COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES.

COMMITMENTS AND CONTINGENCIES

NOTE 10 COMMITMENTS AND CONTINGENCIES

In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financial position, results of operations or liquidity.

We had outstanding letters of credit and surety bonds of $49.3 million and $41.6 million as of December 31, 2012 and 2011, respectively. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

We lease land or buildings at certain properties from third parties. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. Contractual rental expense, including participation rent, was $5.4 million, $5.2 million and $3.5 million for 2012, 2011 and 2010, respectively. The amortization of above and below-market ground leases and straight-line rents included in the contractual rent amount, was not significant.

The following table summarizes the contractual obligations relating to our long-term commitments:

	2013		2014		2015		2016		2017		Subsequent / Other		Total
	(In thousands)
Mortgages, notes and loans payable	$	28,722	$	34,976	$	129,170	$	238,244	$	35,054	$	222,146	$	688,312
Ground lease payments		5,836		5,649		5,538		5,240		4,613		178,586		205,462
Uncertainty in income taxes, including interest		—		—		—		—		—		132,492		132,492
Total	$	34,558	$	40,625	$	134,708	$	243,484	$	39,667	$	533,224	$	1,026,266

Please refer to Note 9 – Income Taxes for our obligations related to uncertain tax positions for disclosure of additional contingencies.

South Street Seaport

On June 29, 2012, we entered into an agreement to amend and restate the South Street Seaport ground lease with the City of New York according to the terms described in a non-binding letter of intent, dated December 12, 2011 between the New York City Economic Development Corporation and us. The agreement allows for the redevelopment of Pier 17 ("Renovation Project"). The restated ground lease will become effective when we meet certain milestones, the most important of which is the commencement of construction by June 30, 2013. Following commencement of construction of the Renovation Project, annual ground rent will be fixed at $1.2 million with an escalation of 3.0% annually and we will be entitled to a total $1.5 million rent credit, to be taken monthly over a 30-month period. We also must provide a completion guarantee to New York City for the Renovation Project. We agreed to pay approximately $1.1 million of esplanade maintenance costs over a five-year period. The initial esplanade payment of $210,000 per year escalates annually at CPI for the duration of the lease.

On October 29, 2012, South Street Seaport was heavily impacted by Superstorm Sandy. The storm caused massive flooding in the waterfront areas of Lower Manhattan, including the South Street Seaport and the surrounding properties. With the safety and security of our employees, tenants and customers as a top priority, we, together with New York City Economic Development Corporation, immediately began the recovery and repair process, which included a post event inspection of the Pier 17 structure and remediation and environmental testing of all the flooded spaces. The inspection of the pier found no significant damage to the structure so the Pier Building was re-opened on December 6, 2012. Once we receive the necessary environmental clearances for the other buildings, the rebuilding process will begin. We currently do not have a definitive timeline for reopening the damaged buildings. We are preparing an insurance claim that we anticipate will cover much of the cost of the property damage and loss of income due to the storm.

We have received $5.0 million in insurance advances related to property damage recoveries through December 31, 2012. The amount of the advance is included in Accounts payable and accrued expenses in our Consolidated Balance Sheets (please refer to Note 11 – Other Assets and Liabilities). Remediation costs incurred through December 31, 2012 were $0.8 million and the remaining balance in the insurance reserve is $4.2 million.