10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - Q

(Mark One)

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

For the quarterly period ended September 30, 2012

OR

☐ 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: 000-52559

FSP Phoenix Tower Corp.

(Exact name of registrant as specified in its charter)

Delaware	20-3965390
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

401 Edgewater Place
Wakefield, MA 01880

(Address of principal executive offices)(Zip Code)

(781) 557-1300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

The number of shares of common stock outstanding was 1 and the number of shares of preferred stock outstanding was 1,050, each as of October 31, 2012.

FSP Phoenix Tower Corp.

Form 10-Q

Quarterly Report

September 30, 2012

Table of Contents

			Page
Part I.	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	2
		Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011	3
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	4
		Notes to Consolidated Financial Statements	5-8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 4.	Controls and Procedures	15
Part II.	Other Information
	Item 1.	Legal Proceedings	16
	Item 1A.	Risk Factors	16
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
	Item 3.	Defaults Upon Senior Securities	16
	Item 4.	Mine Safety Disclosures	16
	Item 5.	Other Information	16
	Item 6.	Exhibits	17
Signatures			18

1

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FSP Phoenix Tower Corp.
Consolidated Balance Sheets
(Unaudited)

(in thousands, except share and par value amounts)	September 30, 2012			December 31, 2011
Assets:
Real estate investments, at cost:
Land	$	3,300		$	3,300
Building and improvements		93,776			90,073
Furniture and fixtures		436			436
		97,512			93,809
Less accumulated depreciation		17,411			14,936
Real estate investments, net		80,101			78,873
Acquired real estate leases, net of accumulated amortization    of $1,195 and $1,059, respectively		385			521
Acquired favorable real estate leases, net of accumulated    amortization of $419 and $371, respectively		83			131
Cash and cash equivalents		3,151			2,805
Tenant rent receivables, less allowance for doubtful accounts
of $4 and $4, respectively		263			80
Step rent receivable		2,728			2,301
Deferred leasing costs, net of accumulated    amortization of $1,612 and $1,341, respectively		3,095			2,852
Prepaid expenses and other assets		249			96
Total assets	$	90,055		$	87,659
Liabilities and Stockholders’ Equity:
Liabilities:
Accounts payable and accrued expenses	$	3,121		$	2,965
Tenant security deposits		302			368
Loan payable - affiliate		15,000			11,000
Acquired unfavorable real estate leases, net of accumulated    amortization of $492 and $436, respectively		187			243
Total liabilities		18,610			14,576
Commitments and Contingencies		—			—
Stockholders’ Equity:
Preferred Stock, $.01 par value, 1,050 shares authorized, issued
and outstanding at September 30, 2012 and December 31, 2011,
aggregate liquidation preference $105,000		—			—
Common Stock, $.01 par value, 1 share
authorized, issued and outstanding		—			—
Additional paid-in capital		96,188			96,188
Retained earnings and distributions in excess of earnings		(24,743	)		(23,105	)
Total Stockholders’ Equity		71,445			73,083
Total Liabilities and Stockholders’ Equity	$	90,055		$	87,659

See accompanying notes to consolidated financial statements.

2

FSP Phoenix Tower Corp.
Consolidated Statements of Operations
(Unaudited)

	For the					For the
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands, except share and per share amounts)	2012		2011			2012		2011
Revenues:
Rental	$	3,798	$	2,901		$	10,593	$	8,282
Total revenue		3,798		2,901			10,593		8,282
Expenses:
Rental operating expenses		1,361		1,532			4,459		4,317
Real estate taxes and insurance		603		422			1,500		1,173
Depreciation and amortization		1,085		962			3,102		2,864
Interest expense		178		110			472		290
Total expenses		3,227		3,026			9,533		8,644
Net income (loss) before interest income		571		(125	)		1,060		(362	)
Interest income		—		—			—		1
Net income (loss) attributable to preferred stockholders	$	571	$	(125	)	$	1,060	$	(361	)
Weighted average number of preferred shares outstanding,
basic and diluted		1,050		1,050			1,050		1,050
Net income (loss) per preferred share, basic and diluted	$	544	$	(119	)	$	1,010	$	(344	)

See accompanying notes to consolidated financial statements.

3

FSP Phoenix Tower Corp.
Consolidated Statements of Cash Flows
(Unaudited)

	For the Nine Months Ended September 30,
(in thousands)	2012			2011
Cash flows from operating activities:
Net income (loss)	$	1,060		$	(361	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		3,102			2,864
Amortization of favorable real estate leases		48			50
Amortization of unfavorable real estate leases		(56	)		(56	)
Decrease in bad debt reserve		—			(1	)
Changes in operating assets and liabilities:
Tenant rent receivables		(183	)		(57	)
Step rent receivable		(427	)		(429	)
Prepaid expenses and other assets		(153	)		251
Accounts payable and accrued expenses		(215	)		(680	)
Tenant security deposits		(66	)		70
Payment of deferred leasing costs		(734	)		(588	)
Net cash provided by operating activities		2,376			1,063
Cash flows from investing activities:
Purchase of real estate assets		(3,332	)		(4,107	)
Net cash used for investing activities		(3,332	)		(4,107	)
Cash flows from financing activities:
Distributions to stockholders		(2,698	)		(2,148	)
Proceeds from loan payable - affiliate		4,000			2,800
Net cash provided by financing activities		1,302			652
Net increase (decrease) in cash and cash equivalents		346			(2,392	)
Cash and cash equivalents, beginning of period		2,805			4,030
Cash and cash equivalents, end of period	$	3,151		$	1,638
Supplemental disclosure of cash flow information:
Cash paid for interest	$	472		$	290
Disclosure of non-cash investing activities:
Accrued costs for purchase of real estate assets	$	781		$	477

See accompanying notes to consolidated financial statements.

4

FSP Phoenix Tower Corp.

Notes to Consolidated Financial Statements

(Unaudited)

1.Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments

Organization

FSP Phoenix Tower Corp. (the “Company”) was organized on December 20, 2005 as a corporation under the laws of the State of Delaware to purchase, own, operate, improve and reposition a thirty-four story multi-tenant office building containing approximately 629,054 rentable square feet of space located on approximately 2.1 acres of land in Houston, Texas (the “Property”). The Company acquired the Property and commenced operations on February 22, 2006. Franklin Street Properties Corp. (“Franklin Street”) (NYSE MKT: FSP) holds the sole share of the Company’s common stock, $.01 par value per share (the “Common Stock”). Between March 2006 and September 2006, FSP Investments LLC (member, FINRA and SIPC), a wholly-owned subsidiary of Franklin Street, completed the sale on a best efforts basis of 1,050 shares of preferred stock, $.01 par value per share (the “Preferred Stock”) in the Company. FSP Investments LLC sold the Preferred Stock in a private placement offering to “accredited investors” within the meaning of Regulation D under the Securities Act of 1933.

All references to the Company refer to FSP Phoenix Tower Corp. and its consolidated subsidiaries, collectively, unless the context otherwise requires.

Basis of Presentation

The unaudited consolidated financial statements of the Company include all the accounts of the Company and its wholly owned subsidiaries. These financial statements should be read in conjunction with the Company's financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the “SEC”).

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and in conjunction with the rules and regulations of the SEC. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or for any other period.

Real Estate and Depreciation

Real estate assets are stated at the lower of cost or fair value, as appropriate, less accumulated depreciation.

Costs related to property acquisition and improvements are capitalized. Typical capital items include new roofs, site improvements, various exterior building improvements and major interior renovations.

Routine replacements and ordinary maintenance and repairs that do not extend the life of the asset are expensed as incurred. Funding for repairs and maintenance items typically is provided by cash flows from operating activities.

Depreciation is computed using the straight-line method over the assets’ estimated useful lives as follows:

Category	Years
Buildings	39
Building Improvements	15-39
Furniture and Fixtures	5-7

The Company reviews the Property to determine if the carrying amount will be recovered from future cash flows if certain indicators of impairment are identified at the Property. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. When indicators of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the asset’s current carrying value and its fair value based on discounting its estimated future cash flows. At September 30, 2012 and December 31, 2011, no impairment charges were recorded.

5

FSP Phoenix Tower Corp.

Notes to Consolidated Financial Statements

(Unaudited)

1.Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments (continued)

Financial Instruments

The Company estimates that the carrying values of cash and cash equivalents and loan payable - affiliate approximate their fair values based on their short-term maturity and prevailing interest rates.

2.Income Taxes

The Company has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company generally is entitled to a tax deduction for dividends paid to its stockholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only. The Company must comply with a variety of restrictions to maintain its status as a REIT. These restrictions include the type of income it can earn, the type of assets it can hold, the number of stockholders it can have and the concentration of their ownership, and the amount of the Company’s income that must be distributed annually.

Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future. The Company files income tax returns in the U.S. federal jurisdiction and State of Texas jurisdiction. The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2009 and thereafter.

3.     Related Party Transactions

Asset Management Agreement

The Company has in the past engaged in and currently engages in transactions with a related party, Franklin Street, and its subsidiaries FSP Investments LLC and FSP Property Management LLC (collectively “FSP”). The Company expects to continue to have related party transactions with FSP in the form of management fees paid to FSP to manage the Company on behalf of its stockholders. FSP Property Management LLC currently provides the Company with asset management and financial reporting services. The asset management agreement between the Company and FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%) of the gross revenues of the Property. The asset management agreement between the Company and FSP Property Management LLC may be terminated by either party without cause at any time, upon at least thirty (30) days’ written notice. For the nine months ended September 30, 2012 and 2011, management fees paid were $98,000 and $79,000, respectively.

Phoenix Revolver

On December 4, 2008, the Company entered into a three-year secured promissory note for a revolving line of credit (the “Phoenix Revolver”) with Franklin Street for up to $15,000,000. On March 31, 2011, the Phoenix Revolver was amended to extend its maturity date from November 30, 2011 to November 30, 2012 and to increase the interest rate applicable to advances thereunder from the 30-day LIBOR rate plus 300 basis points to the 30-day LIBOR rate plus 440 basis points (4.63% at September 30, 2012). The Phoenix Revolver is secured by a mortgage on the Property and each advance thereunder requires payment of a 50 basis point draw fee. The Company anticipates that the Phoenix Revolver will be replaced or refinanced on or before its maturity date. However, there can be no assurance that the Company will be able to replace or refinance the Phoenix Revolver on favorable terms or at all. As of September 30, 2012, advances drawn and outstanding under the Phoenix Revolver totaled $15,000,000. For the nine months ended September 30, 2012 and 2011, the draw fees were $20,000 and $14,000, respectively, and interest expense paid to Franklin Street was approximately $452,000 and $276,000, respectively.

6

FSP Phoenix Tower Corp.

Notes to Consolidated Financial Statements

(Unaudited)

3.     Related Party Transactions (continued)

Investor Services Agreement

On August 14, 2012, the Company entered into an Investor Services Agreement (the “FSPI Agreement”) with FSP Investments LLC for the provision of investor services to holders of the Company’s preferred stock. FSP Investments LLC is a wholly-owned subsidiary of Franklin Street, which is the sole holder of the Company’s one share of Common Stock that is issued and outstanding. FSP Investments LLC acted as a real estate investment firm and broker/dealer with respect to (a) the Company’s organization, (b) the Company’s acquisition of the Property and (c) the sale of the Company’s equity interests. The FSPI Agreement requires the Company to pay a monthly service fee of $500 for services performed under the FSPI Agreement, and to reimburse FSP Investments LLC for its reasonable out-of-pocket expenses incurred in connection with the FSPI Agreement. The FSPI Agreement may be terminated by either party with thirty days written notice or immediately upon certain events of default set forth in the FSPI Agreement. For the nine months ended September 30, 2012 and 2011, investor services fees paid were approximately $1,000 and $0, respectively.

Ownership of Preferred Stock and Common Stock

On September 22, 2006, Franklin Street purchased 48 shares of Preferred Stock for $4,116,000. Prior to purchasing any shares of Preferred Stock, Franklin Street agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner that approximates as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than Franklin Street and its affiliates. For purposes of determining how Franklin Street votes its shares of Preferred Stock, abstentions and non-votes by stockholders other than Franklin Street are not considered. Franklin Street is entitled to distributions that are declared on the Preferred Stock.

Franklin Street is the sole holder of our one share of Common Stock that is issued and outstanding. Subsequent to the completion of the placement of our Preferred Stock in September 2006, Franklin Street has not been entitled to share in our earnings or any dividend related to the Common Stock.

4.      Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares of Preferred Stock outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares. There were no potential dilutive shares outstanding at September 30, 2012 and 2011.

5.Segment Reporting

The Company operates in one industry segment, which is real estate ownership of commercial property. The Company owned and operated the Property for all periods presented.

6.     Cash Distributions

The Company’s board of directors declared and paid cash distributions as follows:

Quarter Paid	Distributions Per Preferred Share		Total Distributions
First quarter of 2012	$	666	$	699,300
Second quarter of 2012	$	857	$	899,850
Third quarter of 2012	$	1,047	$	1,099,350
First quarter of 2011	$	714	$	749,700
Second quarter of 2011	$	666	$	699,300
Third quarter of 2011	$	666	$	699,300

7

FSP Phoenix Tower Corp.

Notes to Consolidated Financial Statements

(Unaudited)

7.     Subsequent Event

The Company’s board of directors declared a cash distribution of $1,047 per preferred share on October 26, 2012 to the holders of record of the Preferred Stock on November 9, 2012, payable on November 29, 2012.

On November 13, 2012, the Phoenix Revolver was further amended to increase the maximum principal amount from $15,000,000 to $20,000,000 and to extend its maturity date from November 30, 2012 to November 30, 2013.

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2011. Historical results and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The following discussion and other parts of this Quarterly Report on Form 10-Q may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, economic conditions in the United States and in the market where we own the Property, disruptions in the debt markets, risks of a lessening of demand for the type of real estate owned by us, our ability to lease our vacant space, changes in government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, unanticipated repairs, uncertainty about government fiscal policy, additional staffing, insurance increases and real estate tax valuation reassessments. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We may not update any of the forward-looking statements after the date this Quarterly Report on Form 10-Q is filed to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.

Overview

Our company, FSP Phoenix Tower Corp., which we refer to as the Company, is a Delaware corporation formed to purchase, own, operate, improve and reposition in the marketplace a 34-story multi-tenant office building containing approximately 629,054 rentable square feet of space located on approximately 2.1 acres of land in Houston, Texas, which we refer to as the Property. The Property was completed in 1984 and includes approximately 1,649 parking spaces located inside a glass-enclosed fully-integrated attached eight-level parking garage and approximately 17 on-site surface parking spaces. The Property also has the right to use approximately 190 additional uncovered off-site parking spaces at an adjacent property pursuant to a lease that expires on February 28, 2019.

Franklin Street Properties Corp., which we refer to as Franklin Street, is the sole holder of our one share of common stock, $.01 par value per share, which we refer to as the Common Stock, that is issued and outstanding. Between March 2006 and September 2006, FSP Investments LLC (member, FINRA and SIPC), a wholly-owned subsidiary of Franklin Street, completed the sale on a best efforts basis of 1,050 shares of our preferred stock, $.01 par value per share, which we refer to as the Preferred Stock. FSP Investments LLC sold the Preferred Stock in a private placement offering to “accredited investors” within the meaning of Regulation D under the Securities Act of 1933. Since the completion of the placement of the Preferred Stock in September 2006, Franklin Street has not been entitled to share in any earnings or dividends related to the Common Stock.

We operate in one business segment, which is real estate operations, and own a single property. Our real estate operations involve real estate rental operations, leasing services and property management services. The main factor that affects our real estate operations is the broad economic market conditions in the United States and, more specifically, the economic conditions in Houston, Texas, the relevant submarket. These market conditions affect the occupancy levels and the rent levels on both a national and local level. We have no influence on national or local market conditions.

Trends and Uncertainties

Economic Conditions

The economy in the United States is continuing to experience a period of limited economic growth, which directly affects the demand for office space, our primary income producing asset. The broad economic market conditions in the United States are affected by numerous factors, including but not limited to, inflation and employment levels, energy prices, slow growth and/or recessionary concerns, uncertainty about government fiscal policy, changes in currency exchange rates, geopolitical events, the regulatory environment and the availability of debt and interest rate fluctuations. Current and future economic factors may negatively affect real estate values, occupancy levels and property income. At this time, we cannot predict the extent or duration of any negative impact that current or future economic factors will have on our business.

9

Potential Sale of the Property

On February 22, 2012, we sent a special communication to the holders of our Preferred Stock to inform them that our board of directors had made the decision to try to sell the Property. More specifically, we have retained CB Richard Ellis to facilitate a potential sale of the Property.

Following an aggressive marketing effort and competitive bidding process, the Property went under contract to be sold for a total price of $123,250,000. A majority of the holders of the Company’s Preferred Stock voted in favor of selling the Property at that price. Unfortunately, the prospective buyer was unable to consummate the purchase transaction and elected to terminate the purchase contract. Investor interest in Houston remains strong for well-located Class A office properties. We are continuing our strategy to simultaneously keep up current leasing efforts while aggressively marketing the Property for sale.

Real Estate Operations

The Property is occupied by a diverse group of tenants, including financial institutions, energy firms, law firms and other professional service organizations. As of September 30, 2012, the Property was approximately 89.3% leased, a 2.5% decrease from the prior quarter primarily as a result of the scheduled expiration of a tenant lease. Management is aggressively working to lease all vacant space. Management believes that any tenant that leases 10% or more of the Property’s rentable space is material. As of September 30, 2012, Permian Mud Service, Inc., an energy-related firm d/b/a Champion Technologies, leased approximately 105,441 square feet (17%) of the Property’s rentable space through February 2018. Other prominent additional tenants include Allen Boone Humphries Robinson LLP, a law firm, which leases approximately 51,153 square feet (8%) through July 2018, WorleyParsons Group Inc. (engineering services), which leases approximately 50,716 square feet (8%) through April 2015, and New York Life Insurance Company (insurance), which leases approximately 33,394 square feet (5%) through September 2022. Permian Mud Service, Inc., Allen Boone Humphries Robinson LLP, WorleyParsons Group Inc., and New York Life Insurance account for approximately 240,704 square feet (38%) of the rentable area of the Property. Other well-known tenants include Sprint Communications, Lincoln National Life Insurance Company, Thompson and Horton LLP and NetApp, Inc. There are currently approximately 45 tenants leasing office space at the Property.

Since its completion in 1984, the Property has competed within the office market in Houston, Texas.  Management believes that the Property is still competitive with other office buildings, but given its age, determined at the time of acquisition that it needed improvements in several important areas in order to maintain or enhance its prominent position in the marketplace.  Management believes that such a repositioning could increase the value of the Property and lead to higher future rent and occupancy levels.  The improvements included, among others, remediation of the glass façade and upgrades to the garage, ground floor lobby, ninth floor sky lobby and terrace, streetscape and landscape.  The improvements were substantially completed in June 2009 at a cost of approximately $12 million and have received favorable responses from our existing tenants, potential future tenants and the local leasing community. 

Conditions, including new leasing activity, at the Property have caused management to make additional improvements at additional cost in order to further enhance the Property. Through September 30, 2012, the Company had incurred additional costs of approximately $4 million to make additional improvements to the Property, including an elevator modernization project (described further below), common corridor upgrades, multi-tenant corridor conversions and the establishment of a fitness center.  If future conditions warrant, management may elect to make additional improvements at additional cost in order to further enhance the Property.

On September 15, 2010, we entered into a $2.8 million dollar contract with Thyssen Krupp Elevator Corporation to modernize 21 elevators serving the Property. Over the years, the increasing costs to maintain and operate the system’s mechanical relay controls, as well as the declining level of performance of the vertical transportation, have warranted the modernization project. The work commenced during the fourth quarter of 2010 and was completed on time and on budget at the end of 2011. Management believes that the elevator modernization project could reduce operating costs, improve the overall performance of elevator service, and provide another positive attribute to entice prospective tenants.

10

It is difficult for management to predict what will happen to occupancy and rents at the Property because the need for space and the price tenants are willing to pay are tied to both the local economy and to the larger trends in the national economy, such as job growth, interest rates, the availability of credit and corporate earnings, which in turn are tied to even larger macroeconomic and political factors, such as recessionary concerns, volatility in energy pricing and the risk of terrorism. In addition to the difficulty of predicting macroeconomic factors, it is difficult to predict how our local market or tenants (existing and potential) will suffer or benefit from changes in the larger economy. In addition, because the Property is in a single geographical market, these macroeconomic trends may have a different effect on the Property and on its tenants (existing and potential), some of which may operate on a national level. Although we cannot predict how long it will take to lease vacant space at the Property or what the terms and conditions of any new leases will be, we expect to sign new leases at then current market rates which may be below the expiring rates. Recent leasing activity at the Property could support higher dividend yields as the build-out of newly-leased premises is completed and periods of free rent expire.

On December 4, 2008, we entered into a three-year secured promissory note for a revolving line of credit, which we refer to as the Phoenix Revolver, with Franklin Street for up to $15,000,000. On March 31, 2011, the Phoenix Revolver was amended to extend its maturity date from November 2011 to November 30, 2012 and to increase the interest rate applicable to advances thereunder from the 30-day LIBOR rate plus 300 basis points to the 30-day LIBOR rate plus 440 basis points (4.63% at September 30, 2012). On November 13, 2012, the Phoenix Revolver was further amended to increase the maximum principal amount from $15,000,000 to $20,000,000 and to extend its maturity date from November 30, 2012 to November 30, 2013. The Phoenix Revolver is secured by a mortgage on the Property and each advance thereunder requires payment of a 50 basis point draw fee. We anticipate that the Phoenix Revolver will be replaced or refinanced on or before its maturity date. However, there can be no assurance that we will be able to replace or refinance the Phoenix Revolver on favorable terms or at all. As of September 30, 2012, advances drawn and outstanding under the Phoenix Revolver totaled $15,000,000. For the nine months ended September 30, 2012 and 2011, the draw fees were $20,000 and $14,000, respectively, and interest expense paid to Franklin Street was approximately $452,000 and $276,000, respectively.

For the three months ended September 30, 2012, we believe that vacancy rates decreased and that rental rates increased for buildings in the Houston office market compared to the prior quarter. These trends may continue, worsen or improve in the future. Continuing economic turmoil has slowed the pace of leasing activity in the Houston market and will likely prolong the time it takes to lease the vacant space at the Property. However, management believes that the repositioning of the Property in the marketplace, combined with a dwindling supply of large blocks of available Class A office space in the area, will continue to result in increased inquiries from prospective tenants. Management also believes that the position of the Property within the city’s office market is strong, and management is optimistic that the existing vacant space will ultimately be leased to new tenants.

The potential for any of our tenants to default on its lease or to seek the protection of bankruptcy laws exists. If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a tenant may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders. Bankruptcy or a material adverse change in the financial condition of a material tenant would likely have a material adverse effect on our results of operations.

11

Critical Accounting Policies

We have certain critical accounting policies that are subject to judgments and estimates by our management and uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. The accounting policies that we believe are most critical to the understanding of our financial position and results of operations, and that require significant management estimates and judgments, are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2011.

Critical accounting policies are those that have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and assessments are consistently applied and produce financial information that fairly presents our results of operations.

No changes to our critical accounting policies have occurred since the filing of our Annual Report on Form 10-K for the year ended December 31, 2011.

Results of Operations

As of September 30, 2012 the Property was approximately 89.3% leased to a diverse group of tenants with staggered lease expirations. The largest tenant is Permian Mud Service Inc., an energy-related firm d/b/a Champion Technologies, which leases approximately 105,441 square feet (17%) of the Property’s rentable space through February of 2018.

Comparison of the three months ended September 30, 2012 to the three months ended September 30, 2011.

Revenue

Total revenue increased by $0.9 million to $3.8 million for the three months ended September 30, 2012, as compared to $2.9 million for the three months ended September 30, 2011. The increase was primarily attributable to an increase in base rents of $0.4 million, an increase of $0.4 million in recoverable rent revenue due to higher levels of occupancy, and an increase of $0.1 million in miscellaneous income due to insurance proceeds. The majority of the operating expenses, real estate taxes and insurance expenses represent amounts recoverable by the Company.

Expenses

Total expenses increased by $0.2 million to $3.2 million for the three months ended September 30, 2012, as compared to $3.0 million for the three months ended September 30, 2011. This increase was predominately attributable to a $0.2 million increase in real estate taxes and insurance.

Comparison of the nine months ended September 30, 2012 to the nine months ended September 30, 2011.

Revenue

Total revenue increased by $2.3 million to $10.6 million for the nine months ended September 30, 2012, as compared to $8.3 million for the nine months ended September 30, 2011. This increase was primarily attributable to an increase in base rents of $1.0 million, an increase of $1.2 million in recoverable rent revenue due to higher levels of occupancy, and a $0.1 million increase in miscellaneous income due to insurance proceeds. The majority of the operating expenses, real estate taxes and insurance expenses represent amounts recoverable by the Company.

Expenses

Total expenses increased by $0.9 million to $9.5 million for the nine months ended September 30, 2012, as compared to $8.6 million for the nine months ended September 30, 2011. This increase was predominately attributable to a $0.1 million increase in operating expenses, a $0.4 million increase in real estate taxes, a $0.2 million increase in depreciation and amortization, and a $0.2 million increase in interest expense.

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Liquidity and Capital Resources

Cash and cash equivalents were $3.2 million at September 30, 2012 and $2.8 million at December 31, 2011. This $0.4 million increase was primarily attributable to $2.4 million provided by operating activities and $1.3 million provided by financing activities and was offset by $3.3 million used for investing activities.

Management believes that the existing cash and cash equivalents as of September 30, 2012 of $3.2 million and cash anticipated to be generated internally by operations and borrowings will be sufficient to meet working capital requirements, distributions and anticipated capital expenditures for at least the next 12 months.

Operating Activities

Cash provided by operating activities of $2.4 million for the nine months ended September 30, 2012 was primarily attributable to net income of $1.1 million plus non-cash items of $3.1 million consisting primarily of depreciation and amortization and was offset by uses arising from other current accounts of $1.1 million and payments of deferred leasing costs of $0.7 million.

Investing Activities

The cash used for investing activities of $3.3 million for the nine months ended September 30, 2012 was for capital expenditures.

Financing Activities

The cash provided by financing activities of $1.3 million for the nine months ended September 30, 2012 was primarily attributable to the $4.0 million proceeds from the loan payable and was offset by the $2.7 million for the distributions to stockholders.

Sources and Uses of Funds

Our principal demands on liquidity are cash for operations, interest on debt payments and dividends paid to equity holders. As of September 30, 2012, we had approximately $3.1 million in accrued liabilities and $15.0 million in long-term debt. In the near term, liquidity is generated by cash from operations.

Contingencies

We may be subject to various legal proceedings and claims that arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations.

Related Party Transactions

Asset Management Agreement

We have in the past engaged in and currently engage in transactions with a related party, Franklin Street, and its subsidiaries FSP Investments LLC and FSP Property Management LLC, which we collectively refer to as FSP. We expect to continue to have related party transactions with FSP in the form of management fees paid to FSP to manage the Company on behalf of our stockholders. FSP Property Management LLC currently provides the Company with asset management and financial reporting services. The asset management agreement between the Company and FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%) of the gross revenues of the Property. The asset management agreement between the Company and FSP Property Management LLC may be terminated by either party without cause at any time, upon at least thirty (30) days’ written notice. For the nine months ended September 30, 2012 and 2011, management fees paid were $98,000 and $79,000, respectively.

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Phoenix Revolver

On December 4, 2008, we entered into a three-year secured promissory note for a revolving line of credit, which we refer to as the Phoenix Revolver, with Franklin Street for up to $15,000,000. On March 31, 2011, the Phoenix Revolver was amended to extend its maturity date from November 30, 2011 to November 30, 2012 and to increase the interest rate applicable to advances thereunder from the 30-day LIBOR rate plus 300 basis points to the 30-day LIBOR rate plus 440 basis points (4.63% at September 30, 2012). On November 13, 2012, the Phoenix Revolver was further amended to increase the maximum principal amount from $15,000,000 to $20,000,000 and to extend its maturity date from November 30, 2012 to November 30, 2013. The Phoenix Revolver is secured by a mortgage on the Property and each advance thereunder requires payment of a 50 basis point draw fee. We anticipate that the Phoenix Revolver will be replaced or refinanced on or before its maturity date. However, there can be no assurance that we will be able to replace or refinance the Phoenix Revolver on favorable terms or at all. As of September 30, 2012, advances drawn and outstanding under the Phoenix Revolver totaled $15,000,000. For the nine months ended September 30, 2012 and 2011, the draw fees were $20,000 and $14,000, respectively, and interest expense paid to Franklin Street was approximately $452,000 and $276,000, respectively.

Investor Services Agreement

On August 14, 2012, we entered into an Investor Services Agreement, which we refer to as the FSPI Agreement, with FSP Investments LLC for the provision of investor services to holders of our preferred stock. FSP Investments LLC is a wholly-owned subsidiary of Franklin Street, which is the sole holder of our one share of Common Stock that is issued and outstanding. FSP Investments LLC acted as a real estate investment firm and broker/dealer with respect to (a) our organization, (b) our acquisition of the Property and (c) the sale of our equity interests. The FSPI Agreement requires us to pay a monthly service fee of $500 for services performed under the FSPI Agreement, and to reimburse FSP Investments LLC for its reasonable out-of-pocket expenses incurred in connection with the FSPI Agreement. The FSPI Agreement may be terminated by either party with thirty days written notice or immediately upon certain events of default set forth in the FSPI Agreement. For the nine months ended September 30, 2012 and 2011, investor services fees paid were approximately $1,000 and $0, respectively.

Ownership of Preferred Stock and Common Stock

On September 22, 2006, Franklin Street purchased 48 shares of Preferred Stock for $4,116,000. Prior to purchasing any shares of Preferred Stock, Franklin Street agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner that approximates as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than Franklin Street and its affiliates. For purposes of determining how Franklin Street votes its shares of Preferred Stock, abstentions and non-votes by stockholders other than Franklin Street are not considered. Franklin Street is entitled to distributions that are declared on the Preferred Stock.

Franklin Street is the sole holder of our one share of Common Stock that is issued and outstanding. Subsequent to the completion of the placement of our Preferred Stock in September 2006, Franklin Street has not been entitled to share in our earnings or any dividend related to our Common Stock.

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Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4.     Controls and Procedures.

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2012, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.     Legal Proceedings.

From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position, cash flows or results of operations.

Item 1A.     Risk Factors.

Not applicable.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.     Defaults Upon Senior Securities.

None.

Item 4.     Mine Safety Disclosures.

Not applicable.

Item 5.     Other Information.

On November 13, 2012, FSP Phoenix Tower Limited Partnership (the “Borrower”), a wholly-owned subsidiary of the Company, and Franklin Street Properties Corp. (the “Lender”) entered into a Second Allonge to Secured Promissory Note (Revolving) (the “Allonge”) that amended certain terms contained in that certain Secured Promissory Note (Revolving) dated December 4, 2008 from the Borrower in favor of the Lender, as amended by that certain Allonge to Secured Promissory Note (Revolving), dated March 31, 2011, between the Borrower and the Lender (as so amended, the “Original Note”) that evidences a revolving line of credit facility for $15,000,000.00 (the “Loan”). More specifically, the Allonge increased the maximum principal amount of the loan from $15,000,000.00 to $20,000,000.00 and extended the Loan’s maturity date from November 30, 2012 to November 30, 2013. The Original Note, as amended by the Allonge, is hereinafter referred to as the “Note”.

Pursuant to the Note, the Borrower may borrow, repay and reborrow funds in the form of advances from the Lender from time to time so long as no event of default exists, provided; however, that the aggregate principal amount of all advances outstanding at any time shall in no event exceed $20,000,000.00. The Borrower is required to pay the Lender a fee in an amount equal to 0.50% of each advance. The proceeds of the Loan are anticipated to be used for capital improvements and/or to pay operating expenses of the Property, including without limitation, tenant improvement allowances and leasing commissions. The Borrower is obligated to pay interest only on the outstanding principal amount of each advance from the date of such advance until payment in full of such advance at a per annum interest rate equal to the LIBOR Rate. The LIBOR Rate means the per annum rate of interest reported in the Wall Street Journal as the “Latest”, “One month”, “London interbank offered rate, or Libor” plus four hundred forty (440) basis points (4.63% at September 30, 2012). The outstanding principal amount of the Loan, together with any accrued but unpaid interest, shall be due and payable on the earlier to occur of (i) November 30, 2013 and (ii) the date on which an event of default shall have occurred. The Note may be prepaid in whole or in part at any time without premium or penalty. As of September 30, 2012, advances drawn and outstanding under the Loan totaled $15,000,000.00.

The Note is secured by a Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated December 4, 2008 from the Borrower in favor of the Lender (the “Deed of Trust”) (the Note and the Deed of Trust are collectively referred to as the “Loan Documents”). The Deed of Trust constitutes a lien against the Property and has been recorded in the land records of Harris County, Texas. The Loan Documents contain customary representations and warranties, as well as customary events of default and affirmative and negative covenants.

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The Borrower and the Company are affiliates of the Lender. The Company has in the past engaged in and currently engages in related party transactions with the Lender and its subsidiaries FSP Investments LLC and FSP Property Management LLC (collectively “FSP”).  The Company expects to continue to have related party transactions with FSP in the form of management fees paid to FSP to manage the Company on behalf of its stockholders.  FSP Property Management LLC currently provides the Company with asset management and financial reporting services.  The asset management agreement between the Company and FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%) of the gross revenues of the Property.  The asset management agreement between the Company and FSP Property Management LLC may be terminated by either party without cause at any time, upon at least thirty (30) days’ written notice.  FSP Investments LLC currently provides investor services to holders of the Company’s Preferred Stock. The investor services agreement requires the Company to pay FSP Investments LLC a monthly service fee of $500 and to reimburse FSP Investments LLC for its reasonable out-of-pocket expenses incurred in connection with its performance of the services required under the agreement. The investor services agreement may be terminated by either party upon at least thirty (30) days’ written notice or immediately upon certain events of default set forth in the agreement.

The Company was organized in December 2005 by FSP Investments LLC (member, FINRA and SIPC), a wholly-owned subsidiary of the Lender. FSP Investments LLC acted as a real estate investment firm and broker/dealer with respect to (a) the organization of the Company, (b) the acquisition of the Property and (c) the sale of equity interests in the Company. The Lender holds the sole share of the Company’s Common Stock. Between March 2006 and September 2006, FSP Investments LLC completed the sale of equity interests in the Company through the offering on a best efforts basis of 1,050 shares of the Company’s Preferred Stock. The Company sold the Preferred Stock for an aggregate consideration of approximately $104,316,000 in a private placement offering to 789 "accredited investors" within the meaning of Regulation D under the Securities Act of 1933. Between March 31, 2006 and September 22, 2006, the Company held 10 investor closings, at each of which shares of Preferred Stock were sold and funds were received. On September 22, 2006, the Lender purchased 48 shares of Preferred Stock (approximately 4.6% of the 1,050 shares sold) of the Company for $4,116,000, representing $4,800,000 at the offering price net of commissions of $384,000 and fees of $300,000 that were excluded. Prior to purchasing any shares of Preferred Stock, the Lender agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner that approximates as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than the Lender and its affiliates. For purposes of determining how the Lender votes its shares of Preferred Stock, abstentions and non-votes by stockholders other than the Lender are not considered.

The Allonge is attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference. The Original Note is attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 9, 2008 and as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 31, 2011 and is incorporated herein by reference. The Deed of Trust is attached as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 9, 2008 and is incorporated herein by reference. The foregoing summaries of the Allonge, the Original Note and the Deed of Trust are qualified in their entirety by the complete text of the Allonge, the Original Note and the Deed of Trust.

Item 6.     Exhibits.

See Exhibit Index attached hereto, which is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FSP Phoenix Tower Corp.

Date	Signature	Title
Date:  November 14, 2012	/s/ George J. Carter George J. Carter	President (Principal Executive Officer)
Date:  November 14, 2012	/s/ Barbara J. Fournier Barbara J. Fournier	Chief Operating Officer (Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.	Description
10.1(1)	Investor Services Agreement dated August 14, 2012 by and between FSP Phoenix Tower Corp. and FSP Investments LLC
10.2*	Second Allonge to Secured Promissory Note (Revolving), dated November 13, 2012, between FSP Phoenix Tower Limited Partnership and Franklin Street Properties Corp.
31.1*	Certification of FSP Phoenix Tower Corp.'s principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of FSP Phoenix Tower Corp.'s principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of FSP Phoenix Tower Corp.'s principal executive officer 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 FSP Phoenix Tower Corp.'s principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**	The following materials from FSP Phoenix Tower Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to Consolidated Financial Statements.
(1)	Incorporated by reference to Exhibit 10.1 to FSP Phoenix Tower Corp.’s Form 10-Q, filed on August 14, 2012 (File No. 000-52559).
*	Filed herewith.
**	XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these Sections.

19

EX-10

Exhibit 10.2

SECOND ALLONGE TO SECURED PROMISSORY NOTE (REVOLVING)

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and legal sufficiency of which hereby are acknowledged, intending to be legally bound, FRANKLIN STREET PROPERTIES CORP., a Maryland corporation (“Lender”), and FSP PHOENIX TOWER LIMITED PARTNERSHIP, a Texas limited partnership (“Borrower”), desire to confirm and amend that certain Secured Promissory Note (Revolving) dated December 4, 2008, as amended by that certain Allonge to Secured Promissory Note (Revolving) dated March 31, 2011 (as so amended, the “Original Note”) as follows:

Capitalized Terms. Each capitalized term used and not defined in this Second Allonge to Secured Promissory Note (Revolving) (this “Allonge”) shall have the meaning given to such term in the Original Note.

Amendment – Maximum Principal Amount. The maximum principal amount of the loan evidenced by the Original Note is hereby increased from $15,000,000.00 to $20,000,000.00. More specifically, the reference to “FIFETEEN MILLION DOLLARS AND 00/100 ($15,000,000.00)” in the first paragraph of the Original Note is hereby changed to “TWENTY MILLION DOLLARS AND 00/100 ($20,000,000.00)” and the reference to “$15,000,000.00” in Section 1(a) of the Original Note is hereby changed to “$20,000,000.00”, it being understood that the aggregate principal amount of all Advances outstanding at any time shall in no event exceed $20,000,000.00.

Amendment – Maturity Date. Section 2 of the Original Note is hereby deleted in its entirety and replaced with the following:

“Principal Repayment. The outstanding principal amount of the Loan, together with any accrued but unpaid interest, shall be due and payable on the earlier to occur of (i) November 30, 2013 and (ii) the date on which an Event of Default shall have occurred (such date first to occur being referred to herein as the "Maturity Date"). This Note may be prepaid in whole or in part at any time without premium or penalty.”

Continuing Effect; No Novation. Except as expressly set forth in this Allonge, all of the terms, covenants and conditions of the Original Note shall remain in full force and effect. Except as modified by this Allonge, the Original Note and that certain Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated December 4, 2008 from the Borrower in favor of the Lender (“Mortgage”) are ratified, confirmed and continued. This Allonge is given as a modification of the Borrower’s obligations under the Original Note and is not given in substitution therefor or extinguishment thereof and is not intended, and shall not be construed as, a novation.

Conflicts; Inconsistencies. If there shall be any conflicts or inconsistencies between the provisions of this Allonge and those of the Original Note or the Mortgage, the provisions of this Allonge shall govern and control.

Counterparts; Facsimile/Electronic Signatures. This Allonge may be executed in several counterparts, each of which shall be an original and all of which, when taken together, shall constitute one instrument. Facsimile or electronic signatures are valid to bind each party to this Allonge.

-1-

Attachment to Original Note. This Allonge shall be and remain attached to the Original Note and shall be an integral part thereof. From and after the date of this Allonge, all references to “Note” and/or “Promissory Note” in the Original Note and the Mortgage shall mean the Original Note, as amended by this Allonge.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

-2-

IN WITNESS WHEREOF, the parties hereto have caused this Allonge to Secured Promissory Note (Revolving) to be duly executed as of November 13, 2012.

BORROWER:

FSP PHOENIX TOWER LIMITED PARTNERSHIP, a Texas limited partnership

By: FSP Phoenix Tower LLC, its general partner

By:	/s/ George J. Carter
	George J. Carter
	President

COMMONWEALTH OF MASSACHUSETTS	:
	: ss
COUNTY OF MIDDLESEX	:

On this 13^th day of November, 2012, before me, the undersigned notary public, personally appeared George J. Carter, President of FSP Phoenix Tower LLC, a Delaware limited liability company, which is the general partner of FSP Phoenix Tower Limited Partnership, a Texas limited partnership, proved to me through satisfactory evidence of identification, which was personal knowledge of identity, to be the person whose name is signed on the preceding or attached document, and acknowledged to me that he signed it voluntarily, as the act and deed of said entity for its stated purpose.

/s/ J Barbara J. Fournier

Official Signature and Seal of Notary Public

LENDER:

FRANKLIN STREET PROPERTIES CORP., a Maryland corporation

By:	/s/ George J. Carter
	George J. Carter
	President and Chief Executive Officer

COMMONWEALTH OF MASSACHUSETTS	:
	: ss
COUNTY OF MIDDLESEX	:

On this 13^th day of November, 2012, before me, the undersigned notary public, personally appeared George J. Carter, President and Chief Executive Officer of Franklin Street Properties Corp., a Maryland corporation, proved to me through satisfactory evidence of identification, which was personal knowledge of identity, to be the person whose name is signed on the preceding or attached document, and acknowledged to me that he signed it voluntarily, as the act and deed of said entity for its stated purpose.

/s/ Barbara J. Fournier

Official Signature and Seal of Notary Public

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EX-31

Exhibit 31.1

CERTIFICATIONS

I, George J. Carter, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of FSP Phoenix Tower Corp.;

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 officer(s) 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 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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

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

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

5. The registrant’s other certifying officer(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: November 14, 2012   /s/ George J. Carter George J. Carter President (Principal Executive Officer)

EX-31

Exhibit 31.2

CERTIFICATIONS

I, Barbara J. Fournier, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of FSP Phoenix Tower Corp.;

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 officer(s) 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 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, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

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

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

5. The registrant’s other certifying officer(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: November 14, 2012   /s/ Barbara J. Fournier Barbara J. Fournier Chief Operating Officer (Principal Financial Officer)

EX-32

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

In connection with the quarterly report on Form 10-Q of FSP Phoenix Tower Corp. (the “Company”) for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, George J. Carter, President and principal executive officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2012   /s/ George J. Carter George J. Carter President
(Principal Executive Officer)

EX-32

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

In connection with the quarterly report on Form 10-Q of FSP Phoenix Tower Corp. (the “Company”) for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Barbara J. Fournier, Chief Operating Officer and principal financial officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to her knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2012   /s/ Barbara J. Fournier Barbara J. Fournier Chief Operating Officer (Principal Financial Officer)

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Net Income Per Share

9 Months Ended

Sep. 30, 2012

Net Income Per Share

Net Income Per Share

4.      Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares of Preferred Stock outstanding during the period.  Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares.  There were no potential dilutive shares outstanding at September 30, 2012 and 2011.

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Related Party Transactions

9 Months Ended

Sep. 30, 2012

Related Party Transactions

Related Party Transactions

3.      Related Party Transactions

Asset Management Agreement

The Company has in the past engaged in and currently engages in transactions with a related party, Franklin Street, and its subsidiaries FSP Investments LLC and FSP Property Management LLC (collectively “FSP”).  The Company expects to continue to have related party transactions with FSP in the form of management fees paid to FSP to manage the Company on behalf of its stockholders.  FSP Property Management LLC currently provides the Company with asset management and financial reporting services.  The asset management agreement between the Company and FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%) of the gross revenues of the Property.  The asset management agreement between the Company and FSP Property Management LLC may be terminated by either party without cause at any time, upon at least thirty (30) days’ written notice.  For the nine months ended September 30, 2012 and 2011, management fees paid were $98,000 and $79,000, respectively.

Phoenix Revolver

On December 4, 2008, the Company entered into a three-year secured promissory note for a revolving line of credit (the “Phoenix Revolver”) with Franklin Street for up to $15,000,000.  On March 31, 2011, the Phoenix Revolver was amended to extend its maturity date from November 30, 2011 to November 30, 2012 and to increase the interest rate applicable to advances thereunder from the 30-day LIBOR rate plus 300 basis points to the 30-day LIBOR rate plus 440 basis points (4.63% at September 30, 2012).  The Phoenix Revolver is secured by a mortgage on the Property and each advance thereunder requires payment of a 50 basis point draw fee.  The Company anticipates that the Phoenix Revolver will be replaced or refinanced on or before its maturity date.  However, there can be no assurance that the Company will be able to replace or refinance the Phoenix Revolver on favorable terms or at all.  As of September 30, 2012, advances drawn and outstanding under the Phoenix Revolver totaled $15,000,000.  For the nine months ended September 30, 2012 and 2011, the draw fees were $20,000 and $14,000, respectively, and interest expense paid to Franklin Street was approximately $452,000 and $276,000, respectively.

Investor Services Agreement

On August 14, 2012, the Company entered into an Investor Services Agreement (the “FSPI Agreement”) with FSP Investments LLC for the provision of investor services to holders of the Company’s preferred stock.  FSP Investments LLC is a wholly-owned subsidiary of Franklin Street, which is the sole holder of the Company’s one share of Common Stock that is issued and outstanding.  FSP Investments LLC acted as a real estate investment firm and broker/dealer with respect to (a) the Company’s  organization, (b) the Company’s acquisition of the Property and (c) the sale of the Company’s equity interests.  The FSPI Agreement requires the Company to pay a monthly service fee of $500 for services performed under the FSPI Agreement, and to reimburse FSP Investments LLC for its reasonable out-of-pocket expenses incurred in connection with the FSPI Agreement.  The FSPI Agreement may be terminated by either party with thirty days written notice or immediately upon certain events of default set forth in the FSPI Agreement.  For the nine months ended September 30, 2012 and 2011, investor services fees paid were approximately $1,000 and $0, respectively.

Ownership of Preferred Stock and Common Stock

On September 22, 2006, Franklin Street purchased 48 shares of Preferred Stock for $4,116,000.  Prior to purchasing any shares of Preferred Stock, Franklin Street agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner that approximates as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than Franklin Street and its affiliates.  For purposes of determining how Franklin Street votes its shares of Preferred Stock, abstentions and non-votes by stockholders other than Franklin Street are not considered.  Franklin Street is entitled to distributions that are declared on the Preferred Stock.

Franklin Street is the sole holder of our one share of Common Stock that is issued and outstanding.  Subsequent to the completion of the placement of our Preferred Stock in September 2006, Franklin Street has not been entitled to share in our earnings or any dividend related to the Common Stock.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Real estate investments, at cost:
Land	$ 3,300	$ 3,300
Building and improvements	93,776	90,073
Furniture and fixtures	436	436
Real estate investments, gross	97,512	93,809
Less accumulated depreciation	17,411	14,936
Real estate investments, net	80,101	78,873
Acquired real estate leases, net of accumulated amortization of $1,195 and $1,059, respectively	385	521
Acquired favorable real estate leases, net of accumulated amortization of $419 and $371, respectively	83	131
Cash and cash equivalents	3,151	2,805
Tenant rent receivables, less allowance for doubtful accounts of $4 and $4, respectively	263	80
Step rent receivable	2,728	2,301
Deferred leasing costs, net of accumulated amortization of $1,612 and $1,341, respectively	3,095	2,852
Prepaid expenses and other assets	249	96
Total assets	90,055	87,659
Liabilities:
Accounts payable and accrued expenses	3,121	2,965
Tenant security deposits	302	368
Loan payable - affiliate	15,000	11,000
Acquired unfavorable real estate leases, net of accumulated amortization of $492 and $436, respectively	187	243
Total liabilities	18,610	14,576
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.01 par value, 1,050 shares authorized, issued and outstanding at September 30, 2012 and December 31, 2011, aggregate liquidation preference $105,000
Common Stock, $.01 par value, 1 share authorized, issued and outstanding
Additional paid-in capital	96,188	96,188
Retained earnings and distributions in excess of earnings	(24,743)	(23,105)
Total Stockholders' Equity	71,445	73,083
Total Liabilities and Stockholders' Equity	$ 90,055	$ 87,659

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Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments

9 Months Ended

Sep. 30, 2012

Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments

Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments

1.      Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments

Organization

FSP Phoenix Tower Corp. (the “Company”) was organized on December 20, 2005 as a corporation under the laws of the State of Delaware to purchase, own, operate, improve and reposition a thirty-four story multi-tenant office building containing approximately 629,054 rentable square feet of space located on approximately 2.1 acres of land in Houston, Texas (the “Property”).  The Company acquired the Property and commenced operations on February 22, 2006.  Franklin Street Properties Corp. (“Franklin Street”) (NYSE MKT: FSP) holds the sole share of the Company’s common stock, $.01 par value per share (the “Common Stock”).  Between March 2006 and September 2006, FSP Investments LLC (member, FINRA and SIPC), a wholly-owned subsidiary of Franklin Street, completed the sale on a best efforts basis of 1,050 shares of preferred stock, $.01 par value per share (the “Preferred Stock”) in the Company.  FSP Investments LLC sold the Preferred Stock in a private placement offering to “accredited investors” within the meaning of Regulation D under the Securities Act of 1933.

All references to the Company refer to FSP Phoenix Tower Corp. and its consolidated subsidiaries, collectively, unless the context otherwise requires.

Basis of Presentation

The unaudited consolidated financial statements of the Company include all the accounts of the Company and its wholly owned subsidiaries.  These financial statements should be read in conjunction with the Company’s financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the “SEC”).

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and in conjunction with the rules and regulations of the SEC.  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included.  Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or for any other period.

Real Estate and Depreciation

Real estate assets are stated at the lower of cost or fair value, as appropriate, less accumulated depreciation.

Costs related to property acquisition and improvements are capitalized.  Typical capital items include new roofs, site improvements, various exterior building improvements and major interior renovations.

Routine replacements and ordinary maintenance and repairs that do not extend the life of the asset are expensed as incurred.  Funding for repairs and maintenance items typically is provided by cash flows from operating activities.

Depreciation is computed using the straight-line method over the assets’ estimated useful lives as follows:

Category	Years
Buildings	39
Building Improvements	15-39
Furniture and Fixtures	5-7

The Company reviews the Property to determine if the carrying amount will be recovered from future cash flows if certain indicators of impairment are identified at the Property.  The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.  When indicators of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the asset’s current carrying value and its fair value based on discounting its estimated future cash flows.  At September 30, 2012 and December 31, 2011, no impairment charges were recorded.

Financial Instruments

The Company estimates that the carrying values of cash and cash equivalents and loan payable - affiliate approximate their fair values based on their short-term maturity and prevailing interest rates.

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

2.      Income Taxes

The Company has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”).  As a REIT, the Company generally is entitled to a tax deduction for dividends paid to its stockholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only.  The Company must comply with a variety of restrictions to maintain its status as a REIT.  These restrictions include the type of income it can earn, the type of assets it can hold, the number of stockholders it can have and the concentration of their ownership, and the amount of the Company’s income that must be distributed annually.

Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future.  The Company files income tax returns in the U.S. federal jurisdiction and State of Texas jurisdiction.  The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2009 and thereafter.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheets
Acquired real estate leases, accumulated amortization (in dollars)	$ 1,195	$ 1,059
Acquired favorable real estate leases, accumulated amortization (in dollars)	419	371
Tenant rent receivables, allowance for doubtful accounts (in dollars)	4	4
Deferred leasing costs, accumulated amortization (in dollars)	1,612	1,341
Acquired unfavorable real estate leases, accumulated amortization (in dollars)	492	436
Preferred Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, shares authorized	1,050	1,050
Preferred Stock, shares issued	1,050	1,050
Preferred Stock, shares outstanding	1,050	1,050
Preferred Stock, aggregate liquidation preference (in dollars)	$ 105,000	$ 105,000
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, share authorized	1	1
Common Stock, share issued	1	1
Common Stock, share outstanding	1	1

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Income Taxes (Details)	9 Months Ended
	Sep. 30, 2012
Income Taxes
Statute of limitation period for income tax returns	3 years

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012
Document and Entity Information
Entity Registrant Name	FSP PHOENIX TOWER CORP
Entity Central Index Key	0001354309
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Related Party Transactions (Details) (USD $)	9 Months Ended			3 Months Ended	1 Months Ended	9 Months Ended			9 Months Ended			1 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Mar. 31, 2011 Phoenix Revolver before amendments	Dec. 31, 2008 Phoenix Revolver	Sep. 30, 2012 Phoenix Revolver	Sep. 30, 2011 Phoenix Revolver	Dec. 04, 2008 Phoenix Revolver	Sep. 30, 2012 FSP Property Management LLC	Sep. 30, 2011 FSP Property Management LLC	Sep. 30, 2012 FSP Property Management LLC Minimum	Sep. 30, 2006 Franklin Street	Sep. 30, 2012 Franklin Street	Sep. 30, 2012 FSP Investments LLC	Sep. 30, 2011 FSP Investments LLC
Related party transactions
Percentage of gross revenues of property									1.00%
Notice period for termination of agreement											30 days				30 days
Management fees paid									$ 98,000	$ 79,000
Debt
Debt instrument term					3 years
Maximum borrowing capacity						15,000,000		15,000,000
Debt, interest rate basis				30-day LIBOR		30-day LIBOR
Basis points added to reference rate (as a percent)				3.00%		4.40%
Effective interest rate at end of period (as a percent)						4.63%
Draw fee (as a percent)						0.50%
Advances drawn and outstanding under the Phoenix Revolver						15,000,000
Draw fees						20,000	14,000
Interest expense paid	472,000	290,000				452,000	276,000
Common Stock, shares issued and outstanding														1
Monthly service fees payable under the agreement														500
Service fees paid														1,000	0
Related Party Transactions-Preferred Stock
Number of shares of preferred stock purchased by the related party												48
Consideration paid by related party for purchase of preferred stock												$ 4,116,000
Common Stock, share issued	1		1										1
Common Stock, share outstanding	1		1										1

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:
Rental	$ 3,798	$ 2,901	$ 10,593	$ 8,282
Total revenue	3,798	2,901	10,593	8,282
Expenses:
Rental operating expenses	1,361	1,532	4,459	4,317
Real estate taxes and insurance	603	422	1,500	1,173
Depreciation and amortization	1,085	962	3,102	2,864
Interest expense	178	110	472	290
Total expenses	3,227	3,026	9,533	8,644
Net income (loss) before interest income	571	(125)	1,060	(362)
Interest income				1
Net income (loss) attributable to preferred stockholders	$ 571	$ (125)	$ 1,060	$ (361)
Weighted average number of preferred shares outstanding, basic and diluted (in shares)	1,050	1,050	1,050	1,050
Net income (loss) per preferred share, basic and diluted (in dollars per share)	$ 544	$ (119)	$ 1,010	$ (344)

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Subsequent Event

9 Months Ended

Sep. 30, 2012

Subsequent Event

Subsequent Event

7.      Subsequent Event

The Company’s board of directors declared a cash distribution of $1,047 per preferred share on October 26, 2012 to the holders of record of the Preferred Stock on November 9, 2012, payable on November 29, 2012.

On November 13, 2012, the Phoenix Revolver was further amended to increase the maximum principal amount from $15,000,000 to $20,000,000 and to extend its maturity date from November 30, 2012 to November 30, 2013.

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Cash Distributions

9 Months Ended

Sep. 30, 2012

Cash Distributions

Cash Distributions

6.      Cash Distributions

The Company’s board of directors declared and paid cash distributions as follows:

Quarter Paid	Distributions Per Preferred Share		Total Distributions
First quarter of 2012	$	666	$	699,300
Second quarter of 2012	$	857	$	899,850
Third quarter of 2012	$	1,047	$	1,099,350
First quarter of 2011	$	714	$	749,700
Second quarter of 2011	$	666	$	699,300
Third quarter of 2011	$	666	$	699,300

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Segment Reporting (Details)	9 Months Ended
	Sep. 30, 2012 item
Segment Reporting
Number of reportable segments	1

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Cash Distributions (Tables)

9 Months Ended

Sep. 30, 2012

Cash Distributions

Schedule of distributions declared and paid by the Company

Quarter Paid	Distributions Per Preferred Share		Total Distributions
First quarter of 2012	$	666	$	699,300
Second quarter of 2012	$	857	$	899,850
Third quarter of 2012	$	1,047	$	1,099,350
First quarter of 2011	$	714	$	749,700
Second quarter of 2011	$	666	$	699,300
Third quarter of 2011	$	666	$	699,300

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Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments (Policies)

9 Months Ended

Sep. 30, 2012

Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments

Basis of Presentation

Basis of Presentation

The unaudited consolidated financial statements of the Company include all the accounts of the Company and its wholly owned subsidiaries.  These financial statements should be read in conjunction with the Company’s financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the “SEC”).

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and in conjunction with the rules and regulations of the SEC.  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included.  Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or for any other period.

Real Estate and Depreciation

Real Estate and Depreciation

Real estate assets are stated at the lower of cost or fair value, as appropriate, less accumulated depreciation.

Costs related to property acquisition and improvements are capitalized.  Typical capital items include new roofs, site improvements, various exterior building improvements and major interior renovations.

Routine replacements and ordinary maintenance and repairs that do not extend the life of the asset are expensed as incurred.  Funding for repairs and maintenance items typically is provided by cash flows from operating activities.

Depreciation is computed using the straight-line method over the assets’ estimated useful lives as follows:

Category	Years
Buildings	39
Building Improvements	15-39
Furniture and Fixtures	5-7

The Company reviews the Property to determine if the carrying amount will be recovered from future cash flows if certain indicators of impairment are identified at the Property.  The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.  When indicators of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the asset’s current carrying value and its fair value based on discounting its estimated future cash flows.  At September 30, 2012 and December 31, 2011, no impairment charges were recorded.

Financial Instruments

Financial Instruments

The Company estimates that the carrying values of cash and cash equivalents and loan payable - affiliate approximate their fair values based on their short-term maturity and prevailing interest rates.

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Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments

Schedule of estimated useful lives of real estate assets

Category	Years
Buildings	39
Building Improvements	15-39
Furniture and Fixtures	5-7

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Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments (Details) (USD $)			9 Months Ended
	Sep. 30, 2012 acre sqft item	Dec. 31, 2011	Sep. 30, 2012 Building	Sep. 30, 2012 Building Improvements Minimum	Sep. 30, 2012 Building Improvements Maximum	Sep. 30, 2012 Furniture and Equipment Minimum	Sep. 30, 2012 Furniture and Equipment Maximum	Sep. 30, 2012 Franklin Street	Sep. 30, 2012 FSP Investments LLC
Organization, Basis of Presentation, Real Estate and Depreciation, and Financial Instruments
Number of stories in multi-tenant office tower	34
Rentable square feet of office and retail space	629,054
Acres of land (in acres)	2.1
Organization and basis of presentation
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01						$ 0.01
Preferred stock, underwritten shares issued (in shares)									1,050
Preferred stock, par value of underwritten shares (in dollars per share)									$ 0.01
Real Estate and Depreciation
Estimated useful lives			39 years	15 years	39 years	5 years	7 years

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Subsequent Event (Details) (USD $)				0 Months Ended
	Sep. 30, 2012 Phoenix Revolver	Dec. 04, 2008 Phoenix Revolver	Nov. 13, 2012 Subsequent events Phoenix Revolver	Oct. 26, 2012 Subsequent events Distribution declared
Subsequent events
Distribution declared per preferred share (in dollars per share)				$ 1,047
Revolving credit facility, maximum principal amount	$ 15,000,000	$ 15,000,000	$ 20,000,000

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Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net income (loss)	$ 1,060,000	$ (361,000)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	3,102,000	2,864,000
Amortization of favorable real estate leases	48,000	50,000
Amortization of unfavorable real estate leases	(56,000)	(56,000)
Decrease in bad debt reserve		(1,000)
Changes in operating assets and liabilities:
Tenant rent receivables	(183,000)	(57,000)
Step rent receivable	(427,000)	(429,000)
Prepaid expenses and other assets	(153,000)	251,000
Accounts payable and accrued expenses	(215,000)	(680,000)
Tenant security deposits	(66,000)	70,000
Payment of deferred leasing costs	(734,000)	(588,000)
Net cash provided by operating activities	2,376,000	1,063,000
Cash flows from investing activities:
Purchase of real estate assets	(3,332,000)	(4,107,000)
Net cash used for investing activities	(3,332,000)	(4,107,000)
Cash flows from financing activities:
Distributions to stockholders	(2,698,000)	(2,148,000)
Proceeds from loan payable - affiliate	4,000,000	2,800,000
Net cash provided by financing activities	1,302,000	652,000
Net increase (decrease) in cash and cash equivalents	346,000	(2,392,000)
Cash and cash equivalents, beginning of period	2,805,000	4,030,000
Cash and cash equivalents, end of period	3,151,000	1,638,000
Supplemental disclosure of cash flow information:
Cash paid for interest	472,000	290,000
Disclosure of non-cash investing activities:
Accrued costs for purchase of real estate assets	$ 781,000	$ 477,000

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Segment Reporting

9 Months Ended

Sep. 30, 2012

Segment Reporting

Segment Reporting

5.      Segment Reporting

The Company operates in one industry segment, which is real estate ownership of commercial property.  The Company owned and operated the Property for all periods presented.

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Cash Distributions (Details) (USD $)	3 Months Ended						9 Months Ended
	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Sep. 30, 2012	Sep. 30, 2011
Cash Distributions
Distributions Per Preferred Share (in dollars per share)	$ 1,047	$ 857	$ 666	$ 666	$ 666	$ 714
Total Distributions	$ 1,099,350	$ 899,850	$ 699,300	$ 699,300	$ 699,300	$ 749,700	$ 2,698,000	$ 2,148,000