5. MORTGAGE PORTFOLIO

Prior to the adoption of the liquidation basis of accounting, the Company’s mortgage portfolio included the following categories of notes receivable: Mortgage Portfolio Held for Sale and Net Mortgage Portfolio.

Upon the adoption of the liquidation basis of accounting, on January 1, 2011, notes receivable were adjusted to their estimated fair value less costs to sell. During the six months ended June 30, 2011, the Company decreased its fair value of Notes Receivable by $1,945,532 (see Consolidated Note below) and increased its fair value of Notes Receivable - Related Party by $100,000.

Mortgage Portfolio Held for Sale

On February 27, 2009, the Company completed a Settlement Agreement with The Lightstone Group (“Lightstone”) and David Lichtenstein regarding various claims the Company had asserted against them. Under the terms of the Settlement Agreement, an affiliate of Lightstone, which was the debtor on an existing loan from the Company in the outstanding principal amount of $2,074,994, assumed $10,000,006 of indebtedness under the $9,500,000 and the $8,600,000 mezzanine loans due from Lightstone. The total indebtedness was consolidated into a nonrecourse loan in the outstanding principal amount of $12,075,000 (the “Consolidated Note”). The Consolidated Note was secured by all of the ownership interests in entities owning nine apartment properties (1,056 apartment units) located in Virginia (which had previously secured the $2,074,994 indebtedness) and 75% of the ownership interests in entities owning nine additional apartment properties (931 apartment units) located in Virginia and North Carolina.

Prior to the adoption of the liquidation basis of accounting, the carrying value of the $12,075,000 Consolidated Note on the Company’s consolidated balance sheet was $2,074,994 at December 31, 2010. This is the same carrying value of the $2,074,994 note that was on the Company’s consolidated balance sheet prior to the consolidation of that note with the additional $10,000,006 indebtedness assumed by the affiliate of Lightstone pursuant to the Settlement Agreement. The $10,000,006 additional portion of the Consolidated Note was received in partial settlement of the $9,500,000 and $8,600,000 mezzanine loans held by the Company, which had a net carrying value of $-0- on the Company’s consolidated balance sheet at December 31, 2008.

The Consolidated Note accrued interest at the rate of 13% per annum and was due to mature on February 1, 2012. All net cash flow from the eighteen apartment properties was to be utilized to pay the interest accrued on the Consolidated Note and to the extent that there was not sufficient cash flow to pay all accrued interest, the unpaid interest was to be deferred until the maturity of the Consolidated Note. The Company did not believe that there would be sufficient cash flow from the security for the Consolidated Note to pay all of the interest that was due on the note, the deferred interest that would be due at maturity and the $12,075,000 principal amount due at maturity.

However, the Company believed that the monthly interest due on the $2,074,994 portion of the note would be paid in accordance with the terms of the note and, as a result, the Company accrued the interest on this portion of the note. For the six months ended June 30, 2010, the Company received the interest due on the $2,074,994 portion of the note in the amount of $135,624.

The interest due on the $10,000,006 portion of the note was recorded in income on a cash basis as interest was received and the balance of the interest due on the $10,000,006 was deferred and was to be due at maturity of the note. For the six months ended June 30, 2010, the Company did not receive any interest payments on this portion of the Consolidated Note and, at June 30, 2010, the unaccrued deferred interest was $1,683,169.

The Company marketed the Consolidated Note and/or a sale of the apartment properties underlying the Consolidated Note beginning in the third quarter of 2010 with the expectation of a net sales price between $7,500,000 and $9,000,000. Upon adoption of the liquidation basis of accounting, on January 1, 2011, the Company estimated the fair value less costs to sell of the Consolidated Note to be approximately $7,285,000.

Although there was interest in a sale of the Consolidated Note or the underlying collateral from several potential purchasers, it became apparent to the Company that the value of the Company’s Consolidated Note was substantially less than originally estimated.

On April 14, 2011, the Company sold the Consolidated Note to another affiliate of Lightstone for $5,500,000. In connection with the sale, Presidential paid a brokerage commission of $150,000 to a broker unaffiliated with either Presidential or Lightstone and incurred additional expenses of $10,282. The net proceeds from the sale of the note were $5,339,718.

Net Mortgage Portfolio

Under the terms of the Settlement Agreement, the Company also received a $750,000 non-interest bearing, nonrecourse note from Mr. Lichtenstein originally due on January 31, 2010, which is secured by a 25% ownership interest in IATG Puerto Rico, LLC (“IATG”) (see Note 6). In May, 2010, the Company extended the maturity date of the note to December 31, 2010 and received a $10,000 fee. The note matured on December 31, 2010. Payment on the note was not received and, as a result, the Company recorded a $750,000 valuation reserve for the $750,000 non-interest bearing, nonrecourse note and classified the note as impaired at December 31, 2010. The Company is currently negotiating either a further extension of this loan or failing that, a receipt of the underlying collateral. There can be no assurance that the Company will be able to negotiate an extension of the maturity date or the date of receipt of the underlying collateral.

The following table summarizes the components of the net mortgage portfolio prior to the adoption of the liquidation basis of accounting:

	Notes Receivable
			Cooperative
	Impaired		Apartment
	Loans		Units (1)		Total
December 31, 2010

Notes receivable	$	750,000	$	61,210	$	811,210
Less: Valuation Reserve		750,000		-		750,000
Discounts		-		19,255		19,255
Net	$	-	$	41,955	$	41,955

Due within one year	$	-	$	18,126	$	18,126
Long-term		-		23,829		23,829

Net	$	-	$	41,955	$	41,955

(1) Notes receivable from sales of cooperative apartment units. These notes generally have market interest rates and the majority of these notes amortize monthly with balloon payments due at maturity.

Note Receivable – Related Party

Presidential holds two nonrecourse loans (the “Ivy Consolidated Loan”), which it received in 1991 from Ivy Properties, Ltd. and its affiliates “(Ivy”). Prior to the adoption of the liquidation basis of accounting, at December 31, 2010, the Ivy Consolidated Loan had an outstanding principal balance of $4,770,050 and a net carrying value of zero. Pursuant to existing agreements, the Company is entitled to receive, as payments of principal and interest on the Ivy Consolidated Loan, 25% of the cash flow of Scorpio Entertainment, Inc. (“Scorpio”), a company owned by two of the Ivy principals (Steven Baruch, a Director of Presidential and a former Executive Vice President, and Thomas Viertel, a Director of Presidential and a former Executive Vice President and the former Chief Financial Officer of Presidential) to carry on theatrical productions. Amounts received by Presidential from Scorpio were applied to unpaid and unaccrued interest on the Ivy Consolidated Loan and recognized as income. During the six months ended June 30, 2010, the Company did not receive any payments from Scorpio. The Ivy Consolidated Loan bears interest at a rate equal to the JP Morgan Chase Prime rate, which was 3.25% at June 30, 2010. At June 30, 2010, the unpaid and unaccrued interest was $3,755,646 and such interest is not compounded.

In connection with the Plan of Liquidation, the unaffiliated directors approved an agreement with the principals of Scorpio that they would acquire, or cause the acquisition of, the Ivy Consolidated Loan for $100,000. In accordance with the liquidation basis of accounting, during the six months ended June 30, 2011, the Company estimated the fair value of the Ivy Consolidated Loan at $100,000.