tier Two Indebtedness from and including the Funding Date to November 5, 2009 shall be due and payable on the Funding Date.

(b) Thereafter, principal and interest on the Balance shall be paid in fifty-nine (59) monthly installments, as follows:

(i) Principal and interest on the Tier One Indebtedness shall be paid in fifty-nine (59) monthly installments of Five Hundred Seven Thousand Eight Hundred Thirty-Eight and 14/100 Dollars ($507,838.14) each, commencing on December 5, 2009 and continuing on the fifth (5th) day of each succeeding month to and including November 5, 2014; and

(ii) Principal and interest on the Tier Two Indebtedness shall be paid in fifty-nine (59) monthly installments of One Hundred Thirteen Thousand Eighty-Four and 67/100 Dollars ($113,084.67) each, commencing on December 5, 2009 and continuing on the fifth (5th) day of each succeeding month to and including November 5, 2014. Each payment due date under Paragraphs 1(b)(i) and 1(b)(ii) is referred to as a “Due Date.”

(c) The entire Obligations shall be due and payable on November 5, 2014 (“Maturity Date”). “Maturity” shall mean the Maturity Date or earlier date that the Obligations may be due and payable by acceleration by Lender as provided in the Documents.

(d) Interest on the Balance for any full month shall be calculated on the basis of a three hundred sixty (360) day year consisting of twelve (12) months of thirty (30) days each. For any partial month, interest shall be due in an amount equal to (i) the Balance multiplied by (ii) the Note Rate divided by (iii) 360 multiplied by (iv) the number of days during such partial month that any Balance is outstanding through (but excluding) the date of payment.

		BORROWER’S INITIALS:
	2
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

2. Late Payment and Default Interest.

(a) Late Charge. If any scheduled payment due under this Note is not fully paid by its Due Date (other than the principal payment due on the Maturity Date), a charge of $575.00 per day (the “Daily Charge”) shall be assessed for each day that elapses from and after the Due Date until such payment is made in full (including the date payment is made); provided, however, that if any such payment, together with all accrued Daily Charges, is not fully paid by the fourteenth (14^th) day following the applicable Due Date, a late charge equal to the lesser of (i) four percent (4%) of such payment or (ii) the maximum amount allowed by law (the “Late Charge”) shall be assessed and be immediately due and payable. The Late Charge shall be payable in lieu of Daily Charges that shall have accrued. The Late Charge may be assessed only once on each overdue payment. These charges shall be paid to defray the expenses incurred by Lender in handling and processing such delinquent payment(s) and to compensate Lender for the loss of the use of such funds. The Daily Charge and Late Charge shall be secured by the Documents. The imposition of the Daily Charge, Late Charge, and/or requirement that interest be paid at the Default Rate (defined below) shall not be construed in any way to (i) excuse Borrower from its obligation to make each payment under this Note promptly when due or (ii) preclude Lender from exercising any rights or remedies available under the Documents upon an Event of Default.

(b) Acceleration. Upon any Event of Default, Lender may declare the Balance, unpaid accrued interest, the Prepayment Premium (defined below) and all other Obligations immediately due and payable in full.

(c) Default Rate. Upon an Event of Default or at Maturity, whether by acceleration (due to a voluntary or involuntary default) or otherwise, the entire Obligations (excluding accrued but unpaid interest if prohibited by law) shall bear interest at the Default Rate. The “Default Rate” shall be the lesser of (i) the maximum rate allowed by law or (ii) five percent (5%) plus the greater of (A) the Note Rate or (B) the prime rate (for corporate loans at large United States money center commercial banks) published in The Wall Street Journal on the first Business Day (defined below) of the month in which the Event of Default or Maturity occurs and on the first Business Day of every month thereafter. The term “Business Day” shall mean each Monday through Friday except for days on which commercial banks are not authorized to open or are required by law to close in New York, New York.

3. Application of Payments. Until an Event of Default occurs, all payments received under this Note shall be applied in the following order: (a) to unpaid Daily Charges, Late Charges and costs of collection; (b) to any Prepayment Premium due; (c) to interest due on the Balance; and (d) then to the Balance. After an Event of Default, all payments shall be applied in any order determined by Lender in its sole discretion.

		BORROWER’S INITIALS:
	3
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

4. Prepayment.

(a) Except as set forth in Paragraph 4(b) below, this Note may be prepaid, in whole or in part, upon at least thirty (30) days’ prior written notice to Lender and upon payment of all accrued interest (and other Obligations due under the Documents) and a prepayment premium (“Prepayment Premium”) equal to the greater of (a) one percent (1%) of the principal amount being prepaid multiplied by the quotient of the number of full months remaining until the Maturity Date, calculated as of the prepayment date, divided by the number of full months comprising the term of this Note, or (b) the Present Value of the Loan (defined below) less the amount of principal and accrued interest (if any) being prepaid, calculated as of the prepayment date. The Prepayment Premium shall be due and payable, except as provided in the Instrument or as limited by law, upon any prepayment of this Note, whether voluntary or involuntary, and Lender shall not be obligated to accept any prepayment of this Note unless it is accompanied by the Prepayment Premium, all accrued interest and all other Obligations due under the Documents. Lender shall notify Borrower of the amount of and the calculation used to determine the Prepayment Premium. Borrower agrees that (a) Lender shall not be obligated to actually reinvest the amount prepaid in any Treasury obligation and (b) the Prepayment Premium is directly related to the damages that Lender will suffer as a result of the prepayment. The “Present Value of the Loan” shall be determined by discounting all scheduled payments remaining to the Maturity Date attributable to the amount being prepaid at the Discount Rate (defined below). If prepayment occurs on a date other than a Due Date, the actual number of days remaining from the date of prepayment to the next Due Date will be used to discount within this period. The “Discount Rate” is the rate which, when compounded monthly, is equivalent to the Treasury Rate (defined below), when compounded semi-annually. The “Treasury Rate” is the semi-annual yield on the Treasury Constant Maturity Series with maturity equal to the remaining weighted average life of the Loan, for the week prior to the prepayment date, as reported in Federal Reserve Statistical Release H.15 - Selected Interest Rates, conclusively determined by Lender (absent a clear mathematical calculation error) on the prepayment date. The rate will be determined by linear interpolation between the yields reported in Release H.15, if necessary. If Release H.15 is no longer published, Lender shall select a comparable publication to determine the Treasury Rate. Notwithstanding the foregoing, no Prepayment Premium shall be due if this Note is prepaid during the last sixty (60) days prior to the Maturity Date.

(b) Notwithstanding anything to the contrary contained herein, (i) in the event that Borrower prepays the Tier One Indebtedness in full, Borrower must simultaneously prepay the Tier Two Indebtedness in full, and (i) in the event that Borrower prepays the Tier Two Indebtedness in full, Borrower must simultaneously prepay the Tier One Indebtedness in full. In all events, the applicable Prepayment Premium must also be paid.

(c) With respect to the foregoing provisions, Borrower hereby expressly agrees as follows:

(i) The Note Rate provided herein has been determined based on the sum of (A) the Treasury Rate in effect at the time the applicable Note Rate was determined under the applicable Loan application submitted to Lender, plus (B) an interest rate spread over such Treasury Rate, which together represent Lender’s agreed-upon return for making the proceeds of the Loan hereunder available to Borrower over the term of such Loan.

(ii) The determination of the applicable Note Rate, and in particular the aforesaid interest rate spreads, were based on the expectation and agreement of Borrower and Lender that the principal sums advanced hereunder would not be prepaid during the term of this Note, or if any such prepayment occurs, the Prepayment Premium (calculated in the manner set forth above) would apply (except as expressly permitted by this Note).

(iii) Lender’s business involves making financial commitments to others based in part on the returns it expects to receive from this Note and other similar loans made by Lender, and Lender’s financial performance as a business depends not only on the returns from each loan or investment it makes but also upon the aggregate amounts of the loans and investments it is able to make over any given period of time.

		BORROWER’S INITIALS:
	4
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

(iv) In the event of a prepayment hereunder, Lender will be required to redeploy the funds received into other loans or investments, which (A) may not provide a return to Lender comparable to the return Lender anticipates based on the Note Rate and (B) may reduce the total amount of loans or investments Lender is able to make during the term of the Loan, which in turn may impair the profitability of Lender’s business. Therefore, in order to compensate Lender for the potential impact and risks to its business of prepayments under this Note, Lender has limited the Borrower’s right to prepay this Note and has offered the method of calculation of the Prepayment Premium set forth above.

(v) Borrower acknowledges that (A) Lender could have determined that it would not permit any prepayments under this Note during its term, and therefore, in electing to permit prepayments hereunder, Lender is entitled to determine and negotiate the terms on which it will accept prepayments of its loans, and (B) Borrower could have elected to negotiate more permissive prepayment provisions and/or a more favorable manner of calculating the Prepayment Premium, but in such event the applicable interest rate spread, and therefore the applicable Note Rate, would have been higher to compensate Lender for the potential loss of income on account of the risk that Borrower might elect to prepay this Note at an earlier time and/or for a lesser Prepayment Premium than set forth herein.

Therefore, in consideration of Lender’s agreement to the Note Rate set forth herein, and in recognition of Lender’s reliance on the prepayment provisions of this Note (including the method of calculating the Prepayment Premium), Borrower agrees that the manner of calculation of the Prepayment Premium set forth in this Note represents bargained-for compensation to Lender for granting to Borrower the privilege of prepaying this Note on the terms set forth herein and for the potential loss of future income to Lender arising from having to redeploy the amounts prepaid under this Note into other loans or investments. As such, the Prepayment Premium constitutes reasonable compensation to Lender for making the Loan on the terms reflected in this Note and does not represent any form of damages (liquidated or otherwise), nor does it represent a penalty.

5. No Usury. Under no circumstances shall the aggregate amount paid or to be paid as interest under this Note exceed the highest lawful rate permitted under applicable usury law (“Maximum Rate”). If under any circumstances the aggregate amounts paid on this Note shall include interest payments which would exceed the Maximum Rate, Borrower stipulates that payment and collection of interest in excess of the Maximum Rate (“Excess Amount”) shall be deemed the result of a mistake by both Borrower and Lender and Lender shall promptly credit the Excess Amount against the Balance (without Prepayment Premium or other premium) or refund to Borrower any portion of the Excess Amount which cannot be so credited.

6. Security and Documents Incorporated. This Note is the Note referred to and secured by the Instrument and is secured by the Property. Borrower shall observe and perform all of the terms and conditions in the Documents. The Documents are incorporated into this Note as if fully set forth in this Note.

7. Treatment of Payments. All payments under this Note shall be made, without offset or deduction, (a) in lawful money of the United States of America at the office of Lender or at such other place (and in the manner) Lender may specify by written notice to Borrower, (b) in immediately available federal funds, and (c) if received by Lender prior to 2:00 p.m. Eastern Time at such place, shall be credited on that day, or, if received by Lender at or after 2:00 p.m. Eastern Time at such place, shall, at Lender’s option, be credited on the next Business Day. Initially (unless waived by Lender), and until Lender shall direct Borrower otherwise, Borrower shall make all payments due under this Note in the manner set forth in Section 3.13 of the Instrument. If any Due Date falls on a day which is not a Business Day, then the Due Date shall be deemed to have fallen on the next succeeding Business Day.

		BORROWER’S INITIALS:
	5
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

8. Limited Recourse Liability. Except to the extent set forth in Paragraph 8 and Paragraph 9 of this Note, neither Borrower nor any general partner(s) of Borrower nor Peter L. Malkin nor Anthony E. Malkin (singularly or collectively, the “Exculpated Parties”) shall have any personal liability for the Obligations. Notwithstanding the preceding sentence, Lender may bring a foreclosure action or other appropriate action to enforce the Documents or realize upon and protect the Property (including, without limitation, naming the Exculpated Parties in the actions) and IN ADDITION THE EXCULPATED PARTIES SHALL HAVE JOINT AND SEVERAL PERSONAL LIABILITY FOR and be subject to legal action for any and all fees, costs, expenses, damages and losses (including, without limitation, legal fees and costs) incurred or suffered by Lender, resulting from or otherwise relating to the following:

(a) The misapplication or misappropriation by Borrower of any or all money collected, paid or received, or to which Borrower is entitled, relating to the Loan or the Property, including, but not limited to, insurance proceeds, condemnation awards, lease security and other deposits and rent;

(b) Rents, issues, profits and revenues of all or any portion of the Property received or applicable to a period after the occurrence of any Event of Default or after any event which, with the giving of notice and/or the passage of time, would constitute an Event of Default, which are not applied to pay, first (i) real estate taxes and other charges which, if unpaid, could result in liens superior to that of the Instrument, and (ii) premiums on insurance policies required under the Documents and, second, the other ordinary and necessary expenses of owning and operating the Property;

(c) Waste committed on the Property or damage to the Property as a result of intentional misconduct or gross negligence or the removal of all or any portion of the Property in violation of the terms of the Documents;

(d) Fraud or material misrepresentation or failure to disclose a material fact (including, without limitation, with respect to any such fraud, misrepresentation or failure to disclose in any materials delivered to Lender) by any of the Exculpated Parties or by any other person or entity authorized or apparently authorized to make statements or representations on behalf of any of the Exculpated Parties in connection with the Loan applications, Loan closing or security of or for the Loan, or otherwise in connection with the Property or the Loan;

(e) Any of the Exculpated Parties violates the provisions of Section 11.04 of the Instrument;

(f) Borrower fails to obtain Lender’s prior written consent to any subordinate financing or other voluntary lien encumbering the Property or direct or indirect interests in Borrower (but only to the extent such prior written consent is required by the Documents);

(g) Borrower fails to obtain Lender’s prior written consent to any assignment, transfer or conveyance of the Property or any portion thereof or any interest therein or directly or indirectly in Borrower (but only to the extent such prior written consent is required by the Documents); and/or

		BORROWER’S INITIALS:
	6
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

(h) damages suffered or incurred by Lender as a result of Borrower’s breach or violation of Sections 2.10 and/or 3.21 of the Instrument.

Notwithstanding anything to the contrary above or otherwise in the Documents, in the event that any petition for bankruptcy, reorganization or arrangement pursuant to state or federal bankruptcy law, or any similar federal or state law, shall be filed or consented to, or acquiesced in by any Exculpated Party, or any Exculpated Party seeks (or consents to, or acquiesces in) the appointment of a receiver, liquidator or trustee, or any proceeding for the dissolution or liquidation of Borrower or any Exculpated Party shall be instituted or consented to, or acquiesced in by any Exculpated Party, then (i) the Loan shall be fully recourse to the Exculpated Parties; and (ii) Lender shall not be deemed to have waived any right which Lender may have under Section 506 (a), Section 506 (b), Section 1111(b) or any other provisions of the U.S. Bankruptcy Code as same may be amended or replaced to file a claim for the full amount of the Loan or to require that all collateral shall continue to secure all of the indebtedness owing to Lender in accordance with the Documents.

9. INTENTIONALLY OMITTED.

10. Joint and Several Liability. This Note shall be the joint and several obligation of all makers, endorsers, guarantors and sureties, and shall be binding upon them and their respective successors and assigns and shall inure to the benefit of Lender and its successors and assigns.

11. Unconditional Payment. Borrower is and shall be obligated to pay principal, interest and any and all other amounts which became payable hereunder or under the other Documents absolutely and unconditionally and without abatement, postponement, diminution or deduction and without any reduction for counterclaim or setoff. In the event that at any time any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand.

12. Certain Waivers. Borrower and all others who may become liable for the payment of all or any part of the Obligations do hereby severally waive presentment and demand for payment, notice of dishonor, protest and notice of protest, notice of non-payment and notice of intent to accelerate the maturity hereof (and of such acceleration). No release of any security for the Obligations or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Instrument or the other Documents shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other who may become liable for the payment of all or any part of the Obligations, under this Note, the Instrument and the other Documents.

13. WAIVER OF TRIAL BY JURY. EACH OF BORROWER AND LENDER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM FILED BY EITHER PARTY, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE DOCUMENTS, OR ANY ALLEGED ACTS OR OMISSIONS OF LENDER OR BORROWER IN CONNECTION THEREWITH.

		BORROWER’S INITIALS:
	7
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

14. Changes in Laws Regarding Taxation. In the event of the passage of any law of the State of New York, the City of New York, the County of New York or any other applicable taxing authority deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or changing in any way the laws for the taxation of mortgages or debts secured by mortgages for federal, state or local purposes or the manner of the collection of any such taxes, and imposing a tax (other than a tax on income, revenue, return of principal or reserves or the lack thereof), either directly or indirectly, on the Instrument, this Note, any of the other Documents or the Balance, Borrower shall, if permitted by law, pay any tax imposed as a result of any such law within the statutory period or within ten (10) days after demand by Lender, whichever is less; provided, however, that if, in the opinion of counsel for Lender, Borrower is not permitted by law to pay such taxes, Lender shall have the right, at its option, to declare the Balance immediately due and payable upon ten (10) days’ prior written notice to Borrower.

15. Documentary Stamps and Other Charges. Borrower shall pay all taxes (excluding income, franchise and doing business taxes), assessments, charges, expenses, costs and fees (including registration and recording fees and revenue, stamp and other similar taxes) levied on, or assessed against Lender, or otherwise required to be paid in connection with any of the Documents or the Balance. If Borrower shall fail to promptly make such payments after demand therefor, Lender shall have the right (but not the obligation) to pay for the same and Borrower shall reimburse Lender therefor immediately upon demand, with interest at the Default Rate. All such sums paid by Lender shall, subject to the limitations set forth in Section 1.03 of the Instrument, be secured by the Instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURES ON FOLLOWING PAGE]

		BORROWER’S INITIALS:
	8
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

IN WITNESS WHEREOF, this Note has been executed by Borrower as of the date first set forth above.

BORROWER:
60 EAST 42ND ST. ASSOCIATES L.L.C., a New York limited liability company
By:	/s/ Peter L. Malkin [SEAL]
Name: Peter L. Malkin Title: Member

		BORROWER’S INITIALS:
	9
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

[SIGNATURE PAGE TO SECOND AMENDED, RESTATED

AND CONSOLIDATED MORTGAGE NOTE]

LENDER: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation
By:	/s/ Thomas P. Goodsite
Name: Thomas P. Goodsite
Title: Vice President [CORPORATE SEAL]

		BORROWER’S INITIALS:
	10
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

EXHIBIT A

THE INSTRUMENT

1. MORTGAGE made by Lincoln Building Corporation to Aetna Life Insurance Company dated 1/31/41, recorded 1/31/41 in Liber 4475 Mp. 442 to secure the sum of $6,000,000.00 and interest. (Mortgage tax paid: $30,000.00)

2. MORTGAGE made by Lincoln Building Corporation to Aetna Life Insurance Company dated 7/31/47, recorded 8/1/47 in Liber 4928 Mp. 537 to secure the sum of $5,637,222.37 and interest. (Mortgage tax paid: $28,186.00)

CONSOLIDATION, SPREADER AND MODIFICATION AGREEMENT made by and between Lincoln Building Corporation and Aetna Life Insurance Company dated 7/31/47, recorded 8/1/47 in Liber 4928 Mp. 559. Consolidates mortgages 1 and 2 to form a single lien of $10,000,000.00.

ASSIGNMENT OF MORTGAGES 1 and 2, as consolidated, by Aetna Life Insurance Company to The Prudential Insurance Company of America by assignment dated 3/25/54, recorded 4/1/54 in Liber 5457 Mp. 356.

3. MORTGAGE made WLKP Realty Corp. to The Prudential Insurance Company of America dated 3/31/54, recorded 4/1/54 in Liber 5447 Mp. 352 to secure the sum of $7,550,000.00 and interest. (Mortgage tax paid: $37,750.00)

MODIFICATION, EXTENSION AND CONSOLIDATION AGREEMENT made by and between WLKP Realty Corp. and The Prudential Insurance Company of America dated 3/31/54, recorded 4/1/54 in Liber 5447 Mp. 358. Consolidates mortgages 1, 2 and 3 to form a single lien of $16,000,000.00 and modifies the terms thereof.

AGREEMENT OF PARTICIPATION IN BOND AND MORTGAGE made by and between The Prudential Insurance Company of America and Aetna Life Insurance Company dated 3/31/54, recorded 4/1/54 in Liber 5447 Mp. 372. Allocates equal $8,000,000.00 participating interests in mortgages 1 through 3, as consolidated.

SUPPLEMENTAL AGREEMENT OF PARTICIPATION IN BOND AND MORTGAGE made by and between The Prudential Insurance Company of America and Aetna Life Insurance Company dated 10/26/55, recorded 11/25/55 in Liber 5581 Mp. 503. Modifies the Agreement of Participation in Bond and Mortgage recorded in Liber 5457 Mp. 372.

4. MORTGAGE made by Lincoln Building Associates to The Prudential Insurance Company of America dated 10/1/58, recorded 10/2/58 in Liber 5775 Mp. 355 to secure the sum of $2,618,269.06 and interest. (Mortgage tax paid: $13,091.50)

By its terms, Mortgage 4 is consolidated with Mortgages 1, 2 and 3 to form a single lien of $17,200,000.00.

AGREEMENT OF PARTICIPATION IN BOND AND MORTGAGE made by and between The Prudential Insurance Company of America (“Prudential”) and Aetna Life Insurance Company (“Aetna”), dated 10/1/58, recorded 10/2/58 in Liber 5775 Mp. 359. Allocates a $9,909,134.41 participating interest to Prudential and a $7,290,865.59 participating interest to Aetna in mortgages 1 through 4, as consolidated.

		BORROWER’S INITIALS:
	11
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

5. MORTGAGE made by 60 East 42nd St. Associates to The Prudential Insurance Company of America dated 4/24/64, recorded 4/27/64 in Liber 6273 Mp. 248 to secure the sum of $1,574,134.86 and interest. (Mortgage tax paid: $7,870.50)

By its terms, Mortgage 5 is consolidated with Mortgages 1 through 4 to form a single lien of $16,300,000.00.

AGREEMENT OF PARTICIPATION INTEREST IN MORTGAGE made by and between The Prudential Insurance Company of America (“Prudential”) and Aetna Life Insurance Company (“Aetna”), dated as of 4/24/64, recorded 4/27/64 in Liber 6273 Mp. 252. Allocates a $10,075,172.75 participating interest to Prudential and a $6,254,827.25 participating interest to Aetna in Mortgages 1 through 5, as consolidated.

ASSIGNMENT OF PARTICIPATION INTEREST IN MORTGAGE made by and between Aetna Life Insurance Company, as assignor to The Prudential Insurance Company of America, as assignee dated 3/28/69, recorded 4/2/69 in Reel 135 Page 1287. Assigns assignor’s participating interest in mortgages 1 through 5, as consolidated.

EXTENSION AGREEMENT made between Grancent Corp. and The Prudential Insurance Company of America dated 4/1/69, recorded 4/2/69 in Reel 135 page 1291.

Extends Mortgages 1 through 5, as consolidated.

MODIFICATION AGREEMENT made between 60 E. 42nd St. Associates and The Prudential Insurance Company dated as of 4/1/79, recorded 11/5/79 in Reel 501 page 816.

Modifies Mortgages 1 through 5, as consolidated.

MODIFICATION AGREEMENT made by and between 60 East 42nd St. Associates and The Prudential Insurance Company of America dated as of April 1, 1981, recorded 9/3/1981 in Reel 581 Page 1314. Modifies mortgages 1 through 5, as consolidated.

ASSIGNMENT OF MORTGAGE made by The Prudential Insurance Company of America to Bankers Life Company dated 9/29/82, recorded 10/5/82 in Reel 642 Page 271.

Assigns mortgages 1 through 5, as consolidated.

MODIFICATION AND EXTENSION AGREEMENT made by and between 60 east 42nd St. Associates and Bankers Life Company, dated 9/30/82, recorded 11/3/82 in Reel 647 Page 1382. Modifies Mortgages 1 through 5, as consolidated.

ASSIGNMENT OF MORTGAGE made by Principal Mutual Life Insurance Company, formerly known as Bankers Life Company to Apple Bank for Savings dated 9/87, recorded 12/23/87 in Reel 1337 Page 1651. Assigns mortgages 1 through 5, as consolidated.

		BORROWER’S INITIALS:
	12
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

AGREEMENT OF CONFIRMATION AND MODIFICATION OF MORTGAGE (Fee) made by and between 60 East 42nd St. Associates and Apple Bank for Savings, dated as of 9/30/87, recorded 10/30/87 in Reel 1311 Page 1517. Modifies mortgages 1 through 5, as consolidated.

ASSIGNMENT OF MORTGAGE made by Apple Bank for Savings to Morgan Guaranty Trust Company of New York, as Trustee under Declaration of Trust dated December 9, 1960, as amended, of its Commingled Pension Trust Fund dated 9/13/94, recorded 10/11/94 in Reel 2145 Page 21.

Assigns Mortgages 1 through 5, as consolidated.

AMENDED MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF LEASE made by and between 60 42nd St. Associates to Morgan Guaranty Trust Company of New York, as trustee under declaration of Trust dated December 9, 1960, as amended, of its Commingled Pension Trust Fund (Fixed Income- -Mortgages) dated 10/6/94, recorded 10/11/94 in Reel 2145 Page 25.

Amends Mortgages 1 through 5, as consolidated.

ASSIGNMENT OF MORTGAGE for Mortgages 1 through 5, as consolidated, made by JP Morgan Chase Bank, as Trustee under Amended and Restated Declaration of Trust, dated November 13, 2001, as amended, for its Commingled Pension Trust Fund (Mortgage Private Placement) f/k/a Morgan Guaranty Trust Company of New York, as trustee under Declaration of Trust dated December 9, 1960, as amended, of its Commingled Pension Trust Fund (Fixed Income - Mortgages) to The Prudential Insurance Company of America, by Assignment dated November 16, 2004, recorded December 28, 2004 in CRFN 2004000xxxxxx.

6. MORTGAGE made by 60 East 42nd St. Associates to Emigrant Savings Bank dated 3/8/00, recorded 5/10/00 in Reel 3099 Page 600 to secure the sum of $27,979,186.47 and interest.

(Mortgage tax paid: $769,428.00)

ASSIGNMENT OF MORTGAGE for Mortgage 6 made by Emigrant Savings Bank to The Prudential Insurance Company of America, by Assignment dated November 16, 2004, recorded 12/28/2004 in CRFN 2004000xxxxxx.

Assigns Mortgages 1 through 6, as consolidated.

7. MORTGAGE made by 60 East 42nd St. Associates L.L.C. to The Prudential Insurance Company of America dated November 23, 2004 and recorded 12/28/2004 in CRFN 2004000xxxxxx, to secure the sum of $44,000,000.53 and interest (Mortgage tax paid: $1,210,000.00)

AGREEMENT OF SPREADER, CONSOLIDATION AND MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT made by 60 East 42nd St. Associates L.L.C. to The Prudential Insurance Company of America, as joined in by Lincoln Building Associates L.L.C., as ground lessee, dated November 23, 2004 and recorded 12/28/2004 in CRFN 2004000xxxxxx. Consolidates and modifies mortgages 1 through 7 to form a single lien of $84,000,000.00 and spread them to cover all of the premises.

		BORROWER’S INITIALS:
	13
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

FIRST AMENDMENT TO AGREEMENT OF SPREADER, CONSOLIDATION AND MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT dated as of November 23, 2004 and recorded 2/3/2006 in CRFN 20060000xxxxx (amends CRFN 2004000xxxxxx), upon which there is a present principal balance of $80,012,524.00.

8. MORTGAGE made by 60 East 42nd St. Associates L.L.C. to The Prudential Insurance Company of America, as joined in by Lincoln Building Associates L.L.C., as ground lessee, dated November 5, 2009 and to be recorded in aforesaid records, to secure the sum of $16,000,000.00 and interest (Mortgage tax paid: $448,000.00)

AGREEMENT OF SPREADER, CONSOLIDATION AND MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT made by 60 East 42nd St. Associates L.L.C. to The Prudential Insurance Company of America, as joined in by Lincoln Building Associates L.L.C., as ground lessee, November 5, 2009 and to be recorded in aforesaid records. Consolidates and modifies mortgages 1 through 8 to form a single lien of $96,012,524.00.

		BORROWER’S INITIALS:
	14
Prudential Loan Nos. 7061xxxxx and 7061xxxxx 60 East 42nd St./Consolidated Mortgage Note AT1 32586438.5 / 28227-000xxx 48132.1

EX-10.4

Exhibit 10.4

PREPARED OUT OF STATE BY AND

UPON RECORDATION RETURN TO:

SEYFARTH SHAW LLP

ONE PEACHTREE POINTE, SUITE 700

1545 PEACHTREE STREET, N.E.

ATLANTA, GEORGIA 30309-2401

Attention: Jay Wardlaw, Esq.

CROSS-REFERENCE TO:

Agreement of Spreader, Consolidation and Modification

of Mortgage and Security Agreement recorded with

the Office of the Register of the City of New York on

December 28, 2004 under CRFN 2004000xxxxxx, as

amended by that certain First Amendment to

Agreement of Spreader, Consolidation and Modification

of Mortgage and Security Agreement recorded under

CRFN 20060000xxxxx in aforesaid records.

60 EAST 42ND ST. ASSOCIATES L.L.C., as mortgagor

(Borrower)

to

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, as mortgagee

(Lender),

and joined in by

LINCOLN BUILDING ASSOCIATES L.L.C., as ground lessee

(Ground Lessee)

AGREEMENT OF SPREADER, CONSOLIDATION AND MODIFICATION

OF MORTGAGE AND SECURITY AGREEMENT

Dated:	As of November 5, 2009
Location:	60 East 42nd Street and 301 Madison Avenue
County:	New York, New York
Block:	1276
Lots:	22 and 42
Loan Numbers:	7061xxxxx and 7061xxxxx

THIS MORTGAGE DOES NOT COVER REAL PROPERTY PRINCIPALLY IMPROVED OR TO BE IMPROVED BY ONE OR MORE STRUCTURES CONTAINING IN THE AGGREGATE NOT MORE THAN SIX RESIDENTIAL DWELLING UNITS, EACH DWELLING UNIT HAVING ITS OWN SEPARATE COOKING FACILITIES.

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TABLE OF CONTENTS

ARTICLE I - OBLIGATIONS	10
Section 1.01 Obligations	10
Section 1.02 Documents	11
Section 1.03 Maximum Secured Indebtedness	11
ARTICLE II - REPRESENTATIONS AND WARRANTIES	11
Section 2.01 Title, Legal Status and Authority	11
Section 2.02 Validity of Documents	12
Section 2.03 Litigation	12
Section 2.04 Status of Property.	12
Section 2.05 Tax Status of Borrower	13
Section 2.06 Bankruptcy and Equivalent Value	13
Section 2.07 Disclosure	13
Section 2.08 Illegal Activity	13
Section 2.09 OFAC Lists	13
Section 2.10 Property as Single Asset	14
ARTICLE III - COVENANTS AND AGREEMENTS	14
Section 3.01 Payment of Obligations	14
Section 3.02 Continuation of Existence	14
Section 3.03 Taxes and Other Charges.	14
Section 3.04 Defense of Title, Litigation, and Rights under Documents	15
Section 3.05 Compliance With Laws and Operation and Maintenance of Property.	15
Section 3.06 Insurance.	16
Section 3.07 Damage and Destruction of Property.	18
Section 3.08 Condemnation.	20
Section 3.09 Liens and Liabilities	21
Section 3.10 Tax and Insurance Deposits	21
Section 3.11 ERISA.	22
Section 3.12 Environmental Representations, Warranties, and Covenants.	23
Section 3.13 Electronic Payments	24
Section 3.14 Inspection	24
Section 3.15 Records, Reports, and Audits.	25
Section 3.16 Borrower’s Certificates	25
Section 3.17 Full Performance Required; Survival of Warranties	26
Section 3.18 Additional Security	26
Section 3.19 Further Acts	26
Section 3.20 Compliance with Anti-Terrorism Regulations.	26
Section 3.21 Compliance with Property as Single Asset	27
ARTICLE IV - ADDITIONAL ADVANCES; EXPENSES; SUBROGATION	27
Section 4.01 Expenses and Advances	27
Section 4.02 Subrogation	28
ARTICLE V - SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY	28
Section 5.01 Due-on-Sale or Encumbrance	28
Section 5.02 Secondary Loan	28

Prudential Loan Nos. 7061xxxxx and 7061xxxxx

60 East 42nd St.

Agreement of Consolidation and Modification of Mortgage and Security Agreement

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ARTICLE VI - DEFAULTS AND REMEDIES	31
Section 6.01 Events of Default	31
Section 6.02 Remedies	33
Section 6.03 Expenses	34
Section 6.04 Rights Pertaining to Sales	34
Section 6.05 Application of Proceeds	35
Section 6.06 Additional Provisions as to Remedies	35
Section 6.07 Waiver of Rights and Defenses	35
ARTICLE VII - SECURITY AGREEMENT	36
Section 7.01 Security Agreement	36
ARTICLE VIII - LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES	36
Section 8.01 Limited Recourse Liability	36
Section 8.02 General Indemnity	36
Section 8.03 Transaction Taxes Indemnity	36
Section 8.04 ERISA Indemnity	36
Section 8.05 Environmental Indemnity	36
Section 8.06 Duty to Defend, Costs and Expenses	37
Section 8.07 Recourse Obligation and Survival	37
ARTICLE IX - ADDITIONAL PROVISIONS	37
Section 9.01 Usury Savings Clause	37
Section 9.02 Notices	37
Section 9.03 Sole Discretion of Lender	37
Section 9.04 Applicable Law and Submission to Jurisdiction	37
Section 9.05 Construction of Provisions	37
Section 9.06 Transfer of Loan	39
Section 9.07 Miscellaneous	39
Section 9.08 Entire Agreement	40
Section 9.09 WAIVER OF TRIAL BY JURY	40
ARTICLE X - LOCAL LAW PROVISIONS	40
Section 10.01 Trust Fund	40
Section 10.02 Section 291-f Agreement	40
Section 10.03 New York Tax Law Section 256	41
Section 10.04 Sums Deemed to be Interest	41
Section 10.05 Assignment of Loan Documents	41
Section 10.06 Statutory Construction	41
ARTICLE XI - GROUND LEASE	42
Section 11.01 Representations and Warranties	42
Section 11.02 Limited Recourse Liability	43
Section 11.03 Ground Lease.	43
Section 11.04 Ground Lease Covenants	44

Prudential Loan Nos. 7061xxxxx and 7061xxxxx

60 East 42nd St.

Agreement of Consolidation and Modification of Mortgage and Security Agreement

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EXHIBITS

Exhibit A – Legal Description of Land

Exhibit B – Description of Personal Property

Exhibit C – Permitted Encumbrances

Exhibit D – List of Major Tenants

Exhibit E – Existing Mortgages

Exhibit F – Note

Prudential Loan Nos. 7061xxxxx and 7061xxxxx

60 East 42nd St.

Agreement of Consolidation and Modification of Mortgage and Security Agreement

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48131.1

DEFINITIONS

The terms set forth below are defined in the following sections of this Instrument:

Action	Section 9.04
Additional Funds	Section 3.07 (c)
Affecting the Property	Section 3.12 (a)
All	Section 9.05 (m)
Anti-Terrorism Regulations	Section 3.20(b)
Any	Section 9.05 (m)
Assessments	Section 3.03 (a)
Assignee	Section 10.05
Assignment	Recitals, Section 2 (B)
Award	Section 3.08 (b)
Bankruptcy Code	Recitals, Section 2 (A) (ix)
Borrower	Preamble
Costs	Section 4.01
Damage	Section 3.07 (a)
Debt Service Coverage Ratio	Section 5.02
Demand	Section 9.12 (n)
Deposits	Section 3.10
Documents	Section 1.02
Environmental Indemnity	Section 8.05
Environmental Law	Section 3.12 (a)
Environmental Liens	Section 3.12 (b)
Environmental Report	Section 3.12 (a)
ERISA	Section 3.11
Event of Default	Section 6.01
Executive Order 13224	Section 2.09
First Notice	Section 3.15(b)
Flood Acts	Section 2.04 (a)
Foreign Person	Section 2.05
Grace Period	Section 6.01 (b)
Ground Lease	Recitals, Section 1
Ground Lessee	Preamble
Hazardous Materials	Section 3.12 (a)
Impositions	Section 3.10
Improvements	Recitals, Section 2 (A) (ii)
Include, Including	Section 9.05 (f)
Indemnified Parties	Section 8.02
Indemnify	Section 8.02
Individual Beneficiaries	Section 2.09
Individual Shareholders	Section 2.09
Instrument	Preamble
Insurance Premiums	Section 3.10
Investors	Section 9.06
Land	Recitals, Section 2 (A) (i)
Laws	Section 3.05 (c)
Lease	Section 9.05 (k)
Leases	Recitals, Section 2 (A) (ix)
Lender	Preamble

Prudential Loan Nos. 7061xxxxx and 7061xxxxx

60 East 42nd St.

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Lessee	Section 9.05 (k)
Lessor	Section 9.05 (k)
Loan	Recitals, Section 1
Loan to Value Ratio	Section 5.02
Losses	Section 8.02
Major Tenants	Section 3.08 (d)
Microbial Matter	Section 3.12(a)
Net Proceeds	Section 3.07 (d)
NOI	Section 5.02
Note	Recitals, Section 1
Notice	Section 9.02
O & M Plan	Section 3.12(b)
Obligations	Section 1.01
OFAC	Section 2.09
OFAC Lists	Section 2.09
OFAC Violation	Section 3.20(c)
On Demand	Section 9.05 (n)
Organization State	Section 2.01
Owned	Section 9.05 (l)
Permitted Encumbrances	Recitals, Section 2 (B)
Person	Section 9.05 (i)
Personal Property	Section 6.02 (j)
Prepayment Premium	Section 1.01 (a)
Property	Recitals, Section 2 (A)
Property Payables	Section 3.09
Property State	Section 2.01
Provisions	Section 9.05 (j)
Rating Agency	Section 9.06
Release	Section 3.12 (a)
Rent Loss Proceeds	Section 3.07 (c)
Rents	Recitals, Section 2 (A) (x)
Restoration	Section 3.07 (a)
Second Notice	Section 3.15(b)
Secondary Lender	Section 5.02 (a)
Secondary Loan	Section 5.02
Securities	Section 9.06
Security Agreement	Section 7.01
Taking	Section 3.08 (a)
Tenant	Recitals, Section 2 (A) (vi)
Tenants Section	9.05 (k)
Terrorism Insurance Maximum Premium	Section 3.06 (g)
Transaction Taxes	Section 3.03 (c)
U.C.C.	Section 2.02
Upon Demand	Section 9.05 (n)
Violation	Section 3.11

Prudential Loan Nos. 7061xxxxx and 7061xxxxx

60 East 42nd St.

Agreement of Consolidation and Modification of Mortgage and Security Agreement

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AGREEMENT OF SPREADER, CONSOLIDATION AND MODIFICATION

OF MORTGAGE AND SECURITY AGREEMENT

THIS AGREEMENT OF SPREADER, CONSOLIDATION AND MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT (this “Agreement”) is made as of the 5th day of November, 2009, by 60 EAST 42ND ST. ASSOCIATES L.L.C., a New York limited liability company, having its principal office and place of business at c/o Malkin Holdings LLC, 60 East 42nd Street, New York, New York 10165, as mortgagor (“Borrower”), to THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, having an office at 2100 Ross Avenue, Suite 2500, Dallas, Texas 75201, as mortgagee (“Lender”), and joined in by LINCOLN BUILDING ASSOCIATES L.L.C, a New York limited liability company, having its principal place of business at c/o Malkin Holdings LLC, 60 East 42^nd Street, New York, New York 10165 (“Ground Lessee”).

RECITALS:

WHEREAS, Borrower is (i) the fee owner of that certain tract or parcel of land more fully described in Exhibit A attached hereto (the “Land”), and (ii) the landlord’s interest under that certain Agreement of Lease dated October 1, 1958, as amended by that certain Agreement dated January 1, 1964, as further amended by that certain Second Lease Modification Agreement dated January 1, 1977, as further amended by that certain Third Lease Modification Agreement dated April 1, 1979, as further amended by that certain Fourth Lease Modification Agreement dated April 1, 1981, as further amended by that certain Fifth Lease Modification Agreement dated April 1, 1982, as further amended by that certain Sixth Lease Modification Agreement dated October 1, 1987, as further amended by that certain Seventh Lease Modification Agreement dated March 1, 2000, as further amended by that certain Eighth Lease Modification Agreement dated November 23, 2004, and as further amended by that certain Ninth Lease Modification Agreement dated as of the date hereof (as amended, the “Ground Lease”), between Borrower, as landlord, and Ground Lessee, as tenant; and

WHEREAS, Ground Lessee is the owner of landlord’s interest under the leases described in Exhibit D attached hereto and incorporated herein;

WHEREAS, Lender is the owner and holder of certain mortgages covering the fee estate of Borrower in the Land, as more particularly described in Exhibit E attached hereto (the “Existing Mortgages”) and of the notes, bonds or other obligations secured thereby (the “Existing Notes”); and

WHEREAS, contemporaneously with the execution and delivery of this Agreement, Borrower has executed and delivered to Lender a certain Second Amended, Restated and Consolidated Mortgage Note in the aggregate principal amount of Ninety-Six Million Twelve Thousand Five Hundred Twenty-Four and No/100 Dollars ($96,012,524.00), and interest, as more particularly described in Exhibit F attached hereto and incorporated herein by this reference (the “Note”), which Note evidences, and combines and consolidates into one indebtedness, all amounts presently due and owing in respect of the Existing Notes and secured by the Existing Mortgages (the “Loan”) and has a maturity date of November 5, 2014; and

WHEREAS, Borrower and Lender have agreed in the manner hereinafter set forth (i) to spread the Existing Mortgages and the respective liens thereof over those portions of the Property (defined below) not already covered thereby, (ii) to combine, consolidate and coordinate the Existing Mortgages and the respective liens thereof, as spread into one unified lien in the aggregate principal amount of Ninety-Six Million Twelve Thousand Five Hundred Twenty-Four and No/100 Dollars ($96,012,524.00) (consisting of (A) $80,012,524.00, and (B) $16,000,000.00) encumbering the Property (defined below), and (iii) to modify, amend and restate the other terms and provisions of the Existing Mortgages, which terms and provisions are superseded in their entirety by the terms and provisions hereof;

	7
Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

WHEREAS, Borrower desires to secure the payment of and the performance of all of its obligations under the Note and certain additional Obligations (as defined in Section 1.01).

NOW, THEREFORE, in consideration of the foregoing recitals, which are incorporated into the operative provisions of this Agreement by this reference, and for other good and valuable consideration, the receipt and adequacy of which are hereby conclusively acknowledged, Borrower hereby represents and warrants to and covenants and agrees with Lender as follows:

A. Mortgaged Property; Mortgage Spreader. The Existing Mortgages and the respective liens thereof are hereby spread over those portions of the Property (defined below) not already covered thereby, which Property includes all of the right, title, interest and estate of Borrower, now owned, or hereafter acquired, in and to the following property, rights and interests (such property, rights and interests being collectively referred to herein as the “Property”):

(i) The Land;

(ii) All buildings, structures and improvements (including fixtures) now or later located in or on the Land (“Improvements”);

(iii) All easements, estates, and interests including hereditaments, servitudes, appurtenances, tenements, mineral and oil/gas rights, water rights, air rights, development power or rights, options, reversion and remainder rights, and any other rights owned by Borrower and relating to or usable in connection with or access to the Property;

(iv) All right, title, and interest owned by Borrower in and to all land lying within the rights-of-way, roads, or streets, open or proposed, adjoining the Land to the center line thereof, and all sidewalks, alleys, and strips and gores of land adjacent to or used in connection with the Property;

(v) All right, title, and interest of Borrower in, to, and under all plans, specifications, surveys, studies, reports, permits, licenses, agreements, contracts, instruments, books of account, insurance policies, and any other documents relating to the use, construction, occupancy, leasing, activity, or operation of the Property;

(vi) All of the fixtures and personal property described in Exhibit B owned by Borrower and replacements thereof; but excluding all personal property owned by any tenant (a “Tenant”) of the Property;

(vii) All of Borrower’s right, title and interest in the proceeds (including conversion to cash or liquidation claims) of (A) insurance relating to the Property and (B) all awards made for the taking by eminent domain (or by any proceeding or purchase in lieu thereof) of the Property, including awards resulting from a change of any streets (whether as to grade, access, or otherwise) and for severance damages;

(viii) All tax refunds, including interest thereon, tax rebates, tax credits, and tax abatements, and the right to receive the same, which may be payable or available with respect to the Property;

	8
Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

(ix) All leasehold estates, ground leases, leases, subleases, licenses, or other agreements affecting the use, enjoyment or occupancy of the Property now or later existing (including any use or occupancy arrangements created pursuant to Title 7 or 11 of the United States Code, as amended from time to time, or any similar federal or state laws now or later enacted for the relief of debtors [the “Bankruptcy Code”]) and all extensions and amendments thereto (collectively, the “Leases”) and all Borrower’s right, title and interest under the Leases, including all guaranties thereof;

(x) All rents, issues, profits, royalties, receivables, use and occupancy charges (including all oil, gas or other mineral royalties and bonuses), income and other benefits now or later derived from any portion or use of the Property (including any payments received with respect to any Tenant or the Property pursuant to the Bankruptcy Code) and all cash, security deposits, advance rentals, or similar payments relating thereto (collectively, the “Rents”) and all proceeds from the cancellation, termination, surrender, sale or other disposition of the Leases, and the right to receive and apply the Rents to the payment of the Obligations; and

(xi) All of Borrower’s rights and privileges heretofore or hereafter otherwise arising in connection with or pertaining to the Property, including, without limiting the generality of the foregoing, all water and/or sewer capacity, all water, sewer and/or other utility deposits or prepaid fees, and/or all water and/or sewer and/or other utility tap rights or other utility rights, any right or privilege of Borrower under any loan commitment, lease, contract, declaration of covenants, restrictions and easements or like instrument, developer’s agreement, or other agreement with any third party pertaining to the ownership, development, construction, operation, maintenance, marketing, sale or use of the Property.

B. Assignment of Rents. Borrower hereby absolutely and unconditionally assigns, sets over, and transfers to Lender all of Borrower’s right, title, interest and estates in and to the Leases and the Rents, subject to the terms and license granted to the Borrower under that certain Amended and Restated Assignment of Leases and Rents made by Borrower to Lender dated the same date as this Agreement (the “Assignment”), which document shall govern and control the provisions of this assignment.

C. Outstanding Indebtedness. The aggregate outstanding indebtedness evidenced by the Note and secured by this Agreement in the amount of Ninety-Six Million Twelve Thousand Five Hundred Twenty-Four and No/100 Dollars ($96,012,524.00) (consisting of (i) $80,012,524.00, and (ii) $16,000,000.00), it being understood that no interest under the Note is accrued and unpaid for the period prior to the date hereof, but that interest shall accrue from and after the date hereof at the rate or rates provided in the Note.

D. Mortgage Consolidation. The Existing Mortgages and the respective liens thereof, as spread in accordance with Section A above, are hereby combined and consolidated so that together they shall hereafter constitute in law but one mortgage, a single lien, covering the Property and securing the aggregate principal sum of Ninety-Six Million Twelve Thousand Five Hundred Twenty-Four and No/100 Dollars ($96,012,524.00) (consisting of (i) $80,012,524.00, and (ii) $16,000,000.00), together with interest thereon as provided in the Note.

E. Ratification of Note. The Note is hereby ratified and confirmed in all respects by Borrower. All principal, interest and other sums of any nature that may or shall become due and payable pursuant to the provisions of the Note shall, subject to the limitations set forth in Section 1.03 hereof, constitute part of the Obligations (defined below) secured by this Instrument.

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F. No Release or Novation. This Agreement constitutes a spreader, consolidation and modification of the Existing Mortgages and is not intended to and shall not extinguish any of the indebtedness of Borrower under the Existing Notes, the Existing Mortgages or any other document or instrument executed and delivered in connection therewith in such a manner as would constitute a release or novation of the original indebtedness or obligations of Borrower under the Existing Notes, the Existing Mortgages or any of such other documents or instruments, nor shall this Agreement affect or impair the priority of any liens created thereby, it being the intention of the parties hereto to preserve all liens and security interests securing payment of the Existing Notes, which liens and security interests are acknowledged by Borrower to be valid and subsisting against the Property and any other security or collateral for the Obligations.

G. Certain Representations. Borrower represents and warrants (1) that there are no offsets, counterclaims or defenses against the indebtedness evidenced by the Note or against the enforcement of this Agreement, the Existing Mortgages or the Note, (2) that Borrower and the undersigned representative of Borrower have full power, authority and legal right to execute this Agreement and to keep and observe all of the terms of this Agreement on Borrower’s part to be observed and performed, (3) that the Note, the Existing Mortgages, the Documents (defined below) and this Agreement constitute valid and binding obligations of Borrower, and (4) that Borrower has no claims, counterclaims or offsets of any nature whatsoever against Lender or any previous holder of the indebtedness evidenced by the Note or any portion thereof.

H. Modification of Existing Mortgages. The terms, covenants and provisions of the Existing Mortgages are hereby modified, amended and restated so that henceforth such terms, covenants and provisions shall be exclusively those set forth herein, and the Existing Mortgages, as so modified, amended and restated, are hereby ratified and confirmed in all respects by Borrower subject to the matters listed in Exhibit C (“Permitted Encumbrances”) and the provisions of this Agreement. The numbered sections of the Existing Mortgages and all schedules and exhibits thereto are hereby modified, amended and restated to read the same as those set forth below. The Existing Mortgages, as so spread, combined, consolidated, modified, amended and restated pursuant to the provisions of this Agreement, are herein collectively referred to as this “Instrument”). Except as expressly provided to the contrary in the following numbered sections, all capitalized terms used below shall have the respective meanings ascribed to such terms in the above body of this Instrument.

IN FURTHERANCE of the foregoing, Borrower hereby warrants, represents, covenants and agrees with Lender as follows:

ARTICLE I - OBLIGATIONS

Section 1.01 Obligations. This Instrument is executed, acknowledged, and delivered by Borrower to secure and enforce the following obligations (collectively, the “Obligations”):

(a) Payment of all obligations, indebtedness and liabilities under the Documents including (i) the Prepayment Premium (as defined in the Note)(“Prepayment Premium”), (ii) interest at both the rate specified in the Note and at the Default Rate (as defined in the Note), if applicable and to the extent permitted by Laws (defined below), and (iii) renewals, extensions, and amendments of the Documents;

(b) Performance of every obligation, covenant, and agreement under the Documents including renewals, extensions, and amendments of the Documents; and

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(c) Payment of all sums advanced (including costs and expenses) by Lender pursuant to the Documents including renewals, extensions, and amendments of the Documents.

Section 1.02 Documents. The “Documents” shall mean this Instrument, the Note, the Assignment, and any other written agreement executed in connection with the closing of the Loan (but excluding the Loan application and Loan commitment) and by the party against whom enforcement is sought, including those given to evidence or further secure the payment and performance of any of the Obligations, and any written renewals, extensions, and amendments of the foregoing, executed by the party against whom enforcement is sought. All of the provisions of the Documents are incorporated into this Instrument as if fully set forth in this Instrument.

Section 1.03 Maximum Secured Indebtedness. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE MAXIMUM AMOUNT OF PRINCIPAL INDEBTEDNESS SECURED BY THIS INSTRUMENT AT THE TIME OF EXECUTION OR WHICH UNDER ANY CONTINGENCY MAY HEREAFTER BECOME SECURED BY THIS INSTRUMENT AT ANY TIME IS NINETY-SIX MILLION TWELVE THOUSAND FIVE HUNDRED TWENTY-FOUR AND NO/100 DOLLARS ($96,012,524.00); PROVIDED THAT SUCH LIMITATION SHALL NOT LIMIT THE SECURITY OF THIS INSTRUMENT WITH RESPECT TO (A) INTEREST ON THE AFORESAID PRINCIPAL INDEBTEDNESS AT THE RATES SET FORTH IN THE NOTE, (B) REPAYMENT TO LENDER AFTER DEFAULT AS DESCRIBED IN THIS INSTRUMENT OF SUMS ADVANCED OR PAID FOR REAL ESTATE TAXES, CHARGES AND ASSESSMENTS THAT MAY BE IMPOSED BY LAW UPON THE PROPERTY, (C) REPAYMENT TO LENDER AFTER DEFAULT AS DESCRIBED IN THIS INSTRUMENT OF SUMS ADVANCED OR PAID FOR INSURANCE PREMIUMS WITH RESPECT TO THE PROPERTY, (D) REPAYMENT TO LENDER AFTER DEFAULT AS DESCRIBED IN THIS INSTRUMENT OF ALL REASONABLE LEGAL COSTS OR EXPENSES OF COLLECTION OF THE DEBT SECURED BY THIS INSTRUMENT OR OF THE DEFENSE OR PROSECUTION OF THE RIGHTS AND LIEN CREATED BY AND CONSOLIDATED IN THIS INSTRUMENT AND THE DOCUMENTS, AND (E) REPAYMENT TO LENDER OF SUMS ADVANCED OR PAID TO WHICH LENDER BECOMES SUBROGATED, UPON PAYMENT, UNDER RECOGNIZED PRINCIPLES OF LAW OR EQUITY, OR UNDER EXPRESS STATUTORY AUTHORITY.

ARTICLE II - REPRESENTATIONS AND WARRANTIES

Borrower hereby represents and warrants to Lender as follows:

Section 2.01 Title, Legal Status and Authority. Borrower (i) is seised of the Land and Improvements in fee simple and has good and marketable title to the Property, free and clear of all liens, charges, encumbrances, and security interests, except the Permitted Encumbrances; (ii) will forever warrant and defend its title to the Property and the validity, enforceability, and priority of the lien and security interest created by this Instrument against the claims of all persons; (iii) is a limited liability company duly organized, validly existing, and in good standing and qualified to transact business under the laws of its state of organization or incorporation (“Organization State”) and the state where the Property is located (“Property State”); and (iv) has all necessary approvals, governmental and otherwise, and full power and authority to own its properties (including the Property) and carry on its business.

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Section 2.02 Validity of Documents. The execution, delivery and performance of the Documents and the borrowing evidenced by the Note (i) are within the power of Borrower; (ii) have been authorized by all requisite action; (iii) have received all necessary approvals and consents; (iv) will not violate, conflict with, breach, or constitute (with notice or lapse of time, or both) a default under (1) any law, order or judgment of any court, governmental authority, or the governing instrument of Borrower or (2) any indenture, agreement, or other instrument to which Borrower is a party or by which it or any of its property is bound or affected; (v) will not result in the creation or imposition of any lien, charge, or encumbrance upon any of its properties or assets except for the lien, encumbrance and security interest created by this Instrument and the other Documents; and (vi) will not require any authorization or license from, or any filing with, any governmental or other body (except for the recordation of this Instrument, the Assignment and Uniform Commercial Code (“U.C.C.”) filings). The Documents constitute legal, valid, and binding obligations of Borrower.

Section 2.03 Litigation. There is no action, suit, or proceeding, judicial, administrative, or otherwise (including any condemnation or similar proceeding), pending or, to the best knowledge of Borrower, threatened or contemplated against, or affecting, Borrower or the Property which would have a material adverse effect on either the Property or Borrower’s ability to perform its obligations.

Section 2.04 Status of Property.

(a) The Land and Improvements are not located in an area identified by the Secretary of Housing and Urban Development, or any successor, as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973, or the National Flood Insurance Reform Act of 1994, as each have been or may be amended, or any successor law (collectively, the “Flood Acts”) or, if located within any such area, Borrower has and will maintain the insurance prescribed in Section 3.06 below.

(b) To Borrower’s knowledge, Borrower has all necessary (i) certificates, licenses, and other approvals, governmental and otherwise, for the operation of the Property and the conduct of its business and (ii) zoning, building code, land use, environmental and other similar permits or approvals, all of which are currently in full force and effect and not subject to revocation, suspension, forfeiture, or modification. The Property and its use and occupancy is in full compliance with all Laws and Borrower has received no notice of any violation or potential violation of the Laws which has not been remedied or satisfied.

(c) The Property is served by all utilities (including water and sewer) required for its use.

(d) To Borrower’s knowledge, all public roads and streets necessary to serve the Property for its use have been completed, are serviceable, are legally open, and have been dedicated to and accepted by the appropriate governmental entities.

(e) The Property is free from damage caused by fire or other casualty.

(f) To Borrower’s knowledge, all costs and expenses for labor, materials, supplies, and equipment used in the construction of the Improvements have been paid in full except for the Permitted Encumbrances.

(g) Borrower owns and has paid in full for all furnishings, fixtures, and equipment (other than Tenants’ property) used in connection with the operation of the Property, free of all security interests, liens, or encumbrances except the Permitted Encumbrances and those created by this Instrument.

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(h) The Property is assessed for real estate tax purposes as one or more wholly independent tax lot(s), separate from any adjoining land or improvements and no other land or improvements is assessed and taxed together with the Property.

Section 2.05 Tax Status of Borrower. Borrower is not a “foreign person” within the meaning of Sections 1445 and 7701 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Revenue Code”). Borrower further represents and warrants to Lender that Borrower is not a “disregarded entity” as defined in Section 1.1445-2(b)(2)(iii) of the Income Tax Regulations issued under the Revenue Code.

Section 2.06 Bankruptcy and Equivalent Value. No bankruptcy, reorganization, insolvency, liquidation, or other proceeding for the relief of debtors has been instituted by or against Borrower, any general partner of Borrower (if Borrower is a partnership), or any manager or managing member of Borrower (if Borrower is a limited liability company). Borrower has received reasonably equivalent value for granting this Instrument.

Section 2.07 Disclosure. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. There has been no adverse change in any condition, fact, circumstance, or event that would make any such information materially inaccurate, incomplete or otherwise misleading.

Section 2.08 Illegal Activity. No portion of the Property has been or will be purchased, improved, fixtured, equipped or furnished with proceeds of any illegal activity and, to the best of Borrower’s knowledge, there are no illegal activities at or on the Property.

Section 2.09 OFAC Lists. That (i) neither Borrower, nor, to Borrower’s knowledge, any persons or entities holding any legal or beneficial interest whatsoever in Borrower (whether directly or indirectly), are named on any list of persons, entities, and governments issued by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) pursuant to Executive Order 13224 – Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism (“Executive Order 13224”), as in effect on the date hereof, or any similar list issued by OFAC or any other department or agency of the United States of America (collectively, the “OFAC Lists”); (ii) neither Borrower, nor, to Borrower’s knowledge, any persons or entities holding any legal or beneficial interest whatsoever in Borrower (whether directly or indirectly), are included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services of any kind to, or otherwise associated with any of the persons or entities referred to or described in the OFAC Lists; (iii) neither any guarantor, nor, to Borrower’s knowledge, any persons or entities holding any legal or beneficial interest whatsoever in any guarantor (whether directly or indirectly), are named on any OFAC Lists; (iv) neither any guarantor, nor, to Borrower’s knowledge, any persons or entities holding any legal or beneficial interest whatsoever in any guarantor (whether directly or indirectly), are included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services of any kind to, or otherwise associated with any of the persons or entities referred to or described in the OFAC Lists; and (v) neither Borrower nor any guarantor, nor, to Borrower’s knowledge, any persons or entities holding any legal or beneficial interest whatsoever in Borrower or any guarantor (whether directly or indirectly), have conducted business with or engaged in any transaction with any person or entity named on any of the OFAC Lists or any person or entity included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services of any kind to, or otherwise associated with any of the persons or entities referred to or described in the OFAC Lists.

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Section 2.10 Property as Single Asset. That (i) Borrower’s only asset is the Property, and (ii) the Property generates substantially all of the gross income of Borrower and there is no substantial business being conducted by Borrower other than the business of operating the Property and the activities incidental thereto.

ARTICLE III - COVENANTS AND AGREEMENTS

Borrower covenants and agrees with Lender as follows:

Section 3.01 Payment of Obligations. Borrower shall timely pay and cause to be performed the Obligations.

Section 3.02 Continuation of Existence. Borrower shall not (a) dissolve, terminate, or otherwise dispose of, directly, indirectly or by operation of law, all or substantially all of its assets; (b) reorganize or change its legal structure without Lender’s prior written consent (except as otherwise expressly permitted under Article V below); (c) change its name, address, or the name under which Borrower conducts its business without promptly notifying Lender; or (d) do anything to cause the representations in Section 2.02 to become untrue.

Section 3.03 Taxes and Other Charges.

(a) Payment of Assessments. Borrower shall pay when due all taxes, liens, assessments, utility charges (public or private and including sewer fees), ground rents, maintenance charges, dues, fines, impositions, and public and other charges of any character (including penalties and interest) assessed against, or which could become a lien against, the Property (“Assessments”) and prior to the date any fine, penalty, interest or charge for nonpayment may be imposed. Unless Borrower is making deposits per Section 3.10, Borrower shall provide Lender with receipts evidencing such payments (except for income taxes, franchise taxes, ground rents, maintenance charges, and utility charges) within thirty (30) days after their due date.

(b) Right to Contest. So long as no Event of Default (defined below) is continuing, Borrower may, prior to delinquency and at its sole expense, contest any Assessment, but this shall not change or extend Borrower’s obligation to pay the Assessment as required above unless (i) Borrower gives Lender prior written notice of its intent to contest an Assessment; (ii) Borrower demonstrates to Lender’s reasonable satisfaction that (1) the Property will not be sold to satisfy the Assessment prior to the final determination of the legal proceedings, (2) Borrower has taken such actions as are required or permitted to accomplish a stay of any such sale, or (3) Borrower has furnished a bond or surety (satisfactory to Lender in form and amount) sufficient to prevent a sale of the Property; (iii) at Lender’s option, Borrower has deposited the full amount necessary to pay any unpaid portion of the Assessments with Lender; and (iv) such proceeding shall be permitted under any other instrument to which Borrower or the Property is subject (whether superior or inferior to this Instrument); provided, however, that the foregoing shall not apply to the contesting of any income taxes, franchise taxes, ground rents, maintenance charges, and utility charges.

(c) Documentary Stamps and Other Charges. Borrower shall pay all taxes, assessments, charges, expenses, costs and fees (including registration and recording fees and revenue, transfer, stamp, intangible, and any similar taxes)(collectively, the “Transaction Taxes”) required in connection with the making and/or recording of the Documents. If Borrower fails to pay the Transaction Taxes after demand, Lender may (but is not obligated to) pay these and Borrower shall reimburse Lender on demand for any amount so paid with interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws.

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(d) Changes in Laws Regarding Taxation. If any law (i) deducts from the value of real property for the purpose of taxation any lien or encumbrance thereon, (ii) taxes mortgages or debts secured by mortgages for federal, state or local purposes or changes the manner of the collection of any such existing taxes, and/or (iii) imposes a tax, either directly or indirectly, on any of the Documents or the Obligations, Borrower shall, if permitted by law, pay such tax within the statutory period or within twenty (20) days after demand by Lender, whichever is less; provided, however, that if, in the opinion of Lender, Borrower is not permitted by law to pay such taxes, Lender shall have the option to declare the Obligations immediately due and payable (without any Prepayment Premium) upon sixty (60) days’ notice to Borrower.

(e) No Credits on Account of the Obligations. Borrower will not claim or be entitled to any credit(s) on account of the Obligations for any part of the Assessments and no deduction shall be made or claimed from the taxable value of the Property for real estate tax purposes by reason of the Documents or the Obligations. If such claim, credit or deduction is required by law, Lender shall have the option to declare the Obligations immediately due and payable (without any Prepayment Premium) upon sixty (60) days’ notice to Borrower.

Section 3.04 Defense of Title, Litigation, and Rights under Documents. Borrower shall forever warrant, defend and preserve Borrower’s title to the Property, the validity, enforceability and priority of this Instrument and the lien or security interest created thereby, and any rights of Lender under the Documents against the claims of all persons, and shall promptly notify Lender of any such claims. Lender (whether or not named as a party to such proceedings) is authorized and empowered (but shall not be obligated) to take such additional steps as it may deem necessary or proper for the defense of any such proceeding or the protection of the lien, security interest, validity, enforceability, or priority of this Instrument, title to the Property, or any rights of Lender under the Documents, including the employment of counsel, the prosecution and/or defense of litigation, the compromise, release, or discharge of such adverse claims, the purchase of any tax title, the removal of any such liens and security interests, and any other actions Lender deems necessary to protect its interests. Borrower authorizes Lender to take any actions required to be taken by Borrower, or permitted to be taken by Lender, in the Documents in the name and on behalf of Borrower. Borrower shall reimburse Lender on demand for all expenses (including attorneys’ fees) incurred by it in connection with the foregoing and Lender’s exercise of its rights under the Documents. All such expenses of Lender, until reimbursed by Borrower, shall be part of the Obligations, bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, and shall be secured by this Instrument.

Section 3.05 Compliance With Laws and Operation and Maintenance of Property.

(a) Repair and Maintenance. Borrower will operate and maintain the Property in good order, repair, and operating condition. Borrower will promptly make all necessary repairs, replacements, additions, and improvements necessary to ensure that the Property shall not in any way be diminished or impaired. Borrower will not cause or allow any of the Property to be misused, wasted, or to deteriorate and Borrower will not abandon the Property. No new building, structure, or other improvement shall be constructed on the Land nor shall any material part of the Improvements be removed, demolished, or structurally or materially altered, without Lender’s prior written consent.

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(b) Replacement of Property. Borrower will keep the Property fully equipped and will replace all worn out or obsolete Property with new, comparable fixtures or Property. Borrower will not, without Lender’s prior written consent, remove any Property owned by Borrower and covered by this Instrument unless the same is replaced by Borrower with a new (or refurbished), comparable article (i) owned by Borrower free and clear of any lien or security interest (other than the Permitted Encumbrances and those created by this Instrument) or (ii) leased by Borrower (A) with Lender’s prior written consent or (B) if the replaced Property was leased at the time of execution of this Instrument, except in the ordinary course of business.

(c) Compliance with Laws. Borrower shall comply with and shall cause the Property to be maintained, used, and operated in compliance with all (i) present and future laws, Environmental Laws (defined below), ordinances, regulations, rules, orders and requirements (including zoning and building codes) of any governmental or quasi-governmental authority or agency applicable to Borrower or the Property (collectively, the “Laws”); (ii) orders, rules, and regulations of any regulatory, licensing, accrediting, insurance underwriting or rating organization, or other body exercising similar functions; (iii) duties or obligations of any kind imposed under any Permitted Encumbrance or by law, covenant, condition, agreement, or easement, public or private; and (iv) policies of insurance at any time in force with respect to the Property. If proceedings are initiated or Borrower receives notice that Borrower or the Property is not in compliance with any of the foregoing, Borrower will promptly send Lender notice and a copy of the proceeding or violation notice. Without limiting Lender’s rights and remedies under Article VI or otherwise, if Borrower or the Property is in material non-compliance with any Laws, Lender may impose additional requirements upon Borrower including monetary reserves or financial equivalents.

(d) Zoning and Title Matters. Borrower shall not, without Lender’s prior written consent; (i) initiate or actively support any zoning reclassification of the Property or variance under existing zoning ordinances; (ii) modify or supplement any of the Permitted Encumbrances; (iii) impose any restrictive covenants or encumbrances upon the Property; (iv) execute or file any subdivision plat affecting the Property; (v) consent to the annexation of the Property to any municipality; (vi) permit the Property to be used by the public or any person in a way that might make a claim of adverse possession or any implied dedication or easement possible, except that the current use and trafficking of the lobby in the ordinary course of business is permitted; (vii) cause the Property to become a non-conforming use under zoning ordinances or cause or permit any present or future non-conforming use of the Property to be discontinued; or (viii) fail to comply with the terms of the Permitted Encumbrances.

Section 3.06 Insurance.

(a) Property and Time Element Insurance. Borrower shall keep the Property insured for the benefit of Borrower and Lender (with Lender named as mortgagee) by (i) an “all risk” property insurance policy with an agreed amount endorsement for full replacement cost (defined below) without any coinsurance provisions or penalties, or the broadest form of coverage available, in an amount sufficient to prevent Lender from ever becoming a coinsurer under the policy or Laws, and with a deductible not to exceed Twenty-Five Thousand Dollars ($25,000.00); (ii) a policy or endorsement insuring against acts of terrorism as hereinafter provided; (iii) a policy or endorsement insuring against claims applicable to the presence of Microbial Matter (as defined in Section 3.12(a); (iv) a policy or endorsement providing business income insurance (including business interruption insurance and extra expense insurance and/or rent insurance) on an actual loss sustained basis in an amount equal to at least one (1) year’s total income from the Property including all Rents plus all other pro forma annual income such as percentage rent and tenant reimbursements of fixed and operating expenses; (v) a policy or endorsement insuring against damage by flood if the Property is located in a Special Flood Hazard Area identified by the Federal Emergency Management Agency or any successor or related government agency as a 100 year flood plain currently classified as Flood Insurance Rate Map Zones “A”, “AO”, “AH”, “A1-A30”, “AE”, “A99”, “V”, “V1-V30”, and “VE”, under which flood insurance has been made available under the Flood Acts, in an amount equal to the lesser of (1) the original amount of the Note or (2) the maximum limit of coverage available for the Property under the Flood Acts; (vi) a policy or endorsement covering against damage or loss from (A) sprinkler system leakage and (B) boilers, boiler tanks, HVAC systems, heating and air-conditioning equipment, pressure vessels, auxiliary piping, and similar apparatus, in the amount reasonably required by Lender; (vii) during the period of any construction, repair, restoration, or replacement of the Property, a standard builder’s risk policy with extended coverage in an amount at least equal to the full replacement cost of such Property, and worker’s compensation, in statutory amounts; and (viii) a policy or endorsement covering against damage or loss by earthquake and other natural phenomenon in the amounts reasonably required by Lender. “Full replacement cost” shall mean the one hundred percent (100%) replacement cost of the Property, without allowance for depreciation and exclusive of the cost of excavations, foundations, footings, and value of land, and shall be subject to verification by Lender. Full replacement cost will be determined, at Borrower’s expense, periodically (but at least once per year) by the insurance company or an appraiser, engineer, architect, or contractor approved by said company and Lender.

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(b) Liability and Other Insurance. Borrower shall maintain commercial general liability insurance with per occurrence limits of $1,000,000, a products/completed operations limit of $2,000,000, and a general aggregate limit of $2,000,000, with an excess/umbrella liability policy of not less than $10,000,000 per occurrence and annual aggregate covering Borrower, with Lender named as an additional insured, against claims for bodily injury or death or property damage occurring in, upon, or about the Property or any street, drive, sidewalk, curb, or passageway adjacent thereto. In addition to any other requirements, such commercial general liability and excess/umbrella liability insurance shall provide insurance against acts of terrorism and against claims applicable to the presence of Microbial Matter, or such coverages shall be provided by separate policies or endorsements. The insurance policies shall also include operations and blanket contractual liability coverage which insures contractual liability under the indemnifications set forth in Section 8.02 below (but such coverage or the amount thereof shall in no way limit such indemnifications). Upon request, Borrower shall also carry additional insurance or additional amounts of insurance covering Borrower or the Property as Lender shall reasonably require.

(c) Form of Policy. All insurance required under this Section shall be fully paid for, non-assessable, and the policies shall contain such provisions, endorsements, and expiration dates as Lender shall reasonably require. The policies shall be issued by insurance companies authorized to do business in the Property State and must have and maintain a current financial strength rating of “A-, X” (or higher) from A.M. Best or equivalent (or if a rating by A.M. Best is no longer available, a similar rating from a similar or successor service). In addition, all policies shall (i) include a standard mortgagee clause, without contribution, in the name of Lender, (ii) provide that they shall not be canceled, amended, or materially altered (including reduction in the scope or limits of coverage) without at least thirty (30) days’ prior written notice to Lender except in the event of cancellation for non-payment of premium, in which case only ten (10) days’ prior written notice will be given to Lender, and (iii) include a waiver of subrogation clause substantially equivalent to the following: “The Company may require from the Insured an assignment of all rights of recovery against any party for loss to the extent that payment therefor is made by the Company, but the Company shall not acquire any rights of recovery which the Insured has expressly waived prior to loss, nor shall such waiver affect the Insured’s rights under this policy.”

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(d) Original Policies. Borrower shall deliver to Lender (i) as and when available original or certified copies of all policies (and renewals) required under this Section and (ii) receipts evidencing payment of all premiums on such policies at least thirty (30) days prior to their expiration. If original and renewal policies are unavailable or if coverage is under a blanket policy, Borrower shall deliver duplicate originals, or, if unavailable, original ACORD 28 (2003/10) and ACORD 25-S certificates (or equivalent certificates) evidencing that such policies are in full force and effect together with certified copies of the original policies.

(e) General Provisions. Borrower shall not carry separate or additional insurance concurrent in form or contributing in the event of loss with that required under this Section unless endorsed in favor of Lender as per this Section and approved by Lender in all respects. In the event of foreclosure of this Instrument or other transfer of title or assignment of the Property in extinguishment, in whole or in part, of the Obligations, all right, title, and interest of Borrower in and to all policies of insurance then in force regarding the Property and all proceeds payable thereunder and unearned premiums thereon shall immediately vest in the purchaser or other transferee of the Property. No approval by Lender of any insurer shall be construed to be a representation, certification, or warranty of its solvency. No approval by Lender as to the amount, type, or form of any insurance shall be construed to be a representation, certification, or warranty of its sufficiency. Borrower shall comply with all insurance requirements and shall not cause or permit any condition to exist which would be prohibited by any insurance requirement or would invalidate the insurance coverage on the Property.

(f) Waiver of Subrogation. A waiver of subrogation shall be obtained by Borrower from its insurers and, consequently, Borrower for itself, and on behalf of its insurers, hereby waives and releases any and all right to claim or recover against Lender, its officers, employees, agents and representatives, for any loss of or damage to Borrower, other Persons, the Property, Borrower’s property or the property of other Persons from any cause required to be insured against by the provisions of this Instrument or otherwise insured against by Borrower.

(g) Terrorism Coverage Limitations. Borrower shall not be required to pay annual premiums for terrorism insurance greater than the lesser of (i) 70% of the annual premium Borrower is then paying for the fire and extended coverage portion of the “all risk” property policy for the Property or (ii) $100,000 (the “Terrorism Insurance Maximum Premium”), and subject to the following sentence, if Borrower, by paying the Terrorism Insurance Maximum Premium, is not able to purchase terrorism insurance coverage for the Property in an amount at least equal to the Loan amount, then Borrower shall (subject to the following sentence) always purchase terrorism insurance coverage for the Property in the maximum amount of coverage that Borrower is able to purchase by spending the Terrorism Insurance Maximum Premium. Notwithstanding the foregoing, if Borrower, by paying the Terrorism Insurance Maximum Premium, is only able to purchase terrorism insurance coverage for the Property of $40 million or less, then Borrower shall not be required to carry terrorism insurance coverage on the Property until such time as Borrower, by paying the Terrorism Insurance Maximum Premium, is able to purchase terrorism insurance coverage for the Property in an amount in excess of $40 million.

Section 3.07 Damage and Destruction of Property.

(a) Borrower’s Obligations. If any damage to, loss, or destruction of the Property occurs (any “Damage”), (i) Borrower shall promptly notify Lender and take all necessary steps to preserve any undamaged part of the Property and (ii) if the insurance proceeds are made available for Restoration (defined below) (but regardless of whether any proceeds are sufficient for Restoration), Borrower shall promptly commence and diligently pursue to completion the restoration, replacement, and rebuilding of the Property as nearly as possible to its value and condition immediately prior to the Damage or a Taking (defined below) in accordance with plans and specifications approved by Lender (“Restoration”). Borrower shall comply with other reasonable requirements established by Lender to preserve the security under this Instrument.

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(b) Lender’s Rights. If any Damage occurs and some or all of it is covered by insurance, then (i) Lender may, but is not obligated to, make proof of loss if not made promptly by Borrower, and (A) provided that no Event of Default has occurred, Borrower may, subject to Lender’s prior written approval (not to be unreasonably withheld, conditioned or delayed), settle, adjust, or compromise any claims for the Damage, and (B) following an Event of Default, Lender is authorized and empowered by Borrower to settle, adjust, or compromise any claims for the Damage; (ii) each insurance company concerned is authorized and directed to make payment of insurance proceeds in excess of $500,000 directly to Lender for the Damage; and (iii) Lender may apply the insurance proceeds in any order it determines (1) to reimburse Lender for all Costs (defined below) related to collection of the proceeds and (2) subject to Section 3.07(c) and at Lender’s option, to (A) payment (without any Prepayment Premium) of all or part of the Obligations, whether or not then due and payable, in the order determined by Lender (provided that if any Obligations remain outstanding after this payment, the unpaid Obligations shall continue in full force and effect and Borrower shall not be excused in the payment thereof); (B) the cure of any default under the Documents; or (C) the Restoration. Any insurance proceeds held by Lender shall be held without the payment of interest thereon. If Borrower receives any insurance proceeds for the Damage, Borrower shall promptly deliver the proceeds to Lender. Notwithstanding anything in this Instrument or at law or in equity to the contrary, none of the insurance proceeds paid to Lender shall be deemed trust funds and Lender may dispose of these proceeds as provided in this Section. Borrower expressly assumes all risk of loss from any Damage, whether or not insurable or insured against.

(c) Application of Proceeds to Restoration. Lender shall make the Net Proceeds (defined below) available to Borrower for Restoration if: (i) there shall then be no Event of Default; (ii) for casualty events resulting in Net Proceeds in excess of $500,000, Borrower shall have entered into a general construction contract acceptable in all respects to Lender for Restoration, which contract must include provision for retainage of not less than ten percent (10%) until final completion of the Restoration; and (iii) in Lender’s reasonable judgment, after Restoration has been completed, the net cash flow of the Property will be sufficient to cover all costs and operating expenses of the Property, including payments due and reserves required under the Documents and all supplemental loans and secondary loans secured by the Property. Notwithstanding any provision of this Instrument to the contrary, Lender shall not be obligated to make any portion of the Net Proceeds available for Restoration unless, at the time of the disbursement request, Lender has determined in its reasonable discretion that (y) Restoration can be completed at a cost which does not exceed the aggregate of the remaining Net Proceeds and any funds deposited with Lender by Borrower (“Additional Funds”) and (z) the aggregate of any loss of rental income insurance proceeds which the carrier has acknowledged to be payable (“Rent Loss Proceeds”) and any funds deposited with Lender by Borrower are sufficient to cover all costs and operating expenses of the Property, including payments due and reserves required under the Documents and all supplemental loans and secondary loans secured by the Property.

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(d) Disbursement of Proceeds. If insurance proceeds are made available for Restoration, Lender shall (for Net Proceeds in excess of $500,000), through a disbursement procedure established by Lender, periodically make available to Borrower in installments the net amount of all insurance proceeds received by Lender after deduction of all reasonable costs and expenses incurred by Lender in connection with the collection and disbursement of such proceeds (“Net Proceeds”) and, if any, the Additional Funds. The amounts periodically disbursed to Borrower shall be based upon the amounts currently due under the construction contract for Restoration and Lender’s receipt of (i) appropriate lien waivers, (ii) a certification of the percentage of Restoration completed by an architect or engineer acceptable to Lender, and (iii) title insurance protection against materialmen’s and mechanics’ liens. At Lender’s election, the disbursement of funds may be handled by a disbursing agent selected by Lender, and such agent’s reasonable fees and expenses shall be paid by Borrower. The Net Proceeds, Rent Loss Proceeds, and any Additional Funds shall constitute additional security for the Loan and Borrower shall execute, deliver, file and/or record, at its expense, such instruments as Lender requires to grant to Lender a perfected, first-priority security interest in these funds. If the Net Proceeds are made available for Restoration and (x) Borrower refuses or fails to complete the Restoration, (y) an Event of Default occurs, or (z) the Net Proceeds or Additional Funds are not applied to Restoration, then any undisbursed portion may, at Lender’s option, be applied to the Obligations in any order of priority and any application to principal shall be deemed a voluntary prepayment subject to the Prepayment Premium. Notwithstanding anything to the contrary set forth herein, Net Proceeds of $500,000 or less shall be paid directly to Borrower so long as there is no current Event of Default under the Documents.

(e) Real Property Law Section 254. The provisions of subsection 4 of Section 254 of the Real Property Law of New York covering the insurance of buildings against loss by fire that are inconsistent with the provisions of this Instrument shall not apply to the terms of this Instrument. Nothing contained herein, except for the immediately preceding sentence, shall be construed as depriving Lender of any right or advantage available under Section 254 of the Real Property Law of the State of New York, and all covenants herein that differ therefrom shall be construed as conferring additional and not substitute rights and advantages.

Section 3.08 Condemnation.

(a) Borrower’s Obligations. Borrower will promptly notify Lender of any threatened or instituted proceedings for the condemnation or taking by eminent domain of the Property including any change in any street (whether as to grade, access, or otherwise)(a “Taking”). Borrower shall, at its expense, (i) diligently prosecute these proceedings, (ii) deliver to Lender copies of all papers served in connection therewith, and (iii) consult and cooperate with Lender in the handling of these proceedings. No settlement of these proceedings shall be made by Borrower without Lender’s prior written consent. Lender may participate in these proceedings (but shall not be obligated to do so) and Borrower will sign and deliver all instruments requested by Lender to permit this participation.

(b) Lender’s Rights to Proceeds. All condemnation awards, judgments, decrees, or proceeds of sale in lieu of condemnation (“Award”) are assigned, and shall be paid, to Lender. Borrower authorizes Lender to collect and receive them, to give receipts for them, to accept them in the amount received without question or appeal, and/or to appeal any judgment, decree, or award. Borrower will sign and deliver all instruments requested by Lender to permit these actions.

(c) Application of Award. Lender shall have the right to apply any Award, subject to Section 3.08(d), as per Section 3.07 for insurance proceeds held by Lender, including the waiver of Prepayment Premium. If Borrower receives any Award, Borrower shall promptly deliver them to Lender. Notwithstanding anything in this Instrument or at law or in equity to the contrary, none of the Award paid to Lender shall be deemed trust funds and Lender may dispose of these proceeds as provided in this Section.

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(d) Application of Award to Restoration. With respect to any portion of the Award that is not for loss of value or property, Lender shall permit the application of the Award to Restoration in accordance with the provisions of Section 3.07 if: (i) no more than twenty percent (20%) of the gross area of the Improvements, (ii) the amount of the loss does not exceed twenty percent (20%) of the original amount of the Note; (iii) the Taking does not affect access to the Property from any public right-of-way; (iv) there is no Event of Default at the time of application; (v) after Restoration, the Property and its use will be in compliance with all Laws; (vi) in Lender’s reasonable judgment, Restoration is practical and can be completed within one (1) year after the Taking and at least one (1) year prior to the maturity of the Note; and (vii) the Tenants listed in Exhibit D (“Major Tenants”) agree in writing to continue their Leases without abatement of rent. Any portion of the Award that is (i) for loss of value or property or (ii) in excess of the cost of any Restoration permitted above, may, in Lender’s sole discretion, be applied against the Obligations or paid to Borrower.

(e) Effect on the Obligations. Notwithstanding any Taking, Borrower shall continue to pay and perform the Obligations as provided in the Documents. Any reduction in the Obligations due to application of the Award shall take effect only upon Lender’s actual receipt and application of the Award to the Obligations. If the Property shall have been foreclosed, sold pursuant to any power of sale granted hereunder, or transferred by deed-in-lieu of foreclosure prior to Lender’s actual receipt of the Award, Lender may apply the Award received to the extent of any deficiency upon such sale and Costs incurred by Lender in connection with such sale.

Section 3.09 Liens and Liabilities. Borrower shall pay, bond, or otherwise discharge all notices of lien of mechanics, materialmen, laborers, and others which, if the underlying claims or demands remain unpaid, would result in a lien or encumbrance on the Property or the Rents (collectively, “Liens”) and Borrower shall, at its sole expense, do everything necessary to preserve the lien and security interest created by this Instrument and its priority. Nothing in the Documents shall be deemed or construed as constituting the consent or request by Lender, express or implied, to any contractor, subcontractor, laborer, mechanic or materialman for the performance of any labor or the furnishing of any material for any improvement, construction, alteration, or repair of the Property. Borrower further agrees that Lender does not stand in any fiduciary relationship to Borrower. Any contributions made, directly or indirectly, to Borrower by or on behalf of any of its partners, members, principals or any party related to such parties shall be treated as equity and shall be subordinate and inferior to the rights of Lender under the Documents.

Section 3.10 Tax and Insurance Deposits. At Lender’s option following an Event of Default, Borrower shall make monthly deposits (“Deposits”) with Lender equal to one-twelfth (1/12th) of the annual Assessments (except for income taxes, franchise taxes, ground rents, maintenance charges and utility charges) and the premiums for insurance required under Section 3.06 (the “Insurance Premiums”) together with amounts sufficient to pay these items thirty (30) days before they are due (collectively, the “Impositions”). Lender shall estimate the amount of the Deposits until ascertainable. At that time, Borrower shall promptly deposit any deficiency. Borrower shall promptly notify Lender of any changes to the amounts, schedules and instructions for payment of the Impositions. Borrower authorizes Lender or its agent to obtain the bills for Assessments directly from the appropriate tax or governmental authority. All Deposits are pledged to Lender and shall constitute additional security for the Obligations. The Deposits shall be held by Lender without interest (except to the extent required under Laws) and may be commingled with other funds. If (i) there is no Event of Default at the time of payment, (ii) Borrower has delivered bills or invoices to Lender for the Impositions in sufficient time to pay them when due, (iii) the Deposits are sufficient to pay the Impositions or Borrower has deposited the necessary additional amount, then Lender shall pay the Impositions prior to their due date. Any Deposits remaining after payment of the Impositions shall, at Lender’s option, be credited against the Deposits required for the following year or paid to Borrower. If an Event of Default occurs, the Deposits may, at Lender’s option, be applied to the Obligations in any order of priority. Any application to principal shall be deemed a voluntary prepayment subject to the Prepayment Premium. Borrower shall not claim any credit against the principal and interest due under the Note for the Deposits. Upon an assignment or other transfer of this Instrument, Lender may pay over the Deposits in its possession to the assignee or transferee and then it shall be completely released from all liability with respect to the Deposits. Borrower shall look solely to the assignee or transferee with respect thereto. This provision shall apply to every transfer of the Deposits to a new assignee or transferee. Subject to Article V, a transfer of title to the Land shall automatically transfer to the new owner the beneficial interest in the Deposits. Upon full payment and satisfaction of this Instrument or, at Lender’s option, at any prior time, the balance of the Deposits in Lender’s possession shall be paid over to the record owner of the Land and no other party shall have any right or claim to the Deposits. Lender may transfer all its duties under this Section to such servicer or financial institution as Lender may periodically designate and Borrower agrees to make the Deposits to such servicer or institution.

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Section 3.11 ERISA.

(a) Borrower understands and acknowledges that, as of the date hereof, the source of funds from which Lender is extending the Loan will include one or more of the following accounts: (i) an “insurance company general account,” as that term is defined in Prohibited Transaction Class Exemption (“PTE”) 95-60 (60 Fed. Reg. 35925 (Jul. 12, 1995)), as to which Lender meets the conditions for relief in Sections I and IV of PTE 95-60; (ii) pooled and single client insurance company separate accounts, which are subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and (iii) one or more insurance company separate accounts maintained solely in connection with fixed contractual obligations of the insurance company, under which the amounts payable or credited to the plan are not affected in any manner by the investment performance of the separate account.

(b) Borrower represents and warrants to Lender that (i) Borrower is not an “employee benefit plan” as defined in Section 3(3) of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (ii) Borrower is not a “party in interest”, as defined in Section 3(14) of ERISA, other than as a service provider or an affiliate of a service provider, to any employee benefit plan that has invested in a separate account described in Section 3.11(a)(ii) above, from which funds have been derived to make the Loan, or if so, the execution of the Documents and making of the Loan thereunder do not constitute nonexempt prohibited transactions under ERISA; (iii) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans, or if subject to such statutes, is not in violation thereof in the execution of the Documents and the making of the Loan thereunder; (iv) the assets of Borrower do not constitute “plan assets” of one or more plans within the meaning of 29 C.F.R. Section 2510.3-101; and (v) one or more of the following circumstances is true: (1) equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) less than twenty-five percent (25%) of all equity interests in Borrower are held by “benefit plan investors” within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (3) Borrower qualifies as an “operating company,” a “venture capital operating company” or a “real estate operating company” within the meaning of 29 C.F.R. Section 2510.3-101(c), (d) or (e), respectively.

(c) Borrower shall deliver to Lender such certifications and/or other evidence periodically requested by Lender, in its sole discretion, to verify the representations and warranties in Section 3.11(b) above. Failure to deliver these certifications or evidence, breach of these representations and warranties, or consummation of any transaction which would cause this Instrument or any exercise of Lender’s rights under this Instrument to (i) constitute a non-exempt prohibited transaction under ERISA or (ii) violate ERISA or any state statute regulating governmental plans (collectively, a “Violation”), shall be an Event of Default. Notwithstanding anything in the Documents to the contrary, no sale, assignment, or transfer of any direct or indirect right, title, or interest in Borrower or the Property (including creation of a junior lien, encumbrance or leasehold interest) shall be permitted which would, in Lender’s opinion, negate Borrower’s representations in this Section or cause a Violation. At least fifteen (15) days before consummation of any of the foregoing, Borrower shall obtain from the proposed transferee or lienholder (i) a certification to Lender that the representations and warranties of this Section 3.11 will be true after consummation and (ii) an agreement to comply with this Section 3.11.

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Section 3.12 Environmental Representations, Warranties, and Covenants.

(a) Environmental Representations and Warranties. Borrower represents and warrants, to the best of Borrower’s actual knowledge and additionally based upon the environmental site assessment report of the Property (the “Environmental Report”), that except as fully disclosed in the Environmental Report delivered to and approved by Lender: (i) there are no Hazardous Materials (defined below) or underground storage tanks affecting the Property (“affecting the Property” shall mean “in, on, under, stored, used or migrating to or from the Property”) except for (A) routine office cleaning, janitorial and other materials and supplies necessary to operate the Property for its current use and (B) Hazardous Materials that are (1) in compliance with Environmental Laws (defined below), (2) have all required permits, and (3) are in only the amounts necessary to operate the Property; (ii) there are no past, present or threatened Releases (defined below) of Hazardous Materials in violation of any Environmental Law affecting the Property; (iii) there is no past or present non-compliance with Environmental Laws or with permits issued pursuant thereto; (iv) Borrower does not know of, and has not received, any written or oral notice or communication from any person relating to Hazardous Materials affecting the Property; and (v) Borrower has, to Borrower’s knowledge, provided to Lender, in writing, all material information relating to environmental conditions affecting the Property known to Borrower or contained in Borrower’s files. “Environmental Law” means any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, that apply to Borrower or the Property and relate to Hazardous Materials including the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. “Hazardous Materials” shall mean petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials; polychlorinated biphenyls (“PCBs”) and compounds containing them; lead and lead-based paint; Microbial Matter, infectious substances, asbestos or asbestos-containing materials in any form that is or could become friable; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which on the Property is prohibited by any federal, state or local authority; any substance that requires special handling; and any other material or substance now or in the future defined as a “hazardous substance,” “hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” within the meaning of any Environmental Law. “Release” of any Hazardous Materials includes any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, pumping, pouring, escaping, dumping, disposing or other movement of Hazardous Materials. “Microbial Matter” shall mean the presence of fungi or bacterial matter which reproduces through the release of spores or the splitting of cells, including, but not limited to, mold, mildew and viruses, whether or not such Microbial Matter is living.

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(b) Environmental Covenants. Borrower covenants and agrees that: (i) all use and operation of the Property shall be in compliance with all Environmental Laws and required permits; (ii) there shall be no Releases of Hazardous Materials affecting the Property except in compliance with Environmental Laws; (iii) there shall be no Hazardous Materials affecting the Property except (A) routine office, cleaning and janitorial supplies, (B) in compliance with all Environmental Laws, (C) with all required permits, and (D) (1) in only the amounts necessary to operate the Property or (2) fully disclosed to and approved by Lender in writing; (iv) Borrower shall keep the Property free and clear of all liens and encumbrances imposed by any Environmental Laws due to any act or omission by Borrower or any person (the “Environmental Liens”); (v) Borrower shall, at its sole expense, fully and expeditiously cooperate in all activities in Section 3.12(c) including providing all relevant information and making knowledgeable persons available for interviews; (vi) Borrower shall, at its sole expense, (A) perform any environmental site assessment or other investigation of environmental conditions at the Property upon Lender’s request based on Lender’s reasonable belief that the Property is not in compliance with all Environmental Laws, (B) share with Lender the results and reports and Lender and the Indemnified Parties (defined below) shall be entitled to rely on such results and reports, and (C) complete any remediation of Hazardous Materials affecting the Property or other actions required by any Environmental Laws; (vii) Borrower shall not allow any Tenant or other user of the Property to violate any Environmental Law; (viii) Borrower shall immediately notify Lender in writing after it becomes aware of (A) the presence, Release, or threatened Release of Hazardous Materials affecting the Property, (B) any non-compliance of the Property with any Environmental Laws, (C) any actual or potential Environmental Lien, (D) any required or proposed remediation of environmental conditions relating to the Property, and (E) any written or oral communication or notice from any person relating to Hazardous Materials, and (ix) if an Asbestos Operation and Maintenance Plan and any other Operation and Maintenance Plan (collectively, the “O&M Plan”) is in effect (or required by Lender to be implemented) at the time of the closing of the Loan, then Borrower shall, at its sole expense, implement and continue the O&M Plan (with any modifications required to comply with applicable Laws), until payment and full satisfaction of the Obligations. Any failure of Borrower to perform its obligations under this Section 3.12 shall constitute bad faith waste of the Property.

(c) Lender’s Rights. Lender and any person designated by Lender may enter the Property to assess the environmental condition of the Property and its use including (i) conducting any environmental assessment or audit (the scope of which shall be determined by Lender) and (ii) taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing at all reasonable times when (A) a default has occurred under the Documents, (B) Lender reasonably believes that a Release has occurred or the Property is not in compliance with all Environmental Laws, or (C) the Loan is being considered for sale. Borrower shall cooperate with and provide access to Lender and such person.

Section 3.13 Electronic Payments. Unless directed otherwise in writing by Lender, all payments due under the Documents shall be made by electronic funds transfer debit entries to Borrower’s account at an Automated Clearing House member bank satisfactory to Lender or by similar electronic transfer process selected by Lender. Each payment due under the Documents shall be initiated by Lender through the Automated Clearing House network (or similar electronic process) for settlement on the Due Date (as defined in the Note) for the payment. Borrower shall, at Borrower’s sole cost and expense, direct its bank in writing to permit such electronic fund transfer debit entries (or similar electronic transfer) to be made by Lender. Prior to each payment Due Date under the Documents, Borrower shall deposit and/or maintain sufficient funds in Borrower’s account to cover each debit entry. Any charges or costs, if any, by Borrower’s bank for the foregoing shall be paid by Borrower.

Section 3.14 Inspection. Borrower shall allow Lender and any person designated by Lender to enter upon the Property and conduct tests or inspect the Property at all reasonable times upon reasonable notice (except in an emergency). Borrower shall assist Lender and such person in effecting said inspection.

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Section 3.15 Records, Reports, and Audits.

(a) Records and Reports. Borrower shall maintain complete and accurate books and records with respect to all operations of or transactions involving the Property. Annually, Borrower shall furnish Lender financial statements for the most current fiscal year (including a schedule of all related Obligations and contingent liabilities) for (i) Borrower, (ii) any general partner(s) of Borrower and any general partners of such partners, (iii) any guarantors or sureties of the Note, and (iv) any Major Tenants, to the extent available through commercially reasonable efforts by Borrower. Annually, Borrower shall furnish Lender (i) operating statements showing cash flow and capital expenditures for the Property including income and expenses (before and after Obligations service), major capital improvements, a schedule showing tenant sales and percentage rent for retail properties where sales are reported; (ii) a certified rent roll including security deposits held, the expiration of the terms of the Leases; (iii) a budget showing projected income and expenses (before and after Obligations service) for the current year; (iv) any appraisals of the Property performed during the previous year; and (v) upon Lender’s request following an Event of Default, (A) a schedule showing Borrower’s tax basis in the Property, (B) the distribution of economic interests in the Property, and (C) copies of any other loan documents affecting the Property. Financial information relating guarantors shall be limited to certified statements of minimum net worth.

(b) Delivery of Reports. All of the reports, statements, and items required under this Section shall be (i) certified as being true, correct, and accurate by an authorized person, partner, or officer of the delivering party or, at the deliverer’s option, audited by a Certified Public Accountant; (ii) satisfactory to Lender in form and substance; and (iii) delivered within (A) ninety (90) days after the end of Borrower’s fiscal year for annual reports. If any one report, statement, or item is not received by Lender on its due date, a late fee of Three Hundred Fifty and No/100 Dollars ($350.00) per month shall be due and payable by Borrower. If any one report, statement, or item is not received within thirty (30) days after written notice from Lender, Lender may immediately declare an Event of Default under the Documents. Borrower shall (i) provide Lender annually with such additional financial, management, or other information regarding Borrower, any general partner of Borrower, or the Property, as Lender may reasonably request and (ii) upon Lender’s request, deliver all items required by Section 3.15 in an electronic format (i.e. on computer disks) or by electronic transmission acceptable to Lender in the form maintained by Borrower.

(c) Inspection of Records. Borrower shall allow Lender or any person designated by Lender to examine, audit, and make copies of all such books and records and all supporting data at the place where these items are located at all reasonable times after reasonable advance notice; provided that no notice shall be required after any default under the Documents. Borrower shall assist Lender in effecting such examination.

Section 3.16 Borrower’s Certificates. Within ten (10) days after Lender’s request, Borrower shall furnish a written certification to Lender and any Investors (defined below) as to (a) the amount of the Obligations outstanding; (b) the interest rate, terms of payment, and maturity date of the Note; (c) the date to which payments have been paid under the Note; (d) whether any offsets or defenses exist against the Obligations and a detailed description of any listed; (e) whether all Leases are in full force and effect and have not been modified (or if modified, setting forth all modifications); (f) the date to which the Rents have been paid; (g) whether, to the best knowledge of Borrower, any defaults exist under the Leases and a detailed description of any listed; (h) the security deposit held by Borrower under each Lease and that such amount is the amount required under such Lease; (i) whether there are any defaults (or events which with the passage of time and/or notice would constitute a default) under the Documents and a detailed description of any listed; (j) whether the Documents are in full force and effect; and (k) any other matters reasonably requested by Lender related to the Leases, the Obligations, the Property, or the Documents. For all non-residential properties and promptly upon Lender’s request, Borrower shall use commercially reasonable efforts to deliver a written certification to Lender and Investors from Tenants specified by Lender that: (a) their Leases are in full force and effect; (b) there are no defaults (or events which with the passage of time and/or notice would constitute a default) under their Leases and a detailed description of any listed; (c) none of the Rents have been paid more than one month in advance; (d) there are no offsets or defenses against the Rents and a detailed description of any listed; and (e) any other matters reasonably requested by Lender related to the Leases; provided, however, that Borrower shall not have to pay money to a Tenant to obtain such certification, but it will deliver a landlord’s certification for any certification it cannot obtain.

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Section 3.17 Full Performance Required; Survival of Warranties. All representations and warranties of Borrower in the Loan application or made in connection with the Loan shall survive the execution and delivery of the Documents and shall remain continuing warranties and representations of Borrower.

Section 3.18 Additional Security. No other security now existing or taken later to secure the Obligations shall be affected by the execution of the Documents and all additional security shall be held as cumulative. The taking of additional security, execution of partial releases, or extension of the time of payment obligations of Borrower shall not diminish the effect and lien of this Instrument and shall not affect the liability or obligations of any maker or guarantor. Neither the acceptance of the Documents nor their enforcement shall prejudice or affect Lender’s right to realize upon or enforce any other security now or later held by Lender. Lender may enforce the Documents or any other security in such order and manner as it may determine in its discretion.

Section 3.19 Further Acts. Borrower shall take all necessary actions to (i) keep valid and effective the lien and rights of Lender under the Documents and (ii) protect the lawful owner of the Documents. Promptly upon request by Lender and at Borrower’s expense, Borrower shall execute additional instruments and take such actions as Lender reasonably believes are necessary or desirable to (a) maintain or grant Lender a first-priority, perfected lien on the Property, (b) grant to Lender to the fullest extent permitted by Laws, the right to foreclose on, or transfer title to, the Property non-judicially, (c) correct any error or omission in the Documents, and (d) effect the intent of the Documents, including filing/recording the Documents, additional mortgages or deeds of trust, financing statements, and other instruments.

Section 3.20 Compliance with Anti-Terrorism Regulations.

(a) Borrower hereby covenants and agrees that neither Borrower nor any guarantor, nor any persons or entities holding any legal or beneficial interest whatsoever in Borrower or any guarantor (whether directly or indirectly), will conduct business with or engage in any transaction with any person or entity named on any of the OFAC Lists or any person or entity included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services of any kind to, or otherwise associated with any of the persons or entities referred to or described in the OFAC Lists.

(b) Borrower hereby covenants and agrees that it will comply at all times with the requirements of Executive Order 13224; the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701-06; the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56; the Iraqi Sanctions Act, Pub. L. 101-513, 104 Stat. 2047-55; the United Nations Participation Act, 22 U.S.C. Section 287c; the Antiterrorism and Effective Death Penalty Act, (enacting 8 U.S.C. Section 219, 18 U.S.C. Section 2332d, and 18 U.S.C. Section 2339b); the International Security and Development Cooperation Act, 22 U.S.C. Section 2349 aa- 9; the Terrorism Sanctions Regulations, 31 C.F.R. Part 595; the Terrorism List Governments Sanctions Regulations, 31 C.F.R. Part 596; and the Foreign Terrorist Organizations Sanctions Regulations, 31 C.F.R. Part 597 and any similar laws or regulations currently in force or hereafter enacted (collectively, the “Anti-Terrorism Regulations”).

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(c) Borrower hereby covenants and agrees that if it becomes aware or receives any notice that Borrower, any guarantor or the Property, or any person or entity holding any legal or beneficial interest whatsoever (whether directly or indirectly) in Borrower, any guarantor or in the Property, is named on any of the OFAC Lists (such occurrence, an “OFAC Violation”), Borrower will immediately (i) give notice to Lender of such OFAC Violation, and (ii) comply with all Laws applicable to such OFAC Violation (regardless of whether the party included on any of the OFAC Lists is located within the jurisdiction of the United States of America), including, without limitation, the Anti-Terrorism Regulations, and Borrower hereby authorizes and consents to Lender’s taking any and all steps Lender deems necessary, in its sole discretion, to comply with all Laws applicable to any such OFAC Violation, including, without limitation, the requirements of the Anti-Terrorism Regulations (including the “freezing” and/or “blocking” of assets).

(d) Upon Lender’s request from time to time during the term of the Loan, Borrower agrees to deliver a certification confirming that the representations and warranties set forth in Section 2.09 above remain true and correct as of the date of such certificate and confirming Borrower’s and any guarantor’s compliance with this Section 3.20.

Section 3.21 Compliance with Property as Single Asset. Borrower hereby covenants and agrees that (i) during the term of the Loan, Borrower shall not own any assets in addition to the Property, (ii) the Property shall remain as a single property or project, and (iii) during the term of the Loan, the Property shall generate substantially all of the gross income of Borrower and there shall be no substantial business being conducted by Borrower other than the business of operating the Property and the activities incidental thereto.

ARTICLE IV - ADDITIONAL ADVANCES; EXPENSES; SUBROGATION

Section 4.01 Expenses and Advances. Borrower shall pay all reasonable appraisal, recording, filing, registration, brokerage, abstract, title insurance (including premiums), title searches and examinations, surveys and similar data and assurances with respect to title, U.C.C. search, escrow, attorneys’ (both in-house staff and retained attorneys), engineers’, environmental engineers’, environmental testing, and architects’ fees, costs (including travel), expenses, and disbursements incurred by Borrower or Lender and reasonable fees charged by Lender in connection with the granting, closing, non-routine servicing, and enforcement (if Lender is the prevailing party) of (a) the Loan and Documents or (b) attributable to Borrower as owner of the Property. The term “Costs” shall mean any of the foregoing incurred in connection with (a) any default by Borrower under the Documents, (b) the non routine servicing of the Loan, or (c) the exercise, enforcement, compromise, defense, litigation, or settlement of any of Lender’s rights or remedies under the Documents or relating to the Loan or the Obligations. If Borrower fails to pay any amounts or perform any actions required under the Documents, Lender may (but shall not be obligated to) advance sums to pay such amounts or perform such actions. Borrower grants Lender the right to enter upon and take possession of the Property to prevent or remedy any such failure and the right to take such actions in Borrower’s name. No advance or performance shall be deemed to have cured a default by Borrower. All (a) sums advanced by or payable to Lender per this Section or under applicable Laws, (b) except as expressly provided in the Documents, payments due under the Documents which are not paid in full when due, and (c) all Costs, shall: (i) be deemed demand obligations, (ii) bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, until paid if not paid on demand, (iii) be part of, together with such interest, the Obligations, and (iv) be secured by the Documents. Lender, upon making any such advance, shall also be subrogated to rights of the person receiving such advance.

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Section 4.02 Subrogation. If any proceeds of the Note were used to extinguish, extend or renew any indebtedness on the Property, then, to the extent of the funds so used, (a) Lender shall be subrogated to all rights, claims, liens, titles and interests existing on the Property held by the holder of such indebtedness and (b) these rights, claims, liens, titles and interests are not waived but rather shall (i) continue in full force and effect in favor of Lender and (ii) are merged with the lien and security interest created by the Documents as cumulative security for the payment and performance of the Obligations.

ARTICLE V - SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY

Section 5.01 Due-on-Sale or Encumbrance. It shall be an Event of Default and, at the sole option of Lender, Lender may accelerate the Obligations and the entire Obligations (including any Prepayment Premium) shall become immediately due and payable, if, without Lender’s prior written consent (which may be withheld for any or no reason, including the possibility of an ERISA violation or the proposed transferee’s failure to agree in writing to Lender increasing the interest payable on the Obligations to any rate, changing any other terms [including maturity] of the Obligations or Documents, or requiring the payment of a transfer fee) any of the following shall occur:

(a) Borrower shall sell, convey, assign, transfer, dispose of or be divested of its title to, convey security title to the Property, mortgage, encumber or cause to be encumbered (except for the imposition of mechanics’ or materialmen’s liens) the Property or any interest therein, in any manner or way, whether voluntary or involuntary; or

(b) in the event of any merger, consolidation, sale, transfer, assignment, or dissolution involving all or substantially all of the assets of Borrower or any managing general partner or managing member of the original Borrower; or

(c) in the event of the assignment, transfer, pledge, voluntary or involuntary sale, or encumbrance (or any of the foregoing at one time or over any period of time) of:

(i) ten percent (10%) or more of (1) the ownership interests in Borrower, regardless of the type or form of entity of Borrower, (2) the voting stock or ownership interest of any corporation or limited liability company which is, respectively, general partner or managing member of Borrower or any corporation or limited liability company directly or indirectly owning ten percent (10%) or more of any such corporation or limited liability company, or (3) the ownership interests of any owner of ten percent (10%) or more of the beneficial interests of Borrower if Borrower is a trust; or

(ii) any general partnership interest in (1) Borrower, (2) a partnership which is in Borrower’s chain of ownership and which is derivatively liable for the obligations of Borrower, or (3) any general partner who has the right to participate directly or indirectly in the control of the management or operations of Borrower; or

(d) in the event of the conversion of any general partnership interest in Borrower to a limited partnership interest; or

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(e) in the event of any change, removal, or resignation of any general partner of Borrower; or

(f) in the event of any change, removal, addition or resignation of a managing member (or if no managing member, any member) if Borrower is a limited liability company; or

(g) Borrower shall obtain any unsecured debt except for customary and reasonable short-term trade payables.

The provisions set forth above shall not apply to transfers (i) under any will or applicable law of descent, or (ii) of membership interests in Borrower or the syndicated investor interests in Borrower for which each member acts as an agent, so long as no Event of Default exists at the time of any such transfer, and following any transfer described in (ii) of this sentence, (1) Peter L. Malkin, Anthony E. Malkin and/or one of more of the children or grandchildren of Peter L. Malkin or Anthony E. Malkin and/or one or more senior members or employees of Malkin Holdings LLC shall comprise all of the members of Borrower, (2) Peter L. Malkin, Anthony E. Malkin and/or children or grandchildren of Peter L. Malkin or Anthony E. Malkin shall have a substantial role in the day to day operations of Borrower and the Property, and (3) within sixty (60) days following any such transfer, Borrower shall deliver to Lender (a) a statement showing the current ownership of Borrower, (b) a certification from Borrower that Borrower remains in compliance with the ERISA provisions of the Documents, and (c) a certification from Borrower that Borrower remains in compliance with the representations, warranties and covenants in the Documents relative to Executive Order 13224.

Additionally, Borrower shall be permitted to transfer the Property to a wholly owned affiliate of Borrower so long as (i) no Event of Default exists at the time of any such transfer; (ii) Borrower or the transferee pays a processing fee to Lender of $5,000, any documentary stamp taxes, intangibles taxes, recording fees, and other costs and expenses required in connection with any assumption agreement required hereunder, the fees and expenses of Borrower’s outside counsel in connection with reviewing and processing such transfer, and (iii) the transferee shall sign an assumption agreement acceptable to Lender with respect to the Documents, and following any such transfer (1) Peter L. Malkin, Anthony E. Malkin and/or one of more of the children or grandchildren of Peter L. Malkin or Anthony E. Malkin and/or one or more senior members or employees of Malkin Holdings LLC shall comprise all of the members of such transferee, (2) Peter L. Malkin, Anthony E. Malkin and/or children or grandchildren of Peter L. Malkin or Anthony E. Malkin shall have a substantial role in the day to day operations of such transfer and the Property, and (3) within sixty (60) days following any such transfer, Borrower shall deliver to Lender (a) a statement showing the current ownership of Borrower, (b) a certification from Borrower that Borrower remains in compliance with the ERISA provisions of the Documents, and (c) a certification from Borrower that Borrower remains in compliance with the representations, warranties and covenants in the Documents relative to Executive Order 13224.

Further, Borrower shall be permitted to file a condominium declaration against the Property during the term of the Loan (and if required by a relevant governmental agency, Lender will consent to such filing subject to the satisfaction of the requirements of this paragraph) so long as (i) no Event of Default exists at the time of filing, (ii) such condominium declaration shall at all times be subordinate to the Documents so that following a foreclosure of the Loan such condominium declaration shall be foreclosed out and no longer encumber, apply to or impact the Property, (iii) no transfers of any of the condominium interests shall occur at any time during the term of the Loan, and (iv) Borrower shall pay a processing fee to Lender of $5,000 and Lender’s outside counsel fees and expenses in connection with reviewing and processing such condominium declaration (which shall contain an express subordination to the Loan and a termination provision that is applicable in the event of foreclosure of the Loan) and any modification of the Documents required by the filing of such condominium declaration.

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Section 5.02 Secondary Loan. Notwithstanding Section 5.01, and provided no Event of Default shall then exist under the Loan, Lender agrees, upon fifteen (15) days written notice from Borrower to Lender that Borrower is about to consummate a secondary loan secured by the Property (a “Secondary Loan”), such Secondary Loan shall be permitted if:

(a) the lender providing a Secondary Loan (the “Second Lender”) is an insurance company, a bank, or other financial institution, unrelated to Borrower, with assets in excess of One Billion Dollars ($1,000,000,000.00) or other financial institution reasonably acceptable to Lender;

(b) the Debt Service Coverage Ratio (defined below) is at least 1.20 to 1.00 for the preceding twelve (12) month period and Lender receives satisfactory evidence that Debt Service Coverage Ratio of at least 1.20 to 1.00, taking into account the Secondary Loan for which Borrower is seeking Lender’s consent, will be maintained for the next succeeding twelve (12) months;

(c) taking into account the Loan and the Secondary Loan, the Loan to Value Ratio (defined below) does not exceed fifty percent (50%), and the amount of such Secondary Loan, when combined with the outstanding principal balance of the Loan, does not exceed One Hundred Thirty Million Dollars ($130,000,000.00);

(d) Borrower shall pay to Lender at the time the Secondary Loan is placed on the Property a fee equal to Ten Thousand Dollars ($10,000.00);

(e) the loan documents evidencing the Secondary Loan shall, in Lender’s reasonable judgment, in no way affect the priority of Lender’s lien or adversely affect any rights of Lender under the Documents;

(f) Lender and Borrower shall use commercially reasonable efforts to attempt to negotiate a form of intercreditor agreement that is acceptable to both Borrower and Lender and shall be used as the intercreditor agreement for any Secondary Loan, which intercreditor agreement shall provide, among other things, that any Second Lender shall be permitted to cure defaults under the Loan within the cure periods provided in the Documents and upon acceleration of the Loan, any Second Lender shall have the right, within thirty (30) days of the date of Lender’s acceleration of the Loan, to purchase the Loan by paying an amount equal to the outstanding principal balance of the Loan, all accrued interest, the prepayment premium, and all other sums due under the Documents and if there are then multiple Second Lenders and more than one Second Lender elects to purchase the Loan, the most junior of the Second Lenders making such election shall have the sole right to purchase the Loan;

(g) the Second Lender shall not have the right to terminate any Lease in a foreclosure (or other proceeding or action brought as a result of default under the Secondary Loan) without Lender’s prior written consent;

(h) the Secondary Loan is permitted under the provisions of the ERISA certificate and indemnification agreement described in Lender’s then-current Guidelines; and

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(i) the Second Lender shall agree in writing that it will not sell, convey, transfer or assign the Secondary Loan to any entity which does not meet the criteria set forth in clause (a) above, except pursuant to a securitization of the Secondary Loan either as a stand-alone or as part of a pool; and

(j) Borrower pays all reasonable fees, costs and expenses incurred by Lender in connection with such secondary financing, including, without limitation, all legal, accounting, title insurance, documentary stamps taxes, intangible taxes, mortgage taxes, recording fees, and appraisal fees, whether or not the Secondary Loan shall actually close.

The term “Loan to Value Ratio” shall mean the ratio, as reasonably determined by Lender, of (i) the aggregate principal balance of all encumbrances against the Property to (ii) the fair market value of the Property. The term “Debt Service Coverage Ratio” shall mean the ratio, as reasonably determined by Lender, calculated by dividing (i) net operating income (“NOI”) by (ii) total annual debt service (“TADS”). NOI is the gross annual income realized from operations of the Property for the applicable twelve (12) month period after subtracting all necessary and ordinary operating expenses (both fixed and variable) for that twelve (12) month period (assuming for expense purposes only that the Property is 95% leased and occupied if actual leasing is less than 95%), including, without limitation, utilities, administrative, cleaning, landscaping, security, repairs, and maintenance, ground rent payments, management fees, reserves for replacements, real estate and other taxes, assessments and insurance, but excluding deduction for federal, state and other income taxes, debt service expense, depreciation or amortization of capital expenditures, and other similar non-cash items. Gross income shall be based on the cash actually received for the preceding twelve months and projected income based on the leases in place for the next succeeding twelve months, and ordinary operating expenses shall not be prepaid. Documentation of NOI and expenses shall be certified by an officer of Borrower with detail satisfactory to Lender and shall be subject to the approval of Lender. TADS shall mean the aggregate debt service payments for any given calendar year on the Loan and on all other indebtedness secured, or to be secured, by any part of the Property.

Notwithstanding the foregoing, this Section 5.02 is personal to the original Borrower [i.e. 60 East 42nd St. Associates L.L.C.] and any wholly owned affiliate to which the Property is transferred, and if, prior to the placement of the supplemental loan or the Secondary Loan on the Property, Borrower transfers ownership of the Property to another person or entity, this Section 5.02 shall automatically terminate and be of no further force or effect.

ARTICLE VI - DEFAULTS AND REMEDIES

Section 6.01 Events of Default. The following shall be an “Event of Default”:

(a) if Borrower fails to make any payment required under the Documents when due and such failure continues for five (5) days after written notice; provided, however, that if Lender gives one (1) notice of default within any twelve (12) month period, Borrower shall have no further right to any notice of monetary default during that twelve (12) month period;

(b) except for defaults listed in the other subsections of this Section 6.01, if Borrower fails to perform or comply with any other provision contained in the Documents and the default is not cured within thirty (30) days of Lender providing written notice thereof (the “Grace Period”); provided, however, that Lender may extend the Grace Period up to an additional sixty (60) days (for a total of ninety (90) days from the date of default) if (i) Borrower immediately commences and diligently pursues the cure of such default and delivers (within the Grace Period) to Lender a written request for more time and (ii) Lender determines in good faith that (1) such default cannot be cured within the Grace Period but can be cured within ninety (90) days after the default, (2) no lien or security interest created by the Documents will be impaired prior to completion of such cure, and (3) Lender’s immediate exercise of any remedies provided hereunder or by law is not necessary for the protection or preservation of the Property or Lender’s security interest;

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(c) if any representation made (i) in connection with the Loan or Obligations or (ii) in the Loan application or Documents shall be false or misleading in any material respect;

(d) if any default under Article V occurs;

(e) if Borrower shall (i) become insolvent, (ii) make a transfer in fraud of creditors, (iii) make an assignment for the benefit of its creditors, (iv) not be able to pay its debts as such debts become due, or (v) admit in writing its inability to pay its debts as they become due;

(f) if any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding, or any other proceedings for the relief of debtors, is instituted by or against Borrower, and, if instituted against Borrower, is allowed, consented to, or not dismissed within the earlier to occur of (i) ninety (90) days after such institution or (ii) the filing of an order for relief;

(g) if any of the events in Sections 6.01 (e) or (f) shall occur with respect to any (i) managing member of Borrower, (ii) general partner of Borrower, or (iii) guarantor of payment or performance of any of the Obligations;

(h) if the Property shall be taken, attached, or sequestered on execution or other process of law in any action against Borrower;

(i) if any default occurs under the Environmental Indemnity (defined below) and such default is not cured within any applicable grace period in that document;

(j) if Borrower shall fail at any time to obtain, maintain, renew, or keep in force the insurance policies required by Section 3.06 within ten (10) days after written notice;

(k) if Borrower shall be in default under any other mortgage or security agreement covering any part of the Property, whether it be superior or junior in lien to this Instrument;

(l) if any claim of priority (except based upon a Permitted Encumbrance) to the Documents by title, lien, or otherwise shall be upheld by any court of competent jurisdiction or shall be consented to by Borrower;

(m) (i) the consummation by Borrower of any transaction which would cause (A) the Loan or any exercise of Lender’s rights under the Documents to constitute a non-exempt prohibited transaction under ERISA or (B) a violation of a state statute regulating governmental plans; (ii) the failure of any representation in Section 3.11 to be true and correct in all respects; or (iii) the failure of Borrower to provide Lender with the written certifications required by Section 3.11; or

(n) (i) the consummation by Borrower of any transaction which would cause an OFAC Violation; (ii) the failure of any representation in Section 2.09 to be true and correct in all respects; or (iii) the failure of Borrower to comply with the provisions of Section 3.20.

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Section 6.02 Remedies. If an Event of Default occurs, Lender or any person designated by Lender may (but shall not be obligated to) take any action (separately, concurrently, cumulatively, and at any time and in any order) permitted under any Laws, without notice, demand, presentment, or protest (all of which are hereby waived), to protect and enforce Lender’s rights under the Documents or Laws including the following actions:

(a) accelerate and declare the entire unpaid Obligations immediately due and payable, except for defaults under Section 6.01 (f), (g) or (h) which shall automatically make the Obligations immediately due and payable;

(b) judicially or otherwise (to the extent that non judicial foreclosure is then available in the Property State), (i) completely foreclose this Instrument or (ii) partially foreclose this Instrument for any portion of the Obligations due and the lien and security interest created by this Instrument shall continue unimpaired and without loss of priority as to the remaining Obligations not yet due;

(c) sell for cash or upon credit the Property and all right, title and interest of Borrower therein and rights of redemption thereof, pursuant to power of sale;

(d) recover judgment on the Note either before, during or after any proceedings for the enforcement of the Documents and without any requirement of any action being taken to (i) realize on the Property or (ii) otherwise enforce the Documents;

(e) [INTENTIONALLY DELETED];

(f) apply for the appointment of a receiver, custodian, trustee, liquidator, or conservator of the Property without (i) notice to any person, or (ii) regard for (A) the adequacy of the security for the Obligations or (B) the solvency of Borrower or any person liable for the payment of the Obligations; and Borrower and any person so liable waives or shall be deemed to have waived the foregoing and any other objections to the fullest extent permitted by Laws and consents or shall be deemed to have consented to such appointment;

(g) with or without entering upon the Property, (i) exclude Borrower and any person from the Property without liability for trespass, damages, or otherwise, (ii) take possession of, and Borrower shall surrender on demand, all books, records, and accounts relating to the Property, (iii) give notice to Tenants or any person, make demand for, collect, receive, sue for, and recover in its own name all Rents and cash collateral derived from the Property; (iv) use, operate, manage, preserve, control, and otherwise deal with every aspect of the Property including (A) conducting its business, (B) insuring it, (C) making all repairs, renewals, replacements, alterations, additions, and improvements to or on it, (D) completing the construction of any Improvements in manner and form as Lender deems advisable, and (E) executing, modifying, enforcing, and terminating new and existing Leases on such terms as Lender deems advisable and evicting any Tenants in default; (v) apply the receipts from the Property to payment of the Obligations, in any order or priority determined by Lender, after first deducting all Costs, expenses, and liabilities incurred by Lender in connection with the foregoing operations and all amounts needed to pay the Impositions and other expenses of the Property, as well as just and reasonable compensation for the services of Lender and its attorneys, agents, and employees; and/or (vi) in every case in connection with the foregoing, exercise all rights and powers of Borrower or Lender with respect to the Property, either in Borrower’s name or otherwise;

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(h) release any portion of the Property for such consideration, if any, as Lender may require without, as to the remainder of the Property, impairing or affecting the lien or priority of this Instrument or improving the position of any subordinate lienholder with respect thereto, except to the extent that the Obligations shall have been actually reduced, and Lender may accept by assignment, pledge, or otherwise any other property in place thereof as Lender may require without being accountable for so doing to any other lienholder;

(i) apply any Deposits to the following items in any order and in Lender’s sole discretion: (A) the Obligations, (B) Costs, (C) advances made by Lender under the Documents, and/or (D) Impositions;

(j) take all actions permitted under the U.C.C. of the Property State including (i) the right to take possession of all tangible and intangible personal property now or hereafter included within the Property (“Personal Property”) and take such actions as Lender deems advisable for the care, protection and preservation of the Personal Property and (ii) request Borrower at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower at least five (5) days prior to such action shall constitute commercially reasonable notice to Borrower; or

(k) take any other action permitted under any Laws.

If Lender exercises any of its rights under Section 6.02(g), Lender shall not (a) be deemed to have entered upon or taken possession of the Property except upon the exercise of its option to do so, evidenced by its demand and overt act for such purpose; (b) be deemed a beneficiary or mortgagee in possession by reason of such entry or taking possession; nor (c) be liable (i) to account for any action taken pursuant to such exercise other than for Rents actually received by Lender, (ii) for any loss sustained by Borrower resulting from any failure to lease the Property, or (iii) any other act or omission of Lender except for losses caused by Lender’s willful misconduct or gross negligence. Borrower hereby consents to, ratifies, and confirms the exercise by Lender of its rights under this Instrument and appoints Lender as its attorney-in-fact, which appointment shall be deemed to be coupled with an interest and irrevocable, for such purposes.

Section 6.03 Expenses. All reasonable Costs, expenses, or other amounts paid or incurred by Lender in the exercise of its rights under the Documents, together with interest thereon at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, shall be (a) part of the Obligations, (b) secured by this Instrument, and (c) allowed and included as part of the Obligations in any foreclosure, decree for sale, power of sale, or other judgment or decree enforcing Lender’s rights under the Documents.

Section 6.04 Rights Pertaining to Sales. To the extent permitted under (and in accordance with) any Laws, the following provisions shall, as Lender may determine in its sole discretion, apply to any sales of the Property under Article VI, whether by judicial proceeding, judgment, decree, power of sale, foreclosure or otherwise: (a) Lender may conduct multiple sales of any part of the Property in separate tracts or in its entirety and Borrower waives any right to require otherwise; (b) any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice; and (c) Lender may acquire the Property and, in lieu of paying cash, may pay by crediting against the Obligations the amount of its bid, after deducting therefrom any sums which Lender is authorized to deduct under the provisions of the Documents.

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Section 6.05 Application of Proceeds. Any proceeds received from any sale or disposition under Article VI or otherwise, together with any other sums held by Lender, shall, except as expressly provided to the contrary, be applied in the order determined by Lender to: (a) payment of all Costs and expenses of any enforcement action or foreclosure sale, transfer of title by power of sale or otherwise, including interest thereon at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, (b) all taxes, Assessments, and other charges unless the Property was sold subject to these items; (c) payment of the Obligations in such order as Lender may elect; (d) payment of any other sums secured or required to be paid by Borrower; and (e) payment of the surplus, if any, to any person lawfully entitled to receive it. Borrower and Lender intend and agree that during any period of time between any foreclosure judgment that may be obtained and the actual foreclosure sale that the foreclosure judgment will not extinguish the Documents or any rights contained therein including the obligation of Borrower to pay all Costs and to pay interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws.

Section 6.06 Additional Provisions as to Remedies. No failure, refusal, waiver, or delay by Lender to exercise any rights under the Documents upon any default or Event of Default shall impair Lender’s rights or be construed as a waiver of, or acquiescence to, such or any subsequent default or Event of Default. No recovery of any judgment by Lender and no levy of an execution upon the Property or any other property of Borrower shall affect the lien and security interest created by this Instrument and such liens, rights, powers, and remedies shall continue unimpaired as before. Lender may resort to any security given by this Instrument or any other security now given or hereafter existing to secure the Obligations, in whole or in part, in such portions and in such order as Lender may deem advisable, and no such action shall be construed as a waiver of any of the liens, rights, or benefits granted hereunder. Acceptance of any payment after any Event of Default shall not be deemed a waiver or a cure of such Event of Default and such acceptance shall be deemed an acceptance on account only. If Lender has started enforcement of any right by foreclosure, sale, entry, or otherwise and such proceeding shall be discontinued, abandoned, or determined adversely for any reason, then Borrower and Lender shall be restored to their former positions and rights under the Documents with respect to the Property, subject to the lien and security interest hereof.

Section 6.07 Waiver of Rights and Defenses. To the fullest extent Borrower may do so under Laws, Borrower (a) will not at any time insist on, plead, claim, or take the benefit of any statute or rule of law now or later enacted providing for any appraisement, valuation, stay, extension, moratorium, redemption, or any statute of limitations; (b) for itself, its successors and assigns, and for any person ever claiming an interest in the Property (other than Lender), waives and releases all rights of redemption, reinstatement, valuation, appraisement, notice of intention to mature or declare due the whole of the Obligations, all rights to a marshaling of the assets of Borrower, including the Property, or to a sale in inverse order of alienation, in the event of foreclosure (or extinguishment by transfer of title by power of sale) of the liens and security interests created under the Documents; (c) shall not be relieved of its obligation to pay the Obligations as required in the Documents nor shall the lien or priority of the Documents be impaired by any agreement renewing, extending, or modifying the time of payment or the provisions of the Documents (including a modification of any interest rate), unless expressly released, discharged, or modified by such agreement. Regardless of consideration and without any notice to or consent by the holder of any subordinate lien, security interest, encumbrance, right, title, or interest in or to the Property, Lender may (a) release any person liable for payment of the Obligations or any portion thereof or any part of the security held for the Obligations or (b) modify any of the provisions of the Documents without impairing or affecting the Documents or the lien, security interest, or the priority of the modified Documents as security for the Obligations over any such subordinate lien, security interest, encumbrance, right, title, or interest.

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ARTICLE VII - SECURITY AGREEMENT

Section 7.01 Security Agreement. This Instrument constitutes both a real property mortgage and a “security agreement” within the meaning of the U.C.C. The Property includes real and personal property and all tangible and intangible rights and interest of Borrower in the Property. Borrower grants to Lender, as security for the Obligations, a security interest in the Personal Property to the fullest extent that the same may be subject to the U.C.C. Borrower authorizes Lender to file any financing or continuation statements and amendments thereto relating to the Personal Property without the signature of Borrower if permitted by Laws.

ARTICLE VIII - LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES

Section 8.01 Limited Recourse Liability. The provisions of Paragraph 8 and Paragraph 9 of the Note are incorporated into this Instrument as if such provisions were set forth in their entirety in this Instrument.

Section 8.02 General Indemnity. Borrower agrees that while Lender has no liability to any person in tort or otherwise as lender and that Lender is not an owner or operator of the Property, Borrower shall, at its sole expense, protect, defend, release, indemnify and hold harmless (“indemnify”) the Indemnified Parties (defined below) from any Losses (defined below) imposed on, incurred by, or asserted against the Indemnified Parties, directly or indirectly, arising out of or in connection with the Property, Loan, or Documents, including Losses; provided, however, that the foregoing indemnities shall not apply to any Losses caused by the gross negligence or willful misconduct of the Indemnified Parties. The term “Losses” shall mean any claims, suits, liabilities (including strict liabilities), actions, proceedings, obligations, debts, damages, losses, Costs, expenses, fines, penalties, charges, fees, judgments, awards, and amounts paid in settlement of whatever kind including attorneys’ fees (both in-house staff and retained attorneys) and all other costs of defense. The term “Indemnified Parties” shall mean (a) Lender, (b) any prior owner or holder of the Note, (c) any existing or prior servicer of the Loan, (d) the officers, directors, shareholders, partners, members, employees and trustees of any of the foregoing, and (e) the heirs, legal representatives, successors and assigns of each of the foregoing.

Section 8.03 Transaction Taxes Indemnity. Borrower shall, at its sole expense, indemnify the Indemnified Parties from all Losses imposed upon, incurred by, or asserted against the Indemnified Parties or the Documents relating to Transaction Taxes.

Section 8.04 ERISA Indemnity. Borrower shall, at its sole expense, indemnify the Indemnified Parties against all Losses imposed upon, incurred by, or asserted against the Indemnified Parties (a) as a result of a Violation, (b) in the investigation, defense, and settlement of a Violation, (c) as a result of a breach of the representations in Section 3.11 or default thereunder, (d) in correcting any prohibited transaction or the sale of a prohibited loan, and (e) in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender’s sole discretion.

Section 8.05 Environmental Indemnity. Borrower and other persons, if any, have executed and delivered the Environmental Indemnity Agreement dated the date hereof to Lender (“Environmental Indemnity”).

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Section 8.06 Duty to Defend, Costs and Expenses. Upon request, whether Borrower’s obligation to indemnify Lender arises under Article VIII or in the Documents, Borrower shall defend the Indemnified Parties (in Borrower’s or the Indemnified Parties’ names) by attorneys and other professionals reasonably approved by the Indemnified Parties. Notwithstanding the foregoing, the Indemnified Parties may, in their sole discretion, engage their own attorneys and professionals to defend or assist them and, at their option, their attorneys shall control the resolution of any claims or proceedings. Upon demand, Borrower shall pay or, in the sole discretion of the Indemnified Parties, reimburse and/or indemnify the Indemnified Parties for all Costs imposed on, incurred by, or asserted against the Indemnified Parties by reason of any items set forth in this Article VIII and/or the enforcement or preservation of the Indemnified Parties’ rights under the Documents. Any amount payable to the Indemnified Parties under this Section shall (a) be deemed a demand obligation, (b) be part of the Obligations, (c) bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, until paid if not paid on demand, and (d) be secured by this Instrument.

Section 8.07 Recourse Obligation and Survival. Notwithstanding anything to the contrary in the Documents and in addition to the recourse obligations in the Note, the obligations of Borrower under Sections 8.03, 8.04, 8.05, and 8.06 shall be a full recourse obligation of Borrower, shall not be subject to any limitation on personal liability in the Documents, and shall survive (a) repayment of the Obligations, (b) any termination, satisfaction, transfer of title by power of sale, assignment or foreclosure of this Instrument, (c) the acceptance by Lender (or any nominee) of a deed in lieu of foreclosure, (d) a plan of reorganization filed under the Bankruptcy Code, or (e) the exercise by Lender of any rights in the Documents. Borrower’s obligations under Article VIII shall not be affected by the absence or unavailability of insurance covering the same or by the failure or refusal by any insurance carrier to perform any obligation under any applicable insurance policy.

ARTICLE IX - ADDITIONAL PROVISIONS

Section 9.01 Usury Savings Clause. All agreements in the Documents are expressly limited so that in no event whatsoever shall the amount paid or agreed to be paid under the Documents for the use, forbearance, or detention of money exceed the highest lawful rate permitted by Laws. If, at the time of performance, fulfillment of any provision of the Documents shall involve transcending the limit of validity prescribed by Laws, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity. If Lender shall ever receive as interest an amount which would exceed the highest lawful rate, the receipt of such excess shall be deemed a mistake and (a) shall be canceled automatically or (b) if paid, such excess shall be (i) credited against the principal amount of the Obligations to the extent permitted by Laws or (ii) rebated to Borrower if it cannot be so credited under Laws. Furthermore, all sums paid or agreed to be paid under the Documents for the use, forbearance, or detention of money shall to the extent permitted by Laws be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Obligations for so long as the Obligations are outstanding.

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Section 9.02 Notices. Any notice, request, demand, consent, approval, direction, agreement, or other communication (any “notice”) required or permitted under the Documents shall be in writing and shall be validly given if sent by a nationally-recognized courier that obtains receipts, delivered personally by a courier that obtains receipts, or mailed by United States certified mail (with return receipt requested and postage prepaid) addressed to the applicable person as follows:

If to Borrower: 60 EAST 42ND ST. ASSOCIATES L.L.C. c/o Malkin Holdings LLC 60 East 42nd Street New York, New York 10165 Attention: Jack K. Feirman, Esq.	With a copy of notices sent to Borrower to: MALKIN HOLDINGS LLC 60 East 42nd Street New York, New York 10165 Attention: Jack K. Feirman, Esq.
If to Lender: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA Prudential Asset Resources 2100 Ross Avenue, Suite 2500 Dallas, Texas 75201 Attention: Asset Management Department Reference Loan Nos. 7061xxxxx and 7061xxxxx	With a copy of notices sent to Lender to: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA Prudential Asset Resources 2100 Ross Avenue, Suite 2500 Dallas, Texas 75201 Attention: Legal Department Reference Loan Nos. 7061xxxxx and 7061xxxxx

Each notice shall be effective upon being so sent, delivered, or mailed, but the time period for response or action shall run from the date of receipt as shown on the delivery receipt. Refusal to accept delivery or the inability to deliver because of a changed address for which no notice was given shall be deemed receipt. Any party may periodically change its address for notice and specify up to two (2) additional addresses for copies by giving the other party at least ten (10) days’ prior notice.

Section 9.03 Sole Discretion of Lender. Except as otherwise expressly stated, whenever Lender’s judgment, consent, or approval is required or Lender shall have an option or election under the Documents, such judgment, the decision as to whether or not to consent to or approve the same, or the exercise of such option or election shall be in the sole and absolute discretion of Lender.

Section 9.04 Applicable Law and Submission to Jurisdiction. The Documents shall be governed by and construed in accordance with the laws of the Property State and the applicable laws of the United States of America. Without limiting Lender’s right to bring any action or proceeding against Borrower or the Property relating to the Obligations (an “Action”) in the courts of other jurisdictions, Borrower irrevocably (a) submits to the jurisdiction of any state or federal court in the Property State, (b) agrees that any Action may be heard and determined in such court, and (c) waives, to the fullest extent permitted by Laws, the defense of an inconvenient forum to the maintenance of any Action in such jurisdiction.

Section 9.05 Construction of Provisions. The following rules of construction shall apply for all purposes of this Instrument unless the context otherwise requires: (a) all references to numbered Articles or Sections or to lettered Exhibits are references to the Articles and Sections hereof and the Exhibits annexed to this Instrument and such Exhibits are incorporated into this Instrument as if fully set forth in the body of this Instrument; (b) all Article, Section, and Exhibit captions are used for convenience and reference only and in no way define, limit, or in any way affect this Instrument; (c) words of masculine, feminine, or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa; (d) no inference in favor of or against any party shall be drawn from the fact that such party has drafted any portion of this Instrument; (e) all obligations of Borrower hereunder shall be performed and satisfied by or on behalf of Borrower at Borrower’s sole expense; (f) the terms “include,” “including,” and similar terms shall be construed as if followed by the phrase “without being limited to”; (g) the terms “Property,” “Land,” “Improvements,” and “Personal Property” shall be construed as if followed by the phrase “or any part thereof”; (h) the term “Obligations” shall be construed as if followed by the phrase “or any other sums secured hereby, or any part thereof”; (i) the term “person” shall include natural persons, firms, partnerships, corporations, governmental authorities or agencies, and any other public or private legal entities; (j) the term “provisions,” when used with respect hereto or to any other document or instrument, shall be construed as if preceded by the phrase “terms, covenants, agreements, requirements, and/or conditions”; (k) the term “lease” shall mean “tenancy, subtenancy, lease, sublease, or rental agreement,” the term “lessor” shall mean “landlord, sublandlord, lessor, and sublessor,” and the term “Tenants” or “lessee” shall mean “tenant, subtenant, lessee, and sublessee”; (l) the term “owned” shall mean “now owned or later acquired”; (m) the terms “any” and “all” shall mean “any or all”; and (n) the term “on demand” or “upon demand” shall mean “within five (5) business days after written notice.”

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Section 9.06 Transfer of Loan. Lender may, at any time, (i) sell, transfer or assign the Documents and any servicing rights with respect thereto or (ii) grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (collectively, the “Securities”). Lender may forward to any purchaser, transferee, assignee, servicer, participant, or investor in such Securities (collectively, “Investors”), to any Rating Agency (defined below) rating such Securities and to any prospective Investor, all documents and information which Lender now has or may later acquire relating to the Obligations, Borrower, any guarantor, any indemnitor(s), the Leases, and the Property, whether furnished by Borrower, any guarantor, any indemnitor(s) or otherwise, as Lender determines advisable. Borrower, any guarantor and any indemnitor agree to cooperate with Lender in connection with any transfer made or any Securities created pursuant to this Section including the delivery of an estoppel certificate in accordance with Section 3.16 and such other documents as may be reasonably requested by Lender. Borrower shall also furnish consent of any borrower, any guarantor and any indemnitor in order to permit Lender to furnish such Investors or such prospective Investors or such Rating Agency with any and all information concerning the Property, the Leases, the financial condition of Borrower, any guarantor and any indemnitor, as may be reasonably requested by Lender, any Investor, any prospective Investor or any Rating Agency and which may be complied with without undue expense. “Rating Agency” shall mean any one or more credit rating agencies approved by Lender.

Section 9.07 Miscellaneous. If any provision of the Documents shall be held to be invalid, illegal, or unenforceable in any respect, this shall not affect any other provisions of the Documents and such provision shall be limited and construed as if it were not in the Documents. If title to the Property becomes vested in any person other than Borrower, Lender may, without notice to Borrower, deal with such person regarding the Documents or the Obligations in the same manner as with Borrower without in any way vitiating or discharging Borrower’s liability under the Documents or being deemed to have consented to the vesting. If both the lessor’s and lessee’s interest under any Lease ever becomes vested in any one person, this Instrument and the lien and security interest created hereby shall not be destroyed or terminated by the application of the doctrine of merger and Lender shall continue to have and enjoy all its rights and privileges as to each separate estate. Upon foreclosure (or transfer of title by power of sale) of this Instrument, none of the Leases shall be destroyed or terminated as a result of such foreclosure, by application of the doctrine of merger or as a matter of law, unless Lender takes all actions required by law to terminate the Leases as a result of foreclosure. All of Borrower’s covenants and agreements under the Documents shall run with the land and time is of the essence. Borrower appoints Lender as its attorney-in-fact, which appointment is irrevocable and shall be deemed to be coupled with an interest, with respect to the execution, acknowledgment, delivery, filing or recording for and in the name of Borrower of any of the documents listed in Sections 3.04, 3.19, 4.01 and 6.02. The Documents cannot be amended, terminated, or discharged except in a writing signed by the party against whom enforcement is sought. No waiver, release, or other forbearance by Lender will be effective unless it is in a writing signed by Lender and then only to the extent expressly stated. The provisions of the Documents shall be binding upon Borrower and its heirs, devisees, representatives, successors, and assigns including successors in interest to the Property and inure to the benefit of Lender and its heirs, successors, substitutes, and assigns. Where two or more persons have executed the Documents, the obligations of such persons shall be joint and several, except to the extent the context clearly indicates otherwise. The Documents may be executed in any number of counterparts with the same effect as if all parties had executed the same document. All such counterparts shall be construed together and shall constitute one instrument, but in making proof hereof it shall only be necessary to produce one such counterpart. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of any Document which is not of public record, and, in the case of any mutilation, upon surrender and cancellation of the Document, Borrower will issue, in lieu thereof, a replacement Document, dated the date of the lost, stolen, destroyed or mutilated Document containing the same provisions. Any reviews, inspections, reports, approvals or similar items conducted, made or produced by or on behalf of Lender with respect to Borrower, the Property or the Loan are for loan underwriting and servicing purposes only, and shall not constitute an acknowledgment, representation or warranty of the accuracy thereof, or an assumption of liability with respect to Borrower, Borrower’s contractors, architects, engineers, employees, agents or invitees, present or future tenants, occupants or owners of the Property, or any other party.

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Section 9.08 Entire Agreement. Except as provided in Section 3.17, (a) the Documents constitute the entire understanding and agreement between Borrower and Lender with respect to the Loan and supersede all prior written or oral understandings and agreements with respect to the Loan including the Loan application and Loan commitment and (b) Borrower is not relying on any representations or warranties of Lender except as expressly set forth in the Documents.

Section 9.09 WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM FILED BY EITHER PARTY, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE DOCUMENTS, OR ANY ALLEGED ACTS OR OMISSIONS OF LENDER OR BORROWER IN CONNECTION THEREWITH.

ARTICLE X - LOCAL LAW PROVISIONS

Section 10.01 Trust Fund. Pursuant to Section 13 of the Lien Law of the State of New York, Borrower shall receive the advances secured by this Instrument and shall hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the cost of any improvement and shall apply such advances first to the payment of the cost of any such improvement on the Property before using any part of the total of the same for any other purpose.

Section 10.02 Section 291-f Agreement. This Instrument is intended to be, and shall operate as, the agreement described in Section 291-f of the Real Property Law of the State of New York and shall be entitled to the benefits afforded thereby. Borrower shall (unless such notice is contained in such tenant’s Lease) deliver notice of this Instrument in form and substance acceptable to Lender, to all present and future holders of any interest in any Lease, by assignment or otherwise, and shall take such other action as may now or hereafter be reasonably required to afford Lender the full protections and benefits of Section 291-f. Borrower shall request the recipient of any such notice to acknowledge the receipt thereof.

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Section 10.03 New York Tax Law Section 256. If, by reason of the additional sums that may become secured by the lien of this Instrument pursuant to the terms hereof, a court or other governmental authority having jurisdiction at any time shall determine that this Instrument falls within the ambit of Section 256 of the Tax Law of the State of New York, then Lender reserves the right, in its discretion, to elect not to have such additional sums secured by this Instrument and thereby reduce the amount of the debt secured hereby to a definite amount equal to the principal amount of the Note, interest thereon at the rate provided in the Note, plus any disbursements made to protect the security of this Instrument, with interest on such disbursements at the Default Rate, plus any such other sums as by statute or judicial interpretation now or hereafter may be permitted to be secured by the lien of a mortgage without incurring any additional mortgage recording tax. Any election by Lender to so reduce the indebtedness secured by this Instrument shall in no event be deemed a release, waiver or discharge by Lender of Borrower’s obligation to pay or reimburse Lender for such sums and such obligation shall continue unimpaired and shall be recourse obligations of Borrower and any guarantor, regardless of any other provisions set forth in this Instrument, the Note or any guaranty of the Obligations secured hereby that may limit recourse against Borrower or any other Person (including the provisions of Article VIII hereof).

Section 10.04 Sums Deemed to be Interest. Any sums, including any prepayment premiums, late charges or liquidated damages, that may become due and payable pursuant to the terms of the Note and/or this Instrument and that are in the nature of interest (i) shall for the purpose of determining the amount of mortgage recording tax due and payable on this Instrument, be considered as additional interest, whether or not so denominated, (ii) shall be secured by the lien of this Instrument to the fullest extent possible without causing this Instrument to be covered by Section 256 of the Tax Law of the State of New York, and (iii) shall not be deemed principal and shall not accrue any interest.

Section 10.05 Assignment of Loan Documents. Upon not less than thirty (30) days written notice to Lender by Borrower, and provided that the Documents continue to secure a bona fide obligation of Borrower, Lender agrees to assign the Note, this Instrument, the Assignment and the other Documents, all without recourse, covenant or warranty of any nature, express or implied, to any party designated by Borrower (other than Borrower or a nominee of Borrower) (the “Assignee”), provided that (a) Borrower shall have first caused the same to be purchased for an amount equal to the entire indebtedness (including, without limitation, all unpaid principal, accrued interest and the prepayment premium due ) and upon payment by Borrower of (i) Lender’s then customary administrative fee for processing assignments of mortgages; (ii) the reasonable expenses of Lender incurred in connection therewith; and (iii) Lender’s reasonable attorneys’ fees for the preparation, delivery and performance of such an assignment; (b) Borrower shall have caused the delivery of an executed Statement of Oath under Section 275 of the New York Real Property Law; (c) the Assignee shall assume the obligations and liabilities of Lender (or Lender shall be otherwise released from any such obligations); and (d) provided further that such an assignment is not then prohibited by any federal, state or local law, rule, regulation, order, or by any other governmental authority. Borrower shall be responsible for all taxes, recording fees and other charges payable in connection with any such assignment.

Section 10.06 Statutory Construction. The clauses and covenants contained in this Instrument that are construed by Section 254 of the New York Real Property Law shall be construed as provided in those sections (except as provided in Section 3.07(e)). The additional clauses and covenants contained in this Instrument shall afford rights supplemental to and not exclusive of the rights conferred by the clauses and covenants construed by Section 254 and shall not impair, modify, alter or defeat such rights (except as provided in Section 3.07(e)), notwithstanding that such additional clauses and covenants may relate to the same subject matter or provide for different or additional rights in the same or similar contingencies as the clauses and covenants construed by Section 254. The rights of Lender arising under the clauses and covenants contained in this Instrument shall be separate, distinct and cumulative and none of them shall be in exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision, anything herein or otherwise to the contrary notwithstanding. In the event of any inconsistencies between the provisions of Section 254 and the provisions of this Instrument, the provisions of this Instrument shall prevail.

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ARTICLE XI - GROUND LEASE

Section 11.01 Representations and Warranties. Ground Lessee hereby represents and warrants to Lender as follows:

(a) Ground Lessee is a limited liability company duly organized, validly existing and in good standing under the laws of its state of organization or incorporation; and is duly qualified to transact business and in good standing in the State of New York; and has all necessary approvals, governmental and otherwise, and full power and authority to own its properties (including the fee simple title in the Property ) and carry on its business as now conducted and proposed to be conducted.

(b) The execution, delivery and performance of the Documents (i) are within the limited liability company power of Ground Lessee; (ii) have been authorized by all requisite limited liability company action; (iii) have received all necessary approvals and consents, corporate, governmental or otherwise; (iv) will not violate, conflict with, result in a breach of or constitute (with notice or lapse of time, or both) a default under any provisions of law, any order or judgment of any court or governmental authority, the articles of organization, operating agreement, or other governing instrument of Ground Lessee, or any indenture, agreement or other instrument to which Ground Lessee is a party or by which it or any of its property is or may be bound or affected; (v) will not result in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of its properties or assets, except the lien and security interest created hereby; and (vi) will not require any authorization or license from, or any filing with, any governmental or other body (except for the recordation of this Instrument in appropriate land records in the State of New York and except for Uniform Commercial Code filings relating to the security interest created hereby).

(c) The Ground Lease has not been changed, modified, amended or supplemented except as set forth herein, and the interest of the Ground Lessee has not been assigned, encumbered or otherwise transferred, except as set forth below. The Ground Lease, including any modifications or amendments set forth below, contains all of the understandings and agreements between Ground Lessee and Borrower.

(d) The Ground Lease is in full force and effect and free from any default by either party. There are also no existing conditions, which upon the giving of notice or lapse of time, or both, would constitute a default under the Ground Lease.

(e) As of the date hereof, Ground Lessee has no outstanding offsets or credits against, or deductions from, or “free rent” period entitlements with respect to its future rent obligations

(f) Ground Lessee has no expansion rights, purchase options or rights of first refusal with respect to acquiring any additional interest in the Property.

(g) This Instrument and the Assignment constitute legal, valid and binding obligations of Ground Lessee.

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Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

(h) No bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any other proceeding for the relief of borrowers, has been instituted by or against Ground Lessee or, if Ground Lessee is a partnership, any general partner of Ground Lessee.

Section 11.02 Limited Recourse Liability. Ground Lessee shall not be liable for any judgment with respect to any Obligation except for damages resulting from any inaccuracies in any of the representations by Ground Lessee under Section 11.01, and Ground Lessee joins in this Instrument for purposes of agreeing to the terms hereof and binding its interest in the Property.

Section 11.03 Ground Lease.

(a) Ground Lessee and Borrower have executed this Instrument mortgaging their separate estates in the Property for the purpose of granting to the Lender such lien as would cause the fee simple title to the Property to be sold free and clear of the Ground Lease at foreclosure sale. Ground Lessee and Borrower hereby jointly and severally waive any right, arising at law or in equity, whether presently existing or subsequently accruing, whether to Ground Lessee, Borrower, or anyone holding or claiming under or through them, to have their separate estates sold separately upon foreclosure, whether under principles of marshalling or otherwise.

(b) Except as specified in Section 11.02, in any action commenced to enforce the Obligations created or arising under this Instrument, any resulting judgment or decree shall be enforceable against Ground Lessee only to the extent of Ground Lessee’s interest in the Property or other property subject to any security interest securing the Note. Subject to Section 11.01, (i) any execution on such judgment or decree, with respect to the assets of Ground Lessee, shall be limited to the Property or other property subject to any security interest securing the Note, and (ii) Ground Lessee shall not be personally liable for the payment of the indebtedness or other Obligations secured by this Instrument, nor shall execution on any judgment or decree resulting from any action to enforce the Obligations be or be caused to be a lien on any other asset of Ground Lessee other than the Property or other property subject to any security interest securing the Note.

(c) Ground Lessee and Borrower each agree that neither this Instrument nor any obligation of Ground Lessee and Borrower hereunder will be released, impaired or subordinated by any amendment to this Instrument or any other document or extension of time or waiver of right or remedy as to Ground Lessee, Borrower, or any other party, or any other act or thing which, but for this provision, would so release, impair, or subordinate.

(d) Ground Lessee and Ground Lessee’s interest in the Ground Lease and the Property shall be subject to all of the provisions of Section 5.01.

(e) Under no circumstances shall Lender or any of its successors or assigns have any obligation or liability of any kind or nature based upon or arising under the Ground Lease, regardless of whether such obligation or liability (i) is an obligation or liability of either ground lessee or ground lessor under the Ground Lease, or (ii) arises either before or after Lender acquired title to the Property.

(f) Ground Lessee and Borrower each hereby acknowledge and agree that all of the Ground Lessee’s rights and remedies under the Ground Lease, including without limitation any rights of first refusal or any purchase rights, are subject to and subordinate to this Instrument.

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Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

Section 11.04 Ground Lease Covenants. Without first obtaining Lender’s prior written consent, Borrower shall not (a) amend or modify the Ground Lease, (b) extend or renew the Ground Lease (except in accordance with the existing Ground Lease provisions), (c) terminate or accept the surrender of the Ground Lease, (4) enter into any new ground lease of the Property, or (d) accept any prepayment of rent, termination fee, or any similar payment with respect to the Ground Lease.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURES ON FOLLOWING PAGE]

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Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

IN WITNESS WHEREOF, the undersigned have executed this Instrument as of the day first set forth above.

BORROWER:
60 EAST 42ND ST. ASSOCIATES L.L.C., a New York limited liability company
By:	/s/ Peter L. Malkin                                     [SEAL]
Name: Peter L. Malkin
Title:   Member

UNIFORM FORM CERTIFICATE OF ACKNOWLEDGMENT

(Within New York State)

State of New York         )

County of New York     ) ss.:

On the 5th day of November in the year 2009 before me, the undersigned, personally appeared Peter L. Malkin, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

/s/ Jennifer Kelly

Signature and Office of individual taking acknowledgment

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

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Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

[SIGNATURE PAGE TO THE AGREEMENT OF SPREADER, CONSOLIDATION

AND MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT]

GROUND LESSEE:
LINCOLN BUILDING ASSOCIATES L.L.C., a New York limited liability company
By:	/s/ Peter L. Malkin                                      [SEAL]
Name: Peter L. Malkin Title: Member

UNIFORM FORM CERTIFICATE OF ACKNOWLEDGMENT

(Within New York State)

State of New York         )

County of New York     ) ss.:

On the 5th day of November in the year 2009, before me, the undersigned, personally appeared Peter L. Malkin, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.

/s/ Jennifer Kelly

Signature and Office of individual taking

acknowledgment

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

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Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

[SIGNATURE PAGE TO THE AGREEMENT OF SPREADER, CONSOLIDATION

AND MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT]

LENDER:

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation

By:

Name:

Title: Vice President

[CORPORATE SEAL]

UNIFORM FORM CERTIFICATE OF ACKNOWLEDGMENT

(Outside of New York State)

STATE OF GEORGIA         )

COUNTY OF DEKALB       ) ss.:

On the             day of             in the year 2009 before me, the undersigned, personally appeared                     , personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their/ capacity (ies), that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument, and that such individual made such appearance before the undersigned in the COUNTY OF DEKALB, STATE OF GEORGIA.

(Signature and office of individual taking

acknowledgment.)

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Prudential Loan Nos.: 7061xxxxx & 7061xxxxx 60 East 42nd Street Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

Exhibit A

LEGAL DESCRIPTION OF LAND

Prudential Loan Nos. 7061xxxxx & 7061xxxxx

60 East 42nd St.

Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement

AT1 32586446.4 / 28227-000xxx

48131.1

Exhibit B

DESCRIPTION OF PERSONAL PROPERTY SECURITY

All of Borrower’s right, title and interest in, to and under the following:

1. All machinery, apparatus, goods, equipment, materials, fittings, fixtures, chattels, and tangible personal property, and all appurtenances and additions thereto and betterments, renewals, substitutions, and replacements thereof, owned by Borrower, wherever situate, and now or hereafter located on, attached to, contained in, or used or usable in connection with the real property described in Exhibit A attached hereto and incorporated herein (the “Land”), and all improvements located thereon (the “Improvements”) or placed on any part thereof, though not attached thereto, including all screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, furniture and furnishings, heating, electrical, lighting, plumbing, ventilating, air-conditioning, refrigerating, incinerating and/or compacting plants, systems, fixtures and equipment, elevators, hoists, stoves, ranges, vacuum and other cleaning systems, call systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, ducts, conduits, dynamos, engines, compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances, equipment, fittings, and fixtures.

2. All funds, accounts, deposits, instruments, documents, contract rights, general intangibles, notes, and chattel paper arising from or by virtue of any transaction related to the Land, the Improvements, or any of the personal property described in this Exhibit B.

3. All permits, licenses, franchises, certificates, and other rights and privileges now held or hereafter acquired by Borrower in connection with the Land, the Improvements, or any of the personal property described in this Exhibit B.

4. All right, title, and interest of Borrower in and to the name and style by which the Land and/or the Improvements is known, including trademarks and trade names relating thereto.

5. All right, title, and interest of Borrower in, to, and under all plans, specifications, maps, surveys, reports, permits, licenses, architectural, engineering and construction contracts, books of account, insurance policies, and other documents of whatever kind or character, relating to the use, construction upon, occupancy, leasing, sale, or operation of the Land and/or the Improvements.

6. All interests, estates, or other claims or demands, in law and in equity, which Borrower now has or may hereafter acquire in the Land, the Improvements, or the personal property described in this Exhibit B.

7. All right, title, and interest owned by Borrower in and to all options to purchase or lease the Land, the Improvements, or any other personal property described in this Exhibit B, or any portion thereof or interest therein, and in and to any greater estate in the Land, the Improvements, or any of the personal property described in this Exhibit B.

8. All of the estate, interest, right, title, other claim or demand, both in law and in equity, including claims or demands with respect to the proceeds of insurance relating thereto, which Borrower now has or may hereafter acquire in the Land, the Improvements, or any of the personal property described in this Exhibit B, or any portion thereof or interest therein, and any and all awards made for the taking by eminent domain, or by any proceeding or purchase in lieu thereof, of the whole or any part of such property, including without limitation, any award resulting from a change of any streets (whether as to grade, access, or otherwise) and any award for severance damages.

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Prudential Loan Nos. 7061xxxxx & 7061xxxxx 60 East 42nd St. Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement AT1 32586446.4 / 28227-000xxx 48131.1

9. All right, title, and interest of Borrower in and to all contracts, permits, certificates, licenses, approvals, utility deposits, utility capacity, and utility rights issued, granted, agreed upon, or otherwise provided by any governmental or private authority, person or entity relating to the ownership, development, construction, operation, maintenance, marketing, sale, or use of the Land and/or the Improvements, including all of Borrower’s rights and privileges hereto or hereafter otherwise arising in connection with or pertaining to the Land and/or the Improvements, including, without limiting the generality of the foregoing, all water and/or sewer capacity, all water, sewer and/or other utility deposits or prepaid fees, and/or all water and/or sewer and/or other utility tap rights or other utility rights, any right or privilege of Borrower under any loan commitment, lease, contract, declaration of covenants, restrictions and easements or like instrument, developer’s agreement, or other agreement with any third party pertaining to the ownership, development, construction, operation, maintenance, marketing, sale, or use of the Land and/or the Improvements.

AND ALL PROCEEDS AND PRODUCTS OF THE FOREGOING PERSONAL PROPERTY DESCRIBED IN THIS EXHIBIT B.

A PORTION OF THE ABOVE DESCRIBED GOODS ARE OR ARE TO BE AFFIXED TO THE REAL PROPERTY DESCRIBED IN EXHIBIT A.

BORROWER IS THE RECORD TITLE HOLDER AND OWNER OF THE REAL PROPERTY DESCRIBED IN EXHIBIT A.

ALL TERMS USED IN THIS EXHIBIT B (AND NOT OTHERWISE DEFINED IN THIS EXHIBIT B) SHALL HAVE THE MEANING, IF ANY, ASCRIBED TO SUCH TERM UNDER THE UNIFORM COMMERCIAL CODE AS ADOPTED AND IN FORCE IN THE JURISDICTION IN WHICH THIS FINANCING STATEMENT HAS BEEN FILED/ RECORDED (THE “U.C.C.”).

WITH RESPECT TO ANY FINANCING STATEMENT TO WHICH THIS EXHIBIT B IS ATTACHED, THE TERM “BORROWER” SHALL MEAN “DEBTOR” AS SUCH TERM IS DEFINED IN THE CODE.

Prudential Loan Nos. 7061xxxxx & 7061xxxxx

60 East 42nd St.

Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement

AT1 32586446.4 / 28227-000xxx

48131.1

Exhibit C

PERMITTED ENCUMBRANCES

Prudential Loan Nos. 7061xxxxx & 7061xxxxx

60 East 42nd St.

Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement

AT1 32586446.4 / 28227-000xxx

48131.1

Exhibit D

LIST OF MAJOR TENANTS

I. Any Tenant whose premises are larger than 10,000 rentable square feet; and

II. The following Tenants, their successors, assigns and replacements:

(a) JP Morgan Chase Bank

(b) Payless ShoeSource Inc.

(c) Bank of America

(d) Malkin Holdings LLC (formerly Wien & Malkin LLC)

(e) Davidson, Dawson & Clark, LLP

(f) Schoeman Updike & Kaufman

(g) York International Corp.

(h) Bennett Lawrence Management, LLC

(i) Gibbs & Soell, Inc.

(j) O’Conner Davies & Co.

(k) Pipeline Financial Group

(l) Sunbelt Beverage Co.

(m) Haver Analytics, Inc.

(n) Hodgson Russ LLP

(o) American Bureau of Shipping

(p) Lincoln Suites, L.P.

Prudential Loan Nos. 7061xxxxx & 7061xxxxx

60 East 42nd St.

Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement

AT1 32586446.4 / 28227-000xxx

48131.1

Exhibit E

EXISTING MORTGAGES

Prudential Loan Nos. 7061xxxxx & 7061xxxxx

60 East 42nd St.

Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement

AT1 32586446.4 / 28227-000xxx

48131.1

Exhibit F

NOTE

Second Amended, Restated and Consolidated Mortgage Note, dated as of the date hereof, in the aggregate principal amount of Ninety-Six Million Twelve Thousand Five Hundred Twenty-Four and No/100 Dollars ($96,012,524.00), made by Borrower in favor of Lender.

Prudential Loan Nos. 7061xxxxx & 7061xxxxx

60 East 42nd St.

Agreement of Spreader, Consolidation and Modification of Mortgage and Security Agreement

AT1 32586446.4 / 28227-000xxx

48131.1

EX-10.6

Exhibit 10.6

AGREEMENT made as of January 1, 1964 between 60 EAST 42ND ST. ASSOCIATES, a co-partnership having its office at 60 East 42nd Street, New York, New York (hereinafter called “Landlord”) and LINCOLN BUILDING ASSOCIATES., a co-partnership, having its office at 60 East 42nd Street, New York, New York (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties entered into an agreement of lease dated October 1, 1958, whereby Landlord leased to Tenant, and Tenant hired that certain parcel of real property, with the buildings and improvements thereon, known as and by the street numbers 60 East 42nd Street and 301 Madison Avenue, New York, New York, together with the fixtures, chattels and articles of personal property used in connection with said premises (which agreement of lease is hereinafter called the “Lease”); and

WHEREAS, the parties desire to amend the lease,

NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, the parties agree as follows:

1. Paragraph 2(A) of the Lease is hereby modified to provide that the rent shall be as follows:

“(i) For the period commencing January 1, 1964 through April 30, 1964 at the rate of $178,833.33 per month, payable on the first day of each month in advance;

“(ii) For the period commencing May 1, 1964 and continuing through September 30, 1983, Tenant covenants to pay an annual rent at the rate of Two Million Two Hundred Nineteen Thousand Dollars ($2,219,000) in equal monthly installments of $184,916.67, on the first day of each month in advance.

48125.1

2. Paragraph 3 of the Lease is hereby deleted and the following is inserted in its place:

3. Tenant may renew this Lease for two additional periods of twenty-five years each, upon the same terms and conditions, except that the annual rent during each renewal term shall be at the rate of $2,219,000, and except further that there shall be no right to renew this beyond September 30, 2033. Tenant shall give notice of its intention to renew the term of this Lease not less than eighteen months prior to the end of the then current lease term.”

3. The following shall be added to the Lease as paragraph 29:

“29. Tenant has heretofore agreed to act as agent for Landlord for the purpose of making certain physical improvements to the demised premises. Such improvements were undertaken commencing on January 1, 1961, and shall be fully completed by June 30, 1964. The improvements include, among other things, the conversion of all passenger elevators in the demised premises to automatic operation, the installation of additional electric service and the installation of additional air conditioning. Tenant has heretofore submitted to the Landlord, and Landlord has approved plans and specifications for all of such work.

Landlord hereby agrees to pay the cost of such work up to a maximum of $1,574,134.86 upon the later of either the completion of such work or June 30, 1964. In the event that the cost of such improvements shall exceed the aforementioned sum, Tenant shall pay such excess. All of such improvements which are paid for by Landlord shall become the property of Landlord immediately upon their construction or installation and shall be subject to the terms of this lease.

Tenant acknowledges that the aforementioned sum of $1,574,134.86 will be obtained by the Landlord refinancing the existing mortgage covering the demised premises. Tenant agrees that it will reimburse Landlord for all of Landlord’s disbursements and expenses in connection with such refinancing, including but not limited to mortgage recording taxes, recording fees, mortgage insurance, attorneys’ fees and brokerage fees.”

48125.1

4. Except as modified herein, the Lease shall continue in full force and effect according to its terms.

5. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties.

IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written.

60 EAST 42ND ST. ASSOCIATES
By:	/s/ Henry W. Klein
	Partner
LINCOLN BUILDING ASSOCIATES
By:	/s/ Harry B. Helmsley
	Partner

48125.1

STATE OF NEW YORK             )

                                                             ss:

COUNTY OF NEW YORK         )

On this 21st day of April, 1964, before me personally came HENRY W. KLEIN, to me known and known to me to be a member of the firm of 60 EAST 42ND ST. ASSOCIATES, and to me known to be the individual who executed the foregoing instrument, and acknowledged that he executed the same, with the consent of and on behalf of said firm.

            /s/ Ivan Shapiro

STATE OF NEW YORK             )

                                                             ss:

COUNTY OF NEW YORK         )

On this 22nd day of April, 1964, before me personally came HARRY B. HELMSLEY, to me known and known to me to be a member of the firm of LINCOLN BUILDING ASSOCIATES, and to me known to be the individual who executed the foregoing instrument, and acknowledged that he executed the same, with the consent of and on behalf of said firm.

            /s/ Ivan Shapiro

48125.1

EX-10.7

Exhibit 10.7

SECOND LEASE MODIFICATION AGREEMENT

AGREEMENT made as of January 1, 1977 between 60 EAST 42ND ST. ASSOCIATES, a co-partnership having its office at 60 East 42nd Street, New York, New York (hereinafter called “Landlord”) and LINCOLN BUILDING ASSOCIATES, a co-partnership, having its office at 60 East 42nd Street, New York, New York (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties entered into an agreement of lease dated October 1, 1958, whereby Landlord leased to Tenant, and Tenant hired that certain parcel of real property, with the buildings and improvements thereon, known as and by the street numbers 60 East 42nd Street and 301 Madison Avenue, New York, New York, together with the fixtures, chattels and articles of personal property used in connection with said premises; and

WHEREAS, the lease was modified by agreement, dated January 1, 1964 (which lease, as so modified, is hereinafter called the “Lease”); and

WHEREAS, Landlord and Tenant wish to further modify the Lease.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree that the Lease shall be and is hereby modified in the manner hereinafter set forth:

1. Paragraphs 2(A) and 2(B) of the Lease shall be deemed deleted in its entirety and the following substituted in its place and stead:

“2. (A)(i) For the period January 1, 1977 through September 30, 1977, Tenant covenants to pay, in equal monthly installments of $155,433.33 each, in advance, on the first day of each month during said term of fixed rent aggregating ONE MILLION THREE HUNDRED NINETY EIGHT THOUSAND EIGHT HUNDRED NINETY NINE AND 97/100 DOLLARS ($1,398,899.97).

(ii) Commencing October 1, 1977, Tenant covenants to pay, in equal monthly installments of $97,100.00 each, in advance, on the first day of each month during the term of this Lease, and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate of ONE MILLION ONE HUNDRED SIXTY-FIVE THOUSAND TWO HUNDRED DOLLARS ($1,165,200.00).

(B) Tenant shall keep its records on the basis of a fiscal year commencing October 1, and ending September 30th. Within sixty (60) days after the end of each fiscal year, Tenant shall deliver to Landlord a written statement of the operation of the demised premises during the preceding fiscal year, prepared by an independent certified public accountant, which shall include the net operating income of Tenant (as such term is defined in Paragraph 2(F) hereof) for such preceding year derived from the actual operation of the demised premises whether or not Tenant is the operator. At the time such report is delivered, such net operating income, if any, for the preceding fiscal year, after deduction of the Basic Rent, shall be distributed as follows:

(i) For the fiscal year ended September 30, 1977, Tenant shall pay to Landlord (x) an amount equal to the lesser of TWO HUNDRED SIXTY FIVE THOUSAND THREE HUNDRED FIFTY AND 03/100 DOLLARS ($265,350.03) or the net operating income of Tenant during such preceding fiscal year, and (y) 50% of any remaining balance of net operating income for such year.

(ii) For the fiscal year ended September 30, 1978 and each fiscal year thereafter Tenant shall pay to Landlord (xx) an amount equal to the lesser of ONE MILLION FIFTY THREE THOUSAND EIGHT HUNDRED DOLLARS ($1,053,800.00) or the net operating income of Tenant during such preceding fiscal year, (which amount is hereinafter called “Additional Rent”), except that there shall be deducted from the amount due to Landlord hereunder all advances paid during any preceding fiscal year on account of Additional Rent pursuant to the provisions of Subdivision (E) of this Paragraph 2; and (yy) 50% of any remaining balance of net operating income for such year (which payment to Landlord is hereinafter called “Further Additional Rent”).

-2-

Landlord and Tenant agree that the first statement of the operation of the demised premises delivered pursuant to Paragraph 2(B) hereof shall cover the period October 1, 1976 through September 30, 1977. In the event that the term of this lease shall end on a date other than September 30th, Landlord and Tenant agree that Additional Rent for the fiscal year in which the term ends shall be in an amount equal to the lesser of (i) TWO THOUSAND EIGHT HUNDRED EIGHTY SEVEN AND 12/100 DOLLARS ($2,887.12) multiplied by the number of days in such fiscal year, or (ii) the net operating profit of Tenant during such fiscal year, less all advances paid during such period on account of Additional Rent.

Landlord and Tenant agree that Tenant shall have no obligation to make any payment of Additional Rent or Further Additional Rent, unless and until Tenant shall first have recouped Tenant’s cumulative operating loss, if any, accruing from and after September 30, 1977. For the purposes of this Lease, Tenant’s cumulative operating loss shall include unrecouped advances paid by Tenant during any preceding fiscal year commencing October 1, 1977 or thereafter on account of Additional Rent pursuant to the provisions of Subdivision (E) of this Paragraph 2.”

2. The following shall be added to the Lease as Paragraphs 2(E) and 2(F):

“2. (E) Commencing October 1, 1977, so long as the Lease shall remain in effect, in addition to the monthly installments of Basic Rent required by Paragraph 2(A) (ii) of the Lease, Tenant shall pay to Landlord as an advance against Additional Rent FIFTY EIGHT THOUSAND THREE HUNDRED THIRTY THREE AND 33/100 DOLLARS ($58,333.33) on October 1, 1977 and on the first day of each calendar month thereafter.

If (i) for the fiscal period ended September 30, 1977, the Tenant incurs a net operating loss, or (ii) for any fiscal year commencing October 1, 1977 or thereafter, advances made by Tenant against Additional Rent shall exceed Tenant’s net operating income for such period, advances otherwise required to be made by Tenant during the subsequent fiscal year pursuant to this Subdivision (E) shall be reduced by an amount equal to such excess until Tenant shall have recovered, through retention of net operating income, the full amount of such excess.

-3-

A similar adjustment shall be made for each subsequent fiscal year of Tenant. Notwithstanding the foregoing, at any time after October 1, 1977 Tenant in its sole and absolute discretion shall have the right to make a similar adjustment after the end of any month based upon the then current operating results of Tenant.

2. (F) For purposes of this Lease, the term “net operating income of Tenant” shall be deemed to mean the net income derived from the operation of the premises (after payment of Basic Rent) determined in accordance with generally accepted accounting principles, consistently applied, but subject to the following adjustments:

(i) Expenditures for improvements, alterations or additions to the premises, leasing commissions or other expenditures, may be, at Tenant’s option, (a) charged off in full in the year in which paid or incurred; (b) capitalized and charged off over such period as would be appropriate under generally accepted accounting principles; or (c) if such expenditures were made with the proceeds of borrowed money, charged off over the same period as the period during which such borrowed money will be repaid. Tenant shall not alter the method of accounting chosen for a particular expenditure after the initial method of accounting has been chosen.

(ii) Interest on borrowed funds utilized in the operation, maintenance or improvement of the premises shall be charged as an expense.

(iii) Collections on arrears or amounts which have been charged to expense as uncollectable in the judgment of Tenant are to constitute income in the year when collected.

(iv) Depreciation of Tenant’s original cost of acquiring its leasehold interest will not be charged as an expense.

(v) Escalation rent charges to tenants in the premises are to be included in income when billed in accordance with the prior consistent practice of Tenant.

-4-

In addition, in computing the net operating income of Tenant there will be deducted therefrom the full amount of Tenant’s unrecouped cumulative operating losses incurred after October 1, 1977. To the extent in any year that the full amount of cumulative operating losses are not recouped, the difference will be carried forward and deducted from Tenant’s net operating income in future years.”

3. The following shall be added to the Lease as Paragraph 29:

“29. For the purpose of this Paragraph 29, the term ‘First Mortgage’ shall mean any first fee mortgage to which this Lease is subordinate under the provisions of Paragraph 13 of this Lease and the term ‘refinancing’ shall include any consolidation, modification, renewal, extension or replacement of any First Mortgage made subsequent to January 1, 1977. In the event that there shall be one or more refinancings of any First Mortgage, the Basic Rent will be modified to equal the sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) plus an amount equal to the rate of constant payments for interest and amortization required under any such First Mortgage immediately subsequent to such refinancing.”

4. Except as herein modified, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

5. This Second Lease Modification Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

-5-

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

60 EAST 42ND ST. ASSOCIATES
By:	/s/ Lawrence A. Wien
	Lawrence A. Wien, Partner
LINCOLN BUILDING ASSOCIATES
By:	/s/ Harry B. Helmsley
	Harry B. Helmsley, Partner

-6-

STATE OF NEW YORK             )

                                                       ss:

COUNTY OF NEW YORK   )

On this 25th day of February, 1977, before me personally came LAWRENCE A. WIEN, to me known and known to me to be a partner in the firm of 60 EAST 42ND ST. ASSOCIATES, and known to me to be the individual described in and who executed the foregoing instrument in the firm name of 60 East 42nd St. Associates, and he duly acknowledged to me that he executed the same for and on behalf of said firm.

/s/ Marie Cognata

STATE OF NEW YORK             )

                                                       ss:

COUNTY OF NEW YORK   )

On this 25th day of February, 1977, before me personally came HARRY B. HELMSLEY, to me known and known to me to be a partner in the firm of LINCOLN BUILDING ASSOCIATES, and known to me to be the individual described in and who executed the foregoing instrument in the firm name of Lincoln Building Associates, and he duly acknowledged to me that he executed the same for and on behalf of said firm.

/s/ Marie Cognata

EX-10.8

Exhibit 10.8

THIRD LEASE MODIFICATION AGREEMENT

AGREEMENT made as of April 1, 1979 between 60 EAST 42ND ST. ASSOCIATES, a co-partnership having its office at 60 East 42nd Street, New York, New York (hereinafter called “Landlord”) and LINCOLN BUILDING ASSOCIATES., a co-partnership, having its office at 60 East 42nd Street, New York, New York (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties entered into an agreement of lease dated October 1, 1958, whereby Landlord leased to Tenant, and Tenant hired that certain parcel of real property, with the buildings and improvements thereon, known as and by the street numbers 60 East 42nd Street and 301 Madison Avenue, New York, New York, together with the fixtures, chattels and articles of personal property used in connection with said premises; and

WHEREAS, the lease was modified by agreement, dated January 1, 1964 (the “1964 Modification”), and was further modified by Second Lease Modification Agreement dated as of January 1, 1977 (the “1977 Modification”), (which lease, as so modified, is hereinafter called the “Lease”); and

WHEREAS, Landlord and Tenant wish to further modify the Lease.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree that the Lease shall be and is hereby modified in the manner herein-after set forth:

1. Paragraph 2A(ii) of the Lease shall be deemed deleted in its entirety and the following substituted in its place and stead:

“(ii) Commencing April 1, 1979, Tenant covenants to pay, in equal monthly installments of $104,599.53 each, in advance, on the first day of each month during the term of this Lease, and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate of ONE MILLION TWO HUNDRED FIFTY-FIVE THOUSAND ONE HUNDRED NINETY-FOUR DOLLARS AND THIRTY SIX CENTS ($1,255,194.36).”

48123.1

2. Paragraph 29 of the Lease as such paragraph was added to the Lease by the 1977 Modification shall be deemed deleted in its entirety.

3. The following shall be added to the Lease as paragraph 30:

“30. For the purpose of this Paragraph 30, the term ‘First Mortgage’ shall mean any first fee mortgage to which this Lease is subordinate under the provisions of Paragraph 13 of this Lease and the term ‘refinancing’ shall include any consolidation, modification, renewal, extension or replacement of any First Mortgage made subsequent to April 1, 1979. In the event that there shall be one or more refinancings of any First Mortgage, for the period prior to the full liquidation of the Mortgage which results in an increase in the amount of the outstanding principal balance of the Mortgage, the Basic Rent will be modified to equal the sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) plus an amount equal to the product of (A) the new debt service percentage rate under such refinanced First Mortgage multiplied by (B) the principal balance of the First Mortgage immediately prior to each such refinancing.

“The following illustrates the intention of the parties hereto as to the computation of the aforementioned adjustment of the Basic Rent:

“Assuming a refinancing of the First Mortgage and the principal balance of the First Mortgage were increased from $12,293,973 to $15,000,000 and the new annual debt service requirements were $1,650,000 or at the rate of 11% of that new principal balance, that portion of the Basic Rent relating to mortgage charges would be increased to $1,352,317, 11% of the balance immediately prior to such refinancing. The balance of the charges on the First Mortgage or $297,683 would be paid by Landlord from Additional Rent and Landlord would retain the full net proceeds of such refinancing.

48123.1

“In the event of subsequent refinancings of the First Mortgage which result in an increase in the amount of the outstanding principal balance of the First Mortgage, the principal balance referred to in (B), above, shall be reduced by the amount of mortgage amortization payable from Basic Rent subsequent to the first refinancing of the First Mortgage.”

4. Except as herein modified, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

5. This Third Lease Modification Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

60 EAST 42ND ST. ASSOCIATES
By:	/s/ Lawrence A. Wien
	Partner
LINCOLN BUILDING ASSOCIATES
By:	/s/ Harry B. Helmsley
	Partner

48123.1

EX-10.9

Exhibit 10.9

FOURTH LEASE MODIFICATION AGREEMENT

AGREEMENT made as of April 1, 1981 between 60 EAST 42ND ST. ASSOCIATES, a co-partnership having its office at 60 East 42nd Street, New York, New York (hereinafter called “Landlord) and LINCOLN BUILDING ASSOCIATES., a co-partnership, having its office at 60 East 42nd Street, New York, New York (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties entered into an agreement of lease dated October 1, 1958, whereby Landlord leased to Tenant, and Tenant hired that certain parcel of real property, with the buildings and improvements thereon, known as and by the street numbers 60 East 42nd Street and 301 Madison Avenue, New York, New York, together with the fixtures, chattels and articles of personal property used in connection with said premises; and

WHEREAS, the lease was modified by agreements dated January 1, 1964, as of January 1, 1977, and as of April 1, 1979 (which lease, as so modified, is hereinafter called the “Lease”); and

WHEREAS, Landlord and Tenant wish to further modify the Lease.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree that the Lease shall be and is hereby modified in the manner hereinafter set forth:

1. Paragraph 2A(ii) of the Lease shall be deemed deleted in its entirety and the following substituted in its place and stead:

“(ii) Commencing April 1, 1981, Tenant covenants to pay, in equal monthly installments of $150,769.32 each, in advance, on the first day of each month during the term of this Lease, and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate of ONE MILLION EIGHT HUNDRED NINE THOUSAND TWO HUNDRED THIRTY-ONE DOLLARS AND 84/100 ($1,809,231.84), said amount being equal to the sum of the current mortgage charges plus $24,000.”

2. Paragraph 30 of the Lease shall be revised to read as follows:

“30. For the purpose of this Paragraph 30, the term ‘First Mortgage’ shall mean any first fee mortgage to which this Lease is subordinate under the provisions of Paragraph 13 of this Lease and the term ‘refinancing’ shall include any consolidation, modification, renewal, extension or replacement of any First Mortgage made subsequent to April 1, 1979. In the event that there shall be one or more refinancings of any First Mortgage, for the period prior to the full liquidation of the Mortgage, the Basic Rent will be modified to equal the sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) plus an amount equal to the product of (A) the new debt service percentage rate under such refinanced First Mortgage multiplied by (B) the principal balance of the First Mortgage immediately prior to each such refinancing.

33932.1

“The following illustrates the intention of the parties hereto as to the computation of the aforementioned adjustment of the Basic Rent:

“Assuming a refinancing of the First Mortgage and the principal balance of the First Mortgage were increased from $12,293,973 to $15,000,000 and the new annual debt service requirements were $1,650,000 or at the rate of 11% of that new principal balance, that portion of the Basic Rent relating to mortgage charges would be increased to $1,352,337, 11% of the balance immediately prior to such refinancing. The balance of the charges on the First Mortgage or $297,663 would be paid by Landlord from Additional Rent and Landlord would retain the full net proceeds of such refinancing.

“In the event of subsequent refinancings of the First Mortgage, the principal balance referred to in (B) above, shall be reduced by the amount of mortgage amortization payable from Basic Rent subsequent to the first refinancing of the First Mortgage.”

4. Except as herein modified, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

5. This Fourth Lease Modification Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

60 EAST 42ND ST. ASSOCIATES
By:	/s/ Alvin Lane
	Partner
LINCOLN BUILDING ASSOCIATES
By:	/s/ Peter L. Malkin
	Partner

33932.1

EX-10.10

Exhibit 10.10

FIFTH LEASE MODIFICATION AGREEMENT

AGREEMENT made as of April 1, 1982 between 60 EAST 42ND ST. ASSOCIATES, a co-partnership having its office at 60 East 42nd Street, New York, New York (hereinafter called “Landlord”) and LINCOLN BUILDING ASSOCIATES, a co-partnership, having its office at 60 East 42nd Street, New York, New York (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties entered into an agreement of lease dated October 1, 1958, whereby Landlord leased to Tenant, and Tenant hired that certain parcel of real property, with the buildings and improvements thereon, known as and by the street numbers 60 East 42nd Street and 301 Madison Avenue, New York, New York, together with the fixtures, chattels and articles of personal property used in connection with said premises; and

WHEREAS, the lease was modified by agreements dated January 1, 1964, as of January 1, 1977, as of April 1, 1979, and as of April 1, 1981 (which lease, as so modified, is hereinafter called the “Lease”); and

WHEREAS, Landlord and Tenant wish to further modify the Lease.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree that the Lease shall be and is hereby modified in the manner hereinafter set forth:

1. Paragraph 2A(ii) of the Lease shall be deemed deleted in its entirety and the following substituted in its place and stead:

“(ii) Commencing April 1, 1982, Tenant covenants to pay, in equal monthly installments of $163,594.27 each, in advance, on the first day of each month during the term of this Lease, and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate of ONE MILLION NINE HUNDRED SIXTY-THREE THOUSAND ONE HUNDRED THIRTY-ONE DOLLARS AND 24/100 ($1,963,131.24), said amount being equal to the sum of the current mortgage charges plus $24,000.”

2. Except as herein modified, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

3. This Fifth Lease Modification Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

33933.1

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

60 EAST 42ND ST. ASSOCIATES
By:	/s/ Lawrence A. Wien
	Partner
LINCOLN BUILDING ASSOCIATES
By:	/s/ Peter L. Malkin
	Partner

33933.1

EX-10.11

Exhibit 10.11

SIXTH LEASE MODIFICATION AGREEMENT

AGREEMENT made as of October 1, 1987 between 60 EAST 42^ND ST. ASSOCIATES, a co-partnership having its office at 60 East 42^nd Street, New York, New York (hereinafter called “Landlord”) and LINCOLN BUILDING ASSOCIATES, a co-partnership, having its office at 60 East 42^nd Street, New York, New York (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties entered into an agreement of lease dated October 1, 1958, whereby Landlord leased to Tenant, and Tenant hired that certain parcel of real property, with the buildings and improvements thereon, known as and by the street numbers 60 East 42^nd Street and 301 Madison Avenue, New York, New York, together with the fixtures, chattels and articles of personal property used in connection with said premises; and

WHEREAS, the lease was modified by agreements dated January 1, 1964, as of January 1, 1977, as of April 1, 1979, as of April 1, 1981 and as of April 1, 1982 (which lease, as so modified, is hereinafter called the “Lease”); and

WHEREAS, Landlord and Tenant wish to further modify the Lease.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree that the Lease shall be and is hereby modified in the manner hereinafter set forth:

1. Paragraph 2A(ii) of the Lease shall be deemed deleted in its entirety and the following substituted in its place and stead:

“(ii) Commencing October 1, 1987, Tenant covenants to pay, in equal monthly installments of $94,339.58 each, in advance, on the first day of each month during the term of this Lease, and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate of ONE MILLION, ONE HUNDRED AND THIRTY-TWO THOUSAND SEVENTY-FIVE DOLLARS AND 00/100 ($1,132,075.00), said amount being equal to the sum of the current mortgage charges plus $24,000; it being understood and agreed that the amount of Basic Rent shall be adjusted upon refinancing of any First Mortgage (as defined in Paragraph 30), subject to and in accordance with the provisions of Paragraph 30.”

2. The parties confirm that Paragraph 30 of the Lease reads as follows:

“30. For the purpose of this Paragraph 30, the term ‘First Mortgage’ shall mean any first fee mortgage to which this Lease is subordinate under the provisions of Paragraph 13 of this Lease and the term ‘refinancing’ shall include any consolidation, modification, renewal, extension or replacement of any First Mortgage made subsequent to April 1, 1979. In the event that there shall be one or more refinancings of any First Mortgage, for the period prior to the full liquidation of the Mortgage, the Basic Rent will be modified to equal the sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) plus an amount equal the product of (A) the new debt service percentage rate under such refinanced First Mortgage multiplied by (B) the principal balance of the First Mortgage immediately prior to each such refinancing.

48124.1

The following illustrates the intention of the parties hereto as to the computation of the aforementioned adjustment of the Basic Rent:

Assuming a refinancing of the First Mortgage and the principal balance of the First Mortgage were increased from $12,293,973 to $15,000,000 and the new annual debt service requirements were $1,650,000 or at the rate of 11% of that new principal balance, that portion of the Basic Rent relating to the mortgage charges would be increased to $1,352,337, 11% of the balance immediately prior to such refinancing. The balance of the charges on the First Mortgage or $297,663 would be paid by Landlord from Additional Rent and Landlord would retain the full net proceeds of such refinancing.

In the event of subsequent refinancings of the First Mortgage, the principal balance referred to in (B) above, shall be reduced by the amount of mortgage amortization payable from Basic Rent subsequent to the first refinancing of the First Mortgage.”

3. Except as herein modified, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

4. This Sixth Lease Modification Agreement shall be binding upon an inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

60 EAST 42ND ST. ASSOCIATES
By:	/s/ Alvin Silverman
	Partner
LINCOLN BUILDING ASSOCIATES
By:	/s/ Peter L. Malkin
	Partner

48124.1

EX-10.12

Exhibit 10.12

SEVENTH LEASE MODIFICATION AGREEMENT

AGREEMENT made as of March 1, 2000, by and between 60 EAST 42ND ST. ASSOCIATES, a co-partnership having its office at 60 East 42nd Street, New York, New York 10165 (hereinafter called “Landlord”), and LINCOLN BUILDING ASSOCIATES, a co-partnership having its office at 60 East 42nd Street, New York, New York 10165 (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties are respectively the current landlord and tenant under that certain lease dated October 1, 1958, as modified by agreements dated January 1, 1964, as of January 1, 1977, as of April 1, 1979, as of April 1, 1981, as of April 1, 1982 and as of October 1, 1987 (the “Lease”), covering premises known as and by the street numbers 60 East 42^nd Street and 301 Madison Avenue, New York, New York (the “Building”); and

WHEREAS, a modernization program is necessary to maintain the competitive position of the Building; and

WHEREAS, Landlord is willing to make funds available for improvements required by such program, and Tenant is willing to apply such funds, as agent for Landlord, to the making of such improvements, and to apply additional funds from the operation of the Building to pay for the balance of the costs of such improvements; and

WHEREAS, Landlord and Tenant desire to modify the Lease as hereinafter set forth.

NOW, THEREFORE, in consideration of mutual covenants herein contained, the parties hereto, intending to be bound, hereby agree as follows:

1. Landlord and Tenant agree that improvements substantially as shown on Exhibit A attached hereto and made a part hereof constitute the modernization program (the “Improvement Program”) referred to herein and shall be substantially made to the demised premises. All work performed by Tenant in furtherance of the Improvement Program shall be done as agent for Landlord and for the account of Landlord, and when completed, shall become the property of Landlord.

2. Landlord agrees to obtain a loan in the amount of $27,979,186.47 secured by a second mortgage (the “Second Mortgage”) on the demised premises. Pursuant to the terms of the Second Mortgage, loan proceeds shall be advanced in stages. Advances of loan proceeds shall be deposited by Landlord in an interest-bearing money market or similar account and disbursed to Tenant upon submission of documents reasonably required by Landlord. For purposes of determining Additional Rent and Further Additional Rent, all interest earned on amounts so held by Landlord and disbursed to Tenant shall be treated as income of Tenant. In the event that the Second Mortgage proceeds are insufficient to pay for the entire cost of the Improvement Program, Tenant agrees the pay for the balance of such costs.

48130.1

3. Paragraph 2A(ii) of the Lease is hereby deleted in its entirety and replaced by the following:

“(ii) Commencing on March 1, 2000, Tenant covenants to pay, in advance, on the first day of each month during the term of this Lease and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate equal to (i) $24,000 plus (ii) the constant installment payments of interest and amortization (excluding any balloon principal payment due at maturity) payable during such year under all mortgages to which this Lease is subordinate pursuant to Paragraph 30 hereof. The Basic Rent shall be adjusted on a dollar-for-dollar basis by changes in the annual debt service on such mortgages. It is further understood and agreed that the amount of Basic Rent shall be adjusted upon a refinancing of any Mortgage (as defined in Paragraph 30), subject to and in accordance with the provisions of Paragraph 30.”

4. Paragraph 13 of the Lease is hereby deleted in its entirety and replaced by the following:

“13. Tenant agrees that its rights hereunder are subordinate to:

(i) the mortgage(s) presently encumbering the demised premises; and

(ii) any future mortgages placed on the demised premises provided that (a) the aggregate principal balance of all mortgages now or hereafter placed on the demised premises does not exceed $40,000,000 plus refinancing costs, (b) such new mortgages are made by an institutional lender on a non-recourse basis and (c) the proceeds of the loan(s) secured by any new mortgage(s) are (i) used to refinance the then existing mortgage(s) on the demised premises, (ii) pay refinancing costs in connection therewith and/or (iii) building improvements in connection with the demised premises.

(Each mortgage to which Tenant’s rights hereunder are subordinate is hereinafter a “Permitted Mortgage”). Tenant agrees to execute, upon demand, any documents required to evidence such subordination. Tenant further agrees that it will not do or suffer to be done any act upon the demised premises which will violate any of the terms of any Permitted Mortgage or the obligations secured thereby.”

- 2 -

48130.1

5. Subject to the provisions of Paragraph 2 hereof, any costs, fees and expenses incurred in connection with the execution of this Agreement or the completion of the transactions contemplated herein, shall be paid from proceeds advanced under the Second Mortgage. Any such costs, fees, and expenses paid by Tenant from sources other than the loan secured by the Second Mortgage may be deducted in the year expended in calculating Tenant’s net income for purposes of determining Additional Rent and Further Additional Rent under the Lease.

6. Paragraph 30 of the Lease is hereby deleted in its entirety and replaced by the following:

“30. For the purpose of this Paragraph 30, the term “Mortgage” shall mean any fee mortgage to which the Lease is subordinate under the provisions of Paragraph 13 of this Lease, and the term ‘refinancing’ shall include any consolidation, modification, renewal, extension or replacement thereof. In the event that there shall be one or more refinancings of any Mortgage or in the event that the monthly debt service payments under any Mortgage shall be adjusted pursuant to the terms thereof, the annual Basic Rent will be modified to equal to the sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) plus an amount equal to the constant installment payments for interest and amortization (not including any balloon principal payment due at maturity) required annually under all Mortgages.”

7. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Lease.

8. Except as herein modified and as otherwise agreed between Landlord and Tenant, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

9. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

- 3 -

48130.1

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the day and year first above written.

Landlord:
60 EAST 42ND ST. ASSOCIATES
By:	/s/ Thomas N. Keltner, Jr.
	Name: Thomas N. Keltner, Jr.
	Title:   Partner
Tenant:
LINCOLN BUILDING ASSOCIATES
By:	/s/ Peter L. Malkin
	Name: Peter L. Malkin
	Title:   Partner

- 4 -

48130.1

Exhibit A

Lincoln Building – 60 East 42nd Street

Building Improvement Program

Project/Item	Budget
Elevator system modernization	$	2,800,000
Elevator cab replacement		625,000
New concierge desk		285,000
Public corridors and elevator lobbies upgrades		4,234,000
New public bathrooms		3,196,000
Lobby retail arcade upgrades, new awning & displays		95,000
Façade renovation		750,000
New marketing center		500,000
New conference center		300,000
Law library upgrades		375,000
New cardkey & security system		130,000
Roof & parapet replacements		1,545,000
Water riser replacement		2,353,000
New stairwell lighting & signage		150,000
Misc. electrical & mechanical system upgrades		685,000
Window replacement		4,000,000
HVAC in corridors		3,000,000
Misc. HVAC upgrades		290,000
ACM abatement and re-insulation		621,000
Misc. plumbing upgrades		205,000
Class “E” upgrade		150,000
Mortgage taxes and loan soft costs		1,115,000
Contingency		500,000
Total	$	27,904,000

- 5 -

48130.1

EX-10.13

Exhibit 10.13

EIGHTH LEASE MODIFICATION AGREEMENT

AGREEMENT made as of November 23, 2004, by and between 60 EAST 42ND ST. ASSOCIATES L.L.C., a New York limited liability company having its office at 60 East 42nd Street, New York, New York 10165 (hereinafter called “Landlord”), and LINCOLN BUILDING ASSOCIATES L.L.C., a New York limited liability company having its office at 60 East 42nd Street, New York, New York 10165 (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties are respectively the current landlord and tenant under that certain lease dated October 1, 1958, as modified by agreements dated January 1, 1964, as of January 1, 1977, as of April 1, 1979, as of April 1, 1981, as of April 1, 1982 as of October 1, 1987, and as of March 1, 2000 (the “Lease”), covering premises known as and by the street numbers 60 East 42^nd Street and 301 Madison Avenue, New York, New York (the “Building”); and

WHEREAS, a modernization program is necessary to maintain the competitive position of the Building; and

WHEREAS, a modernization program has been underway for which funds were borrowed by Landlord and made available to Tenant; and

WHEREAS, additional improvements are contemplated; and

WHEREAS, Landlord is willing to make additional funds available for improvements required by such program, and Tenant is willing to apply such funds, as agent for Landlord, to the making of such improvements, and to apply additional funds from the operation of the Building to pay for the balance of the costs of such improvements; and

WHEREAS, Landlord and Tenant desire to modify the Lease as hereinafter set forth.

NOW, THEREFORE, in consideration of mutual covenants herein contained, the parties hereto, intending to be bound, hereby agree as follows:

1. Landlord and Tenant agree that improvements substantially as shown on Exhibit A attached to the March 1, 2000 Lease Modification Agreement have been undertaken program and the additional improvements referred to in the recitals above, are shown on Exhibit A hereto, which aggregate improvements constitute the “Improvement Program” referred to herein. All such improvements shall be substantially made to the demised premises. All work performed by Tenant in furtherance of the Improvement Program shall be done as agent for Landlord and for the account of Landlord, and when completed, shall become the property of Landlord.

18683

2.(a) Landlord agrees to obtain a loan in the amount of $84,000,000 secured by a first mortgage (the “ Mortgage”) on the demised premises. Pursuant to the terms of the Mortgage, loan proceeds shall be advanced in stages. Advances of loan proceeds shall be deposited by Landlord in an interest-bearing money market or similar account and disbursed to Tenant upon submission of documents reasonably required by Landlord. For purposes of determining Additional Rent and Further Additional Rent, all interest earned on amounts so held by Landlord and disbursed to Tenant shall be treated as income of Tenant. In the event that the Mortgage proceeds are insufficient to pay for the entire cost of the Improvement Program, Tenant agrees the pay for the balance of such costs.

(b) Tenant agrees to join in the Mortgage for the purpose of mortgaging its estate under the Lease to secure payment of the Mortgage indebtedness, provided that Tenant’s liability for such payment shall be limited to such estate.

3. Paragraph 2A(ii) of the Lease is hereby deleted in its entirety and replaced by the following:

“(ii) Commencing on November 29, 2004 (with payments to commence on December 1, 2004), Tenant covenants to pay, in advance, on the first day of each month during the term of this Lease and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate equal to (i) $24,000 plus (ii) the constant installment payments of interest and amortization (excluding any balloon principal payment due at maturity) payable during such year under all mortgages to which this Lease is subordinate pursuant to Paragraph 30 hereof. The Basic Rent shall be adjusted on a dollar-for-dollar basis by changes in the annual debt service on such mortgages. It is further understood and agreed that the amount of Basic Rent shall be adjusted upon a refinancing of any Mortgage (as defined in Paragraph 30), subject to and in accordance with the provisions of Paragraph 30.”

4. Paragraph 13 of the Lease is hereby deleted in its entirety and replaced by the following:

“13. Tenant agrees that its rights hereunder are subordinate to:

(i) the mortgage(s) presently encumbering the demised premises; and

(ii) any future mortgages placed on the demised premises provided that (a) the aggregate principal balance of all mortgages now or hereafter placed on the demised premises does not exceed $84,000,000 plus refinancing costs, (b) such new mortgages are made by an institutional lender on a non-recourse basis and (c) the proceeds of the loan(s) secured by any new mortgage(s) are (i) used to refinance the then existing mortgage(s) on the demised premises, (ii) pay refinancing costs in connection therewith and/or (iii) building improvements in connection with the demised premises.

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18683

(Each mortgage to which Tenant’s rights hereunder are subordinate is hereinafter a “Permitted Mortgage”). Tenant agrees to execute, upon demand, any documents required to evidence such subordination. Tenant further agrees that it will not do or suffer to be done any act upon the demised premises which will violate any of the terms of any Permitted Mortgage or the obligations secured thereby.”

5. Subject to the provisions of Paragraph 2 hereof, any costs, fees and expenses incurred in connection with the execution of this Agreement or the completion of the transactions contemplated herein, shall be paid from proceeds advanced under the Mortgage. Any such costs, fees, and expenses paid by Tenant from sources other than the loan secured by the Mortgage may be deducted in the year expended in calculating Tenant’s net income for purposes of determining Additional Rent and Further Additional Rent under the Lease.

6. Paragraph 30 of the Lease is hereby deleted in its entirety and replaced by the following:

“30. For the purpose of this Paragraph 30, the term “Mortgage” shall mean any fee mortgage to which the Lease is subordinate under the provisions of Paragraph 13 of this Lease, and the term ‘refinancing’ shall include any consolidation, modification, renewal, extension or replacement thereof. In the event that there shall be one or more refinancings of any Mortgage or in the event that the monthly debt service payments under any Mortgage shall be adjusted pursuant to the terms thereof, the annual Basic Rent will be modified to equal to the sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) plus an amount equal to the constant installment payments for interest and amortization (not including any balloon principal payment due at maturity) required annually under all Mortgages.”

7. Landlord and Tenant agree to negotiate the terms of additional options to permit Tenant to extend the term of the Lease beyond its current expiration date, on the condition that such extension rights shall be in proportion to the net present benefit to Landlord of the increase in Basic Rent and the completed Improvement Program.

8. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Lease.

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18683

9. Except as herein modified and as otherwise agreed between Landlord and Tenant, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

10. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the day and year first above written.

Landlord:
60 EAST 42ND ST. ASSOCIATES L.L.C.
By:	/s/ Jack K. Feirman
	Name: Jack K. Feirman
	Title:   Member
Tenant:
LINCOLN BUILDING ASSOCIATES L.L.C.
By:	/s/ Peter L. Malkin
	Name: Peter L. Malkin
	Title:   Member

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18683

Exhibit A

Lincoln Building – Additional

Capital Expense Program

New Capital Projects

Main suction tank

55, 30 & 17 house tank valves and piping

Reline 55th floor tank

Reline 31st floor tank

Reline 17th floor tank

Hot Water Heaters (3)

Supply risers to house tanks 55th, 31st and

17th floors

Pumps and Motors (DC-AC)

New electrical supply to new Pumps and

Motors (DC-AC)

S4 Fan and Motor

S5 Fan and Motor

26th floor cooling tower

Emergency power

Service switch #2 maintenance

Riser switches (3) locations, breakers, copper

detail

ATS switches (3) locations

Main feeder riser replacements

Electric closet panel replacements

Class E battery back up (code requirement)

Radio System and Antenna Upgrade

301 Roof replacement

Local Law 11 Façade (estimated)

42nd St revolver replacement

Sprinklers throughout, code compliance

Space Improvement & Leasing Expense

Tenant Improvements

Leasing Commissions

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18683

EX-10.14

Exhibit 10.14

NINTH LEASE MODIFICATION AGREEMENT

AGREEMENT made as of November 5, 2009, by and between 60 EAST 42ND ST. ASSOCIATES L.L.C., a New York limited liability company having its office at 60 East 42nd Street, New York, New York 10165 (hereinafter called “Landlord”), and LINCOLN BUILDING ASSOCIATES L.L.C., a New York limited liability company having its office at 60 East 42nd Street, New York, New York 10165 (hereinafter called “Tenant”).

W I T N E S S E T H:

WHEREAS, the parties are respectively the current landlord and tenant under that certain lease dated October 1, 1958, as modified by agreements dated January 1, 1964, as of January 1, 1977, as of April 1, 1979, as of April 1, 1981, as of April 1, 1982, as of October 1, 1987, March 1, 2000 and as of November 23, 2004 (the “Lease”), covering premises known as and by the street numbers 60 East 42^nd Street and 301 Madison Avenue, New York, New York (the “Building”);

WHEREAS, Landlord and Tenant have each consented to increase the outstanding principal balance of the mortgagee encumbering on the fee title up to $100 million pursuant to consent solicitations, dated respectively, September 13, 2004 and August 11, 2004 (the “Consents”), and to pay the debt service thereof by increasing the rent under the Lease;

WHEREAS, the principal indebtedness received by mortgages on said fee title is, as of the date hereof $80,012,524.00;

WHEREAS, Landlord intends to increase the mortgage indebtedness by $16,000,000 to bring the outstanding principal balance thereof to $96,012,524.00, as permitted by the Consents; and

WHEREAS, Landlord and Tenant desire to modify the Lease as hereinafter set forth.

NOW, THEREFORE, in consideration of mutual covenants herein contained, the parties hereto, intending to be bound, hereby agree as follows:

1.(a) Landlord agrees advances of loan proceeds of any Permitted Mortgage (as defined in the Lease) shall be deposited by Landlord in an interest-bearing money market or similar account and disbursed to Landlord and /or to Tenant upon submission of documents reasonably required from Tenant by Landlord for the purposes set forth in the Consents. For purposes of determining Additional Rent and Further Additional Rent, all interest earned on amounts so held by Landlord and disbursed to Tenant shall be treated as income of Tenant.

41654.3

(b) Tenant agrees to join in the Mortgage (as defined in the Lease) and the Amended and Restated Assignment of Leases and Rents (as defined in the Mortgage) for the purpose of mortgaging its estate under the Lease and assigning, as additional security, all of its right, title and interest in and to the subleases and rents to secure payment of the Mortgage indebtedness, all as more particularly set forth in said Amended and Restated Assignment of Leases and Rents; provided that Tenant’s liability for such payment shall be limited to such estate.

2. Paragraph 2A(ii) of the Lease is hereby deleted in its entirety and replaced by the following:

“(ii) Commencing on the date hereof, Tenant covenants to pay, in advance, on the first day of each month during the term of this Lease (with payments to commence on the first day of the first month following the date hereof) and any renewal term of this Lease, a basic rent (hereinafter called “Basic Rent”) at an annual rate equal to (i) $24,000 plus (ii) the constant installment payments of interest and amortization (excluding any balloon principal payment due at maturity) payable during such year under all mortgages to which this Lease is subordinate pursuant to Paragraph 30 hereof. The Basic Rent shall be adjusted on a dollar-for-dollar basis by changes in the annual debt service on such mortgages. It is further understood and agreed that the amount of Basic Rent shall be adjusted upon a refinancing of any Mortgage (as defined in Paragraph 30), subject to and in accordance with the provisions of Paragraph 30.”

3. Paragraph 13 of the Lease is hereby deleted in its entirety and replaced by the following:

“13. Tenant agrees that its rights hereunder are subordinate to:

(i) the mortgage(s) presently encumbering the demised premises; and

(ii) any future mortgages placed on the demised premises provided that (a) the aggregate principal balance of all mortgages now or hereafter placed on the demised premises does not exceed $100,000,000 plus refinancing costs, (b) such new mortgages are made by an institutional lender on a non-recourse basis and (c) the proceeds of the loan(s) secured by any new mortgage(s) are (i) used to refinance the then existing mortgage(s) on the demised premises, (ii) pay refinancing costs in connection therewith and/or (iii) building improvements in connection with the demised premises.

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41654.3

(Each mortgage to which Tenant’s rights hereunder are subordinate is hereinafter a “Permitted Mortgage”). Tenant agrees to execute, upon demand, any documents required to evidence such subordination. Tenant further agrees that it will not do or suffer to be done any act upon the demised premises which will violate any of the terms of any Permitted Mortgage or the obligations secured thereby.”

4. Subject to the provisions of Paragraph 1 hereof, any costs, fees and expenses incurred in connection with the execution of this Agreement or the completion of the transactions contemplated herein, shall be paid from proceeds advanced under the Mortgage. Any such costs, fees, and expenses paid by Tenant from sources other than the loan secured by the Mortgage may be deducted in the year expended in calculating Tenant’s net income for purposes of determining Additional Rent and Further Additional Rent under the Lease.

5. Paragraph 30 of the Lease is hereby deleted in its entirety and replaced by the following:

“30. For the purpose of this Paragraph 30, the term “Mortgage” shall mean any fee mortgage to which the Lease is subordinate under the provisions of Paragraph 13 of this Lease, and the term ‘refinancing’ shall include any consolidation, modification, renewal, extension or replacement thereof. In the event that there shall be one or more refinancings of any Mortgage or in the event that the monthly debt service payments under any Mortgage shall be adjusted pursuant to the terms thereof, the annual Basic Rent will be modified to equal to the sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) plus an amount equal to the constant installment payments for interest and amortization (not including any balloon principal payment due at maturity) required annually under all Mortgages.”

6. Landlord and Tenant agree to negotiate the terms of additional options to permit Tenant to extend the term of the Lease beyond its current expiration date, on the condition that such extension rights shall be in proportion to the net present benefit to Landlord of the increase in Basic Rent and the completed Improvement Program.

7. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Lease.

8. Except as herein modified and as otherwise agreed between Landlord and Tenant, the Lease shall remain in full force and effect, and the parties hereby ratify and confirm all of the other terms, covenants and conditions thereof.

9. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns.

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41654.3

Landlord:
60 EAST 42ND ST. ASSOCIATES L.L.C.
By:	/s/ Anthony E. Malkin
	Name: Anthony E. Malkin
	Title:   Member
Tenant:
LINCOLN BUILDING ASSOCIATES L.L.C.
By:	/s/ Peter L. Malkin
	Name: Peter L. Malkin
	Title:   Member

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41654.3

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mark Labell as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Report on Form 10-K for the year ended December 31, 2011 of 60 East 42^nd St. Associates L.L.C. and to file the same with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent and his substitutes may lawfully do or cause to be done by virtue hereof.

NAME	CAPACITY	DATE
/s/ Peter L. Malkin	Member	March 13, 2012
Peter L. Malkin
/s/ Anthony E. Malkin	Member	March 13, 2012
Anthony E. Malkin

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Mark Labell, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: April 11, 2012

By /s/ Mark Labell

Name: Mark Labell

Title: Senior Vice President, Finance

Malkin Holdings LLC, Supervisor of

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

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

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EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Mark Labell, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: April 11, 2012

By /s/ Mark Labell

Name: Mark Labell

Title: Senior Vice President, Finance

Malkin Holdings LLC, Supervisor of

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

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

2

EX-32.1

Exhibit 32.1

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

Pursuant to Section 906

of the Sarbanes -Oxley Act of 2002

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

1. the Annual Report on Form 10-K of Registrant for the period ended December 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and

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

Dated: April 11, 2012

By /s/ Mark Labell

Mark Labell

Senior Vice President, Finance

Malkin Holdings LLC, Supervisor

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

EX-32.2

Exhibit 32.2

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

Pursuant to Section 906

of the Sarbanes -Oxley Act of 2002

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

1. the Annual Report on Form 10-K of Registrant for the period ended December 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and

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

Dated: April 11, 2012

By /s/ Mark Labell

Mark Labell

Senior Vice President, Finance

Malkin Holdings LLC, Supervisor

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

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

a. Cash and Cash Equivalents

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

b. Use of Estimates

In preparing financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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

c. Land, Building, Building Improvements, Equipment and Depreciation

Real estate, consisting of land, building, building improvements, tenant improvements and equipment, is stated at cost. Building improvements are depreciated using the straight-line basis over their estimated useful lives of 39 years. The tenant improvements are being depreciated over the terms of the individual tenant leases or the estimated useful life if shorter.

In connection with the building improvements program which began in 1999 (Note 11), costs totaling $74,308,199 and $71,632,358 have been incurred through December 31, 2011 and 2010, respectively, for new building improvements ($66,810,647 for 2011 and $64,329,907 for 2010), tenant improvements ($5,793,417 for 2011 and $5,598,316 for 2010) and equipment ( $130,000 for 2011 and $130,000 for 2010).

d. Mortgage Refinancing Costs, Leasing Commissions and Amortization

Mortgage refinancing costs are being amortized ratably over the term of the related mortgages and included in mortgage interest expense.

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

e. Revenue Recognition

Basic rental income, as defined in the Lease, is equal to the sum of the mortgage charges plus a fixed amount. Associates records basic rental income as earned ratably on a monthly basis. Additional rent represents a fixed amount of the Lessee’s net operating profit ($1,053,800 a year minimum), as defined, in each lease year and is recorded ratably over the 12-month period. Further additional rent, which is based on the net operating profit of the Lessee, as defined, is recorded by Associates when such amounts become realizable and earned.

f. Valuation of Long-Lived Assets

Associates assesses the carrying amount of long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When Associates determines that the carrying amount of long-lived assets is impaired, the measurement of any impairment is based on a discounted cash flow method. No impairment loss has been recorded in the years ended December 31, 2011 and 2010.

g. Income Taxes

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

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

Taxable years ended December 31, 2008, 2009, 2010 and 2011 are subject to IRS and other jurisdictions’ tax examinations.

At December 31, 2011 and 2010, the reported amounts of Associates’ aggregate net assets exceeded their tax bases by approximately $7,362,800 and $6,700,000, respectively.

h. Offering Costs

External offering costs of $1,685,782 and $454,277 were incurred for the years ended December 31, 2011 and 2010, respectively, and are reflected as deferred costs on Associates’ consolidated balance sheets. Such costs are comprised of accounting fees, legal fees, and other professional fees. Such costs have been deferred and shall be recorded as a reduction of proceeds of the IPO, or expensed as incurred if the IPO is not consummated. Additional offering costs for work done by employees of the Supervisor of $228,603 and $56,757 for the years ended December 31, 2011 and 2010, respectively, were incurred and advanced by the Supervisor and have been reimbursed to the Supervisor by the entities to be included in the consolidation.

i. Recently Adopted Accounting Pronouncements

In May 2011 the FASB issued ASU 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP. This ASU provides guidance setting forth additional requirements relating to disclosures about fair value. The guidance will be effective for us beginning with the first interim period in 2012. In accordance with the guidance, we will be required to disclose the level in the fair value hierarchy in which each fair value lies that is disclosed but not used to measure an asset or liability on the balance sheet. The guidance also clarifies that the fair value of a non-financial asset is based on its highest and best use and requires disclosure if a non-financial asset is being used in a manner that is not its highest and best use. Associates does not have any financial instruments that would be materially impacted by this standard as of December 31, 2011.

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Business Activity

12 Months Ended

Dec. 31, 2011

Business Activity [Abstract]

Business Activity

1. Business Activity

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

Associates’ members are Peter L. Malkin and Anthony E. Malkin each of whom also acts as an agent for holders of participations in his respective member interest in Associates. In the Statements of Members’ Deficiency, each such agent’s representation is referred to as a Group (i.e., Peter L. Malkin represents five Groups and Anthony E. Malkin represents two Groups).

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Balance Sheets (USD $)	Dec. 31, 2011	Dec. 31, 2010
Real Estate:
Building: One Grand Central Place, located at 60 East 42nd Street and 301 Madison Avenue, New York, N.Y.	$ 16,960,000	$ 16,960,000
Less: Accumulated depreciation	(16,960,000)	(16,960,000)
Building after accumulated depreciation	0	0
Building improvements and equipment	66,940,647	66,034,042
Less: Accumulated depreciation	(12,187,313)	(12,076,880)
Building improvements after accumulated depreciation	54,753,334	53,957,162
Tenant improvements	5,793,417	5,598,316
Less: Accumulated depreciation	(1,386,473)	(515,948)
Tenant improvements after accumulated depreciation	4,406,944	5,082,368
Land	7,240,000	7,240,000
Total real estate, net	66,400,278	66,279,530
Cash and cash equivalents:
Cash in bank	6,285	34,677
Fidelity U.S. Treasury Income Portfolio	10,460,092	11,520,657
Total cash and cash equivalents	10,466,377	11,555,334
Due from Supervisor	87,202	87,202
Receivable from participants - NYS estimated tax	3,357	3,357
Deferred costs	2,140,059	454,277
Leasing commissions, less accumulated amortization of $1,444,673 in 2011 and $2,742,063 in 2010	1,066,705	1,367,758
Mortgage refinancing costs, less accumulated amortization of $1,825,231 in 2011 and $1,461,613 in 2010	1,048,401	1,412,019
Total assets	81,212,379	81,159,477
Liabilities:
Mortgages payable	91,478,304	93,719,850
Accrued mortgage interest	428,479	438,819
Accrued supervisory fees, a related party	81,265	78,000
Payable to Lessee, a related party	720,066	1,082,082
Due to Supervisor	922,728	43,555
Accrued expenses	422,996	238,200
Total liabilities	94,053,838	95,600,506
Commitments and contingencies
Members' deficiency	(12,841,459)	(14,441,029)
Total liabilities and members' deficiency	$ 81,212,379	$ 81,159,477

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Statement of Members' Deficiency (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Members' deficiency, beginning balance	$ (14,441,029)	$ (13,459,008)
Net income	2,645,990	64,399
Distributions	(1,046,420)	(1,046,420)
Members' deficiency, ending balance	(12,841,459)	(14,441,029)
Peter L. Malkin Group
Members' deficiency, beginning balance	(2,063,004)	(1,922,715)
Net income	377,998	9,200
Distributions	(149,488)	(149,488)
Members' deficiency, ending balance	(1,834,495)	(2,063,004)
Thomas N. Keltner, Jr. Group
Members' deficiency, beginning balance		(1,922,715)
Net income		9,200
Distributions		(149,488)
Members' deficiency, ending balance		(2,063,003)
Anthony E. Malkin Group
Members' deficiency, beginning balance	(2,063,003)	(1,922,715)
Net income	377,998	9,200
Distributions	(149,488)	(149,489)
Members' deficiency, ending balance	$ (1,834,494)	$ (2,063,003)

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Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net income	$ 2,645,990	$ 64,399
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of building and tenant improvements and equipment	2,555,093	2,153,311
Amortization of leasing commissions	301,053	443,897
Amortization of mortgage refinancing costs	363,618	363,618
Changes in operating assets and liabilities:
Due to Supervisor	879,173	43,555
Accrued mortgage interest	(10,340)	(9,779)
Accrued expenses	184,796	237,500
Accrued supervisory fees, a related party	3,265	78,000
Net cash provided by operating activities	6,922,648	3,374,501
Cash flows from investing activities:
Purchase of building and tenant improvements	(2,675,841)	(4,914,343)
Decrease in payable to Lessee, a related party	(362,016)	0
Net cash used in investing activities	(3,037,857)	(4,914,343)
Cash flows from financing activities:
Change in receivable from participants - NYS estimated tax	0	(3,357)
Repayment of mortgages payable	(2,241,546)	(2,121,140)
Financing costs		(2,831)
Distributions to Participants	(1,046,420)	(1,046,420)
Deferred costs	(1,685,782)	(454,277)
Net cash used in financing activities	(4,973,748)	(3,628,025)
Net decrease in cash and cash equivalents	(1,088,957)	(5,167,867)
Cash and cash equivalents, beginning of year	11,555,334	16,723,201
Cash and cash equivalents, end of year	10,466,377	11,555,334
Supplemental disclosure of cash flow information:
Cash paid for interest	5,209,527	5,329,934
Net cash used in investing activities excludes increases of payable to lessee	$ 0	$ 731,360

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Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2011	Dec. 31, 2010
Balance Sheets [Abstract]
Leasing commissions, less accumulated amortization	$ 1,444,673	$ 2,742,063
Mortgage refinancing costs, less accumulated amortization	$ 1,825,231	$ 1,461,613

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Contingencies

12 Months Ended

Dec. 31, 2011

Contingencies [Abstract]

Contingencies

10. Contingencies

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

Five putative class actions have been brought by Participants in Registrant and several other entities supervised by Malkin Holdings that own fee or leasehold interests in various properties located in New York City, the first of which was filed March 1, 2012 (the “Class Actions”). As now pending in New York State Supreme Court, New York County, each Class Action challenges the proposed consolidation of those and other properties supervised by Malkin Holdings into a real estate investment trust (the “REIT”) and the initial public offering of shares in Empire State Realty Trust, Inc., a Maryland corporation which intends to qualify for U.S. tax purposes as a REIT. The plaintiffs assert claims against Malkin Holdings, Malkin Properties, L.L.C., Malkin Properties of New York, L.L.C., Malkin Properties of Connecticut, Inc., Malkin Construction Corp., Anthony E. Malkin, Peter L. Malkin, Estate of Leona M. Helmsley, Empire State Realty OP, L.P., and the REIT (“Defendants”) for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duty, alleging, inter alia, that the terms of the transaction are unfair to the Participants and overly favorable to Malkin Holdings and related parties. The complaints seek money damages and injunctive relief preventing the proposed transaction. On April 3, 2012, plaintiffs moved for consolidation of the actions and for appointment of co-lead counsel. Defendants intend to consent to consolidation, and have no position with respect to appointment of co-lead counsel.

The Class Actions are in a very preliminary stage, with no responses to the complaints having been filed to date. Defendants have stated they believe the Class Actions are without merit and intend to defend them vigorously.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	60 EAST 42ND STREET ASSOCIATES L.L.C.
Entity Central Index Key	0000090794
Document Type	10-K
Document Period End Date	Dec. 31, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float	$ 0
Entity Common Stock, Shares Outstanding	0

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Building Improvements Program and Agreement to Extend Lease

12 Months Ended

Dec. 31, 2011

Building Improvements Program and Agreement to Extend Lease [Abstract]

Building Improvements Program and Agreement to Extend Lease

11. Building Improvements Program and Agreement to Extend Lease

In 1999, the participants of Associates and the members in Lessee consented to a building improvements program (the “Program”) estimated to cost approximately $22,800,000. In 2000, the participants of Associates and the members in the Lessee approved an increase in the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. To induce the Lessee to approve the Program, Associates agreed to grant to the Lessee, upon completion of the Program, the right to further extensions of the Lease to 2083. The Program was further increased in 2004 to up to $100,000,000. Such increase would extend the Lease beyond 2083, based on the net present benefit to Associates of the improvements made. The granting of such Lease extension rights upon completion of the Program is expected to trigger a New York State Transfer Tax under current tax rules, which will be paid from mortgage proceeds and/or the Lessee’s operating cash flow. As of December 31, 2011, Associates had incurred costs related to the Program of $74,308,199 and estimates that the costs of the Program upon completion will be approximately $100,000,000 including sprinkler work, required to be completed by 2019. The participants of Associates and the members in Lessee had approved increased refinancing of $16,000,000 from the total of $84,000,000 provided by the mortgage to up to $100,000,000. The balance of the costs of the Program will be financed by the new $16,000,000 mortgage and Lessee’s operating cash flow.

The Lessee is financing the Program and billing Associates for the costs incurred. The Program (1) grants the ownership of the improvements to Associates and acknowledges its intention to finance them through an increase in the fee mortgage (Note 3), and (2) allows for the increased mortgage charges to be paid by Associates from an equivalent increase in the basic rent paid by the Lessee to Associates. Since any further additional rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Associates and the Lessee share the costs of the Program equally, assuming further additional rent continues to be earned. The 1999 consent authorized the members of Associates who act as agents for the participant investors (the “Agents”) to give additional extension rights to the Lessee beyond the September 30, 2033 expiration date (Note 4) to September 30, 2083 upon completion of the Program, and to later date(s) for consideration and upon such terms as the Agents deem appropriate for the benefit of Associates.

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Statements of Income (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Revenues:
Rent income, from a related party	$ 11,613,895	$ 8,583,267
Dividend income	1,064	1,878
Total revenues	11,614,959	8,585,145
Expenses:
Interest on mortgages	5,562,805	5,683,772
Supervisory services to a related party	190,646	109,380
Depreciation of building and tenant improvements and equipment	2,555,093	2,153,311
Amortization of leasing commissions	301,053	443,897
Fees for special services, including amounts paid to a related party	228,603	52,276
Accounting fees	121,500	75,000
Miscellaneous	9,269	3,110
Total expenses	8,968,969	8,520,746
Net income	2,645,990	64,399
Earnings per $10,000 participation unit, based on 700 participation units outstanding during each year	$ 3,780	$ 92

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Related Party Transactions - Supervisory and Other Services

12 Months Ended

Dec. 31, 2011

Related Party Transactions - Rent Income/Related Party Transactions - Supervisory and Other Services [Abstract]

Related Party Transactions - Supervisory and Other Services

5. Related Party Transactions - Supervisory and Other Services

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

Associates pays Supervisor for supervisory services and disbursements. The basic fee had been payable at the rate of $24,000 per annum since October 1, 1958. The Agents approved an increase in such fee in an amount equal to the increase in the Consumer Price Index since such date, resulting in an increase in the basic fee to $180,000 per annum effective July 1, 2010, to be adjusted annually for any subsequent increase in the Consumer Price Index. Fees for supervisory services (including disbursements and costs of accounting services) for the years ended December 31, 2011 and 2010 totaled $190,646 and $109,380, respectively. For the years ended December 31, 2011 and 2010, Malkin Holdings earned $228,603 and $56,757, respectively, for special supervisory services at hourly rates in connection with a proposed consolidation of Associates, other public and private entities supervised by Malkin Holdings, and Malkin Holdings and certain affiliated management companies into Empire State Realty Trust, Inc., a newly formed REIT, all representing Associates’ allocable portion of such fees to be paid directly and not borne indirectly through additional rent deductions. Malkin Holdings receives an additional payment equal to 10% of all distributions received by the participants in Associates in excess of 14% per annum on the initial cash investment of $7,000,000. For tax purposes, such additional payment is treated as a profits interest and the Supervisor is treated as a partner, all without modifying each Participant’s distributive share of reportable income and cash distributions. Distributions in respect of Malkin Holdings’ profits interest totaled $7,380 for each of the years ended December 31, 2011 and 2010, respectively.

Malkin Holdings also serves as supervisor for the Lessee, for which it receives a basic annual fee of $383,000, effective January 1, 2010, to be adjusted each year for any subsequent increase in the Consumer Price Index . Fees for supervisory services for the years ended December 31, 2011 and 2010 totaled $389,251 and $383,000, respectively. For the years ended December 31, 2011 and 2010, Malkin Holdings earned $175,911 and $11,370, respectively, from the Lessee in other service fees. Malkin Holdings also receives a payment from Lessee in respect of its profits interest equal to 10% of distributions in excess of $400,000 a year. Distributions in respect of Malkin Holdings’ profits interest from the Lessee totaled $260,004 and $460,004 for the years ended December 31, 2011 and 2010, respectively.

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Related Party Transactions - Rent Income

12 Months Ended

Dec. 31, 2011

Related Party Transactions - Rent Income/Related Party Transactions - Supervisory and Other Services [Abstract]

Related Party Transactions - Rent Income

4. Related Party Transactions - Rent Income

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

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

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

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

Advances of additional rent are billed to and advanced by the Lessee and recorded in revenues by Associates in equal monthly installments of $87,817 throughout each year. Since it is not practicable to estimate total additional rent for the lease year ending on the ensuing September 30 which would be allocable to the first nine months of the lease year until the Lessee, pursuant to the Lease, renders to Associates a report on the operation of the property, Associates recognizes further additional rent when it is realized and earned from the Lessee at the close of the lease year ending September 30.

Payable to Lessee of $720,066 and $1,082,082 at December 31, 2011 and 2010, respectively, represents improvement and tenanting costs advanced by Lessee in connection with the improvement program (Note 11).

Rent income, including total additional rent based on operating profits subject to additional rent, reported by the Lessee of $11,613,895 and $8,583,267 for 2011 and 2010, respectively, was comprised as follows:

	Year ended December 31,
	2011		2010
Basic rent income	$	7,474,112	$	7,474,120
Advance of additional rent		1,053,800		1,053,800
Further additional rent		3,085,983		55,347
Total additional rent		4,139,783		1,109,147
Rent income	$	11,613,895	$	8,583,267

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

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

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

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

Year ending December 31,
2012	$	7,480,000
2013		7,480,000
2014		6,230,000	*
2015		24,000	*
Thereafter		416,000	*
	$	21,630,000

* Associates intends to refinance the existing mortgages which mature on November 5, 2014. In accordance with the Ninth Lease Modification Agreement, basic rent will increase to include the required debt service on the refinanced mortgages. The above table does not reflect the additional basic rent that will result after November 2014 from the refinanced debt.

Real estate taxes paid directly by the Lessee for the years ended December 31, 2011 and 2010 totaled $10,928,078 and $10,594,397, respectively.

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Subsequent Events

12 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

12. Subsequent Events

Subsequent events have been evaluated for potential recognition and disclosure.

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

12 Months Ended

Dec. 31, 2011

Number of Participants/Determination of Distributions to Participants/Distributions and Amount of Income per $10,000 Participation Unit [Abstract]

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

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

Distributions and amount of income per $10,000 participation unit during the years ended December 31, 2011 and 2010, based on 700 participation units outstanding during each year, consisted of the following:

	Year ended December 31
	2011		2010
Income	$	1,495	$	92
Return of capital		—		1,403
Total distributions	$	1,495	$	1,495

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Number of Participants

12 Months Ended

Dec. 31, 2011

Number of Participants/Determination of Distributions to Participants/Distributions and Amount of Income per $10,000 Participation Unit [Abstract]

Number of Participants

6. Number of Participants

There were 848 and 837 participants in the participating groups at December 31, 2011 and 2010, respectively.

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Determination of Distributions to Participants

12 Months Ended

Dec. 31, 2011

Number of Participants/Determination of Distributions to Participants/Distributions and Amount of Income per $10,000 Participation Unit [Abstract]

Determination of Distributions to Participants

7. Determination of Distributions to Participants

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

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Concentration of Credit Risk

12 Months Ended

Dec. 31, 2011

Concentration of Credit Risk [Abstract]

Concentration of Credit Risk

9. Concentration of Credit Risk

Associates maintains cash and cash equivalents in a bank and a money market fund (Fidelity U.S. Treasury Income Portfolio). The Federal Deposit Insurance Corporation (“FDIC”) insures each interest bearing account up to $250,000 and fully insures non-interest bearing accounts through December 31, 2012. At December 31, 2011 and 2010, the bank account is fully insured. Funds in the money market fund were not insured at December 31, 2011 and 2010. Distributions are paid from a cash account held by Malkin Holdings. That account is included on the accompanying balance sheet as “Due from Supervisor.” The funds (approximately $87,000 at December 31, 2011 and 2010) were paid to the participants on January 1, 2012 and 2011, respectively.

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Statements of Income (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Condensed Statements of Income [Abstract]
Stated amount per participation unit	$ 10,000	$ 10,000
Participation units, outstanding	700	700

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Mortgages Payable

12 Months Ended

Dec. 31, 2011

Mortgages Payable [Abstract]

Mortgages Payable

3. Mortgages Payable

On November 29, 2004, a first mortgage was placed on the property in the amount of $84,000,000 with Prudential Insurance Company of America. At closing, $49,000,000 was drawn to pay off the former first mortgage with Morgan Guaranty Trust Company in the amount of $12,020,814 and the second mortgage in the amount of $27,979,186 with Emigrant Savings Bank. The remaining $35,000,000 available under the mortgage was drawn on various dates through July 5, 2007. The proceeds of $49,000,000 drawn at closing and all subsequent draws have been used to pay for the associated refinancing costs and capital improvements as needed. The initial draw of $49,000,000 and all subsequent draws required constant equal monthly payments of interest only, at the rate of 5.34% per annum until July 5, 2007. Commencing August 5, 2007, Associates is required to make equal monthly payments of $507,838 applied to interest and then principal, calculated on a 25-year amortization schedule. The entire $84,000,000 has been drawn and, at December 31, 2011, the balance is $76,008,249. The mortgage matures on November 5, 2014, at which time the principal balance will be $69,797,589.

On November 5, 2009, Associates concluded an additional $16,000,000 loan with Prudential Insurance Company of America secured by a mortgage on the property, subordinate to the first mortgage and to be used for capital improvements (the $84,000,000 and $16,000,000 mortgages are referred to as the “Mortgages”). The new loan requires payments of interest at 7% per annum and principal in the amount of $113,085 per month calculated on a 25-year amortization schedule and is co-terminus with the first mortgage. At December 31, 2011, the balance is $15,470,055. The mortgage matures on November 5, 2014 with a principal balance of $14,613,782.

The mortgage loans may be prepaid at any time, in whole only, upon payment of a prepayment penalty based on a yield maintenance formula. There is no prepayment penalty if the mortgages are paid in full during the last 60 days of the term.

The following is a schedule of principal payments on the Mortgages in each of the three years (mortgages mature in 2014) subsequent to December 31, 2011:

Year ending December 31,
2012	$	2,368,853
2013		2,503,464
2014		86,605,987
Total	$	91,478,304

The real estate and all sublease rents are pledged as collateral for the Mortgages.

The estimated fair value of Associates’ mortgage debt based on available market information was approximately $96,658,956 and $98,784,000 at December 31, 2011 and 2010, respectively.

The fair values of the mortgages payable are based on discounted cash flow models using currently available market rates assuming the loans are outstanding through maturity and considering the loan to value ratios.

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Real Estate and Accumulated Depreciation

12 Months Ended

Dec. 31, 2011

Real Estate and Accumulated Depreciation [Abstract]

Real Estate and Accumulated Depreciation

SCHEDULE III

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

(A Limited Liability Company)

Real Estate and Accumulated Depreciation

Column		December 31, 2011	December 31, 2010
A	Description
	Land, building and building improvements and equipment situated at One Grand Central Place, 60 East 42 nd Street and 301 Madison Avenue, New York, N.Y.
B	Encumbrances
	Prudential Insurance Company at December 31	$91,478,304	$93,719,850
C	Initial cost to company
	Land	$7,240,000	$7,240,000
	Building	$16,960,000	$16,960,000
D	Cost capitalized subsequent to acquisition
	Building improvements and equipment	$74,308,199	$71,632,358
	Carrying costs	$ None	$ None
E	Gross amount at which carried at close of period
	Land	$7,240,000	$7,240,000
	Building, building improvements and equipment	91,268,199	88,592,358
	Total	$98,508,199(a)	$95,832,358(a)
F	Accumulated depreciation	$32,107,921(b)	$29,552,828(b)
G	Date of construction	1930	1930
H	Date acquired	October 1, 1958	October 1, 1958
I	Life on which depreciation in latest income statements is computed	39 years for building improvements and 7 years for equipment	39 years for building improvements and 7 years for equipment
(a)	Gross amount of real estate
	Balance at January 1	$95,832,358	$90,186,655
	Purchase of building improvements and equipment and construction in progress (expenditures advanced by Lessee, a related party, and recorded by Associates):	2,675,841	5,645,703
	Balance at December 31	$98,508,199	$95,832,358
	The aggregate cost of land, building, and improvements, before depreciation, for Federal income tax purposes at December 31, 2011 was $95,702,358.
(b)	Accumulated depreciation
	Balance at January 1	$29,552,828	$27,399,517
	Depreciation: F/Y/E December 31	2,555,093	2,153,311
	Balance at December 31	$32,107,921	$29,552,828