FORM 10-QSB—QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF

10QSB 1 dbl2907.htm FORM 10-QSB—QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-QSB

(Mark One)

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

[ ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________to _________

Commission file number 2-85829

DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

(Exact Name of Small Business Issuer as Specified in Its Charter)

New York

13-3202289

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

55 Beattie Place, P.O. Box 1089

Greenville, South Carolina 29602

(Address of principal executive offices)

(864) 239-1000

(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 X No ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X_

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

BALANCE SHEET

(Unaudited)

(in thousands, except unit data)

September 30, 2007


Assets
Cash and cash equivalents		$ 178
Receivables and deposits		154
Other assets		321
Investment property:
Land	$ 1,287
Buildings and related personal property	8,899
	10,186
Less accumulated depreciation	(6,816)	3,370
		$ 4,023
Liabilities and Partners' Capital (Deficiency)
Liabilities
Accounts payable		$ 28
Tenant security deposit liabilities		115
Accrued property taxes		184
Other liabilities		88
Mortgage notes payable		10,187

Partners' Capital (Deficiency)
General partner	$ 57
Limited partners (37,273 units issued and
outstanding)	(6,636)	(6,579)
		$ 4,023

See Accompanying Notes to Financial Statements

DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)


	Three Months		Nine Months
	Ended September 30,		Ended September 30,
	2007	2006	2007	2006
Revenues:
Rental income	$ 505	$ 508	$ 1,513	$ 1,498
Other income	41	38	133	85
Total revenues	546	546	1,646	1,583

Expenses:
Operating	236	226	757	540
General and administrative	26	25	87	72
Depreciation	52	47	147	140
Interest	150	108	372	326
Property taxes	59	66	153	199
Total expenses	523	472	1,516	1,277

Casualty gain (Note C)	65	--	363	250
Net income	$ 88	$ 74	$ 493	$ 556

Net income allocated to general
partner (1%)	$ 1	$ 1	$ 5	$ 6
Net income allocated to limited
partners (99%)	87	73	488	550
	$ 88	$ 74	$ 493	$ 556

Net income per limited partnership unit	$ 2.33	$ 1.96	$ 13.09	$ 14.76

Distributions per limited partnership unit	$129.72	$ --	$129.72	$ --

See Accompanying Notes to Financial Statements

DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)

(Unaudited)

(in thousands, except unit data)


	Limited
	Partnership	General	Limited
	Units	Partner	Partners	Total

Original capital contributions	37,273	$ 1	$18,637	$18,638

Partners' capital (deficiency) at
December 31, 2006	37,273	$ 52	$(2,289)	$(2,237)

Net income for the nine months
ended September 30, 2007	--	5	488	493

Distributions to partners	--	--	(4,835)	(4,835)

Partners' capital (deficiency) at
September 30, 2007	37,273	$ 57	$(6,636)	$(6,579)

See Accompanying Notes to Financial Statements

DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine Months Ended
	September 30,
	2007	2006
Cash flows from operating activities:
Net income	$ 493	$ 556
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation	147	140
Casualty gain	(363)	(250)
Amortization of loan costs	10	8
Bad debt expense	54	39
Change in accounts:
Receivables and deposits	(110)	(33)
Other assets	(15)	(59)
Accounts payable	(11)	(124)
Tenant security deposit liabilities	33	15
Accrued property taxes	184	199
Other liabilities	25	(180)
Due to affiliates	(49)	21
Net cash provided by operating activities	398	332

Cash flows from investing activities:
Property improvements and replacements	(417)	(609)
Insurance proceeds received	363	250
Net cash used in investing activities	(54)	(359)

Cash flows from financing activities:
Advances from affiliates	--	498
Payments on advances from affiliates	(904)	(44)
Distributions to partners	(4,835)	--
Loan costs paid	(99)	--
Proceeds from mortgage note payable	5,650	--
Payments on mortgage notes payable	(156)	(145)
Net cash (used in) provided by financing activities	(344)	309

Net increase in cash and cash equivalents	--	282

Cash and cash equivalents at beginning of period	178	38
Cash and cash equivalents at end of period	$ 178	$ 320

Supplemental disclosure of cash flow information:
Cash paid for interest	$ 367	$ 308

Supplemental disclosure of non-cash information:
Property improvements and replacements in accounts
payable	$ 5	$ 3

At December 31, 2006 and 2005, approximately $2,000 and $40,000, respectively, of property improvements and replacements were included in accounts payable and are included in property improvements and replacements at September 30, 2007 and 2006, respectively.

See Accompanying Notes to Financial Statements

DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note A - Basis of Presentation

The accompanying unaudited financial statements of Drexel Burnham Lambert Real Estate Associates II (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of DBL Properties Corporation ("DBL" or the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2007, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006. The General Partner is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.

Certain reclassifications have been made to the 2006 presentation to conform to the 2007 presentation.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS No. 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. SFAS No. 157 requires fair value measurements to be disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Partnership does not anticipate that the adoption of SFAS No. 157 will have a material effect on the Partnership’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Partnership has not yet determined whether it will elect the fair value option for any of its financial instruments.

In June 2007, the American Institute of Certified Public Accountants (“the AICPA”) issued Statement of Position No. 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” ("SOP 07-1"). SOP 07-1 provides guidance for determining whether the accounting principles of the AICPA Audit and Accounting Guide “Investment Companies” are required to be applied to an entity by clarifying the definition of an investment company and, whether investment company accounting should be retained by a parent company upon consolidation of an investment company subsidiary, or by an investor in the application of the equity method of accounting to an investment company investee. SOP 07-1 applies to reporting periods beginning on or after December 15, 2007; however, the FASB has decided to issue an exposure draft that would indefinitely delay the effective date of SOP 07-1 until the FASB can reassess the provisions of SOP 07-1. The Partnership is currently evaluating the impact, if any, that adoption of SOP 07-1 may have on its financial statements in the period of adoption.

Note B - Transactions with Affiliated Parties

The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and reimbursements of certain expenses incurred by affiliates on behalf of the Partnership.

Affiliates of the General Partner receive 5% of gross receipts from the Partnership's investment property as compensation for providing property management services. The Partnership paid to such affiliates approximately $79,000 and $77,000 for the nine months ended September 30, 2007 and 2006, respectively, which is included in operating expenses.

Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $82,000 and $139,000 for the nine months ended September 30, 2007 and 2006, respectively, which is included in general and administrative expense and investment property. The portion of these reimbursements included in investment property for the nine months ended September 30, 2007 and 2006 are construction management services provided by an affiliate of the General Partner of approximately $42,000 and $105,000, respectively.

In accordance with the Partnership Agreement, an affiliate of the General Partner has made advances to the Partnership to cover operating expenses and hurricane repair costs at the property. The Partnership received advances of approximately $498,000 during the nine months ended September 30, 2006. The Partnership did not receive any advances for the nine months ended September 30, 2007. During the nine months ended September 30, 2007 the Partnership paid approximately $1,016,000 of principal and accrued interest on amounts owed to affiliates. Interest on advances is charged at the prime rate plus 2%. Interest expense was approximately $63,000 and $64,000 during the nine months ended September 30, 2007 and 2006, respectively. At September 30, 2007 there were no outstanding advances or accrued interest.

The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the nine months ended September 30, 2007 and 2006, respectively, the Partnership was charged by AIMCO and its affiliates approximately $65,000 and $47,000, respectively, for insurance coverage and fees associated with policy claims administration.

Note C – Casualty Gain

In October 2005, Presidential House Apartments sustained damage from Hurricane Wilma. During the year ended December 31, 2005, the Partnership estimated damages to be approximately $800,000, which included clean up costs of approximately $178,000. The Partnership did not recognize a loss as insurance proceeds were anticipated to be sufficient to cover the cost of any damages. The estimated clean up costs were included in operating expenses for the year ended December 31, 2005. During the nine months ended September 30, 2006 the Partnership revised its estimate of repair and cleanup costs. The revised estimate of capital damages was approximately $791,000, all of which had been incurred as of September 30, 2006. The revised estimate of cleanup costs was approximately $99,000 of which approximately $60,000 had been incurred as of December 31, 2005 and the balance of which was incurred during the nine months ended September 30, 2006. The reduction in estimated cleanup costs of approximately $79,000 was recorded during the nine months ended September 30, 2006 and was included as a reduction of 2006 operating expenses. For the nine months ended September 30, 2006, the Partnership received initial insurance proceeds of approximately $250,000 related to this casualty event. The Partnership received additional insurance proceeds of approximately $363,000 for this casualty event during the nine months ended September 30, 2007. The Partnership recognized a casualty gain of approximately $363,000 and $250,000 during the nine months ended September 30, 2007 and 2006, respectively, as the damaged assets were fully depreciated. The Partnership does not anticipate that it will receive any further insurance proceeds related to this loss.

In September 2005, Presidential House Apartments sustained water and landscaping damage from Hurricane Katrina. The damages were approximately $57,000 which included cleanup costs of approximately $7,000. The Partnership did not receive any insurance proceeds to cover the damages. The damaged assets were fully depreciated so no casualty gain or loss was recorded during the year ended December 31, 2005 and the nine months ended September 30, 2007 and 2006. The original estimated cleanup costs were approximately $40,000 and were included in operating expenses for the year ended December 31, 2005. During the nine months ended September 30, 2006, the Partnership revised its estimate of repair and cleanup costs. The revised estimate of cleanup costs was approximately $7,000 of which approximately $40,000 had been recognized as of December 31, 2005. The reduction in estimated cleanup costs of approximately $33,000 was recorded in the nine months ended September 30, 2006 and was included as a reduction of 2006 operating expenses.

Note D – Mortgage Financing

On August 31, 2007 the Partnership obtained an additional mortgage loan in the principal amount of $5,650,000 on its sole investment property Presidential House Apartments, located in Miami Beach, Florida. The second mortgage bears interest at 5.93% per annum and requires monthly payments of principal and interest of approximately $34,000 beginning October 1, 2007, through the July 1, 2018 maturity date. The additional mortgage has a balloon payment of approximately $4,625,000 due at maturity. If no event of default exists at maturity, the maturity date will automatically be extended for one additional year, to July 1, 2019, during which period the additional mortgage would bear interest at the one-month LIBOR rate plus 250 basis points and would require monthly payments of principal and interest. The Partnership may prepay the additional mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee the obligations and liabilities of the Partnership with respect to the new mortgage financing. In connection with the addition of the new loan, the Partnership incurred loan costs of approximately $99,000 which were capitalized and included in other assets.

In connection with the additional mortgage loan, the Partnership also agreed to certain modifications on the existing first and second mortgage loans encumbering Presidential House Apartments. The modification includes consolidating the existing loans, an interest rate of 7.342% per annum, monthly payments of principal and interest of approximately $31,000, commencing October 1, 2007, through the maturity of July 1, 2020, at which time a balloon payment of approximately $3,661,000 is due. The previous terms for the first mortgage were an interest rate of 7.96% per annum through the maturity date of July 1, 2020 and monthly payments of approximately $35,000 through the maturity date, at which date the loan was scheduled to be fully amortized. The previous terms for the second mortgage were an interest rate of 5.55% per annum through the maturity date of July 1, 2020 and monthly payments of approximately $11,000 through the maturity date, at which date the loan was scheduled to be fully amortized. The Partnership may prepay the modified mortgage loan at any time subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee the obligations and liabilities of the Partnership with respect to the modified loan.

Note E – Contingencies

The Partnership is unaware of any pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.

Mold

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the General Partner have implemented policies, procedures, third-party audits and training and the General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION

The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission.

The Partnership owns and operates one investment property: Presidential House Apartments, a residential apartment complex located in North Miami Beach, Florida. The average occupancy for Presidential House Apartments was 95% and 97% for the nine months ended September 30, 2007 and 2006, respectively.

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.

Results of Operations

The Partnership’s net income for the three and nine months ended September 30, 2007 was approximately $88,000 and $493,000, respectively, compared to net income of approximately $74,000 and $556,000 for the three and nine months ended September 30, 2006, respectively. The increase in net income for the three months ended September 30, 2007 is due to an increase in the amount of casualty gain recognized partially offset by an increase in total expenses. The decrease in net income for the nine months ended September 30, 2007 is due to an increase in total expenses partially offset by an increase in total revenues and an increase in the amount of casualty gain recognized.

The increase in total expenses for the nine months ended September 30, 2007 is due to increases in operating, general and administrative and interest expenses, partially offset by a decrease in property tax expense. Depreciation expense remained relatively constant for the comparable nine month periods. Operating expense increased due to increases in advertising, property and maintenance expenses. Advertising expense increased due to increases in various advertising mediums and referral fees incurred in an effort to attract new tenants. Property expense increased due to increases in payroll costs and associated health benefits, partially offset by decreases in utility costs. Maintenance expense increased due to increases in trash removal costs, yards and grounds and painting supplies, partially offset by a reduction in estimated clean up costs from Hurricane Wilma at Presidential House Apartments (see below). The decrease in property tax expense is due to the successful appeal of prior year property tax expense that was received during the current year. The increase in interest expense for both the three and nine months ended September 30, 2007 is due to the additional mortgage loan obtained during the third quarter of 2007 on Presidential House Apartments (as discussed below), new debt, closing costs and the loss of capitalized interest related to the casualty.

In October 2005, Presidential House Apartments sustained damage from Hurricane Wilma. During the year ended December 31, 2005, the Partnership estimated damages to be approximately $791,000, which included clean up costs of approximately $178,000. The Partnership did not recognize a loss as insurance proceeds were anticipated to be sufficient to cover the cost of any damages. The estimated clean up costs were included in operating expenses for the year ended December 31, 2005. During the nine months ended September 30, 2006 the Partnership revised its estimate of repair and cleanup costs. The revised estimate of capital damages was approximately $800,000, all of which had been incurred as of September 30, 2006. The revised estimate of cleanup costs was approximately $99,000 of which approximately $60,000 had been incurred as of December 31, 2005 and the balance of which was incurred during the nine months ended September 30, 2006. The reduction in estimated cleanup costs of approximately $79,000 was recorded during the nine months ended September 30, 2006 and was included as a reduction of 2006 operating expenses. For the nine months ended September 30, 2006, the Partnership received initial insurance proceeds of approximately $250,000 related to this casualty event. The Partnership received additional insurance proceeds of approximately $363,000 for this casualty event during the nine months ended September 30, 2007. The Partnership recognized a casualty gain of approximately $363,000 and $250,000 during the nine months ended September 30, 2007 and 2006, respectively, as the damaged assets were fully depreciated. The Partnership does not anticipate that it will receive any further insurance proceeds related to this loss.

The increase in total revenues for the nine months ended September 30, 2007 is due to an increase in both rental and other income. The increase in other income is due to increases in lease application, cancellation, cleaning and damage fees. Rental income increased for the nine months ended September 30, 2007 as a result of an increase in the average rental rate which more than offset a decrease in occupancy at the property. Total revenues remained constant for the three months ended September 30, 2007.

The increase in general and administrative expense for the nine months ended September 30, 2007 is due to increases in the costs included in management reimbursements, audit costs and legal costs associated with normal partnership operations. Included in general and administrative expenses for the three and nine months ended September 30, 2007 and 2006 are management reimbursements to the General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses for both periods are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

Liquidity and Capital Resources

At September 30, 2007, the Partnership had cash and cash equivalents of approximately $178,000 compared to approximately $320,000 at September 30, 2006. For the nine months ended September 30, 2007, cash and cash equivalents remained constant from December 31, 2006 due to approximately $398,000 of cash provided by operating activities offset by approximately $54,000 of cash used in investing activities and approximately $344,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements, partially offset by the receipt of insurance proceeds. Cash used in financing activities consisted of payments on the mortgages encumbering the Partnership’s investment property, payments on advances from an affiliate of the General Partner, payment of loan costs and distributions to limited partners partially offset by proceeds received from the additional mortgage loan obtained on the investment property. The Partnership invests its working capital reserves in interest bearing accounts.

The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical asset and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance. For example the Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance. Capital improvements planned for the Partnership’s property are detailed below.

Presidential House

During the nine months ended September 30, 2007, the Partnership completed approximately $420,000 of capital improvements at Presidential House Apartments, consisting primarily of electrical breakers, water heaters, cabinets, air conditioning and dumpster enclosures, appliances and floor covering replacements, and ground lighting. These improvements were funded from operating cash flow and insurance proceeds. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2007. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

Capital expenditures will be incurred only if cash is available from operations, from Partnership reserves or advances from an affiliate of the General Partner. To the extent that capital improvements are completed, the Partnership’s distributable cash flow, if any, may be adversely affected at least in the short term.

The Partnership's assets are thought to be generally sufficient for any near term needs (exclusive of capital improvements) of the Partnership. On August 31, 2007, the Partnership obtained an additional mortgage loan in the principal amount of $5,650,000 on its sole investment property Presidential House Apartments, located in Miami Beach, Florida. The second mortgage bears interest at 5.93% per annum and requires monthly payments of principal and interest of approximately $34,000 beginning October 1, 2007, through the July 1, 2018 maturity date. The additional mortgage has a balloon payment of approximately $4,625,000 due at maturity. If no event of default exists at maturity, the maturity date will automatically be extended for one additional year, to July 1, 2019, during which period the additional mortgage would bear interest at the one-month LIBOR rate plus 250 basis points and would require monthly payments of principal and interest. The Partnership may prepay the additional mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee the obligations and liabilities of the Registrant with respect to the new mortgage financing. In connection with the addition of the new loan, the Partnership incurred loan costs of approximately $99,000 which were capitalized and included in other assets.

The Partnership distributed the following amounts during the nine months ended September 30, 2007 and 2006 (in thousands, except per unit data):


	Nine Months		Nine Months
	Ended	Per Depository	Ended	Per Depository
	September 30,	Unit	September 30,	Unit
	2007	Certificate	2006	Certificate


Financing (1)	$4,835	$129.72	$ --	$ --

(1)

Distributions consist of financing proceeds from the August 2007 financing and modification of the first and second mortgage at Presidential House Apartments.

Future cash distributions will depend on the levels of net cash generated from operations, the timing of the debt maturity, refinancing, and/or property sale. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations after capital expenditures to permit additional distributions to its partners in 2007 or subsequent periods.

Other

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 18,633 limited partnership units (the "Units") in the Partnership representing 49.99% of the outstanding Units at September 30, 2007. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 49.99% of the outstanding Units at September 30, 2007, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.

Critical Accounting Policies and Estimates

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Impairment of Long-Lived Assets

Investment property is recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

Real property investment is subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership’s investment property. These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing. Any adverse changes in these factors could cause impairment of the Partnership’s asset.

Revenue Recognition

The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

ITEM 3.

CONTROLS AND PROCEDURES

(a)

Disclosure Controls and Procedures. The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

(b)

Internal Control Over Financial Reporting. There have not been any changes in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

See Exhibit Index.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

	By: DBL Properties Corporation
	General Partner

Date: November 13, 2007	By: /s/Martha L. Long
	Martha L. Long
	Senior Vice President

Date: November 13, 2007	By: /s/Stephen B. Waters
	Stephen B. Waters
	Vice President

DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II

EXHIBIT INDEX

Exhibit No.

3.1

Prospectus of the Partnership filed pursuant to rule 424(b), dated December 30, 1983 is hereby incorporated herein by reference.

3.2

Supplement dated October 10, 1984 to Prospectus dated December 30, 1983 is hereby incorporated herein by reference.

3.3

Form of Agreement of Limited Partnership of the Partnership reference is made to Exhibit A to the Prospectus.

3.4

Certificate of Limited Partnership of the Partnership, which appears as Exhibit 3.2 to the Registration Statement is hereby incorporated herein by the reference.

10.3

Agreement relating to purchase by the Partnership of Presidential House at Sky Lake in North Miami Beach, Florida, for which a Current Report on Form 8-K was filed with the Commission on November 5, 1984, is hereby incorporated herein by reference.

10.10

Multifamily Note dated June 29, 2000, by and between Drexel Burnham Lambert Estate Associates II, a New York limited partnership, and ARCS Commercial Mortgage Co., L.P., a California limited partnership is incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2000.

10.11

Multifamily Note dated May 30, 2003 between Drexel Burnham Lambert Real Estate Associates II Limited Partnership and GMAC Commercial Mortgage Corporation. (Incorporated by reference to Current Report on Form 8-K dated May 30, 2003).

Limited Guaranty dated May 30, 2003 by AIMCO Properties, L.P. for the benefit of GMAC Commercial Mortgage Corporation. (Incorporated by reference to Current Report on Form 8-K dated May 30, 2003).

Repair Escrow Agreement dated May 30, 2003 between Drexel Burnham Lambert Real Estate Associates II Limited Partnership and GMAC Commercial Mortgage Corporation. (Incorporated by reference to Current Report on Form 8-K dated May 30, 2003).

Replacement Reserve Agreement dated May 30, 2003 between Drexel Burnham Lambert Real Estate Associates II Limited Partnership and GMAC Commercial Mortgage Corporation. (Incorporated by reference to Current Report on Form 8-K dated May 30, 2003).

10.13

Form Of Multifamily Note between Capmark Bank and Drexel Burnham Lambert Real Estate Associates II Limited Partnership, a New York limited partnership, dated August 31, 2007. (Incorporated by reference to Current Report on Form 8-K dated August 31, 2007)

10.14

Form of Consolidated, Amended and Restated Multifamily Note (Recast Transaction) between Federal Home Loan Mortgage Corporation and Drexel Burnham Lambert Real Estate Associates II Limited Partnership, a New York limited partnership, dated August 31, 2007. (Incorporated by reference to Current Report on Form 8-K dated August 31, 2007)

31.1

Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.